G&L REALTY CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to
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Commission file number 1-12566
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G & L REALTY CORP.
(Exact name of Registrant as specified in its charter)

Maryland 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

439 N. Bedford Drive
Beverly Hills, California 90210
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (310) 273-9930
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Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:
None

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

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

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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

PART I

ITEM 1. BUSINESS........................................................ 1
ITEM 2. PROPERTIES...................................................... 6
ITEM 3. LEGAL PROCEEDINGS............................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 19

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 20
ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA............................ 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...... 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA...................... 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 36

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 36
ITEM 11. EXECUTIVE COMPENSATION.......................................... 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................... 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 40

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 42

i

PART I

ITEM 1. BUSINESS

GENERAL

The Company is a self-managed real estate investment trust ("REIT") that
owns, acquires, develops, manages and leases health care properties. The
Company's business currently consists of investments, made either directly or
through joint ventures, in medical office buildings ("MOB"), assisted living
facilities ("ALF"), skilled nursing facilities ("SNF") and in debt obligations
secured by health care properties. The Company was incorporated in Maryland on
September 15, 1993.

ACQUISITION OF ALL OUTSTANDING SHARES OF COMMON STOCK

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 and Plan of 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 of 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 order to fund the Merger and related transactions, Messrs. Gottlieb and
Lebowitz obtained a loan from GMAC Commercial Mortgage Corporation ("GMAC") in
the amount of $35 million (the "Loan"). Immediately following the completion of
the Merger on October 29, 2001, G&L Realty Partnership, L.P. (the "Operating
Partnership") became the borrower under the Loan. The Loan is for ten years and
bears interest initially at the one month London Interbank Offered Rate
("LIBOR") plus 7.5%. The spread over LIBOR can be reduced to as low as 5.5%
based on the outstanding balance on the Loan and if the Operating Partnership
meets certain debt service covenant ratios. As interest rate protection, the
Operating Partnership purchased a LIBOR cap on November 8, 2001 for $905,000
which caps the maximum LIBOR rate at 4.25% for five years in determining the
interest due on the Loan.

In order to secure the Loan, the Company, the Operating Partnership and
Messrs. Gottlieb and Lebowitz have granted GMAC a security interest in, among
other things, all accounts, chattel paper, documents, general intangibles,
investment property and security entitlements of the Company and the Operating
Partnership and all hedging agreements entered into by Messrs. Gottlieb and
Lebowitz, the Company or the Operating Partnership. The Company, the Operating
Partnership and Messrs. Gottlieb and Lebowitz have also granted GMAC a pledge of
(a) all promissory notes made by any of the Company, the Operating Partnership,
any MOB subsidiary, Messrs. Gottlieb and Lebowitz or an affiliate of Messrs.
Gottlieb and Lebowitz in favor of the Company or the Operating Partnership, (b)
all partnership units of the Operating Partnership owned by the Company or by
Messrs. Gottlieb and Lebowitz or their affiliates, together with any other share
certificates, options or rights of any nature in respect of the partnership
units of the Operating Partnership that may be issued or granted to, or held by,
the Company, the Operating Partnership or Messrs. Gottlieb and Lebowitz while
the Loan is in effect and (c) all Common Stock of the Company owned by Messrs.
Gottlieb and Lebowitz or their affiliates together with any other share
certificates, options or rights of any nature in respect of the Common Stock of
the Company that may be issued or granted to, or held by, the Company, the
Operating Partnership, or Messrs. Gottlieb and Lebowitz while the Loan is in
effect.

The Operating Partnership used $28.1 million of the Loan proceeds to fund
the Merger consideration of $13.00 per share for each outstanding share of the
Company's Common Stock, other than a portion of the shares held by Messrs.
Gottlieb and Lebowitz. In addition, $0.7 million was paid to the holders of
options to purchase shares of

1

Common Stock in exchange for the cancellation of such options. The Operating
Partnership loaned $5.2 million of the Loan proceeds to Messrs. Gottlieb and
Lebowitz to fund the Tender Offer described in Footnote 13 of the Notes to the
Consolidated Financial Statements and to repay $1.7 million of personal debt.
The remaining Loan proceeds were used to purchase the LIBOR cap described above
and to pay fees and other costs associated with the Loan.

Immediately prior to the Merger, the Company created a new partnership
named G&L Senior Care Partnership, L.P. (the "Senior Care Partnership") and the
Operating Partnership transferred its interest in all of its non-MOB assets to
the Senior Care Partnership. The creation of the Senior Care Partnership and the
transfer of the Company's non-MOB assets to this partnership were part of the
terms and conditions of the Loan.

Also immediately prior to the Merger, two of the limited partners of the
Operating Partnership traded their limited partnership units back to the
Operating Partnership in exchange for an increased limited partnership interest
in the Roxbury Partnership. This exchange decreased the Operating Partnership's
interest in the Roxbury Partnership from 61.75% to 32.81%

DESCRIPTION OF BUSINESS

The MOB business strategy is to acquire, develop, manage and lease a portfolio
of medical office buildings. The Company currently seeks growth opportunities
mainly in Southern California through acquisition and development of additional
MOBs directly or through strategic joint ventures. The MOB portfolio currently
consists of approximately 875,000 rentable square feet. The Company directly
owns 20 high quality MOBs, an adjacent parking facility, a research and
development building and two retail facilities and indirectly owns three
additional MOBs (collectively, the "MOB Properties"). All of the MOB Properties
are located in California. Several of the MOB Properties include retail space on
the ground level. As of January 31, 2002, the MOB Properties were 97.0% leased.

The ALF and SNF business strategy is to capitalize on consolidation
opportunities in the assisted living and skilled nursing facility industry by
making selected equity investments in ALFs and SNFs. The Company directly and
indirectly owns five ALFs, including a project under development, eight SNFs and
two senior resident apartment complexes, including one under development
(collectively, the "ALF and SNF Properties"). Four of the five ALFs are located
in Southern California and one is located in Omaha, Nebraska. Three of the SNFs
are located in Massachusetts, two in California, one in Arizona, one in Maryland
and one in Washington. The two senior resident apartment complexes are located
in Arizona and Southern California, respectively. The ALF and SNF Properties
have an aggregate of 1,367 beds or units.

As part of its overall business strategy, the Company develops MOBs, ALFs
and SNFs, either directly or through joint ventures. The Company has a long
history of successful developments and believes that it can maximize growth
through a combination of development and acquisition. The Company recently
completed development of a 50,000 square foot, 92-bed ALF located in Yorba
Linda, California. The ALF in Yorba Linda is a joint venture with D.D.& F.,
Inc., an Oregon-based operator of ALFs and SNFs, which operates the facility.

See Note 16 of the Notes to the Consolidated Financial Statements for
financial information about the Company's four main business segments:
investments in (i) MOBs, (ii) ALFs, (iii) SNFs and (iv) debt obligations secured
by ALFs and SNFs.

COMPETITIVE STRENGTHS

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

2

Through its ALF and SNF Properties, the Company seeks to selectively
acquire ownership interests in ALFs and SNFs that have characteristics
consistent with the Company's growth strategy. The Company believes that the
aging population in the United States has increased the demand for efficiently
operated ALFs and SNFs. The Company believes that it is in a position to
capitalize on this increased demand by selectively acquiring ownership interests
in attractively situated ALFs and SNFs. The Company also believes that there is
potential for the Company to make additional acquisitions of ALFs and SNFs.

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

PROPERTY MANAGEMENT

The Company provides a full range of management services for the operation
of MOBs. The ability of the Company to manage MOBs to meet the unique needs of
medical practitioners has been critical to its success to date. The Company has
experienced lease renewal rates of approximately 83.0%, 85.2%, and 76.2% for the
years ended December 31, 2001, 2000 and 1999, respectively, with respect to
medical office space in the MOB Properties based on the medical office space
leases available for renewal in these periods. Developing and managing MOBs
differs from developing and managing general office properties due to the
special requirements of the tenants and their patients. MOBs generally have
higher maintenance requirements in the public areas due to heavy foot traffic,
many short appointments which increase demand on parking facilities, the use of
sophisticated medical equipment requiring increased plumbing and electrical
capacity and expanded environmental regulations that impose more stringent
restrictions on the disposal of medical waste. The management of MOBs also
generally requires experience in specialized tenant improvements and higher
levels of responsiveness required by medical practitioners. Additional important
management functions include the placement of tenants within MOBs to accommodate
increased space needs and managing the tenant mix at properties so that
referrals by practitioners with different specialties within the building are
facilitated. The Company stresses meeting these and other special demands of
medical property tenants.

TAX STATUS

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

EMPLOYEES

As of March 29, 2002, the Company (including the Operating Partnership)
employed 30 persons, 12 of whom are on-site building employees who provide
maintenance services for the MOB Properties and 8 of whom are professional
employees engaged in leasing, asset management and administration.

3

DEPENDENCE ON KEY TENANTS

The Company's MOBs typically consist of several smaller tenants rather
than one or two large tenants. As of December 31, 2001, no MOB tenant accounted
for more than 10% of the Company's total revenues. Although no MOB tenant
accounts for more than 10% of the Company's total revenues, the risks associated
with smaller tenants include (i) less creditworthiness, (ii) greater tenant
turnover and (iii) greater property management needs.

The ALFs and SNFs are either leased to senior care companies or managed by
senior care companies that operate the facilities. During 2000, the Company
replaced lease agreements at four of its facilities with management contracts.
Because the Company replaced these leases with management contracts, all of the
revenues and expenses relating to the operations of these facilities are
reflected in the consolidated financial statements of the Company. Although all
of the Company's ALF and SNF properties are currently leased or under management
contracts, finding experienced senior care managers is a time-consuming and
difficult task. During 2000, due to the change from a lease to a management
agreement, revenue from the Company's three SNFs in Hampden, Massachusetts
accounted for approximately 37% of the Company's total revenues. Should these
three facilities or any of the Company's other ALFs or SNFs require a change in
lessee or manager, the Company's financial results could be materially impacted
despite the fact that no other ALF or SNF tenant or manager accounts for more
than 10% of the Company's total revenues.

GOVERNMENT REGULATION

Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in its property. These laws impose liability without regard to whether the
owner knew of, or was responsible for, the presence of any hazardous or toxic
substances. The presence of such substances, or the failure to properly
remediate these substances, may adversely affect the owner's ability to borrow
using the real estate as collateral and may subject the owner to material
remediation costs. All of the MOB Properties, ALFs and SNFs 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, ALFs or
SNFs. While the Company is not aware of any environmental liability that it
believes would have a material adverse effect on its business, assets or results
of operations, no assurance can be given that the environmental assessments
revealed all potential environmental liabilities or that a prior owner did not
create any material environmental condition not known to the Company or that
future uses or conditions (including changes in applicable environmental laws
and regulations) will not result in imposition of environmental liability.

The independent environmental assessments include selective sampling for
asbestos where the age of the buildings or the types of materials warranted such
sampling. Limited quantities of non-friable asbestos were present in the Sherman
Oaks Medical Plaza. The Company removed the asbestos in 1994 in connection with
the renovation of this building. Limited quantities of non-friable asbestos were
also discovered in the Maryland Gardens facility and Riverdale Gardens Nursing
Home. Management believes that it has undertaken adequate measures to ensure
that the asbestos will remain undisturbed and that it does not pose a current
health risk. Management plans to continue to monitor this situation.

Physicians generate medical waste in the normal course of their practice.
The Company's leases require the individual tenants to make arrangements for the
disposal of medical waste and 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.

4

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

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

5

ITEM 2. PROPERTIES

The MOB Properties consist of 20 high quality MOBs directly owned by the
Company, three MOBs indirectly-owned by the Company, an adjacent parking
facility, a research and development building and two retail facilities. The
ALF and SNF Properties consist of five ALFs, eight SNFs and two senior resident
apartment complexes. As of January 31, 2002, the MOB Properties were 97.0%
leased to over 425 tenants and the ALF and SNF Properties were 100% leased to
operators or under contracts with management companies. The Company's MOB
tenants are primarily established medical practitioners representing a cross
section of medical practices.

DESCRIPTION OF THE MOB PROPERTIES AND ALF AND SNF PROPERTIES

MOB Properties

The Company, through its MOB operations, acquires, develops, manages and
leases MOBs, a parking facility and two retail facilities. Developing and
managing MOBs differs from developing and managing conventional office buildings
due to the special requirements of physicians and their patients. Because
doctors now perform a variety of medical procedures in their offices, many MOBs
have become sophisticated ambulatory centers that allow for outpatient surgery
and procedures. In addition, MOBs generally have higher maintenance requirements
in the public areas due to heavy foot traffic, many short appointments that
increase demand on parking facilities, the use of sophisticated medical
equipment requiring increased plumbing and electrical capacity and expanded
environmental regulations that impose more stringent restrictions on the
disposal of medical waste. The management of MOBs also generally requires
experience in specialized tenant improvements and higher levels of
responsiveness required by medical practitioners. Additional important
management functions include the placement of tenants to accommodate increased
space needs and managing the tenant mix at properties to facilitate referrals by
practitioners with different specialties within the building. The Company
stresses meeting these and other special demands of MOB tenants.

ALF and SNF Properties

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

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. In the past two
years, the Company has changed managers at two of its ALFs and six of its SNFs
in response to financial difficulties encountered by the managers or
dissatisfaction with the operating results of the managers. 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.

6

The following tables set forth certain information regarding each of the MOB
Properties and ALF and SNF Properties as of January 31, 2002. All of the MOB
Properties and ALF and SNF Properties are held in fee by the Company or, in the
case of jointly-owned properties, by the joint venture property partnership or
limited liability company.

MOB Properties--Summary Data

Number Year Rentable Rented Total Average
of Constructed or Square Square Annualized Rent per
Property Buildings Rehabilitated Feet/(1)/ Feet/(2)/ Occupancy(2) Rent/(3)/ Sq. Ft.
- ------------------------- --------- ------------- --------- --------- ------------- --------- -------

405 N. Bedford, Beverly Hills, ...... 1 1947/1987 42,330 42,330 100.0% $ 1,834,000 $ 43.33
415 N. Bedford, Beverly Hills........ 1 1955 5,720 5,720 100.0 252,000 44.06
416 N. Bedford, Beverly Hills........ 1 1946/1986 40,292 40,292 100.0 1,701,000 42.22
435 N. Bedford, Beverly Hills........ 1 1950/63/84 51,580 50,515 97.9 1,802,000 35.67
435 N. Roxbury, Beverly Hills........ 1 1956/1983 40,865 40,865 100.0 1,617,000 39.57
436 N. Bedford, Beverly Hills........ 1 1987 73,927 72,000 97.4 3,286,000 45.64
Sherman Oaks Medical Plaza
4955 Van Nuys Blvd.
Sherman Oaks ..................... 1 1969/1993 67,659 65,864 97.3 1,520,000 23.08
Irwindale Building
12701 Schabarum Ave.
Irwindale ........................ 1 1992 47,604 47,604 100.0 571,000 12.00
Coronado Plaza
1330 Orange Ave, Coronado 1 1977/1985 39,534 34,898 88.3 1,081,000 30.98
Holy Cross Medical Plaza
11550 Indian Hills Road
Mission Hills .................... 1 1985 71,739 68,802 95.9 1,906,000 27.70
St. Joseph's Medical Office Bldg.
2031 West Alameda Ave.
Burbank ........................... 1 1987 25,769 25,769 100.0 686,000 26.62
Lyons Avenue Medical Building
24355 Lyons Avenue, Santa Clarita 1 1990 47,903 45,657 95.3 994,000 21.77
Tustin--Medical Office I
14591 Newport Avenue, Tustin....... 1 1969 18,092 16,895 93.4 316,000 18.70
Tustin--Medical Office II
14642 Newport Avenue, Tustin....... 1 1985 48,621 48,216 99.2 1,114,000 23.10
Pacific Park
5 Journey Road, Aliso Viejo 1 1998/1999 23,528 23,528 100.0 615,000 26.14
Pier One Retail Center
26771 Aliso Creek Road, Aliso Viejo 1 1998 9,100 9,100 100.0 182,000 20.00
Regents Medical Center
4150 Regents Park Row , La Jolla .. 1 1989 65,313 64,382 98.6 1,843,000 28.63
San Pedro Medical Plaza
1360 West 6th Street, San Pedro.... 3 1963/1979 59,133 53,724 90.9 1,200,000 22.34
1095 Irvine Boulevard, Tustin........ 1 1995 10,125 10,125 100.0 219,000 21.63
Santa Clarita Valley Medical Center
23861 McBean Pkwy, Santa Clarita 5 1981 42,640 40,082 94.0 874,000 21.81
Santa Clarita Valley Medical Center, F
23929 McBean Pkwy, Santa Clarita 1 1998/1999 43,912 42,346 96.4 1,102,000 26.02
Total/Weighted average of all MOB - ------ ------ ---------
Properties
27 875,386 848,714 97.0% $24,715,000 29.12
-- ------- ------- -----------

- ----------------------------
See footnotes on page 9

7

ALF and SNF Properties--Summary Data

Purchase
Number Year Price/ Total
of Constructed or Number of Development Annualized
Property Buildings Rehabilitated Beds/Units Occupancy/(4)/ Cost Base Rent/(7)/
- ------------------------- --------- ------------- ---------- -------------- ---- --------------

Southern California
- -------------------
Pacific Gardens Santa Monica
851 Second Street,
Santa Monica........... 1 1990 92 U 100.0% $11,210,000 $1,337,000
The Arbors
12979 Rancho Penasquitos
Boulevard,
San Diego.............. 1 1998/1999 92 U 92.9 4,200,000 767,000
Pacific Gardens Tarzana
18700 Burbank Boulevard
Tarzana............. 1 1989 80 U 75.0 10,300,000 1,200,000
North Valley Nursing and
Rehabilitation Center
1645 Esplanade, Chico /(5)/ 1 1960 59 B 0 800,000 0
Paso Robles Convalescent
Center
321 12th Street
Paso Robles /(5)/.......... 1 1940 38 B 0 465,000 0
Prestige Assisted Living at
Yorba Linda
4792 Lakeview Ave,
Yorba Linda /(6)/......... 1 2000-2002 80 U N/A 8,000,000 720,000

Arizona
- -------
Maryland Gardens...............
31 West Maryland Avenue, 60 B
Phoenix............. 1 1951-1957 38 U 78.0 4,647,000 360,000
Maryland Gardens II
39 West Maryland Avenue,
Phoenix............... 1 1968 20 U 100.0 1,024,000 120,000
Maryland
- --------
St. Thomas More Nursing &
Rehabilitation Center,
4922 La Salle Road,
Hyattsville.............. 1 1955-56/1976 216 B 93.3 14,910,000 1,200,000
Massachusetts
- -------------
Riverdale Gardens
42 Prospect Avenue,
West Springfield..... 1 1957-1975 168 B 94.8 5,655,000 793,000
Chestnut Hill
32 Chestnut Street,
East Longmeadow...... 1 1984 123 B 96.1 10,627,000 1,859,000
Mary Lyon
34 Main Street,
Hampden............. 1 1986 100 B 95.2 3,744,000 444,000
Nebraska
- --------
Parsons House on Eagle Run
14325 Eagle Run Drive,
Omaha................. 1 1999 89 U 94.0 6,400,000 700,000

8

Washington
- ----------
Pacific Care Center
3035 Cherry Street,
Hoquiam............. 1 1954 112 B 72.8 3,316,000 360,000
Total of all ALF and SNF - ----- -------
Properties........ 14 1,367 $9,860,000
== ===== ==========

_________________________________________
/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 2002; no
rent is assumed from management space.
/4)/ Occupancy is on a per-bed or unit basis. .
/5)/ The Company acquired this property through foreclosure of its first
deed of trust in March 2000. The facility is currently closed.
/6)/ This facility opened in March 2002.
/7)/ Total Annualized Base Rent is base rent per the lease agreement.
However, total annualized base rent does not include additional rent
that may be due to the Company in the form of a percentage of gross
revenues as stipulated in the lease agreement.

MOB PROPERTIES

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

405 North Bedford Drive, Beverly Hills

The 405 North Bedford Drive MOB, built in 1947 and extensively remodeled
in 1987, consists of approximately 42,000 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, Beverly Hills

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

416 North Bedford Drive, Beverly Hills

The 416 North Bedford Drive property 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, Beverly Hills

The 435 North Bedford Drive property is a four-story, approximately 52,000
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.

9

435 North Roxbury Drive, Beverly Hills

The 435 North Roxbury Drive property 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, Beverly Hills

The 436 North Bedford Drive property 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, Sherman Oaks

The Sherman Oaks Medical Plaza is a seven-story, approximately 67,000
rentable square foot MOB, constructed in 1969, that is adjacent to the Sherman
Oaks Hospital and Health Center, a 156-bed hospital which includes the major
burn center for the San Fernando Valley. A $1 million capital improvement
program renovating the building systems and common areas of the Sherman Oaks
Medical Plaza was completed in 1993. The Company also owns the adjacent air
rights and three-level parking structure behind the property which provides a
total of 426 parking spaces. The land beneath the parking structure is owned by
Sherman Oaks Hospital which also leases 150 parking spaces in the structure.

Irwindale Building, Irwindale

The Irwindale Building in Irwindale, California is a two-story,
approximately 48,000 square foot research and development building, constructed
in 1992, on a site that provides two parking areas with a total of 244 spaces.
The Company converted this building from an MOB to an R&D building in 2001.
Prior to 2001, this property was 100% leased to Cigna Healthcare of California
("Cigna"). Rent obligations under the lease were guaranteed by Cigna Health
Care, Inc., the parent company of Cigna. The property was vacated in stages by
Med Partners, a former sub-tenant of Cigna beginning in September 1998, but Med
Partners continued to pay rent until December 1999. In December 1999, Cigna and
Med Partners defaulted on the rent and the Company sued both Cigna and Med
Partners to recover the delinquent rent payments. Furthermore, the Company
received full possession of the building and re-leased the building to Autronics
Corporation, a British-based electronics company. The lease with Autronics
Corporation provides for monthly rent of $47,604 commencing July 1, 2001 with
annual increases and expires on June 30, 2008. In January 2001, the Company
settled its lawsuit with Cigna in exchange for a payment from Cigna totaling
$4.1 million in settlement of all outstanding current and future amounts owed.

Coronado Plaza

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

Holy Cross Medical Plaza, Mission Hills

The Holy Cross Medical Plaza is situated on approximately 2.6 acres of the
15-acre campus of Holy Cross Medical Plaza, a 316-bed hospital. The campus also
includes the Villa de la Santa Cruz 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

10

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.

St. Joseph's Professional Building, Burbank

The St. Joseph's Professional Building is a steel frame, brick-facade
building, constructed in 1987, that features approximately 26,000 rentable
square feet in two floors of office space over three levels of subterranean
parking which can accommodate up to 100 vehicles. The building is located
one-quarter of a mile from St. Joseph's Hospital and is directly across the
street from the Walt Disney Company's world headquarters campus. Saint Joseph's
Hospital includes 658 beds and is owned by the Sisters of Providence, an
organization which owns other hospitals throughout North America.

Lyons Avenue Medical Building

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

Regents Medical Center, La Jolla

The Regents Medical Center is a three-story, approximately 65,000 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.

Pier One Retail Center

The Pier One Retail Center is a one-story, 9,100 rentable square foot
retail facility built by the Company in 1998 in Aliso Viejo, California. The
building is 100% leased to Pier One Imports, Inc. for ten years on a triple net
basis. The lease provides for monthly rent of $15,000.

Pacific Park

The Pacific Park building in Aliso Viejo, California is an approximately
23,000 rentable square foot MOB, developed by the Company in 1999. The building
was completed in December 1999 and opened in January 2000. A major
not-for-profit medical provider occupies 16,950 square feet (approximately
73.4%) of the rentable area of the building pursuant to a lease that provides
for monthly rent of $35,000. The lease expires on December 31, 2009.

11

San Pedro Medical Plaza

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

1095 Irvine Boulevard, Tustin

The 1095 Irvine Boulevard building in Tustin, California consists of
approximately 10,000 rentable square feet and was redeveloped in 1995 as a
primary health care center for physicians who are part of the St. Joseph
Hospital of Orange health care network. The property is leased to St. Joseph
Hospital, Inc. under a net lease with a 15-year term, which began in August
1995, and provides for annual cost of living rent escalations limited to 3%. The
lease provides for monthly rent of $18,000 and expires on July 31, 2010.

Santa Clarita Valley Medical Center

The Santa Clarita Valley Medical Center in Valencia, California is an
approximately 43,000 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. The buildings are subject to a 60-year ground lease which
includes payments of $11,000 per month.

Santa Clarita Valley Medical Center, Bldg F

Building F at the Santa Clarita Valley Medical Center is a two-story,
approximately 44,000 square foot MOB built by the Company in 1999. The building
is located on the Henry Mayo Newhall Memorial Hospital Campus and is adjacent to
the other five MOBs owned by the Company on the Hospital Campus. Building F is
the premier medical office building in the Santa Clarita Valley area. The
building is subject to a 60-year ground lease that includes payments of $11,000
per month.

ALF AND SNF PROPERTIES

SOUTHERN CALIFORNIA PROPERTIES
- ------------------------------

Pacific Gardens Santa Monica

Pacific Gardens Santa Monica is a 92-unit, approximately 61,000 square
foot, four-story ALF located in Santa Monica, California just two blocks from
the beach. The building contains a 3-story, subterranean parking garage for 112
vehicles. The facility features a kitchen, 150-seat dining room, community room,
TV lounges, library, beauty parlor and guest laundry areas on each floor. The
facility is in close proximity to nearby shopping, restaurants and
entertainment. Two major hospitals, Santa Monica Hospital Medical Center and St.
John's Hospital are located within two miles of the property.

The Arbors at Rancho Penasquitos

The Arbors at Rancho Penasquitos is a 92-unit, approximately 52,000 square
foot, three-story ALF located in Rancho Penasquitos, California. The building
was originally built in 1988 as a Ramada Hotel. In 1998, the Company, in joint
venture with Parsons House, LLC, purchased the property and converted it into
The Arbors at Rancho Penasquitos. The facility opened in March 1999.

12

Each unit contains approximately 360 square feet and includes a small
kitchenette. The facility contains a kitchen, dining room, activity room and a
lounge. The 2.07-acre property also has a parking lot that can accommodate up to
114 cars.

Pacific Gardens Tarzana

Pacific Gardens Tarzana is a two-story, 80-unit, approximately 44,000
square foot ALF located in Tarzana, California. The facility features a formal
dining room, two living rooms, pharmaceutical services, daily maid service and
personal laundry service.

Prestige Assisted Living at Yorba Linda

Prestige Assisted Living at Yorba Linda is a two story, 80-unit,
approximately 50,000 square foot ALF located in Yorba Linda, California. The
project is a joint venture between the Company and Prestige Care Inc., an
experienced ALF operator. Construction began on the facility in October 1999 and
was completed in the first quarter of 2002.

ARIZONA PROPERTIES
- ------------------

Maryland Gardens

Maryland Gardens is a 98-bed SNF located in Phoenix. The facility is
situated on approximately 1.84 acres and consists of a 60-bed SNF and a 38-unit
Alzheimers unit. On April 1, 2000, the Company terminated its lease with Stefan
Healthcare, Inc. to operate the facility and signed a management contract with
Campus Healthcare Group, a Phoenix, Arizona-based operator of SNFs. Because the
facility is now under a management contract, rather than leased to an operator,
all of the assets, liabilities, revenues and expenses of the facility have been
included in the consolidated financial results of the Company since April 1,
2000.

Maryland Gardens II

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

MARYLAND PROPERTIES
- -------------------

St. Thomas More Nursing and Rehabilitation Center is a 216-bed SNF located
in Hyattsville, Maryland. The Company acquired the property in January 2002. The
Company previously held a first deed of trust on the property. The property has
been managed by FutureCare, Inc., a Maryland-based owner and operator of SNFs,
since 1997.

MASSACHUSETTS PROPERTIES
- ------------------------

Hampden Properties

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

13

continued to manage them. The lease requires monthly payments of $175,000 net of
property taxes, insurance and costs to maintain the facilities.

Riverdale Gardens

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

Chestnut Hill

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

Mary Lyon

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

NEBRASKA PROPERTY
- -----------------

Parsons House on Eagle Run

Parsons House on Eagle Run is an 89-unit ALF located in Omaha. The
facility was built through a joint venture between the Company and Parsons
House, LLC and was completed in October 1999. The facility features private
suites, dining room service, housekeeping and laundry services, transportation
and a wide range of activities for its residents. The facility staff includes
licensed nurses and caregivers who provide assistance with medication, bathing
and dressing twenty-four hours a day.

WASHINGTON PROPERTY
- -------------------

Pacific Care Center

Pacific Care Center is a 112-bed SNF located in Hoquiam. Prestige Care,
inc. a Vancouver, Washington-based owner and operator of ALFs, has managed this
facility since April 1, 2000. On December 1, 2000, after obtaining the license
to operate the facility, Prestige Care, Inc. signed a five-year lease with the
Company.

LEASES

MOB Properties

As of January 31, 2002, the MOB Properties were approximately 97.0% leased.
New leases and extensions are normally granted for a minimum of three to five
years and provide for annual rent increases. Office tenants generally have gross
leases whereby rents may be adjusted for a tenant's proportionate share of any
increases in the cost of operating the building. However, the Company has
recently been leasing office space with provisions for the tenants to pay all
utility costs directly. Most retail tenants have net leases and pay their share
of all operating expenses including property taxes and insurance. The following
is a lease expiration table setting forth the number, square feet and associated
annual rent for those leases expiring in future years.

14

MOB PROPERTIES--LEASE EXPIRATIONS

Number of Approximate % of
Year of Lease Leases Total Rented Total Annual
Expiration Expiring /(1)/ Square Feet /(1)/ Annual Rent Rent
- --------------------- --------------- ------------------ ------------- --------------

2002............... 72 105,330 $ 3,211,000 13.9%
2003............... 61 98,381 2,977,000 12.9%
2004............... 53 98,277 2,907,000 12.6%
2005............... 54 91,464 2,779,000 12.0%
2006............... 64 122,859 4,190,000 18.1%
2007............... 20 53,387 1,961,000 8.5%
2008............... 15 95,446 1,862,000 8.1%
2009............... 13 63,121 1,742,000 7.6%
2010............... 7 30,132 809,000 3.5%
2011............... 7 22,822 654,000 2.8%
2012 or later...... 0 --- --- ---
--- ------- ----------- ------
Total 366 781,219 $23,092,000 100.0%
=== ======= =========== ======

__________________________________________

/1)/ Does not include month-to-month leases or vacant space. There are 62
month-to-month tenants who occupy approximately 67,000 square feet of space
and pay approximately $135,000 per month in rent.

The Company was successful in obtaining lease renewals, achieving a
weighted average renewal rate of approximately 83.0% on MOB leases that expired
during 2001. 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.

15

SENIOR CARE LOANS

Lending Operations

As of December 31, 2001, the Company had ten loans outstanding that total
approximately $21.7 million before reserves of $4.5 million. The ten loans are
described in the following paragraphs.

In October 1999, the Company provided $1.65 million of bridge financing for
a $9.0 million apartment complex located in Tulsa, Oklahoma. The apartment
complex was purchased by G&L Realty Partners, LLC ("G&L Partners"), a company
controlled by Joe Carroll, a former Company employee, in which the Company has
no equity interest. G&L Partners sold the apartment complex in December 1999
through a tax-exempt bond offering to NVHF Park Chase, LLC ("NVHF"), a
not-for-profit company. As part of its loan repayment, the Company received
approximately $380,000 in cash. For the remaining balance, the Company received
$1.26 million in tax-exempt, subordinated B-bonds from the offering. The
tax-exempt bonds are due in December 2029 and bear interest at 8.75% per annum.
In addition, the Company received a 10-year, 10%, $560,000 unsecured note from
NVHF Affiliates, LLC, the parent company of NVHF. The Company is also the
guarantor on a $300,000 letter of credit in favor of NVHF Affiliates, LLC.

On June 17, 1996, the Company funded a $6.1 million loan for the
acquisition of a SNF in Hyattsville, Maryland (the "St. Thomas More facility")
by Heritage Care, Inc. ("Heritage Care"), a non-profit corporation. The Company
received a first deed of trust on that facility and Carroll Manor, Inc.
("Carroll Manor"), the seller, received a second deed of trust which secured its
$500,000 loan to Heritage Care. In addition to the $6.1 million, the Company
made additional advances in 1997, totaling $2.6 million, to enable Heritage Care
to meet its payroll and other current expenses necessary to remain in operation
and thereby protect the value of the Company's security interest in the St.
Thomas More facility. On March 31, 1999, the Company refinanced the $6.1 million
loan, the $2.6 million in additional advances and all accrued interest into a
$7.3 million,10-year, 12% promissory note secured by a first deed of trust on
the St. Thomas More facility and a $2.7 million, 10-year, 12% unsecured
promissory note. In September 1999, the Company purchased the $500,000 second
deed of trust from Carroll Manor for $503,000, including all unpaid interest and
late fees. In December 1999, the Company consolidated the $7.3 million first
deed of trust and the $500,000 second deed of trust into an $7.8 million
promissory note with the same terms and conditions as the previous $7.3 million
promissory note. Principal and interest payments on the $7.8 million and the
$2.7 million promissory notes due monthly total $135,000. In January 2002,
Heritage Care obtained a new $11.9 million first deed of trust on the St. Thomas
More facility and repaid the outstanding balances on the Company's two notes
including accrued interest and other fees due. Immediately following the loan
payoff, the Company purchased the outstanding stock of the subsidiary of
Heritage Care that owned the facility. Upon obtaining title to the facility, the
Company entered into a lease with FutureCare, Inc., an experienced Maryland
operator of nursing homes that has been operating the facility for five years,
to operate the facility.

In December 1997, the Company funded $4.6 million into an escrow, to be
loaned to Aspen Paso Robles, Inc. ("Aspen") at the close of escrow. This loan
was to be secured by (i) a 59-bed nursing and rehabilitation center in Chico,
California; (ii) a 38-bed SNF in Paso Robles, California; and (iii) a 57-bed
intermediate care center in Beaumont, California. The loan closed on February
25, 1998 although certain funds were held in escrow pending the close of the
real estate in which the Chico and Beaumont facilities were located. The
purchase of the Chico real estate subsequently closed. The funds for the
Beaumont real estate remained in escrow until October 1998 at which time the
Company secured the return of those funds and applied them to pay down the loan
balance to $3.6 million. The borrower subsequently filed a Chapter 11 proceeding
under the U.S. Bankruptcy Code. As of December 31, 1999, the remaining $3.6
million balance of the loan was in default and the two facilities securing the
loan were closed. In March 2000, the Company obtained title to the two SNFs from
the bankruptcy court. Because these two SNFs were not operating, the Company
valued these two facilities at $1.2 million and an additional provision for
doubtful notes receivable of $1.7 million was recorded. The Company is currently
pursuing legal action against the borrower and other parties involved in the
transaction in order to recover the remaining outstanding balance.

16

In addition to the notes discussed above, the Company had six other loans
outstanding at December 31, 2001, with an aggregate face value of $6.8 million,
excluding approximately $0.2 million of additional accrued, unpaid interest. The
following is a summary of the six other loans as of December 31, 2001:

. $150,000 note secured by second deed of trust, interest payable
semiannually at a rate of 10.0% per annum. This note is fully reserved
and currently in default.

. $104,000 unsecured promissory note due July 1, 2000, interest payable
at 10.0% per annum. This note is fully reserved and currently in
default.

. $1,000,000 unsecured promissory note due September 1, 2000, interest
payable at 10.0% per annum. This note is fully reserved and currently
in default.

. $290,000 unsecured promissory note due April 11, 2003, interest payable
at 10.0% per annum.

. Two unsecured promissory notes totaling $5,240,000 due on October 31,
2011, interest payable at 30-day LIBOR plus 7.5% per annum. The
borrowers on these two notes are Daniel M. Gottlieb and Steven D.
Lebowitz, the Company's chief executive officer and president,
respectively.

As of December 31, 2001, the Company had reserves of $4.5 million for
doubtful notes receivable. Management believes that $4.5 million is appropriate
in relation to the status of the loans in the Company's portfolio as of March
31, 2002.

GLN

GLN was formed with Nomura Asset Capital Corp. ("Nomura") for the purpose
of making short-term loans to third parties to purchase senior care facilities.
Due to market conditions and other financial constraints, it does not appear
likely that the Company or Nomura will use GLN to make future loans. As of
December 31, 2001, GLN had one loan outstanding. In May 1997, GLN funded a
secured loan of approximately $1.5 million to a limited partnership created to
acquire a recreational vehicle ("RV") park in Florida for approximately $1.2
million. This loan bore interest at a rate of approximately 9.0% per annum and
matured on May 1, 1999. The loan provided for monthly payments of interest only.
As of December 31, 2001, the borrower was in default on the mortgage payments.
In January 2002, the borrower sold the property for approximately $1.8 million
and repaid GLN in full.

INSURANCE

The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the MOB Properties and ALF and SNF
Properties. There are certain types of losses that may either be uninsurable or
not economically insurable; moreover, there can be no assurance that policies
maintained by the Company will be adequate in the event of a loss. The Company
carries earthquake and flood insurance for coverage of losses up to $35 million
on the MOB Properties and the ALF and SNF Properties located in California and
Arizona, which amount represents approximately 25% of the net book value of
these properties. This coverage is subject to a 10% deductible up to the amount
of insured loss. The ALF and SNF Properties located in Washington and
Massachusetts do not carry earthquake or flood insurance. Thirty-two of the 45
properties directly or indirectly owned by the Company are located in Southern
California, which has a history of seismic activity, including the 1994
Northridge earthquake that damaged the Holy Cross Medical Plaza property. Two
ALF and SNF Properties owned by the Company are located in Phoenix, Arizona, in
an area with a history of flood activity. Should an uninsured loss occur, the
Company could lose its investment in, and anticipated earnings and cash flow
from, a property.

17

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.

In February 2000, the Operating Partnership filed a declaratory relief
action in the New Jersey State Court seeking a determination that LaSalle
National Bank ("LaSalle") did not have any rights against certain assets held by
the Operating Partnership. In December 2001, the Operating Partnership entered a
settlement agreement with LaSalle whereby it would pay LaSalle $1.1 million and
assign certain claims in full satisfaction of any amounts owed by the Operating
Partnership to LaSalle. The Operating Partnership paid the $1.1 million to
LaSalle in January 2002.

In November 1999, Landmark Healthcare Facilities, LLC ("Landmark") filed a
lawsuit against Valencia, a subsidiary of the Company, entitled Landmark
Healthcare Facilities, LLC v. G&L Valencia, LLC, case number 816391 in the
Superior Court of the State of California, County of Orange, claiming that
Landmark is entitled to approximately $600,000 plus interest under an agreement
for the development of an MOB in Valencia, California. In December 1999, the
Company filed a counter suit to recover approximately $400,000 plus interest
that was already paid under the development agreement and for a judgment and
declaration that all of Landmark's rights, title and interest in Valencia have
been terminated or assigned to the Company. On July 5, 2001, the court issued a
ruling in favor of the Company in an amount in excess of $900,000. In January
2002, the Company accepted a settlement offer for $310,000 to be paid off over
10 months.

In January 2001, the Company settled a lawsuit with Cigna Healthcare, Inc
and Cigna Healthcare of California ("Cigna") and received a settlement of $4.1
million. The settlement ended litigation against Cigna for delinquent rent under
a lease for a MOB in Irwindale, California. Due to this settlement, the Company
recorded lease termination income of $2.6 million in the first quarter of 2001.

There are a number of stockholder class actions pending against the
Company and its directors that arose out of the proposal by Daniel M. Gottlieb,
the Chief Executive Officer of the Company, and Steven D. Lebowitz, the
President of the Company, to acquire all of the outstanding shares of the
Company's common stock not then owned by them. The first suit, Lukoff v. G & L
Realty Corp. et al., case number BC 241251, was filed in the Superior Court for
the State of

18

California, County of Los Angeles, on December 4, 2000. A second suit, Abrons
v. G & L Realty Corp. et al., case number 24-C-00-006109, was filed in the
Circuit Court for Baltimore City, Maryland, on December 14, 2000. This suit was
voluntarily dismissed without prejudice on June 7, 2001, and re-filed in the
Superior Court for the State of California, County of Los Angeles, case number
BC 251479, on May 31, 2001. Morse v. G & L Realty Corp. et al., case number
221719-V, was filed in the Circuit Court for Montgomery County, Maryland, on
May 17, 2001. Another suit, Harbor Finance Partners v. Daniel M. Gottlieb et
al., case number BC 251593, was filed in the Superior Court for the State of
California, County of Los Angeles, on June 1, 2001. All these actions assert
claims for breach of fiduciary duty and seek compensatory damages and other
relief. The Lukoff, Abrons and Harbor Finance actions have been consolidated
for all purposes, and the court has set a trial date of February 3, 2003. The
Morse action has been stayed by stipulation of the parties subject to approval
of the court.

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

On October 24, 2001 the Company held its 2001 Annual Meeting of
Stockholders. The items of business conducted at the meeting were the approval
of the merger of G & L Acquisition, LLC, a Maryland limited liability company,
and the Company, the election of directors and the ratification of the
appointment of the Company's independent accountants.

The voting for the approval of the merger of G & L Acquisition,
LLC, a Maryland limited liability company, and the Company
substantially on the terms set forth in the Agreement of Plan of
Merger, dated as of May 10, 2001, as amended, was as follows:

Votes For Votes Against Votes Abstained Broker Non-Votes

1,735,668 173,165 5,313 909,326

The six directors elected at the Annual Meeting, to serve for the
term ending at the next Annual Meeting of Stockholders or until their
successors are duly elected and qualified or until they resign or are
removed, were the following:

Name Votes For Votes Withheld

Daniel M. Gottlieb 2,680,437 143,035
Steven D. Lebowitz 2,680,437 143,035
Richard L. Lesher 2,685,012 138,460
Leslie D. Michelson 2,689,263 134,209
Charles P. Reilly 2,689,263 134,209
S. Craig Tompkins 2,689,263 134,209

The voting for the ratification of the appointment by the Board of
Directors of Deloitte & Touche, LLP as independent accountants for the
Company for the year ending December 31, 2001 was as follows:

Votes For Votes Against Votes Abstained Broker Non-Votes

2,715,759 76,185 31,528 0

19

PART II

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

Until October 29, 2001, the Company's Common Stock was listed on the
New York Stock Exchange under the symbol GLR. On October 29, 2001, the Company
completed a merger with G & L Acquisition, LLC, a Maryland limited liability
company, substantially on the terms provided for in the Agreement of Plan and
Merger, dated as of May 10, 2001, as amended, by and between the Company and G &
L Acquisition, LLC (the "Merger"). G & L Acquisition, LLC is owned by Daniel M.
Gottlieb and Steven D. Lebowitz, Chief Executive Officer and President,
respectively, of the Company. Upon completion of the Merger, each outstanding
share of the Company's Common Stock, other than a portion of the shares held by
Messrs. Gottlieb and Lebowitz, was converted into the right to receive $13.00 in
cash, without interest. After completion of the Merger, the Company's Common
Stock was delisted from the New York Stock Exchange. As of March 29, 2002, the
Company had two holders of its Common Stock.

The table below sets forth the high and low sales prices of the
Company's stock for each full quarterly period from January 1, 2000 to October
29, 2001 as reported by the New York Stock Exchange. The table also includes, on
a per share basis, the quarterly cash distribution declared and paid to holders
of the Company's Common Stock and Units for each of the last two fiscal years.

High Low Distribution
------------------------------

2001 Fourth quarter (Through October 29)..... $ 13.50 12.05 0.205
Third quarter .......................... 14.05 12.25 0.125
Second quarter ......................... 14.39 10.15 0.125
First quarter .......................... 10.75 8.88 0.125

2000 Fourth quarter.......................... 9.50 7.56 0.125
Third quarter .......................... 7.94 6.63 0.125
Second quarter ......................... 9.00 7.25 0.125
First quarter .......................... 9.56 8.63 0.125

______________________________

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

20

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,
2001, 2000, 1999, 1998 and 1997. 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, 2001, 2000, 1999, 1998 and 1997 and for each
of the years ended December 31, 2001, 2000, 1999, 1998 and 1997 have been
derived from audited financial statements.

Year ended December 31,
--------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share amounts)

Operating Data:
- --------------
Revenues:
Rental................................... $26,797 $25,889 $27,928 $24,639 $20,307
Patient revenues......................... 21,057 17,820 -- -- --
Tenant reimbursements.................... 1,894 1,495 1,275 781 707
Parking ................................. 1,502 1,273 1,148 1,501 1,439
Interest and loan fees................... 2,801 2,532 2,797 4,517 4,322
Net gain on sale of assets............... -- 1,263 -- -- --
Other income............................. 4,484 573 398 254 274
------- ------ ------ ------- ------
Total revenues........................ 58,535 50,845 33,546 31,692 27,049
------ ------ ------ ------ ------

Expenses:
Property operations...................... 8,679 7,854 7,359 6,171 6,280
Skilled nursing operations............... 19,004 16,548 -- -- --
Depreciation and amortization............ 6,063 6,015 5,690 4,597 3,570
Interest................................. 13,472 13,802 12,393 8,683 9,088
General and administrative............... 3,953 2,892 3,196 2,554 2,044
Provision for doubtful accounts, notes
and bonds receivable................... 1,004 2,288 2,210 5,603 --
Impairment of long-lived assets -- -- 6,400 -- --
Corporate income tax expense............. 85 -- -- -- --
------ ------ ------ ------ ------
Total expenses........................ 52,260 49,399 37,248 27,608 20,982
------ ------ ------ ------ ------
Income (loss) from operations before minority
interests, equity in (loss) earnings of
unconsolidated affiliates and extraordinary
(losses) gains......................... 6,275 1,446 (3,702) 4,084 6,067
Equity in earnings (loss) of unconsolidated
affiliates............................. 205 (417) (269) 80 1,195
Minority interest in consolidated affiliates (302) (182) (175) (225) (156)
Minority interest in Operating Partnership -- 460 2,202 404 (545)
------ ------ ------- ------ ------
Income (loss) before extraordinary gains
(losses)............................... 6,178 1,307 (1,944) 4,343 6,561
Extraordinary (losses) gains (net of minority
interest) (48) (158) (171) -- --
--- ---- ---- ----- -----
Net income (loss)........................ 6,130 1,149 (2,115) 4,343 6,561
Dividends on preferred stock............. (7,162) (7,164) (7,212) (7,212) (2,875)
--------- --------- --------- --------- ---------
Net loss to common stockholders $(1,032) $(6,015) $(9,327) $(2,869) $(3,686)
========= ========= ========= ========= =========

21

--------------------------------------------------------
At or for the Year ended December 31,
--------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share amounts)

Cash Flow Data:
- --------------
Net cash provided by operating activities... $16,075 $7,490 $8,708 $12,666 $9,045
Net cash used in investing activities....... (2,809) (373) (12,330) (51,094) (49,534)
Net cash (used in) provided by financing (14,018) (11,871) 9,788 26,198 53,833
activities

Balance Sheet Data:
- ------------------
Land, buildings and improvements, net....... $166,009 $168,280 $180,367 $186,751 $139,082
Mortgage loans and bonds receivable, net.... 11,976 11,244 16,026 12,101 14,098
Total investments........................... 177,985 179,524 196,393 198,852 153,180
Total assets................................ 205,024 205,466 232,396 219,499 189,380
Total debt.................................. 192,698 158,942 177,371 134,880 95,172
Total stockholders' equity.................. 901 39,891 51,385 79,584 88,924

Other Data:
- ----------
Ratio of earnings to fixed charges and preferred
dividends /(1)/.......................... 0.95x 0.71x 0.53x 0.82x 1.36x
Ratio of funds from operations to fixed
charges and preferred dividends /(2)/.... 1.10x 0.91x 0.70x 1.05x 1.77x
Number of properties........................ 42 40 45 36 25

___________________________________

/1)/ For purposes of these computations, earnings consist of net income plus
fixed charges. Fixed charges and preferred dividends consist of interest
expense, capitalized interest, amortization of deferred financing costs and
preferred dividends paid to preferred stockholders during the period. The
deficit of earnings to fixed charges and preferred dividends for the years
ended December 31, 2001, 2000 and 1999 was $1,032,000, $6,015,000 and
$9,327,000, respectively.
/2)/ For purposes of these computations, ratio of funds from operations to fixed
charges consists of FFO as defined in note (1) on page 35 plus fixed
charges and preferred dividends paid to preferred stock holders during the
period. Fixed charges and preferred dividends consist of interest expense,
capitalized interest, amortization of deferred financing costs and
preferred dividends paid to preferred stockholders during the period. The
deficit of funds from operations to fixed charges for the years ended
December 31, 2000 and 1999 was $1,786,000 and $5,966,000, respectively.

22

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.

ACQUISITION OF ALL OUTSTANDING SHARES OF COMMON STOCK

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 order to fund the Merger and related transactions, Messrs. Gottlieb and
Lebowitz obtained a loan from GMAC Commercial Mortgage Corporation ("GMAC") in
the amount of $35 million (the "Loan"). Immediately following the completion of
the Merger on October 29, 2001, the Operating Partnership became the borrower
under the Loan. The Loan is for ten years and bears interest initially at the
one month London Interbank Offered Rate ("LIBOR") plus 7.5%. The spread over
LIBOR can be reduced to as low as 5.5% based on the outstanding balance on the
Loan and if the Operating Partnership meets certain debt service covenant
ratios. As interest rate protection, the Operating Partnership purchased a LIBOR
cap on November 8, 2001 for $905,000 which caps the maximum LIBOR rate at 4.25%
for five years in determining the interest due on the Loan.

In order to secure the Loan, the Company, the Operating Partnership and
Messrs. Gottlieb and Lebowitz have granted GMAC a security interest in, among
other things, all accounts, chattel paper, documents, general intangibles,
investment property and security entitlements of the Company and the Operating
Partnership and all hedging agreements entered into by Messrs. Gottlieb and
Lebowitz, the Company or the Operating Partnership. The Company, the Operating
Partnership and Messrs. Gottlieb and Lebowitz have also granted GMAC a pledge of
(a) all promissory notes made by any of the Company, the Operating Partnership,
any MOB subsidiary, Messrs. Gottlieb and Lebowitz or an affiliate of Messrs.
Gottlieb and Lebowitz in favor of the Company or the Operating Partnership, (b)
all partnership units of the Operating Partnership owned by the Company or by
Messrs. Gottlieb and Lebowitz or their affiliates, together with any other share
certificates, options or rights of any nature in respect of the partnership
units of the Operating Partnership that may be issued or granted to, or held by,
the Company, the Operating Partnership or Messrs. Gottlieb and Lebowitz while
the Loan is in effect and (c) all Common Stock of the Company owned by Messrs.
Gottlieb and Lebowitz or their affiliates together with any other share
certificates, options or rights of any nature in respect of the Common Stock of
the Company that may be issued or granted to, or held by, the Company, the
Operating Partnership, or Messrs. Gottlieb and Lebowitz while the Loan is in
effect.

23

The Operating Partnership used $28.1 million of the Loan proceeds to fund
the Merger consideration of $13.00 per share for each outstanding share of the
Company's Common Stock, other than a portion of the shares held by Messrs.
Gottlieb and Lebowitz. In addition, $0.7 million was paid to the holders of
options to purchase shares of Common Stock in exchange for cancellation of such
options. The Operating Partnership loaned $5.2 million of the Loan proceeds to
Messrs. Gottlieb and Lebowitz to fund the Tender Offer described in Footnote 13
to the Notes to the Consolidated Financial Statements and to repay $1.7 million
of personal debt. The remaining Loan proceeds were used to purchase the LIBOR
cap described above and to pay fees and other costs associated with the Loan.

Immediately prior to the Merger, the Company created a new partnership
named G&L Senior Care Partnership, L.P. (the "Senior Care Partnership") and the
Operating Partnership transferred its interest in Maryland Gardens, GL/PHP,
Hampden, Pacific Gardens, Hoquiam, Tarzana, Heritage, Massachusetts, Aspen, GLN,
Penasquitos LLC, Penasquitos Inc., Eagle Run, Eagle Run Inc., Lakeview and
Heritage to the Senior Care Partnership. In addition, the Operating Partnership
also transferred its direct ownership of a 183-bed hospital in Tustin,
California along with the debt secured by this property, a 20-unit apartment
complex in Phoenix, Arizona and all of its outstanding mortgages and notes
receivables to the Senior Care Partnership. The Tustin hospital was subsequently
sold to its tenant, Pacific Health Corp., pursuant to its option to purchase the
building. The creation of the Senior Care Partnership and the transfer of the
Company's Non-MOB assets to this partnership were part of the terms and
conditions of the Loan.

Also immediately prior to the Merger, two of the limited partners of the
Operating Partnership traded their limited partnership units back to the
Operating Partnership in exchange for an increased limited partnership interest
in the Roxbury Partnership. This exchange decreased the Operating Partnership's
interest in the Roxbury Partnership from 61.75% to 32.81%

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 VERSUS THE YEAR ENDED
DECEMBER 31, 2000

Total revenues increased by $7.7 million, or 15%, from $50.8 million for
the year ended December 31, 2000, to $58.5 million in 2001. Patient revenues
relating to the skilled nursing facilities in which the Company currently owns
the license to operate accounted for $3.2 million of this increase. On March 15,
2000, the Company obtained licenses from the Commonwealth of Massachusetts to
operate the three SNFs comprising 383 beds owned by the Company and located in
Hampden, Massachusetts. As a result of the license transfer, all of the assets,
liabilities, revenues and expenses of these SNFs beginning March 15, 2000 are
reflected in the consolidated financial statements of the Company. On April 1,
2000, the Company obtained the license to operate its SNF located in Phoenix,
Arizona. For the nine months ended December 31, 2000, the assets, liabilities,
revenues and expenses of this SNF were also included in the condensed
consolidated financial statements of the Company. On January 1, 2001, the
Company entered into a new lease with a new manager that entitles the Company to
monthly lease payments. As a result of this new lease, the assets, liabilities,
revenues and expenses of this SNF are no longer included in the condensed
consolidated financial statements of the Company.

Rents, tenant reimbursements and parking revenues increased by $1.5
million, or 5%, from a combined total of $28.7 million for the year ended
December 31, 2000, to $30.2 million in 2001. During 2001, the Company increased
the occupancy at its MOB properties by approximately 2% and increased its rental
rates per the terms of its lease agreements resulting in an increase in rental
revenues of approximately $1.8 million. In addition, new lease agreements at two
of the Company's SNFs accounted for an increase of $0.8 million in rental
revenue. These increases were offset by the loss of $0.7 million in rental
revenue as a result of the termination of the lease at the Company's MOB located
in Irwindale, California which the Company re-leased at a lower rental rate and
an additional $0.4 million related to the loss of rental revenue from the SNFs
discussed above in which the Company now owns the license to operate.
Previously, the Company collected monthly rent for these facilities in the form
of lease payments from the prior operator.

Interest and loan fee income increased $0.3 million from $2.5 million
for the year ended December 31, 2000 to $2.8 million in 2001. This increase was
due to a $0.5 million increase in the fair-market-value of the LIBOR interest
rate cap associated with the $35 million loan with GMAC and a $0.3 million
increase related to an outstanding loan on a apartment complex development in
Tustin, California. This increase was offset by a $0.2

24

million decrease in interest income related to the financing by the Company of
an apartment complex located in Tulsa, Oklahoma. The remaining $0.3 million
decrease is the result of the November 2000 repayment of a $3.1 million
mortgage held by the Company on a SNF in El Centro, California.

The Company recognized a net gain on the sale of assets in the amount of
$1.3 million during the year ended December 31, 2000. The sale, in January 2000,
of a 33,000 square foot MOB located in Aliso Viejo, California to Hoag Memorial
Hospital accounted for $1.4 million of the gain. This gain was offset by the
loss of $0.1 million on the sale of the Company's 50% interest in Valley
Convalescent, LLC, an unconsolidated affiliate.

The Company recognized lease termination income in the amount of $2.6
million during 2001. This was related to the settlement of a lawsuit for
delinquent rent, future rent and other amounts owed under a lease at the
Company's MOB located in Irwindale, California. The Company sued the tenant,
which had been in default on their rent since December 1999, to recover the
delinquent rent payments as well as all future rent through the end of the lease
which was to expire November 30, 2004. In January 2001, the Company received a
settlement in the amount of $4.1 million. At the time of the settlement the
total delinquent rent was approximately $1.5 million.

Total expenses increased by $2.8 million, or 6%, from $49.4 million for
the year ended December 31, 2000, to $52.2 million in 2001. The consolidation of
the operating revenues and expenses of the three Hampden SNFs as of March 15,
2000 as discussed above accounted for $2.5 million of this increase in total
expenses.

Property operating expenses increased by $0.8 million, or 10%, from $7.9
million for the year ended December 31, 2000, to $8.7 million for the same
period in 2001. This increase was due to additional utility, property tax and
repairs and maintenance costs at the Company's MOB properties.

Depreciation and amortization increased $0.1 million, or 2%, from $6.0
million for the year ended December 31, 2000, to $6.1 million for same period in
2001. A $0.2 million increase in depreciation and amortization on new building
additions and leasing commissions acquired during 2001 was offset by a $0.1
million decrease in depreciation related to the foreclosure of the Company's six
MOBs located in New Jersey during 2000.

Interest expense decreased $0.3 million, or 2%, from $13.8 million for the
year ended December 31, 2000 to $13.5 million in 2001. $0.9 million of this
decrease is due to the August 2000 repayment of the Company's outstanding line
of credit balance of $1.6 million as well as decreased interest payments on the
Company's approximately $33 million of variable rate mortgage debt due to lower
interest rates. This decrease was offset by a $0.6 million increase in interest
expense resulting from the $35.0 million note payable obtained in order to fund
the merger as described above under "Acquisition of all Outstanding Shares of
Common Stock."

General and administrative costs increased $1.1 million, or 38%, from $2.9
million for the year ended December 31, 2000, to $4.0 million for the same
period in 2001. $0.7 million of this increase was related payments made to
option holders whose exercise price was less than that of the price paid for the
Company's common stock as a result of the merger. The remaining increase was
attributed to the write-off of acquisition and construction costs associated
with a discontinued development project as well as legal fees related to the
Company's defense in its lawsuit with Landmark Health.

Equity in earnings of unconsolidated affiliates increased $0.6 million for
the year ended December 31, 2001 compared to the same period in 2000. This
increase was primarily the result of increased occupancy rates at the facilities
associated with the Company's 50% investment in Penasquitos LLC and the
Company's 50% investment in Eagle Run Inc. In March 1999, The Arbors at Rancho
Penasquitos, an ALF owned by the Company through Penasquitos LLC, commenced
operations. The facility has been in a lease-up phase since opening in March
1999 and therefore had been producing a net loss. Eagle Run commenced operations
in November 1999 and also had been producing a net loss. Occupancy rates at both
facilities are increasing, thus decreasing the Company's loss associated with
these properties. In addition, the Company's three MOBs located in San Pedro,
California, in which the Company owns 50%, increased its net income by
approximately $0.1 million in 2001.

During 2000, the Company recorded an extraordinary loss on the early
retirement of long-term debt in the amount of $0.2 million. This loss was a
result of pre-payment fees and the write-off of deferred loan fees relating to

25

the repayment of a $5.5 million loan secured by a 33,000 square foot MOB in
Aliso Viejo, California. The building was sold to Hoag Memorial Hospital
Presbyterian on January 25, 2000 for a price of $8.3 million. The Company used a
portion of the proceeds to repay the $5.5 million loan. During 2001, the Company
recorded an extraordinary loss on the early retirement of long-term debt in the
amount of $0.1 million. This loss was the result of the write-off of deferred
loan fees relating to the repayment of a $5.1 million loan secured by two of its
properties located in Tustin, California.

Net income increased $5.0 million from $1.1 million for the twelve months
ended December 31, 2000 to $6.1 million in 2001. This increase was primarily due
to the $3.2 million increase in patient revenues, the $3.9 million increase in
other income, the $1.5 million increase in rents, tenant reimbursements and
parking revenues, the $0.6 million increase in earnings from unconsolidated
affiliates and the $1.1 million decrease in provisions for doubtful accounts and
notes receivable. These were offset by a $2.5 million increase in skilled
nursing operations, a $1.8 million increase in property operations, and a $1.1
million increase in general and administrative costs.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 VERSUS THE YEAR ENDED
DECEMBER 31, 1999

Total revenues increased by $17.3 million, or 52%, from $33.5 million for
the year ended December 31, 1999, to $50.8 million in 2000. Patient revenues
relating to the skilled nursing facilities in which the Company currently owns
the license to operate accounted for $17.8 million of this increase. On March
15, 2000, the Company obtained licenses from the Commonwealth of Massachusetts
to operate the three SNFs comprising 391 beds owned by the Company and located
in Hampden, Massachusetts. As a result of the license transfer, all of the
assets, liabilities, revenues and expenses of these SNFs for the period from
March 15, 2000 through December 31, 2000 are reflected in the consolidated
financial statements of the Company. In addition, the Company holds the license
to operate its 98-bed SNF located in Phoenix, Arizona. On April 1, 2000, the
Company terminated its lease with the previous manager and entered into a
management agreement with a new manager. As a result, all of the assets,
liabilities, revenues and expenses of this SNF for the period of April 1, 2000
through December 31, 2000 are also reflected in the consolidated financial
statements of the Company. The consolidation of the operating revenues related
to the three SNFs in Massachusetts accounted for a $15.8 million increase in
patient revenues while the SNF in Arizona accounted for an additional $2.0
million increase.

Rents, tenant reimbursements and parking revenues decreased by $1.7
million, or 6%, from a combined total of $30.4 million for the year ended
December 31, 1999, to $28.7 million in 2000. The loss of rental revenue from the
SNFs in which the Company now owns the licenses to operate accounted for $2.3
million of this decrease. Previously, the Company collected monthly rent for
these facilities in the form of lease payments from the prior operator.
Excluding the loss of these lease payments, rents, tenant reimbursements and
parking revenues actually increased by $0.6 million in the year 2000 compared to
the same period in 1999. Additional revenues from recently completed
construction projects in Valencia and Aliso Viejo accounted for $1.2 million of
this increase while the January 2000 acquisition of an 80-unit, 44,117 square
foot ALF located in Tarzana, California accounted for an additional $1.0
million. Also, increased occupancy at the Company's ALF located in Santa Monica,
California resulted in an increase of $0.4 million in rental revenues. These
increases were offset by a decrease of $2.0 million in rental revenue related to
the foreclosure of the Company's six MOBs located in New Jersey as discussed in
Footnote 12 of the Notes to the Consolidated Financial Statements.

Interest and loan fee income decreased by $0.3 million, or 11%, from
$2.8 million for the year ended December 31, 1999, to $2.5 million for the same
period in 2000. This decrease was due to a $0.6 million decrease in loan fees
related to the March 31, 1999 long-term refinancing of the Company's note
receivable secured by the SNF in Hyattsville, Maryland. This decrease was offset
by an increase of $0.3 million in interest income related to the financing by
the Company in December 1999 of an apartment complex located in Tulsa, Oklahoma.

The Company recognized a net gain on the sale of assets in the amount of
$1.3 million during the year ended December 31, 2000. The January 2000 sale of a
33,000 square foot MOB located in Aliso Viejo, California to Hoag Memorial
Hospital accounted for $1.4 million of the gain. This gain was offset by the
loss of $0.1 million on the sale of the Company's 50% interest in Valley
Convalescent, LLC, an unconsolidated affiliate.

Total expenses increased by $12.1 million, or 33%, from $37.2 million for
the year ended December 31, 1999, to $49.3 million in 2000. A portion of the
increase in expenses was due to an increase of $0.3 million in the

26

Company's allowance for doubtful accounts and notes receivable. In addition,
a $6.4 million decrease resulted from the impairment of the Company's six MOBs
located in New Jersey in the third quarter of 1999. The consolidation of the
operating revenues and expenses of the three Hampden SNFs from March 15, 2000
through December 31, 2000 and the Arizona SNF from April 1, 2000 through
December 31, 2000 as discussed above accounted for $16.5 million of this
increase in total expenses.

Property operating expenses increased by $0.3 million, or 4%, from $7.6
million for the year ended December 31, 1999, to $7.9 million for the same
period in 2000. Development projects completed by the Company during 1999 and
2000 accounted for $0.2 million of this increase while the acquisition of an ALF
in Tarzana, California accounted for an additional $0.2 million. Additional
legal fees related to the Hampden license transfer accounted for an additional
$0.1 million. These increases were offset by a $0.2 million decrease in
management and overhead expenses associated with a wholly owned subsidiary
formed by the Company in November 1998 for the purpose of making loans to obtain
healthcare facilities. This subsidiary ceased operations in April 1999.

Depreciation and amortization increased $0.3 million, or 5%, from $5.7
million for the year ended December 31, 1999, to $6.0 million for same period in
2000. This increase was attributable to the January 2000 acquisition of a 44,117
square foot ALF located in Tarzana, California as well as new property
developments in Valencia and Aliso Viejo, which were placed into service during
1999 and 2000.

Interest expense increased $1.4 million, or 11%, from $12.4 million for
the year ended December 31, 1999 to $13.8 million in 2000. This increase was
mainly due to interest incurred on net new borrowings of approximately $51.0
million made by the Company in 1999 and 2000, as well as the assumption of $7.5
million in debt associated with the acquisition of the ALF in Tarzana,
California. The $51.0 million in new borrowings consisted of four notes totaling
approximately $22.0 million secured by eleven MOBs, two notes totaling
approximately $18.0 million secured by four SNFs and one note in the amount of
approximately $11.0 million secured by an ALF.

General and administrative expenses decreased $0.3 million, or 9%, from
$3.2 million for the year ended December 31, 1999, to $2.9 million for the same
period in 2000. This decrease was attributed to lower payroll costs as well as
lower costs associated with the Company's annual report and other SEC filings.

Equity in loss of unconsolidated affiliates decreased $0.1 million for the
year ended December 31, 2000 compared to the same period in 1999. This decrease
was primarily the result of start-up losses associated with the Company's 50%
investment in G&L Penasquitos, LLC and the Company's 50% investment in G&L
Parsons House on Eagle Run, Inc. In March 1999, The Arbors at Rancho
Penasquitos, an ALF owned by the Company through G&L Penasquitos, LLC, commenced
operations. The facility has been in a lease-up phase since opening in March
1999 and therefore has been producing a net loss. Eagle Run, an ALF owned by the
Company through G&L Parsons House on Eagle Run, LLC, commenced operations in
November 1999 and also produced a net loss in 2000.

During the first quarter of 2000, the Company recorded a loss on the early
retirement of long-term debt in the amount of $0.2 million. This loss was a
result of pre-payment fees and the write-off of deferred loan fees relating to
the repayment of a $5.5 million loan secured by a 33,000 square foot MOB in
Aliso Viejo, California. The building was sold to Hoag Memorial Hospital
Presbyterian on January 25, 2000 for a price of $8.3 million. The Company used a
portion of the proceeds to repay the $5.5 million loan.

Net income increased $3.2 million from a net loss of $2.1 million for the
twelve months ended December 31, 1999 to net income of $1.1 million in 2000.
This increase was primarily due to a $6.4 million decrease in the impairment of
long-lived assets and a $1.3 million increase in net gains on sale of assets.
These increases were offset by a $1.4 million increase in interest expense, a
$1.7 million decrease in rents, tenant reimbursements and parking revenues, a
$0.3 million increase in depreciation and amortization expense, a $0.3 million
increase in operating expenses and a $0.3 million decrease in interest and loan
fee income.

LIQUIDITY AND CAPITAL RESOURCES

The Company's goal is to create wealth through growth in cash flow from its
real estate investments. The Company believes that this goal is being realized
through its management expertise in the areas of acquisition,

27

development, financing, leasing and strategic management of the MOB Properties
and ALF and SNF Properties. The Company seeks to maximize cash flow from its
existing properties and make new investments that are accretive to cash flow
over the long-term.

As of December 31, 2001, the Company's direct investment in net real estate
assets totaled approximately $166.0 million, $4.6 million in joint ventures and
$12.0 million invested in notes receivable. Total debt outstanding at year-end
totaled $192.7 million.

The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of MOBs, SNFs, ALFs
and senior care lending activities. The MOB Properties produced approximately
$7.6 million of net income before minority interests for the year ended December
31, 2001. The MOB Properties contain approximately 875,000 rentable square feet
and, as of January 31, 2002, were approximately 97.0% leased to over 425 tenants
with lease terms typically ranging from three to ten years. The ALF and SNF
Properties produced approximately $0.9 million of net income for the year ended
December 31, 2001. All of the ALF and SNF Properties are leased to operators who
manage the facilities for the Company. All of the leases are for five years or
less with non-credit tenants. In the event that the operators of these
facilities are unable to effectively operate the facilities, the ability of the
operators to make rental payments to the Company may become impaired and the
Company may need to commit additional capital to the facilities in order to keep
them operating. If any of these operators experience financial difficulty, the
financial position of the Company and the ability of the Company to make
expected distributions might be adversely affected.

The Company's principal external sources of capital consist of various
secured loans. As of December 31, 2001, the Company had secured loans
outstanding of approximately $191.7 million and unsecured loans outstanding of
approximately $1 million. The Company is currently negotiating to obtain a line
of credit in the amount of $3 million to $6 million, however, no assurance can
be given that the Company will be successful in obtaining a line of credit. The
Company's ability to expand its MOB, ALF and SNF property operations requires
continued access to capital to fund new investments. If the Company is unable to
obtain access to new capital to fund new investments or to refinance its
existing investments, the Company's ability to expand and even its ability to
maintain its current level of distributions to its stockholders may be impaired.
The Company may also consider selling some of its assets in the future in order
to provide additional liquidity.

During 2001, the Company received proceeds of $4.1 million related to the
settlement of a lawsuit for delinquent rent, future and other amounts owed under
a lease at the Company's MOB located in Irwindale, California. Total delinquent
rent at the time of the settlement was approximately $1.5 million. The Company
recorded lease termination income of $2.6 million in the first quarter of 2001
for the remainder of the proceeds. On February 21, 2001, the Company used the
proceeds from a new $5.1 million loan secured by two of its properties located
in Tustin, California to repay $5.0 million of outstanding loan balance of an
existing $7.5 million short-term loan secured by three of its properties located
in Tustin, California. This new loan bore interest at prime plus 1.00% and was
due on February 21, 2002. In August 2001, the Company refinanced these two
properties with a new $7.2 million loan and repaid the existing $5.1 million
loan. The new loan bears interest at 7.51% and is due in August 2011. On June
29, 2001, Pacific Health Corporation, the tenant at the Company's 101,000 square
foot hospital located in Tustin, California, exercised its option to purchase
the building for $4.9 million. The Company received a deposit in the amount of
$0.2 million with the remaining proceeds to be received in January 2002. In
January 2002, the Company sold the hospital to Pacific Health Corporation for
$4.9 million and repaid an outstanding loan on the hospital for $2.3 million.

On October 29, 2001, in connection with the Merger, the Operating
Partnership borrowed $35 million from GMAC. The Loan is for ten years and bears
interest initially at the one month LIBOR rate plus 7.5%. The spread over one
month LIBOR can be reduced to as low as 5.5% based on the outstanding balance on
the Loan and if the Operating Partnership meets certain debt service covenant
ratios. As interest rate protection, the Operating Partnership purchased a LIBOR
cap on November 8, 2001 for $905,000 which caps the maximum one month LIBOR rate
at 4.25% for five years in determining the interest due on the Loan. Per the
terms of the Loan, any net proceeds from the refinancing of any of the Company's
MOB properties must be used to repay the outstanding principal on the Loan.

The Operating Partnership used $28.1 million of the Loan proceeds to fund
the Merger consideration of $13.00 per share for each outstanding share of the
Company's Common Stock, other than a portion of the shares held by Messrs.
Gottlieb and Lebowitz. In addition, $0.7 million was paid to holders of options
to purchase shares of Common Stock in exchange for the cancellation of such
options. The Operating Partnership loaned $5.2 million of the Loan proceeds to

28

Messrs. Gottlieb and Lebowitz to fund the Tender Offer described in Footnote 13
of the Notes to the Consolidated Financial Statements and to repay $1.7 million
of personal debt. The remaining Loan proceeds were used to purchase the LIBOR
cap described above and to pay fees and other costs associated with the Loan.

The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first, second, and third quarters of 2001 in the
amount of $0.125 per common share and distributions of $0.205 per common share
for the fourth quarter of 2001. These distributions were paid on April 15, July
15, October 15 and January 15 to stockholders of record on March 31, June 30,
September 30 and December 31, respectively. The Company also paid monthly
dividends of $0.6 million to holders of the Company's Preferred Stock on the
fifteenth day of each month during the first, second, third and fourth quarters
to holders of record on the first day of each month. The Company distributed
dividends of $1.2 million to holders of the Company's Common Stock during 2001
while the Company's FFO was $1.6 million for the same period. While the
Company's FFO in 2001 was sufficient to satisfy the Company's distributions to
its stockholders in 2001, no assurance can be given that the Company will
continue to produce sufficient cash flow to maintain its current level of
distributions to its stockholders. Subsequent to the Merger, the Company is
highly-leveraged and the Company's scheduled debt payments may affect the
Company's ability to make distributions to its stockholders.

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

Historical Cash Flows

The Company's net cash from operating activities increased $8.6 million, or
115%, from $7.5 million for the year ended December 31, 2000 to $16.1 million
for the same period in 2001. The increase is due primarily to a $4.8 million
increase in net income, a $4.4 million decrease in the increase of tenant rent
and reimbursements receivable, a $1.3 million decrease in net gain on sale of
assets and a $0.6 million increase in minority interests. These were offset by a
$1.3 million decrease in provisions for doubtful accounts and notes receivables
and a $1.5 million increase in accrued interest receivable.

Net cash used in investing activities increased $2.4 million from $0.4
million for the year ended December 31, 2000 to $2.8 million for the same period
in 2001. The increase was primarily due to an $8.8 million decrease in the sale
of real estate assets, a $2.9 million decrease in principal payments received
from notes and bonds receivable, a $0.6 million increase in pre-acquisition
costs and a $0.3 million increase in leasing commissions. These were offset by a
$10.4 million decrease in purchases of real estate assets.

Net cash flows used in financing activities increased $2.1 million from
$11.9 million for the twelve months ended December 31, 2000, to $14.0 million
for the same period in 2001. The increase was due primarily to a $33.1 million
increase in repurchases of the Company's common stock and a decrease of $3.6
million in the decrease of restricted cash as well as a $3.1 million increase in
deferred loan costs. This was offset by a $38.0 million increase in notes
payable proceeds.

Debt Structure

As of December 31, 2001, the Company had twenty-three loans totaling $192.7
million. The terms of these loans are described below.

In August 1995, the Company borrowed $30.0 million from Nomura for ten
years at a fixed rate of 7.89%. As of December 31, 2001, the outstanding balance
under this loan was approximately $27.1 million, requiring monthly principal and
interest payments of approximately $229,000 (25-year amortization), and will
have a balance of $24.7 million on August 11, 2005, when the note is due.
Pursuant to the loan agreement, the Company has the option to prepay this loan
at any time upon the payment of a premium which, when added to the remaining
principal amount of the note, will be sufficient to purchase non-callable
obligations of the U.S. government sufficient to provide for

29

the scheduled payments remaining under the note. No prepayment premium is
required during the 90-day period prior to the note's due date. The properties
located at 405 North Bedford, 415 North Bedford, 416 North Bedford and 435
North Bedford have been pledged as security for this note.

During 1996, the Company borrowed $35.0 million from Nomura for ten years
at a fixed rate of 8.492%. This note had an outstanding balance of approximately
$32.6 million as of December 31, 2001, requires monthly principal and interest
payments of approximately $282,000 (25-year amortization), and will have a
balance of $29.4 million on August 11, 2006, when the note is due. Pursuant to
this loan agreement, the Company has the option to prepay this loan at any time
after August 30, 1999 upon the payment of a premium which, when added to the
remaining principal amount of the note, will be sufficient to purchase
non-callable obligations of the U.S. government sufficient to provide for the
scheduled payments remaining under this note. The Sherman Oaks Medical Plaza,
Regents Medical Center, Cigna HealthCare Building and the 436 North Bedford
Drive MOB have been pledged as security for this note.

During the fourth quarter of 1999, the Company obtained a $13.92 million
loan from GMAC Commercial Mortgage Corp. ("GMAC") secured by the Hampden
Properties and repaid the existing $6.0 million Nomura loan. The loan bears
interest at LIBOR plus 2.75% and requires monthly principal and interest
payments of approximately $122,000. The loan, which matures on October 1, 2002
is also guaranteed by the Company. As of December 31, 2001 the outstanding
balance on this loan was $13.5 million.

On April 22, 1998, 435 North Roxbury Drive, Ltd. (the "Roxbury
Partnership"), of which the Operating Partnership is the sole general partner
with an ownership interest of 32.81%, refinanced the 435 North Roxbury Drive
property. The Roxbury Partnership refinanced the property with a new $7.83
million loan from Tokai Bank of California ("Tokai"). The Roxbury Partnership
repaid the remaining balance on the old loan of $7.5 million with the new loan,
which bears interest at a fixed rate of 7.05% and is due on April 1, 2008. This
loan, which had an outstanding balance of $7.4 million as of December 31, 2001,
requires monthly principal and interest payments of approximately $56,000
(25-year amortization), and will have a balance at maturity of $6.2 million. The
435 North Roxbury Drive property has been pledged as security for this loan.

On April 22, 1998, the Company borrowed an additional $12.7 million from
Tokai at a fixed rate of 7.05%. On June 1, 1998, the Company began making
monthly principal and interest payments on these loans of approximately $91,000
(25-year amortization). These notes, which will have a balance at maturity of
$10.0 million, are due on April 1, 2008. As of December 31, 2001, the balance on
these notes was $11.9 million. These notes consist of three separate first deeds
of trust and are not cross-collateralized. The Holy Cross Medical Plaza, the St.
Joseph's Medical Office Building and the Tustin Medical Plaza have been pledged
as security for these loans.

On June 30, 1998, the Company, through GLH Pacific Gardens, LLC, acquired
Pacific Gardens, a 92-unit senior care facility in Santa Monica, California for
$11.2 million. Of this amount, GLH Pacific Gardens, LLC borrowed $8.5 million
from GMAC at an interest rate of 30-day LIBOR plus 2.35%. The note required
monthly interest-only payments. In August 1999, the Company refinanced this
mortgage with an $11.4 million 35-year HUD loan at an interest rate of 8%. The
loan requires monthly principal and interest payments of approximately $77,000.
As of December 31, 2001, the unpaid balance on this loan was $11.2 million.

On August 6, 1998, the Company acquired a 110-bed skilled nursing facility
in Hoquiam, Washington for $3.3 million. Of this amount, the Company borrowed
$2.5 million from GMAC at a fixed rate of 7.49%. On October 1, 1998, the Company
began making monthly principal and interest payments of approximately $18,000
(25-year amortization). This note, which will have a balance at maturity of $2.0
million, is due on September 1, 2008. The Pacific Care Center has been pledged
as security for this note. As of December 31, 2001, the unpaid balance on this
note was $2.3 million.

On December 22, 1998, the Company acquired a 49,000 square foot MOB in
Valencia, California for $7.4 million. Of this amount, the Company borrowed $5.2
million from The Life Insurance Co. of Virginia at a fixed rate of 6.75%. On
February 1, 1999, the Company began making monthly principal and interest
payments of approximately $38,000 (25-year amortization). This note, which will
have a balance at maturity of $0.9 million, is

30

due on January 1, 2019. The Lyons Avenue Medical Building has been pledged as
security for this note. As of December 31, 2001, the unpaid balance on this
note was $4.8 million.

On December 31, 1998, the Company acquired a 40,000 square foot office and
retail complex in Coronado, California for $9.5 million. Of this amount, the
Company borrowed $7.5 million from GMAC at a fixed rate of 6.90%. On February
10, 1999, the Company began making monthly principal and interest payments of
approximately $50,000 (25-year amortization). This note, which will have a
balance at maturity of $6.4 million, is due on December 11, 2008. The Coronado
Plaza has been pledged as security for this note. The unpaid balance on this
note was $7.3 million as of December 31, 2001.

On June 30, 1999, the Company obtained a $1.44 million loan from American
United Life Insurance Company. The loan, which is secured by the Pier One Retail
Center in Aliso Viejo, California, bears interest at a rate of 7.375% and is due
on July 1, 2009. On July 1, 1999, the Company began making monthly principal and
interest payments of approximately $11,000. As of December 31, 2001, the unpaid
balance on this note was $1.4 million.

On July 2, 1999, the Company obtained a $10 million long-term loan
secured by its six building portfolio of MOBs located at the Henry Mayo Newhall
Hospital campus in Valencia, California. The Company used $5.0 million of the
total proceeds to repay a short-term loan secured by these buildings while an
additional $2.5 million was escrowed by the lender until the Company meets
certain occupancy thresholds at the collateralized buildings. In April 2000, the
lender released to the Company $1.25 million of these escrow funds. The
remaining $1.25 milion was released to the Company in July 2000. The loan, which
is due on July 1, 2009, bears an interest rate of 6.85% and had an unpaid
balance of $9.5 million as of December 31, 2001.

On July 26, 1999, the Company obtained a $7.5 million short-term loan
secured by three of its properties located in Tustin, California, at an interest
rate of prime plus 0.75%. The loan is also guaranteed by the Company. On August
1, 1999, the Company began making monthly principal and interest payments of
approximately $64,000. A $5.0 million principal payment was due on January 21,
2001 and the remaining balance is due on January 21, 2002. On February 21, 2001,
the Company repaid $5.0 million of the outstanding loan balance using the
proceeds from a new $5.1 million loan secured by two of its properties located
in Tustin, California. The new loan bore interest at prime plus 1.00% and was
due on February 21, 2002. The loan had an unpaid balance of $2.3 million as of
December 31, 2001. The loan was repaid in January 2002 using the proceeds from
the sale of the hospital that secured the loan.

On October 22, 1999, the Company obtained a $4.2 million loan secured by a
newly-constructed 23,000 square foot MOB in Aliso Viejo, California. The loan is
also guaranteed by the Company. On October 1, 1999, the Company sold a 50%
tenants-in-common interest in this building to Triad Partners/SCP, LLC. The
purchase price included the assumption of 50% of the mortgage debt. The loan
bears an interest rate of LIBOR plus 3.40% and is due on November 1, 2002.

On December 21, 1999, the Company obtained a loan in the amount of $8.5
million from GMAC secured by its first deed of trust on a SNF located in
Hyattsville, Maryland. The loan is also guaranteed by the Company. The loan,
which bears interest at LIBOR plus 2.75%, is due on July 1, 2001. On February 1,
2000, the Company began making monthly principal and interest payments of
approximately $71,000. As of December 31, 2001 the unpaid balance on this loan
was $8.3 million. This loan was repaid in January 2002.

In January 2000, as part of its acquisition of a $10.3 million, 80-unit ALF
in Tarzana, California, the Company assumed one loan totaling $5.75 million and
obtained two other loans totaling $1.75 million. The Company assumed a $5.75
million note secured by the ALF at an interest rate of 8.3%. The note, which is
due in 2006, had an outstanding balance of $5.5 million as of December 31, 2001.
The Company also obtained a $0.95 million note collateralized by a second deed
of trust on the ALF bearing interest at 8.5%. As of December 31, 2001, the
unpaid balance of this note was $0.93 million. Finally, the Company obtained a
$0.8 million unsecured note which bears interest at a rate of 7.5% and is due in
2006. As of December 31, 2001, the unpaid balance on this note was $0.8 million.

31

In July 2000, the Company obtained a $2.0 million line of credit secured by
the accounts receivable at the Company's three SNFs located in Massachusetts.
The line of credit is guaranteed by the Company. The line of credit bears
interest at prime plus 2.0% and is due on July 13, 2003. The unpaid balance on
this line of credit was $1.4 million as of December 31, 2001.

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

On October 29, 2001, in connection with the Merger, the Operating
Partnership borrowed $35 million from GMAC. The Loan is for ten years and bears
interest initially at the one month LIBOR rate plus 7.5%. The spread over one
month LIBOR can be reduced to as low as 5.5% based on the outstanding balance on
the Loan and if the Operating Partnership meets certain debt service covenant
ratios. As interest rate protection, the Operating Partnership purchased a LIBOR
cap on November 8, 2001 for $905,000 which caps the maximum LIBOR rate at 4.25%
for five years in determining the interest due on the Loan. Per the terms of the
Loan, any net proceeds from the refinancing of any of the Company's MOB
properties must be used to repay the outstanding principal on the Loan. As of
December 31, 2001, the unpaid balance on this note was $34.9 million.

Capital Commitments

As of March 30, 2002, the Company was under contract, through a joint
venture, to purchase a SNF in Massachusetts for approximately $6.5 million. The
Company expects to fund approximately $0.75 million in order to acquire this
property through a joint venture with Radius Development Ring, LLC who will
operate the facility upon its acquisition by the joint venture.

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

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

INFLATION

The majority of the Company's leases are long-term leases designed to
mitigate the adverse effect of inflation. Approximately 50% of the Company's
leases contain provisions that call for annual rent increases equal to the
increase in the Consumer Price Index and the majority of the remaining leases
allow for specific annual rent increases. Furthermore, many of the Company's
leases require tenants to pay a pro rata share of building operating expenses,
including real estate taxes, insurance and common area maintenance. The effect
of such provisions is to reduce the Company's exposure to increases in costs and
operating expenses resulting from inflation.

32

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, is effective for
fiscal years beginning after June 15, 2000 and requires all derivatives to be
recorded on the balance sheet at fair value as either assets or liabilities
depending on the rights or obligations under the contracts. SFAS 133 also
establishes new accounting methodologies for the following three classifications
of hedges: fair value, cash flow and net investment in foreign operations. The
adoption of SFAS 133 on January 1, 2001 did not have a material impact on the
Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
was required to adopt SAB 101 in the fourth quarter of 2000. The Company's
adoption of SAB 101 did not have a material impact on the Company's financial
position or results of operations.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transaction Involving
Stock Compensation." The Company was required to adopt FIN 44 effective July 1,
2000 with respect to certain provisions applicable to new awards, exchanges of
awards in a business combination, modifications to outstanding awards and
changes in grantee status that occur on or after that date. FIN 44 addresses
practice issues related to the application of Accounting Practice Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company's
adoption of FIN 44 did not have a material impact on its financial position or
results of operations.

In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 is effective immediately and SFAS No. 142 will be
effective in January 2002. SFAS No. 141 prohibits the use of
pooling-of-interests method, requiring all business combinations to be
accounted for using the purchase method of accounting. SFAS No. 142
discontinues the practice of amortizing goodwill and other intangible assets
and requires the periodic review of intangible assets for impairment. The
Company's adoption of these new standards is not expected to have a material
impact on the Company's financial position or results of operations.

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS
144"). SFAS 144 addresses financial accounting and reporting for the disposal of
long-lived assets. SFAS 144 becomes effective for financial statements issued
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years. The Company does not expect the pronouncement to have a
material impact on its financial position or results of operations.

FUNDS FROM OPERATIONS

Industry analysts generally consider FFO to be an appropriate measure
of the performance of a REIT. The Company calculates FFO as defined by the Board
of Governors of the National Association of Real Estate Investment Trusts
("NAREIT"). FFO is calculated to include the minority interests' share of income
since the Operating Partnership's net income is allocated proportionately among
all owners of Operating Partnership Units. The number of Operating Partnership
Units held by the Company is identical to the number of outstanding shares of
the Company's Common Stock, and owners of Operating Partnership Units may, at
their discretion, convert their Units into shares of Common Stock on a
one-for-one basis.

The Company believes that, in order to facilitate a clear understanding
of the operating results of the Company, FFO should be examined in conjunction
with the Company's net income as presented in the Selected Financial Data and
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K and the additional data presented below. The table on the following
page presents an analysis of FFO and additional data for each of the four
quarters and the year ended December 31, 2001 for the Operating Partnership:

33

G&L REALTY CORP.
FUNDS FROM OPERATIONS
FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 2001

2001 Fiscal Quarter Year
---------------------------------------------------- -----------
1st 2nd 3rd 4th 2001
------------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
Funds from Operations /(1)/:
- ---------------------------

Net income $ 3,433 $ 693 $ 606 $ 1,398 $ 6,130
Minority interest in Operating --- --- --- --- ---
------ ------ ------ ------ -----
Partnership
Operating Partnership income 3,433 693 606 1,398 6,130
Depreciation of real estate assets 1,272 1,292 1,326 1,351 5,241
Amortization of deferred lease costs 67 65 74 74 280
Lease termination income (2,613) --- --- --- (2,613)
Extraordinary loss on early retirement
of long-term debt --- --- 48 --- 48
Depreciation of real estate assets
from unconsolidated affiliates 70 73 73 74 290
Adjustment for minority interest in
consolidated affiliates (40) (40) (43) (51) (174)
Dividends paid on preferred stock (1,790) (1,791) (1,790) (1,791) (7,162)
------ ------ ------ ------ -------
Operating Partnership funds from
operations 399 292 294 1,055 2,040
Minority interest in Operating
Partnership (84) (62) (32) (31) (209)
---- ---- ---- ---- -----
Funds from operations $ 315 $ 230 $ 262 $ 1,024 $ 1,831
=========== ========== ========== ========== ==========

Dividends declared $ 0.125 $ 0.125 $ 0.125 $ 0.205 $ 0.58
Dividends paid on Common Stock 292 292 359 146 1,089
Pay-out ratio 92.7% 126.9% 137.0% 14.3% 59.5%

Additional Data
- ---------------
Cash Flows:
- -----------
Operating activities 5,898 715 2,401 7,061 16,075
Investing activities (831) (439) (1,898) 359 (2,809)
Financing activities (3,840) (2,953) (572) (6,653) (14,018)

Capital Expenditures:
- ---------------------
Building improvements 215 109 97 129 550
Tenant improvements 578 388 1,445 358 2,769
Furniture, fixtures & equipment 67 35 64 80 246
Leasing commissions 178 165 87 58 488

Depreciation and Amortization:
- ------------------------------
Depreciation of real estate assets 1,272 1,292 1,326 1,351 5,241
Depreciation of non-real estate
assets 121 125 122 121 489
Amortization of deferred lease costs 67 65 74 74 280
Amortization of deferred
licensing costs 13 13 14 13 53
Amortization of capitalized
financing costs 170 178 167 188 703

Rents:
- ------
Straight-line rent 6,581 6,509 6,867 6,839 26,796
Billed rent 6,657 6,514 6,911 6,985 27,067

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

34

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, 2001, approximately 32% of the Company's notes payable bear interest at a
rate indexed to the one-month LIBOR rate or Prime Rate. The tables below provide
information as of December 31, 2001 and 2000 about the Company's long-term debt
obligations that are sensitive to changes in interest rates, including principal
cash flows by scheduled maturity, weighted average interest rate and estimated
fair value. The weighted average interest rates presented are the actual rates
as of December 31, 2001 and 2000.

Fair Market
PRINCIPAL MATURING IN: Value
--------------------------------------------------------------
December
2002 2003 2004 2005 2006 Thereafter Total 31, 2001
---- ---- ---- ---- ---- ---------- ----- --------
(in thousands)

Liabilities:
Mortgage debt:
Fixed rate $2,275 $2,458 $2,637 $34,122 $31,418 $57,065 $129,975 $139,944
Average interest rate 7.78% 7.78% 7.78% 7.78% 7.75% 7.34% 7.78%

Variable rate 23,905 5,589 1,542 1,542 1,542 27,163 61,283 72,503
Average interest rate 7.34% 7.34% 7.34% 7.34% 7.34% 7.34% 7.34%

Line of credit:
Variable rate 1,440 1,440 1,440
Average interest rate 7.0% 7.0%

------- ------- ------ -------- -------- -------- --------- --------
$27,620 $8,047 $4,179 $35,664 $32,960 $84,228 $192,698 $213,887
======= ======= ======= ======== ======== ======== ========= ========

The Company's future earnings and cash flows relating to market sensitive
instruments are primarily dependent upon prevailing LIBOR market interest rate.
Based upon interest rates as of December 31, 2001, a 1% increase in the LIBOR
rate would decrease future earnings by $613,000, future cash flow would not be
affected. A 1% decrease in the LIBOR rate would increase future earnings by
$613,000, future cash flow would not be affected. A 1% change in the LIBOR rate
would not have a material impact on the fair value of the Company's debt.

Fair Market
PRINCIPAL MATURING IN: Value
--------------------------------------------------------------
December 31,
2001 2002 2003 2004 2005 Thereafter Total 2000
---- ---- ---- ---- ---- ---------- ----- ----
(in thousands)

Liabilities:
Mortgage debt:
Fixed rate $1,976 $2,145 $2,307 $2,475 $33,907 $71,432 $114,242 $105,337
Average interest rate 7.73% 7.73% 7.73% 7.73% 7.73% 7.73% 7.73%

Variable rate 8,818 22,947 88 95 103 10,852 42,903 42,903
Average interest rate 9.32% 9.32% 9.32% 9.32% 9.32% 9.32% 9.32%

Line of credit:
Variable rate 1,797 1,797 1,797
Average interest rate 11.50% 11.50%

------- ------- ------- ------- -------- -------- --------- ---------
$12,591 $25,092 $2,395 $2,570 $34,010 $82,284 $158,942 $150,037
======= ======= ======= ======= ======== ======== ========= =========

The Company's future earnings and cash flows relating to market sensitive
instruments are primarily dependent upon prevailing LIBOR market interest rate.
Based upon interest rates as of December 31, 2000, a 1% increase in the LIBOR
rate would decrease future earnings by $429,000, future cash flow would not be
affected. A 1% decrease in the LIBOR rate would increase future earnings by
$429,000, future cash flow would not be affected. A 1% change in the LIBOR rate
would not have a material impact on the fair value of the Company's debt.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

See Index to Consolidated Financial Statements and Schedules on Page 42.

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

Not applicable.

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, 2002, based on information furnished to us by each
director.

Director
Name Age Position Since
- ---- --- -------- -----

Daniel M. Gottlieb 61 Chief Executive Officer, Co-Chairman of the 1993
Board and Director
Steven D. Lebowitz 61 President, Co-Chairman of the Board and Director 1993
Richard L. Lesher 68 Director 1993
Charles P. Reilly 59 Director 1993
S. Craig Tompkins 51 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.

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.

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 from 1975 to 1997. 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 World Heart
Corporation (Ottawa, Canada), an artificial heart research and development
company and AIT Corporation, a high-tech company. Dr. Lesher received a B.B.A.
from the University of Pittsburgh in 1958, a M.S.

36

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 general partner of Shamrock Investments, 2049
Century Park East, Suite 3300, Los Angeles, CA 90067, an investment and merchant
banking firm that specializes in the health care industry. Prior to forming
Shamrock Investments in 1987, Mr. Reilly served as Senior Executive Vice
President and Chief Development Officer for American Medical International, Inc.
In this position, Mr. Reilly was responsible for growth through the acquisition
and development of new health care facilities and related business in the United
States and abroad. Mr. Reilly was a member of American Medical International's
board of directors and served on its finance, management, and executive
committees. Mr. Reilly is the former Chairman of the board of directors of
Dynamic Health, Inc., an owner/operator of acute care hospitals, the former
Chairman of the board of directors of Paragon Ambulatory Surgery Centers, Inc.,
an owner/operator of freestanding ambulatory surgery centers, and the former
Chairman of the board of directors of PHP Healthcare Corp., a managed care
provider. Mr. Reilly holds a law degree from the University of Pennsylvania and
a bachelor's degree in accounting and finance from Pennsylvania State
University. He has served as a director, trustee, and governing council member
of the Federation of American Healthcare Systems, the National Committee for
Quality Health Care and the American Hospital Association and is a past
President of the Beverly Hills Chamber of Commerce.

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

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

Officer
Name Age Position Since
- ---- --- -------- -----

Daniel M. Gottlieb 61 Chief Executive Officer, Co-Chairman of the Board 1993
Steven D. Lebowitz 61 President, Co-Chairman of the Board 1993
John H. Rauch 71 Senior Vice President, Operations 1996
David E. Hamer 28 Vice President, Chief Accounting Officer, and 1998
Secretary

The following is a biographical summary of the experience of our executive
officers. For the biographical summary of the experience of Messrs. Gottlieb and
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

37

degree from the University of Southern California with honors in 1961 and his
bachelor's degree in economics from the University of California, Los Angeles
in 1954.

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

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to our
chief executive officer and our three other most highly compensated executive
officers whose cash compensation exceeded $100,000 during the year ended
December 31, 2001 (collectively, the "Named Executive Officers"). We did not
grant any restricted stock awards or stock appreciation rights or make any
long-term incentive plan payouts during the year ended December 31, 2001.

Long Term
Compensation
Awards
Annual Compensation Securities
Fiscal Year ---------------------------- Underlying
Ended Other Annual Options/
Name and Principal Position December 31 Salary($) Bonus($) Compensation($) SARS(#)
- --------------------------- ----------- --------- -------- --------------- --------

Daniel M. Gottlieb.......... 2001 $267,750 $100,000 -- --
Chief Executive Officer, 2000 255,000 35,000 -- 50,000
Co-Chairman of the Board 1999 255,000 -- -- --
and Director

Steven D. Lebowitz.......... 2001 $267,750 $100,000 -- --
President, Co-Chairman 2000 255,000 -- -- 50,000
of the Board and Director 1999 255,000 35,000 -- --

John H. Rauch .............. 2001 $115,000 $30,000 -- --
Senior Vice President 2000 100,000 25,000 -- --
1999 80,000 20,000 -- --

David E. Hamer.............. 2001 $125,000 $40,000 -- --
Vice President, Chief 2000 100,000 15,000 -- --
Accounting Officer and 1999 85,000 7,500 -- --
Secretary
- ---------------------------------------------------------------------------------------------------------

______________________

EMPLOYMENT AGREEMENTS AND ARRANGEMENTS

In December 1993, each of Daniel M. Gottlieb and Steven D. Lebowitz entered
into separate but identical employment agreements with us and the operating
partnership for a term of three years. The agreements provide for automatic
renewal for succeeding terms of one year unless we or Messrs. Gottlieb or
Lebowitz give notice at least three months prior to expiration of any term. The
employment agreements provide for automatic annual increases in base
compensation equal to 5% per annum; however, the compensation committee of the
board of directors may review the annual base compensation every twelve months
in light of various factors, and following each such review, the annual base
compensation may be increased above the 5% automatic increase. In 1999 and 2000,
Messrs. Gottlieb and Lebowitz waived their right to receive the automatic 5%
salary increase. The compensation committee approved the salary increase for
Messrs. Gottlieb and Lebowitz in 2001.

38

In addition, each of Messrs. Gottlieb and Lebowitz are entitled to receive
an annual bonus as determined by the compensation committee in an amount not to
exceed a maximum of 100% of annual base compensation. Furthermore, each
agreement provides that Messrs. Gottlieb and Lebowitz are entitled: (1) to
participate in all of our medical, dental, life insurance, retirement, profit
sharing, stock incentive, disability and bonus plans which may be made available
to our executives (only medical plans presently exist) and (2) to severance
payments, under certain circumstances, equal to two times their then-current
annual compensation. The compensation committee approved a bonus of $100,000 in
2001 and $35,000 in 2000 for each of Messrs. Gottlieb and Lebowitz.

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

OPTION GRANTS FOR 2001

The Company granted no options in 2001.

AGGREGATED OPTION EXERCISES IN 2001 AND OPTIONS VALUES AT DECEMBER 31, 2001

There were no option exercises during 2001. However, as part of the
Merger, the Company repurchased all outstanding in-the-money options on October
29, 2001 at a price equal to the difference between $13.00 per option and the
exercise price of the option. The Company paid a total of $683,000 to its
directors, officer and employees to repurchase the outstanding in-the-money
options as of October 29, 2001, including $649,000 to the Named Executive
Officers.

COMPENSATION OF DIRECTORS

We pay an annual fee of $12,500 plus a fee of $1,000 for attending regular
meetings and $500 for attending committee meetings to our directors who are not
our employees. Our employees who are also directors are not paid any director
fees. Messrs. Gottlieb and Lebowitz are the only directors who are also our
employees. The reasonable expenses incurred by each director in connection with
the performance of the director's duties are also reimbursed by us. The Company
also approved payment to the directors for their work on the special committee
of the board of directors during 2001. The Company approved payment of $55,000
to Dr. Lesher and $70,000 to Mr. Reilly which were paid in 2002. The Company
also approved payment of $100,000 to Mr. Tompkins, of which $50,000 was paid in
2002 and $50,000 will be paid in 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of March 31, 2002 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
the Named Executive Officers (as defined under "Executive Compensation") and (4)
our directors and executive officers as a group. As of March 31, 2002 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.

39

Number of Percentage of Percentage Number of
Shares of Shares of Interest In Percentage Shares of
Name and address Common Common Stock Number of Operating Ownership in Preferred
Of Beneficial Owner Stock Outstanding/(1)/ Units/(2)/ Partnership/(3)/ Company/(4)/ Stock
------------------- ----- -------------- -------- ---------------- ---------- -----

Daniel M. Gottlieb/(5)/ /(7)/ 383,582 54.0% 14,400 1.9% 53.1% 98,207
439 N. Bedford Drive
Beverly Hills, CA 90210

Steven D. Lebowitz/(6)/ /(7)/ 326,617 46.0 12,404 1.7 4 5.2 83,658
439 N. Bedford Drive
Beverly Hills, CA 90210

Directors and Executive 710,199 100.0% 26,804 3.6% 98.3% 181,865
Officers.....................
as a group (2 persons)

/(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, 2002. 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,
2002.

/(4)/ Assumes that all operating partnership units held by the person or
group and all options exercisable within 60 days of March 31, 2002 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.

/(5)/ Mr. Gottlieb has pledged 383,582 shares of Common Stock to GMAC
Commercial Mortgage Corp. in connection with the $35 million loan
obtained by the Company to facilitate the Merger. Mr. Gottlieb has
pledged 83,200 shares of preferred stock to secure personal loans.

/(6)/ Mr. Lebowitz has pledged 326,617 shares of Common Stock to GMAC
Commercial Mortgage Corp. in connection with the $35 million loan
obtained by the Company to facilitate the Merger. Mr. Lebowitz has
pledged 68,073 shares of preferred stock to secure personal loans.

/(7)/ Because Messrs. Gottlieb and Lebowitz have pledged all of the Company's
Common Stock to GMAC Commercial Mortgage Corp. to secure the $35
million loan obtained by the Company to facilitate the Merger, a
default on the $35 million loan could result in a foreclosure of the
Company's Common Stock and a change in control of the Company.

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

40

together with a series of similar transactions during the same fiscal year,
involves an amount which exceeds $60,000.

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 order to fund the Merger and related transactions, Messrs. Gottlieb and
Lebowitz obtained a loan from GMAC Commercial Mortgage Corporation ("GMAC") in
the amount of $35 million (the "Loan"). Immediately following the completion of
the Merger on October 29, 2001, the Operating Partnership became the borrower
under the Loan. The Loan is for ten years and bears interest initially at the
one month London Interbank Offered Rate ("LIBOR") plus 7.5%. The spread over
LIBOR can be reduced to as low as 5.5% based on the outstanding balance on the
Loan and if the Operating Partnership meets certain debt service covenant
ratios. As interest rate protection, the Operating Partnership purchased a LIBOR
cap on November 8, 2001 for $905,000 which caps the maximum LIBOR rate at 4.25%
for five years in determining the interest due on the Loan.

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

41

PART IV

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

(a) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES:

Page
Reference
Form 10-K
---------

1. Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999 F-3
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 F-5 to 7
Notes to Consolidated Financial Statements F-8 to 35

2. Consolidated Financial Statement Schedules:

All schedules have been omitted because the required
information is not present in amounts sufficient to require
submission of the schedule or because the required information
is included elsewhere in the Consolidated Financial Statements
or the Notes thereto.

(b) REPORTS ON FORM 8-K

A report on Form 8-K dated September 28, 2001 was filed with the Securities
and Exchange Commission on October 4, 2001 for the purpose of announcing
that the Company entered into Amendment No. 1 to the merger agreement and
that the special committee had received a limited waiver under the merger
agreement that permitted the special committee to enter into discussions
and negotiations with the Weisman Group regarding the latest proposal of
the Weisman Group.

A report on Form 8-K dated October 12, 2001 was filed with the Securities
and Exchange Commission on October 16, 2001 for the purpose of announcing
that the special committee had received a revised proposal from the Weisman
Group to acquire the outstanding common stock of the Company.

A report on Form 8-K dated October 19, 2001 was filed with the Securities
and Exchange Commission on October 23, 2001 for the purpose of announcing
that a Los Angeles County Superior Court judge had issued an order
temporarily restraining the closing of the merger of the Company with G & L
Acquisition, LLC, provided that the plaintiffs delivered to the court a
$16.2 million bond on Tuesday, October 23. The Company also announced that
the special committee had advised the Weisman Group that it would be
prepared to recommend to the board of directors the transaction that is
described in its response letter to the Weisman Group, which was delivered
on October 20, 2001.

A report on Form 8-K dated October 22, 2001 was filed with the Securities
and Exchange Commission on October 26, 2001 for the purpose of announcing
that a Los Angeles County Superior Court judge had vacated the order
temporarily restraining the closing of the merger of the Company with G & L
Acquisition, LLC. The Company also announced that the special committee had
responded to the most recent proposal of the Weisman Group. In addition,
the Company announced that at its annual meeting of the stockholders held
on October 24, 2001 the Company's common stockholders approved the merger
of the Company with G & L Acquisition, LLC by the affirmative vote of
approximately 60% of the common stock.

42

A report on Form 8-K dated October 26, 2001 was filed with the Securities
and Exchange Commission on October 31, 2001 for the purpose of announcing
the completion of the merger of the Company with G & L Acquisition, LLC.
Under the terms of the merger agreement, as amended, each share of the
Company's common stock had been converted into the right to receive $13 in
cash. Following the merger, the Company's common stock was delisted from
the New York Stock Exchange.

A report on Form 8-K dated October 29, 2001 was filed with the Securities
and Exchange Commission on November 13, 2001 for the purpose of announcing
the change of control of the Company pursuant to the completion of the
merger of the Company with G & L Acquisition, LLC.

43

(c) EXHIBITS

Exhibit No. Note Description
------------ ---- -----------------------------------------------------------------------------------------

2.1 (12) The Agreement and Plan of Merger between G&L Acquisition, LLC and G&L realty Corp.

2.2 (13) 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 (14) 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 (16) Partnership Merger Agreement dated as of May 10, 2001 by and among G&L Acquisition, LLC,
G&L Partnership, LLC, G&L Realty Corp. and G&L Realty Partnership, L.P.

3.1 (1) Amended and Restated Articles of Incorporation of G&L Realty Corp.

3.2 (3) Amended and Restated Bylaws of G&L Realty Corp.

10.3 (2) Agreement of Limited Partnership of G&L Realty Partnership, L.P.

10.3.2 (15) 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.

10.8.2 (2) Option Notice with respect to Sherman Oaks Medical Plaza

10.9.2 (1) Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive,
Ltd.) between the Selling Partner (as defined therein) and G&L Development, dated as of
October 29, 1993.

10.11 (1) Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty
Corp. and Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29,
1993.

10.12.2 (3) Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L
Financing Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of
New York.

10.22 (4) Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing
Partnership II, L.P., as Borrower, and Nomura Asset Capital Corporation, as Lender, dated
as of October 31, 1995.

10.24 (4) Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner,
and G&L Realty Partnership, L.P., as agent, made August 10, 1995

10.25 (5) Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital
Corporation, dated as of September 29, 1995.

10.30 (6) Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership,
L.P. as Borrower and Nomura Asset Capital Corporation as Lender.

10.38 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a
Delaware limited partnership, and Property Acquisition Trust I, a Delaware business trust,
for the purpose of creating a Limited Liability Company to be named GLN Capital Co., LLC,
dated as of November 25, 1996.

10.39 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a
Delaware limited partnership, and PHP Healthcare Corporation, a Delaware corporation, for
the purpose of creating a Limited Liability Company to be named GL/PHP, LLC, dated as of
February 26, 1997.

44

(c) EXHIBITS - (continued from previous page)

Exhibit No. Note Description
----------- ---- -------------------------------------------------------------------------------------------

10.40 (7) First Amendment To Limited Liability Company Agreement entered into as of March 31, 1997
by and between G&L Realty Partnership, L.P., a Delaware limited partnership, and Property
Acquisition Trust I, a Delaware business trust, for the purpose of amending that certain
Limited Liability Company Agreement of GLN Capital Co., LLC dated as of November 25, 1996.

10.45 (8) First Amendment to GL/PHP, LLC Limited Liability Company Agreement by and among G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Retiring Manager"), G&L Realty
Partnership, L.P., a Delaware limited partnership ("G&L Member"), and G&L Management
Delaware Corp., a Delaware corporation ("Manager Member"), made as of August 15, 1997.

10.46 (8) Lease Agreement between GL/PHP, a Delaware limited liability company (the "Landlord") and
Pinnacle Health Enterprises, LLC, a Delaware limited liability company wholly owned by PHP
Healthcare Corporation, a Delaware corporation (the "Tenant"), dated August 15, 1997

10.47 (8) Guaranty of Lease by PHP Healthcare Corporation, a Delaware corporation (the "Guarantor"),
dated February 15, 1997.

10.48 (8) Non-Negotiable 8.5% Note Due July 31, 2007 in which G&L Realty Partnership, L.P., a
Delaware limited partnership (the "Maker"), promises to pay to PHP Healthcare Corporation
(the "Payee") the principal sum of $2,000,000.00, dated August 15, 1997.

10.49 (8) Mortgage Note in which GL/PHP, LLC a Delaware limited liability company (the "Maker")
promises to pay to the order of Nomura Asset Capital Corporation, a Delaware corporation,
the principal sum of $16,000,000.00, dated August 15, 1997.

10.50 (8) Mortgage, Assignment of Leases and Rents and Security Agreement by GL/PHP, LLC a Delaware
limited liability company (the "Mortgagor") to Nomura Asset Capital Corporation, a
Delaware corporation (the "Mortgagee"), dated August 15, 1997.

10.51 (8) Assignment of Leases and Rents by GL/PHP, LLC a Delaware limited liability company (the
"Assignor") to Nomura Asset Capital Corporation, a Delaware corporation (the "Assignee"),
dated August 15, 1997.

10.52 (8) Environmental and Hazardous Substance Indemnification Agreement by GL/PHP, LLC a Delaware
limited liability company (the "Borrower") to Nomura Asset Capital Corporation, a Delaware
corporation (the "Lender"), dated August 15, 1997.

10.58 (9) Limited Liability Company Agreement of G&L Hampden, LLC.

10.77 (10) Agreement for Transfer of Property by and among G&L Coronado, LLC as Transferor and G&L
Realty Partnership, L.P. as Operating Partnership dated as of December 30, 1998.

10.78 (10) Tenant Estoppel and Real Estate Lease between G&L Coronado, LLC as Landlord and Coronado
Managers Corp. as Tenant dated December 1, 1998.

10.79 (10) Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively
"Guarantor") in favor of G&L Coronado, LLC ("Landlord").

10.81 (11) Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and
GMAC Commercial Mortgage Corporation, as Lender.

10.82 (15) Credit Agreement among G&L Realty Partnership, L.P., G&L Partnership, LLC, the Several
Lenders from Time to Time Parties Hereto and GMAC Commercial Mortgage Corporation, as
Agent, dated as of October 29, 2001

10.83 (15) Guarantee and Collateral Agreement made by Daniel M. Gottlieb, Steven D. Lebowitz, G&L
Realty Corp. and G&L Realty Partnership, L.P. in favor of GMAC Commercial Mortgage
Corporation, as Agent, dated as of October 29, 2001.

21 List of Subsidiaries

45

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

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

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

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

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

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

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

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

9) 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.

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

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

12) 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.

13) 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.

14) 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.

15) 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.

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

c) Management contract or compensatory plan or arrangement.

46

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
G&L Realty Corp.:

We have audited the accompanying consolidated balance sheets of G&L
Realty Corp. and subsidiaries (the Company) as of December 31, 2001 and 2000
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of G&L Realty Corp. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

Los Angeles, California
March 1, 2002

F-1

G&L REALTY CORP.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

December 31,
2001 2000
-------------------------------------

ASSETS
------
Rental properties (Notes 3, 18 and 20):
Land $28,599 $28,599
Building and improvements, net 137,410 139,510
Projects under development -- 171
-------- --------
Total rental properties 166,009 168,280
Cash and cash equivalents 2,039 2,791
Restricted cash 4,252 4,624
Tenant rent and reimbursements receivable, net (Note 4) 6,178 6,669
Unbilled rent receivable, net (Note 5) 2,661 2,412
Other receivables, net (Note 6) 19 46
Mortgage loans and bonds receivable, net (Note 7) 11,976 11,244
Investments in unconsolidated affiliates (Note 8) 4,581 4,851
Deferred charges and other assets, net (Note 10) 7,309 4,549
-------- --------
TOTAL ASSETS $205,024 $205,466
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable (Note 11) $192,698 $158,942
Accounts payable and other liabilities 10,313 6,099
Distributions payable 270 433
Tenant security deposits 1,561 1,367
-------- --------
Total liabilities 204,842 166,841
Commitments and Contingencies (Note 12)
Minority interest in consolidated affiliates (719) (1,266)
Minority interest in Operating and Senior Care Partnerships -- --

STOCKHOLDERS' EQUITY (Notes 13 and 14):
Preferred shares - $.01 par value, 10,000,000 shares
authorized, liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding
as of December 31, 2001 and December 31, 2000, respectively 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding
as of December 31, 2001 and December 31, 2000, respectively 14 14
Common shares - $.01 par value, 50,000,000 shares authorized, 710,199 and
2,334,000 shares issued and outstanding as of
December 31, 2001 and 2000, respectively 7 23
Additional paid-in capital 40,827 72,441
Distributions in excess of net income (34,722) (32,602)
Notes receivable from stockholders (5,240) --
--------- -------
Total stockholders' equity 901 39,891
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $205,024 $205,466
======= =======

See accompanying notes to Consolidated Financial Statements

F-2

G&L REALTY CORP.

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

Year Ended December 31,
2001 2000 1999
---------------- ----------------- ----------------

REVENUES:
Rent (Notes 5 and 15) $ 26,797 $ 25,889 $ 27,928
Patient revenues 21,057 17,820 --
Tenant reimbursements 1,894 1,495 1,275
Parking 1,502 1,273 1,148
Interest and loan fees 2,801 2,532 2,797
Net gain on sale of assets -- 1,263 --
Other income (Note 12) 4,484 573 398
------ ------ ------
Total revenues 58,535 50,845 33,546
------ ------ ------
EXPENSES:
Property operations 8,679 7,854 7,359
Skilled nursing operations 19,004 16,548 --
Depreciation and amortization 6,063 6,015 5,690
Interest 13,472 13,802 12,393
General and administrative 3,953 2,892 3,196
Provision for doubtful accounts, notes and
bonds receivable (Notes 4 and 7) 1,004 2,288 2,210
Impairment of long-lived assets (Note 3) -- -- 6,400
--------- --------- ---------
Total expenses 52,175 49,399 37,248
--------- --------- ---------

Income (loss) from operations before minority interests,
equity in earnings (loss) of unconsolidated affiliates
and extraordinary loss 6,360 1,446 (3,702)

Equity in earnings (loss) of unconsolidated affiliates 205 (417) (269)
Minority interest in consolidated affiliates (302) (182) (175)
Corporate income tax expense (85) -- --
Minority interest in Operating Partnership -- 460 2,202
--------- --------- ---------

Income (loss) before extraordinary loss 6,178 1,307 (1,944)
Extraordinary loss on early retirement of
long-term debt (net of minority interest) (Note 17) (48) (158) (171)
---------- ---------- ----------

Net income (loss) 6,130 1,149 (2,115)
Dividends on preferred stock (7,162) (7,164) (7,212)
---------- ---------- ----------

Net loss available to common stockholders $ (1,032) $ (6,015) $ (9,327)
========== ========== ==========

See accompanying notes to Consolidated Financial Statements

F-3

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

Preferred Stock Preferred Stock
Series A Series B Common Stock
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------

BALANCE JANUARY 1, 1999 1,495 $15 1,380 $14 3,995 $40
Repurchase of common stock (1,359) (14)
Net Loss
Distributions declared
---------- ---------- ------------ --------- ----------- -----------
BALANCE DECEMBER 31, 1999 1,495 15 1,380 14 2,636 26
Repurchase of common and
preferred stock (302) (3)
Net Income
Distributions declared
---------- ---------- ------------ --------- ----------- -----------
BALANCE DECEMBER 31, 2000 1,495 15 1,380 14 2,334 23
Repurchase of common stock
Partnership units (1,624) (16)
Issuance of notes receivable to
stockholders
Net Income
Distributions declared
---------- ---------- ------------ --------- ----------- -----------
BALANCE DECEMBER 31, 2001 1,495 $15 1,380 $14 710 $7
==========================================================================

Notes
Additional Distributions receivable Total
Paid-in in excess of from stockholders'
capital net income stockholders equity
-----------------------------------------------------------

BALANCE JANUARY 1, 1999 $91,709 $(12,194) $ -- $79,584
Repurchase of common stock (16,297) (16,311)
Net Loss (2,115) (2,115)
Distributions declared (11,103) (11,103)
------------ ------------- --------------- -------------
BALANCE DECEMBER 31, 1999 75,412 (25,412) -- 50,055
Repurchase of common and
preferred stock (2,971) (2,974)
Net Income 1,149 1,149
Distributions declared (8,339) (8,339)
------------ ------------- --------------- -------------
BALANCE DECEMBER 31, 2000 72,441 (32,602) -- 39,891
Repurchase of common stock
Partnership units (31,439) (31,455)
Issuance of notes receivable to
stockholders (5,240) (5,240)
Net Income 6,130 6,130
Distributions declared (175) (8,250) (8,425)
---------- ------------- --------------- -------------
BALANCE DECEMBER 31, 2001 $40,827 $(34,722) $(5,240) $901
===========================================================

See accompanying notes to Consolidated Financial Statements

F-4

G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,
2001 2000 1999
---------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $6,130 $1,149 $(2,115)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary loss on early retirement of long-term debt 48 158 171
Depreciation and amortization 6,063 6,015 5,690
Amortization of deferred financing costs 703 614 394
Impairment of long-lived assets -- -- 6,400
Net gain on sale of assets -- (1,263) --
Minority interests 302 (278) (2,027)
Unbilled rent receivable (249) (176) (454)
Equity in (earnings) loss of unconsolidated affiliates (205) 417 269
Provision for doubtful accounts, notes and bonds receivables 1,004 2,288 2,210
(Increase) decrease in:
Prepaid expense and other assets (74) (962) 419
Other receivables, net 27 125 (73)
Tenant rent and reimbursements receivable (367) (4,790) (2,638)
Accrued interest and loan fees receivable (1,207) 333 (580)
Increase (decrease) in:
Accounts payable and other liabilities 3,706 3,822 983
Tenant security deposits 194 38 59
-------------- ------------- -------------
Net cash provided by operating activities 16,075 7,490 8,708
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental properties (3,189) (3,259) (3,656)
Purchases of real estate assets -- (10,385) --
Sale of real estate assets -- 8,794 --
Construction in progress 171 (13) (5,297)
Disposition of real estate assets available for sale -- -- 1,792
Pre-acquisition costs, net (107) 471 (571)
Contributions to unconsolidated affiliates (256) (482) (1,135)
Distributions from unconsolidated affiliates 731 1,262 320
Leasing commissions (488) (158) (438)
Investments in notes and bonds receivable (478) (283) (3,496)
Principal payments received from notes and bonds receivable 807 3,680 151
-------------- ------------- -------------
Net cash used in investing activities (2,809) (373) (12,330)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 47,550 9,310 71,550
Repayment of notes payable (13,286) (12,427) (29,188)
Payment of deferred loan costs (3,551) (428) (1,434)
Decrease (increase) in restricted cash 372 3,969 (4,756)
Minority interest equity contribution -- 486 1,237
Purchase of common and preferred stock and partnership units (36,078) (2,974) (14,311)
Distributions (9,025) (9,807) (13,310)
-------------- ------------- -------------
Net cash (used in) provided by financing activities (14,018) (11,871) 9,788
-------------- ------------- -------------

Continued...

F-5

G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (752) (4,754) 6,166
BEGINNING CASH AND CASH EQUIVALENTS 2,791 7,545 1,379
------------ ------------- ------------
ENDING CASH AND CASH EQUIVALENTS $ 2,039 $ 2,791 $ 7,545
============ ============= ============

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 12,479 $ 12,178 $ 13,375
============ ============= ============

NONCASH INVESTING AND FINANCING ACTIVITIES

Year Ended December 31,
2001 2000 1999
-------------------------------------------

Distributions declared not yet paid $ 370 $ 370 $ 407
============ ============ ===========

Transfers from projects under development to building $ 376 $ -- $ 13,526
============ ============ ===========

Preferred distributions due to minority partner $ 44 $ 63 $ 29
============ ============ ===========

Exchange of equity interest in consolidated affiliate for
partnership units held by non-affiliated limited partner $ 617 $ -- $ --
============ ============ ===========

Transfer from investments in unconsolidated affiliates
to notes receivable $ -- $ 3,070 $ --
============ ============ ===========

Net cost of assets transferred from the Company:
Land $ 5,640
Building and improvements, net 9,172
Restricted cash 170
Mortgage loans and bonds receivable, net 1,136
Deferred charges and other assets, net 197
------------
$ 16,315
============

Net cost of liabilities extinguished:
Notes payable $ 16,315
============

The Company acquired an interest in an unconsolidated affiliate for the
following noncash consideration:
Land $ 947
Construction in progress 774
-----------
$ 1,721
===========

Continued...

F-6

G&L REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended December 31,
2001 2000 1999
------------------------------------------------

The Company exchanged its interest in land and
construction in progress for the following noncash
consideration:
Investment in unconsolidated affiliates $ 1,721
============

Transfer note receivable to land and building:
Land $ 252
Building 1,009
-------------
Total $ 1,261
=============

Notes receivable $ 1,261
=============

Concluded

F-7

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2001

1. GENERAL

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

G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Senior Care Partnership, L.P., a Delaware limited
partnership (the "Senior Care Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited
partnership (the "Realty Financing Partnership")*
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
` 435 North Roxbury Drive, Ltd., a California limited
partnership (the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company
("Hampden")*
G&L Valencia, LLC, a California limited liability company
("Valencia")
G&L Holy Cross, LLC, a California limited liability company
("Holy Cross")*
G&L Burbank, LLC, a California limited liability company
("Burbank")*
G&L Tustin, LLC, a California limited liability company
("Tustin")*
GLH Pacific Gardens, LLC, a California limited liability
company ("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company
("Hoquiam")
G&L Lyons, LLC, a California limited liability company
("Lyons")
G&L Coronado (1998), LLC, a California limited liability
company ("Coronado")
GLH Tarzana, LLC, a California limited liability company
("Tarzana")
G&L Heritage Care, LLC, a Delaware limited liability company
("Heritage")
G&L Massachusetts, LLC, a Delaware limited liability company
("Massachusetts")
G&L Aspen, LLC, a California limited liability company
("Aspen")
G&L Tustin II, LLC, a Delaware limited liability company
("Tustin II")
G&L Tustin III, LLC, a Delaware limited liability company
("Tustin III")

* The Realty Financing Partnership, the Medical Partnership,
Maryland Gardens, GL/PHP, Hampden, Holy Cross, Burbank and Tustin
are herein defined collectively as the "Financing Entities" and
individually as the "Financing Entity".

The Company, as the sole general partner and as owner of an
approximately 95% ownership interest, controls the Operating Partnership and
the Senior Care Partnership. The Company controls the Financing Entities
through wholly owned subsidiaries incorporated in either the State of Delaware
or the State of California (collectively, the "Subsidiaries" and individually,
a "Subsidiary"). Each Subsidiary either (i) owns, as sole general partner or
sole managing member, a 1% ownership interest in its related Financing Entity
or (ii) owns no interest and acts as the manager of the Financing Entity. The
remaining 99% ownership interest in each Financing Entity, which is owned 1% by
a Subsidiary, is owned by the

F-8

Operating Partnership or the Senior Care Partnership, acting as sole limited
partner or member. Financing Entities in which a Subsidiary owns no interest
are 100% owned by the Operating Partnership and the Senior Care Partnership.

References in these consolidated financial statements to the Company
include its operations, assets and liabilities including the operations, assets
and liabilities of the Operating Partnership, the Senior Care Partnership, the
Subsidiaries, the Financing Entities, the Roxbury Partnership (in which the
Operating Partnership owns a 32.81% partnership interest and is the sole
general partner), Pacific Gardens (in which the Operating Partnership owns a
93% membership interest and is a co-managing member), Tarzana (in which the
Operating Partnership owns a 85% membership interest and is a co-managing
member) and Hoquiam, Lyons, Coronado, Heritage, Massachusetts, Aspen, Tustin II
and Tustin III (in which the Operating Partnership or the Senior Care
Partnership own a 100% interest).

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

. GLN Capital Co., LLC ("GLN") is a Delaware limited liability
company formed in 1996. GLN is owned 49.9% by the Operating
Partnership and 50.1% by an affiliate of Nomura Asset Capital
Corp. ("Nomura"). GLN was formed to fund loans to the senior care
industry. In October 2001, the Operating Partnership transferred
its interest in GLN to the Senior Care Partnership.

. G&L Grabel San Pedro, LLC ("San Pedro") is a California limited
liability company formed on March 10, 1998 by the Company through
the Operating Partnership, and Gary Grabel, an experienced medical
office building ("MOB") manager. The Company and Gary Grabel
contributed to San Pedro 84% and 16% of the equity, respectively.
However, the initial ownership interests of the parties will be
adjusted to 50% as each partner receives a return of its initial
capital contribution plus a preferred return on their initial
contribution. San Pedro was formed for the purpose of acquiring
three MOBs located at 1360 West 6th Street in San Pedro,
California.

. G&L Penasquitos, LLC ("Penasquitos LLC") is a California
limited liability company, formed by the Company on April 24,
1998, through the Operating Partnership, and Parsons House,
LLC, a California limited liability company ("Parsons"). The
Company and Parsons contributed to Penasquitos LLC 75% and 25% of
the equity, respectively. However, the initial ownership
interests of the parties will be adjusted to 50% as each partner
receives a return of its initial capital contribution plus
preferred distributions equal to 15% per annum on their capital
contribution. Penasquitos LLC was formed for the purpose of
acquiring and converting a building located in Rancho
Penasquitos, California into an assisted living facility. In
October 2001, the Operating Partnership transferred its interest
in Penasquitos, LLC to the Senior Care Partnership.

. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California
corporation formed on April 21, 1998 by the Company, through the
Operating Partnership, and Parsons House, LLC, a California
limited liability company. The Company owns 75% of the total
equity in Penasquitos Inc. in the form of non-voting preferred
stock. Parsons holds 25% of the total equity and all of the voting
common stock. Penasquitos Inc. was formed for the purpose of
operating an assisted living facility in Rancho Penasquitos,
California. In October 2001, the Operating Partnership transferred
its interest in Penasquitos, Inc. to the Senior Care Partnership.

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

F-9

Since July 1, 1999, Pacific Gardens Corp. has not operated the
assisted living facility and a wholly owned subsidiary of ASL
assumed all of the assets and liabilities of Pacific Gardens
Corp. in order to operate the facility.

. G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California
limited liability company, formed on December 29, 1998, through
the Operating Partnership and Parsons. The Company and Parsons
each contributed 50% of the total equity in Eagle Run. Eagle Run
was formed for the purpose of acquiring a vacant piece of land in
Omaha, Nebraska upon which the members developed an assisted
living facility. In October 2001, the Operating Partnership
transferred its interest in Eagle Run to the Senior Care
Partnership.

. G&L Parsons on Eagle Run, Inc. ("Eagle Run, Inc.") is a
California corporation formed on December 20, 1998 by the
Company, through the Operating Partnership and Parsons. Eagle
Run, Inc. was formed for the purpose of operating an assisted
living facility in Omaha, Nebraska on the land acquired by Eagle
Run. In October 2001, the Operating Partnership transferred its
interest in Eagle Run, Inc. to the Senior Care Partnership.

. Lakeview Associates, LLC ("Lakeview") is a California limited
liability company, formed on September 2, 1999 by the Company,
through the Operating Partnership and D.D.&F. ("Prestige"), an
Oregon general partnership. The Company and Prestige each
contributed 50% of the total equity of Lakeview. The Company
contributed land and construction in progress in exchange for 50%
of the equity of Lakeview and two notes totaling $1.4 million.
Prestige contributed $250,000 for a 50% interest in Lakeview.
Lakeview was formed for the purpose of developing a two story,
80 unit, 92 bed assisted living facility in Yorba Linda,
California. In October 2001, the Operating Partnership
transferred its interest in Lakeview to the Senior Care
Partnership.

. Tustin Heritage Park, LLC ("Heritage Park") is a California
limited liability company in which the Company has a 25% equity
ownership interest. In June 1999, the Company sold a vacant piece
of land in Tustin to Heritage Park. In exchange, the Company
received $75,000 in cash, a $425,000 first deed of trust and a
25% equity ownership interest in Heritage Park. In September
2000, the first deed of trust was increased to $675,000 in
exchange for unearned development fees and an extension of the
note. Heritage Park intends to develop a 53-unit senior apartment
residence on the land. In October 2001, the Operating Partnership
transferred its interest in Heritage Park to the Senior Care
Partnership

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business-- The Company is a self-managed Real Estate Investment Trust
("REIT") that acquires, develops, manages, finances and leases healthcare
properties. The Company's business currently consists of investments in
healthcare properties and in debt obligations secured by healthcare properties.
Investments in healthcare property consists of acquisitions, made either
directly or through joint ventures, in MOBs, skilled nursing facilities
("SNFs") or assisted living facilities ("ALFs"). The Company's lending
activities consist of providing short-term secured loans to facilitate third
party acquisitions of healthcare properties.

Basis of presentation-- The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. The
interests in the Roxbury Partnership, Pacific Gardens, Pacific Park, Tarzana,
the Operating Partnership and the Senior Care Partnership that are not owned by
the Company, have been reflected as minority interests in the

F-10

Operating and Senior Care Partnerships. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Properties-- The Operating Partnership, the Senior Care Partnership,
the Realty Financing Partnership, the Medical Partnership, Maryland Gardens,
the Roxbury Partnership, GL/PHP, Hampden, Valencia, Holy Cross, Burbank,
Tustin, Pacific Gardens, Hoquiam, Lyons, Heritage, Massachusetts, Aspen,
Coronado, Tustin II and Tustin III 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, 2001, 2000 and 1999, 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 its three SNFs located in Hampden, Massachusetts. Under
Section 856(e) of the Code, the Company has the ability to operate these
properties as "foreclosure property" for a period of up to three years after
the year in which the foreclosure took place. However, the Company must pay
Federal and State income taxes on the taxable income produced by these three
facilities during this period. As a result, the Company has included $85,000 of
corporate income tax expense in its financial statements. State income tax
requirements are similar to Federal requirements.

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, 2001, 2000 and
1999 was $5,730,000, $5,697,000 and $5,424,000 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 also maintained cash balances at
banks in excess of federally insured limits.

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

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 effective interest method over the terms of the respective loan
agreements. Expenses incurred to obtain financing are capitalized and amortized
over the term of the related loan as a yield adjustment.

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

F-11

and subsequent accumulated earnings. It is management's opinion that the
deficit is adequately secured by the unrecognized appreciated value of the
Roxbury property and will be recovered through an accumulation of undistributed
earnings or sale of the property. The Operating Partnership, as sole general
partner, also owns a 50% interest in Pacific Park. The Senior Care Partnership
owns a 93% interest in Pacific Gardens and an 85% interest in Tarzana.

Long-lived assets-- The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that an asset's
book value exceeds the undiscounted expected future cash flows to be derived
from that asset. Whenever undiscounted expected future cash flows are less than
the book value, the asset will be reduced to estimated fair value and an
impairment loss will be recognized. During 1999, the Company recorded a $6.4
million impairment loss related to its six New Jersey MOBs (See Note 3). The
Company recorded no impairment losses in 2001 and 2000.

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, 2001 and 2000 approximate fair value because the interest
rates are comparable to rates currently being offered to the Company. The fair
value of the Company's fixed rate notes payable as of December 31, 2001 and
2000 was $139.9 million and $105.3 million, respectively because the interest
rates on the Company's fixed rate notes payable were higher for 2001 and lower
for 2000 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.

Recent accounting pronouncements-- In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133"). SFAS 133, as amended, is effective for fiscal years beginning after
June 15, 2000 and requires all derivatives to be recorded on the balance sheet
at fair value as either assets or liabilities depending on the rights or
obligations under the contracts. SFAS 133 also establishes new accounting
methodologies for the following three classifications of hedges: fair value,
cash flow and net investment in foreign operations. The Company's adoption of
SFAS 133 on January 1, 2001 did not have a material impact on the Company's
financial position or results of operations.

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. The interest
rate cap is for a term of five years and protects the Company on a specific
portion of the loan, which decreases over the term of the cap, on any increase
in the one-month LIBOR rate above 4.25% per annum. 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. Based on the fair value of the interest cap as of December 31, 2001,
the Company recorded an increase in net income of $500,000 in the statement of
operations for the year ended December 31, 2001.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company was required to adopt SAB 101 in the fourth quarter of 2000. The
Company's adoption of SAB 101 did not have a material impact on the Company's
financial position or results of operations.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transaction Involving
Stock Compensation." The Company was required to adopt FIN 44 effective July 1,
2000 with respect to certain provisions applicable to new awards, exchanges of
awards in a business combination, modifications to outstanding awards and
changes in grantee status that occur on or after that date. FIN 44 addresses
practice issues related to the application of Accounting Practice Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company's
adoption of FIN 44 did not have a material impact on its financial position or
results of operations.

F-12

In July 2001, the Financial Accounting Standards Board issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 is effective immediately and SFAS No. 142
will be effective in January 2002. SFAS No. 141 prohibits the use of
pooling-of-interests method, requiring all business combinations to be
accounted for using the purchase method of accounting. SFAS No. 142
discontinues the practice of amortizing goodwill and other intangible assets
and requires the periodic review of intangible assets for impairment. The
Company's adoption of these new standards is not expected to have a material
impact on the Company's financial position or results of operations.

In October 2001, the Financial Accounting Standards Board issued
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets,"
("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the
disposal of long-lived assets. SFAS 144 becomes effective for financial
statements issued for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. The Company does not expect the
pronouncement to have a material impact on its financial position or results of
operations.

3. BUILDINGS AND IMPROVEMENTS

Buildings and improvements consist of the following:

December 31,
2001 2000
----------------------------------
(in thousands)

Buildings and improvements $155,774 $155,224
Tenant improvements 11,983 9,214
Furniture, fixtures and equipment 3,526 3,280
---------------- ----------------
171,283 167,718
Less accumulated depreciation
and amortization (33,873) (28,208)
---------------- ----------------
Total $137,410 $139,510
================ ================

Impairment loss - In 1999, the Company recorded a non-cash impairment
charge related to six New Jersey medical office buildings owned by the Company
as required by SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Recording these buildings at
their estimated fair market value resulted in a write down of the carrying
value of these buildings of $6.4 million.

4. TENANT RENT AND REIMBURSEMENTS RECEIVABLE

Tenant rent and reimbursements receivable are net of an allowance for
uncollectible amounts of $1,261,000 and $555,000 as of December 31, 2001 and
2000, respectively. The activity in the allowance for uncollectible tenant
accounts for the three years ending December 31, 2001, was as follows:

Year ended December 31,
2001 2000 1999
----------------------------------------------------
(in thousands)

Balance, beginning of year $ 555 $ 3,409 $ 1,261
Additions 858 1,007 2,210
Charge-offs (152) (3,861) (62)
------------- -------------- ---------------
Balance, end of year $ 1,261 $ 555 $ 3,409
============= ============== ===============

F-13

5. UNBILLED RENT RECEIVABLE

The Company has operating leases with tenants that expire at various
dates through 2011. The minimum rents due under these leases are subject to
either scheduled fixed increases or adjustments based on the Consumer Price
Index. In general, the retail leases require tenants to pay their pro-rata
share of property taxes, insurance and common area operating costs, while the
medical office leases require tenants to reimburse the Company for annual
increases in property taxes, insurance and specified operating expenses over a
base year amount.

Generally accepted accounting principles require that rents due under
operating leases with fixed increases be averaged over the life of the lease.
This practice, known as "straight-line rents" creates an unbilled rent
receivable in any period during which the amount of straight-line rent exceeds
the actual rent billed (this occurs primarily at the inception of the lease
period). As the lease approaches its expiration date, billed rent will
eventually exceed the amount of straight-line rent causing the unbilled rent
receivable to decline. The straight-line rent calculation assumes no new or
re-negotiated rents or extension periods during the life of the lease and
excludes operating cost reimbursements. The following table summarizes future
rents due under existing leases and the corresponding straight-line rent
calculation as of December 31, 2001:

Year Ending December 31, Future Minimum Straight-line Unbilled Rent
Rent Rent Receivable
- -------------------------------------------------------------------------------------------------------
(in thousands)

2002 ................ $ 17,645 $ 17,882 $ (237)
2003 ................ 15,047 14,883 164
2004 ................ 12,681 12,261 420
2005 ................ 10,539 9,896 643
2006 ................ 7,882 7,165 717
Thereafter .......... 13,478 12,049 1,429
-------------------------------------------------------------------
Total ..................... $ 77,272 $ 74,136 $ 3,136
==================== ==================== =======================

The activity in the allowance for unbilled rent, recorded as a
reduction of rental revenue for the three years ending December 31, 2001,
consisted of the following:

Year ended December 31,
2001 2000 1999
---------------------------------------------------
(in thousands)

Balance, beginning of year $ 394 $ 706 $ 474
Additions 81 76 232
Charge-offs -- (388) --
--------------- --------------- ---------------
Balance, end of year $ 475 $ 394 $ 706
=============== =============== ===============

6. OTHER RECEIVABLES

Other receivables consist of all outstanding balances due to the
Company other than amounts due from current tenants and are net of the
allowance for uncollectible amounts of $34,000 and $54,000 as of December 31,
2001 and 2000. The activity in the allowance for uncollectible accounts for
the three years ending December 31, 2001, is as follows:

Year ended December 31,
2001 2000 1999
-------------------------------------------------
(in thousands)

Balance, beginning of year $ 54 $ 205 $ 330
Additions -- 20 --
Charge-offs (20) (171) (125)
--------------- --------------- -------------
Balance, end of year $ 34 $ 54 $ 205
=============== =============== =============

F-14

7. MORTGAGE LOANS AND BONDS RECEIVABLE

Mortgage loans and bonds receivable consist of the following:

December 31,
2001 2000
---------------- -------------
(in thousands)

Secured Promissory Note due March 31, 2009, collateralized by deed of
trust, principal and interest payable monthly at 12% per annum. $ 7,617 $ 7,522
Unsecured Promissory Note due March 31, 2009, principal and interest
payable monthly at 12% per annum....................................... 2,700 2,700
Secured Note due April 1, 2008, interest payable semiannually at 10%
per annum (This note is currently in default)......................... 150 150
Unsecured promissory note due September 1, 2000, interest payable at
10% per annum (This note is currently in default)..................... 1,000 1,000
Unsecured promissory note due July 1, 2000, interest payable at 10% per
annum (This note is currently in default)............................ 79 104
Secured promissory note due August 25, 1998, interest payable at 12%
per annum (This note is currently in default). 2,377 2,405
Secured promissory note due June 30, 2001, interest payable at 10% per
annum. This note was repaid in November 2001........................ -- 675
Secured bond receivable due December 15, 2029, interest payable
semiannually at 8.75% per annum...................................... 1,218 1,218
Unsecured promissory note due January 31, 2010, principal and interest
payable monthly at 10% per annum........................... 567 513
Unsecured promissory note receivable due June 30, 1999. This note was
repaid in December 2001........................................... -- 44
Unsecured promissory note receivable due April 11, 2003, interest
payable monthly at 10%............................................... 290 --
------------ ------------
Face value of mortgage loans and bonds receivable 15,998 16,331
Accrued interest 462 440
Allowance for uncollectible amounts (4,484) (5,527)
------------ ------------
Total mortgage loans and bonds interest receivable $ 11,976 $ 11,244
============ ============

The activity in the allowance for uncollectible notes receivable for the
three years ending December 31, 2001, is as follows:

Year ended December 31,
2001 2000 1999
----------------- ----------------- -------------
(in thousands)

Balance, beginning of year $ 5,527 $ 4,576 $ 3,517
Additions 146 2,861 1,059
Charge-offs (1,189) (1,910) --
-------------- --------------- -------------
Balance, end of year $ 4,484 $ 5,527 $ 4,576
============== =============== =============

F-15

8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company has investments in various unconsolidated affiliates as
described in Note 1. The following tables provide a summary of the Company's
investment in each of these entities as of December 31, 2001 and 2000 (in
thousands).

===============================================================================
Penasquitos Penasquitos Heritage Pacific
GLN Capital San Pedro LLC Inc. Park Gardens Corp.
===============================================================================

Opening balance at beginning of year $ 765 $ 1,144 $ 161 $ 20 $ -- $ (312)
Equity in (loss) earnings of affiliates (4) 207 (147) -- -- 312
Cash contributions 46 -- 70 -- -- --
Cash distributions -- -- (442) -- -- --
------------- ------------ -------------- ---------- --------- -------------
Equity, before inter-company adjustments 807 1,351 (358) 20 -- --
Intercompany receivable (payable), net 67 71 291 (20) 14 --
------------- ------------ -------------- ---------- --------- -------------
Investment in unconsolidated affiliates $ 874 $ 1,422 $ (67) $ -- $ 14 $ --
============= ============ ============== ========== ========= =============

=================================================
Eagle Run,
Inc. EagleRun Lakeview Total
=================================================

Opening balance at beginning of year $ (370) $ 655 $ 250 $ 2,313
Equity in (loss) earnings of affiliates (131) (32) -- 205
Cash contributions -- -- 188 304
Cash distributions -- (248) (40) (730)
------------- ------------ ----------- ---------
Equity, before inter-company adjustments (501) 375 398 2,092
Intercompany receivable (payable), net 29 48 1,989 2,489
------------- ------------ ----------- ---------
Investment in unconsolidated affiliates $ (472) $ 423 $ 2,387 $ 4,581
============= ============ =========== =========

=======================================================================================
Valley
Convalescent Penasquitos Penasquitos Heritage
GLN Capital (1) San Pedro LLC Inc. Park
========================================================================================

Opening balance at beginning of year $ 776 $ 323 $ 1,070 $ 1,379 $ 106 $ --
Equity in (loss) earnings of affiliates (11) (8) 122 (90) -- --
Cash contributions -- -- -- -- -- --
Cash distributions -- (315) (48) (1,128) (86) --
------------- -------------- -------------- ------------- ------------ ---------
Equity, before inter-company adjustments 765 -- 1,144 161 20 --
Intercompany receivable (payable), net 67 -- 80 245 (20) 13
------------- -------------- -------------- ------------- ------------ ---------
Investment in unconsolidated affiliates $ 832 $ -- $ 1,224 $ 406 $ -- $ 13
============= ============== ============== ============= ============ =========

====================================================================
Pacific Eagle Run,
Gardens Corp. Inc. EagleRun Lakeview Total
====================================================================

Opening balance at beginning of year $ (312) $ 61 $ 654 $ 250 $ 4,307
Equity in (loss) earnings of affiliates -- (431) 1 -- (417)
Cash contributions -- -- -- -- --
Cash distributions -- -- -- -- (1,577)
-------------- ----------- ------------ --------- ------------
Equity, before inter-company adjustments (312) (370) 655 250 2,313
Intercompany receivable (payable), net 110 6 48 1,989 2,538
-------------- ----------- ------------ --------- ------------
Investment in unconsolidated affiliates $ (202) $ (364) $ 703 $ 2,239 $ 4,851
============== =========== ============ ========= ============

(1) In March 2000, the Company sold its 50% interest in Valley Convalescent to
its joint venture partner. The transaction included a sales price of $500,000
consisting of $200,000 in cash and a $300,000 mortgage note. The $300,000
mortgage note was consolidated with the $2.8 million mortgage that the Company
already held on the facility. The $3.1 million mortgage was repaid in November
2000.

F-16

Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the year ended December 31, 2001 (in
thousands).

=====================================================================================
Pacific
Penasquitos Penasquitos Heritage Gardens
GLN Capital San Pedro LLC Inc. Park Corp.
=====================================================================================

Financial Position:
- ------------------
Land $ -- $ 1,882 $ 641 $ -- $ 750 $ --
Buildings -- 4,239 6,248 -- -- --
Notes receivable, net 1,586 -- -- -- -- --
Other Assets -- 327 1,149 -- 238 --
Notes payable -- (4,640) (8,426) -- (940) --
Other liabilities (69) (614) (174) (10) (48) --
----------- ---------- ---------- ---------- ---------- ----------
Net assets $ 1,517 $ 1,194 $ (562) $ (10) $ -- $ --
==========- ========== ========== ========== ========== ==========
Partner's equity:
- -----------------
G&L Realty Partnership, L.P. $ 807 $ 1,351 $ (358) $ 20 $ -- $ --
Others 710 (157) (204) (30) -- --
----------- ---------- ---------- ---------- ---------- ----------
Total Equity $ 1,517 $ 1,194 $ (562) $ (10) $ -- $ --
=========== ========== ========== ========== ========== ==========

======================================================
Eagle Run
Inc. Eagle Run Lakeview Total
======================================================

Financial Position:
- ------------------
Land $ -- $ 1,191 947 $ 5,411
Buildings -- 4,713 -- 15,2000
Notes receivable, net -- -- -- 1,586
Other Assets 493 1,933 7,209 11,349
Notes payable -- (7,025) (6,602) (27,633)
Other liabilities (1,494) (40) (1,000) (3,449)
----------- ---------- ---------- -----------
$ (1,001) $ 772 $ 554 $ 2,464
Net assets =========== ========== ========== =-=========

Partner's equity:
- ----------------- $ (501) $ 375 $ 398 $ 2,092
G&L Realty Partnership, L.P. (500) 397 156 372
Others ----------- ---------- ---------- ----------
$ (1,001) $ 772 $ 554 $ 2,464
Total Equity =========== ========== ========== ==========

=====================================================================================
Pacific
Penasquitos Penasquitos Heritage Gardens
GLN Capital San Pedro LLC Inc. Park Corp
=====================================================================================

Operations:
- -----------
Revenues $ -- $ 1,169 $ 657 $ -- $ -- $ 312
Expenses (8) (962) (949) -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Net (loss) income $ (8) $ 207 $ (292) $ -- $ -- $ 312
=========== ========== ========== ========== ========== ==========
Allocation of net (loss) income:
- --------------------------------
G&L Realty Partnership, L.P $ (4) 207 $ (147) $ -- $ -- $ 312
Others (4) -- (145) -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Net (loss) income $ (8) $ 207 $ (292) $ -- $ -- $ 312
=========== ========== ========== ========== ========== ==========

======================================================

Eagle Run
Inc. Eagle Run Lakeview Total
======================================================

Operations:
- ----------- $ 3,048 $ 688 $ -- $ 5,874
Revenues (3,310) (752) -- (5,981)
Expenses ----------- ---------- ---------- ----------
$ (262) $ (64) $ -- $ (107)
Net (loss) income =========== ========== ========== ==========

Allocation of net (loss) income:
- -------------------------------- $ (131) $ (32) $ -- $ 205
G&L Realty Partnership, L.P (131) (32) --
Others ----------- ---------- ---------- -----------
$ (262) $ (64) $ -- $ (107)
Net (loss) income =========== ========== ========== ===========

F-17

Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the year ended December 31, 2000 (in
thousands).

==========================================================================================
Pacific
Valley Penasquitos Penasquitos Heritage Gardens
GLN Capital Convalescent San Pedro LLC Inc. Park Corp.
==========================================================================================

Financial Position:
- -------------------
Land $ -- $ -- $ 1,882 $ 641 $ -- $ 750 $ --
Buildings -- -- 4,227 6,409 -- -- --
Notes receivable, net 1,585 -- -- -- -- -- --
Other Assets -- -- 294 1,260 -- 247 --
Notes payable -- -- (4,730) (7,962) -- (910) --
Other liabilities (60) -- (439) (260) (10) (87) (349
-------------- ----------- ------------ ---------- --------- ---------- ------------
Net assets $ 1,525 $ -- $ 1,234 $ 88 $ (10) $ -- $ (349)
============== =========== ============ ========== ========= ========== ============

Partner's equity:
- ----------------
G&L Realty Partnership, L.P. $ 765 $ -- $ 1,144 $ 161 $ 20 $ -- $ (312)
Others 760 -- 90 (73) (30) -- (37)
-------------- ----------- ------------ ---------- --------- ---------- ------------
Total Equity $ 1,525 $ -- $ 1,234 $ 88 $ (10) $ -- $ (349)
============== =========== ============ ========== ========= ========== ============

================================================
Eagle Run
Inc. Eagle Run Lakeview Total
================================================

Financial Position:
- -------------------
Land $ -- $ 1,191 $ 947 $ 5,411
Buildings -- 4,934 -- 15,570
Notes receivable, net -- -- -- 1,585
Other Assets 482 1,017 2,225 5,525
Notes payable -- (5,791) (1,954) (21,347)
Other liabilities (1,221) (50) (664) (3,140)
----------- ----------- --------- ------------
Net assets $ (739) $ 1,301 $ 554 $ 3,604
=========== =========== ========= ============

Partner's equity:
- ----------------
G&L Realty Partnership, L.P. (370) $ 655 $ 250 $ 2,313
Others (369) 646 304 1,291
----------- ----------- --------- ------------
Total Equity $ (739) $ 1,301 $ 554 $ 3,604
=========== =========== ========= ============

==========================================================================================
Pacific
Valley Penasquitos Penasquitos Heritage Gardens
GLN Capital Convalescent San Pedro LLC Inc. Park Corp.
==========================================================================================

Operations:
- -----------
Revenues $ -- $ 83 $ 1,140 $ 892 $ -- $ -- $ --
Expenses (22) (99) (1,018) (1,072) -- -- --
-------------- ----------- ------------ ---------- --------- ---------- ------------
Net (loss) income $ (22) $ (16) $ 122 $ (180) -- $ -- $ --
============== =========== ============ ========== ========= ========== ============

Allocation of net (loss) income:
- --------------------------------
G&L Realty Partnership, L.P. $ (11) $ (8) $ 122 $ (90) $ -- $ -- $ --
Others (11) (8) -- (90) -- -- --
-------------- ----------- ------------ ---------- --------- ---------- ------------
Net (loss) income $ (22) $ (16) $ 122 $ (180) $ -- $ -- $ --
============== =========== ============ ========== ========= ========== ============

================================================

Eagle Run
Inc. Eagle Run Lakeview Total
================================================

Operations:
- -----------
Revenues $ 1,803 $ 854 $ -- $ 4,772
Expenses (2,666) (851) -- (5,728)
----------- ----------- --------- ------------
Net (loss) income $ (863) $ 3 $ -- $ (956)
=========== =========== ========= ============

Allocation of net (loss) income:
- --------------------------------
G&L Realty Partnership, L.P. $ (431) $ 1 $ -- $ (417)
Others (432) 2 -- (539)
----------- ----------- --------- ------------
Net (loss) income $ (863) $ 3 $ -- $ (956)
=========== =========== ========= ============

F-18

9. MARKETABLE SECURITIES

Marketable securities consist of the following:

December 31,
2001 2000
--------------- -----------------
(in thousands)

Equity securities $ 90 $ --
PHP Healthcare Corporation subordinated
debentures, $2,800,000 face value, interest
at 6.50%, due December 15, 2002, at cost 1,154 1,154
Accrued interest 58 58
Amortized discount 152 152
---------------- --------------
1,454 1,364
Less reserve for uncollectible amounts (1,454) (1,364)
---------------- --------------
Total $ -- $ --
================ ==============

10. DEFERRED CHARGES AND OTHER ASSETS

Deferred charges and other assets consist of the following:

December 31,
2001 2000
----------------- -----------------
(in thousands)

Deferred financing costs $7,467 $4,011
Pre-acquisition costs 257 150
Leasing commissions 1,974 1,486
Prepaid expense and other assets 483 914
---------------- ---------------
10,181 6,561
Less accumulated amortization (2,872) (2,012)
---------------- ---------------
Total $7,309 $4,549
================ ===============

F-19

11. NOTES PAYABLE

December 31,
Notes payable consist of the following: 2001 2000
===============================
(in thousands)

$7,831,000 Note due April 1, 2008 collateralized by deed of trust, monthly principal
and interest payments of $56,000, interest at 7.05% per annum. $ 7,359 $ 7,502
$7,500,000 Note due December 11, 2008, collateralized by deed of trust, monthly
principal and interest payments of $50,000, interest at 6.90% per annum. 7,255 7,343
$2,000,000 Secured line of credit due July 13, 2003, interest payable at Prime plus
2.0% per annum. 1,440 1,797
$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. 7,613 7,761
$2,475,000 Note due September 1, 2008 collateralized by deed of trust, monthly
principal and interest payments of $18,000, interest at 7.49% per annum. 2,349 2,391
$3,267,000 Note due April 1, 2008 collateralized by deed of trust, monthly principal
and interest payments of $23,000, interest at 7.05% per annum. 3,071 3,130
$5,225,000 Note due January 1, 2019 collateralized by deed of trust, monthly
principal and interest payments of $38,209, interest at 6.75% per annum. 4,817 4,983
$1,333,125 Note due April 1, 2008 collateralized by deed of trust, monthly principal
and interest payments of $9,554, interest at 7.05% per annum. 1,253 1,277
$35,000,000 Note due August 11, 2006, collateralized by deed of trust, monthly
payments of $282,000 of principal and interest, interest at 8.492% per annum. 32,585 33,133
$30,000,000 Note due August 11, 2005, collateralized by deed of trust, monthly
principal and interest payments of $229,000, interest at 7.89% per annum. 27,126 27,684
$11,400,000 Note due September 1, 2034, collateralized by deed of trust, monthly
principal and interest payments of $77,000, interest at 8% per annum. 11,220 11,296
$10,000,000 Note due July 1, 2009 collateralized by deed of trust, monthly principal
and interest payments of $58,000, interest at 6.85% per annum. 9,490 9,705
$1,440,000 Note due July 1, 2009 collateralized by deed of trust, monthly principal
and interest payments of $11,000, interest at 7.375% per annum. 1,385 1,408
$7,500,000 Note due January 21, 2002 collateralized by deed of trust, monthly
principal and interest payments of approximately $16,000, interest at Prime plus
0.75% per annum. 2,342 7,382
$13,920,000 Note due October 1, 2002 collateralized by deed of trust, monthly
principal and interest payments of approximately $122,000, interest at LIBOR
plus 2.75% per annum. 13,499 13,740
$8,500,000 Note due January 1, 2002, collateralized by deed of trust, monthly
principal and interest payments of approximately $71,000, interest at LIBOR plus
2.75% per annum. 8,275 8,415
$2,100,000 Note due November 1, 2002, collateralized by deed of trust, monthly
principal and interest payments of approximately $17,000, interest at LIBOR plus
3.40% per annum. 2,044 2,070
$800,000 Unsecured note due May 1, 2006, monthly principal and interest payments of
$5,593, interest at 7.50% per annum. 785 801
$950,000 Note due May 1, 2006, collateralized by a second deed of trust, monthly
principal and interest payments of $7,305, interest at 8.50% per annum. 936 944
$5,800,000 Note due in 2006, collateralized by deed of trust, monthly principal and
interest payments of $48,102, interest at 8.30% per annum. 5,549 5,672
$2,000,000 Unsecured note due July 31, 2007, interest rate of 8.50% per annum. -- 508
$35,000,000 Note due October 29, 2011, principal and interest payable
monthly at LIBOR plus 7.50% per annum 34,873 --
$7,200,000 Note due on August 1, 2011, collateralized by deed of trust, interest --
payable monthly at 7.51% per annum 7,182 --
$250,000 Unsecured note due October 1, 2002, monthly interest only payments,
interest at 5.75% per annum........................................ 250 --
-------------- --------------
Total $192,698 $158,942
============== ==============

F-20

As of December 31, 2001, 30-day LIBOR was 1.876% and the prime rate was
5.00%.

Aggregate future principal payments as of December 31, 2001 are as
follows:

Years Ending December 31
- ------------ -----------
(in thousands)
2002 ................. $ 27,620
2003 ................. 8,047
2004 ................. 4,179
2005 ................. 35,664
2006 ................. 32,960
Thereafter ........... 84,228
---------
Total ............ $ 192,698
=========

During 2000, the Company capitalized interest relating to development
projects, either directly owned by the Company or through joint ventures of
$17,000. The Company capitalized no interest in 2001.

12..COMMITMENTS AND CONTINGENCIES

Neither the Company, the Operating Partnership, the Financing Entities,
the Subsidiaries, Maryland Gardens, the Roxbury Partnership, Valencia, Pacific
Gardens, Hoquiam, Lyons, Coronado, Tarzana, Heritage, Massachusetts, Aspen, the
Unconsolidated Affiliates nor any of the assets within their portfolios of MOBs,
parking facilities, and retail space (the "Properties") is currently a party to
any material litigation, except as discussed below.

In February 2000, the Operating Partnership filed a declaratory relief
action in the New Jersey State Court seeking a determination that LaSalle
National Bank ("LaSalle") did not have any rights against certain assets held by
the Operating Partnership. In December 2001, the Operating Partnership entered a
settlement agreement with LaSalle whereby it would pay LaSalle $1.1 million and
assign certain claims in full satisfaction of any amounts owed by the Operating
Partnership to LaSalle. The Operating Partnership paid the $1.1 million to
LaSalle in January 2002.

F-21

In November 1999, Landmark Healthcare Facilities, LLC ("Landmark") filed a
lawsuit against Valencia, a subsidiary of the Company, entitled Landmark
Healthcare Facilities, LLC V. G&L Valencia, LLC, case number 816391 in the
Superior Court of California, County of Orange, claiming that Landmark is
entitled to approximately $600,000 plus interest under an agreement for the
development of an MOB in Valencia, California. In December 1999, the Company
filed a counter suit to recover approximately $400,000 plus interest that was
already paid under the development agreement and for a judgment and declaration
that all of Landmark's rights, title and interest in Valencia have been
terminated or assigned to the Company. On July 5, 2001, the court issued a
ruling in favor of the Company in an amount in excess of $900,000. In January
2002, the Company accepted a settlement offer for $310,000 to be paid off over
10 months.

The Company is the guarantor on a $300,000 letter of credit in favor of
NVHF Affiliates, LLC, a non-profit low-income apartment owner. The Company holds
an unsecured promissory note from NVHF Affiliates, LLC in the amount of
$562,000. The Company has been depositing the interest payments received on this
note as well as the interest payments received on its approximately $1.3 million
of bonds from this entity into a segregated bank account to eliminate the letter
of credit. The Company's partner in this venture has also been depositing its
interest payments into this bank account. As of March 31, 2002, there was
approximately $185,000 in this bank account. The Company does not anticipate
having to pay anything under this letter of credit.

In January 2001, the Company settled a lawsuit with Cigna Healthcare, Inc
and Cigna Healthcare of California ("Cigna") and received a settlement of $4.1
million. The settlement ended litigation against Cigna for delinquent rent,
future rent and other amounts owed under a lease at the Company's MOB located in
Irwindale, California. At the time of the settlement the total delinquent rent
was approximately $1.5 million. The Company recorded lease termination income of
$2.6 million in the first quarter of 2001 for the remainder of the proceeds.

There are a number of stockholder class actions pending against the
Company and its directors that arose out of the proposal by Daniel M. Gottlieb,
the Chief Executive Officer of the Company, and Steven D. Lebowitz, the
President of the Company, to acquire all of the outstanding shares of the
Company's common stock not then owned by them. The first suit, Lukoff v. G & L
Realty Corp. et al., case number BC 241251, was filed in the Superior Court for
the State of California, County of Los Angeles, on December 4, 2000. A second
suit, Abrons v. G & L Realty Corp. et al., case number 24-C-00-006109, was filed
in the Circuit Court for Baltimore City, Maryland, on December 14, 2000. This
suit was voluntarily dismissed without prejudice on June 7, 2001, and re-filed
in the Superior Court for the State of California, County of Los Angeles, case
number BC 251479, on May 31, 2001. Morse v. G & L Realty Corp. et al., case
number 221719-V, was filed in the Circuit Court for Montgomery County, Maryland,
on May 17, 2001. Another suit, Harbor Finance Partners v. Daniel M. Gottlieb et
al., case number BC 251593, was filed in the Superior Court for the State of
California, County of Los Angeles, on June 1, 2001. All these actions assert
claims for breach of fiduciary duty and seek compensatory damages and other
relief. The Lukoff, Abrons and Harbor Finance actions have been consolidated for
all purposes, and the court has set a trial date of February 3, 2003. The Morse
action has been stayed by stipulation of the parties subject to approval of the
court.

13. STOCKHOLDERS' EQUITY

In May 1997, the Company issued 1,495,000 shares of the 10.25% Series A
Preferred Stock, from which it received net proceeds of $35.4 million. In
November 1997, the Company issued 1,380,000 shares of 9.8% Series B Preferred
Stock and received net proceeds of $32.6 million. The Company's preferred stock
has no stated maturity, is not subject to any sinking fund requirements and is
not convertible into or exchangeable for any property or other securities of the
Company. The Company, at its sole discretion, may call the Series A and Series B
Preferred Stock at any time after June 1, 2001 and January 1, 2002,
respectively. All classes of the Company's preferred stock have a par value of
$0.01 and rank senior to the Company's common stock with respect to payment of
dividends and upon liquidation. All classes of Preferred Stock are on parity
with all other classes of the Company's Preferred Stock for payment of dividends
and liquidation purposes. In the event of liquidation, or if the Company elects
to call the Preferred Stock, holders of the Company's Preferred Stock are
entitled to receive $25.00 per share plus any accrued and unpaid dividends,
whether or not such dividends have been declared by the Company's Board of
Directors. Holders of the Company's Series A Preferred Stock are entitled to
receive monthly dividends at an

F-22

annual rate of $2.56 per share. Series B Preferred Stockholders are entitled to
receive monthly dividends at an annual rate of $2.45 per share.

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

In order to fund the Merger and related transactions, Messrs. Gottlieb and
Lebowitz obtained a loan from GMAC Commercial Mortgage Corporation ("GMAC") in
the amount of $35 million (the "Loan"). Immediately following the completion of
the Merger on October 29, 2001, the Operating Partnership became the borrower
under the Loan. The Loan is for ten years and bears interest initially at the 30
day London Interbank Offered Rate ("LIBOR") plus 7.5%. The interest rate spread
over 30 day LIBOR can be reduced to as low as 5.5% based on the outstanding
balance on the Loan and if the Operating Partnership meets certain debt service
covenant ratios. As interest rate protection, the Operating Partnership
purchased a LIBOR cap on November 8, 2001 for $905,000 which caps the maximum 30
day LIBOR rate at 4.25% for five years in determining the interest due on the
Loan. As of December 31, 2001, the Company recognized $500,000 of interest
income due to the increase in value of the LIBOR cap.

In order to secure the Loan, the Company, the Operating Partnership and
Messrs. Gottlieb and Lebowitz have granted GMAC a security interest in, among
other things, all accounts, chattel paper, documents, general intangibles,
investment property and security entitlements of the Company and the Operating
Partnership and all hedging agreements entered into by Messrs. Gottlieb and
Lebowitz, the Company or the Operating Partnership. The Company, the Operating
Partnership and Messrs. Gottlieb and Lebowitz have also granted GMAC a pledge of
(a) all promissory notes made by any of the Company, the Operating Partnership,
any MOB subsidiary, Messrs. Gottlieb and Lebowitz or an affiliate of Messrs.
Gottlieb and Lebowitz in favor of the Company or the Operating Partnership, (b)
all partnership units of the Operating Partnership owned by the Company or by
Messrs. Gottlieb and Lebowitz or their affiliates, together with any other share
certificates, options or rights of any nature in respect of the partnership
units of the Operating Partnership that may be issued or granted to, or held by,
the Company, the Operating Partnership or Messrs. Gottlieb and Lebowitz while
the Loan is in effect and (c) all Common Stock of the Company owned by Messrs.
Gottlieb and Lebowitz or their affiliates together with any other share
certificates, options or rights of any nature in respect of the Common Stock of
the Company that may be issued or granted to, or held by, the Company, the
Operating Partnership, or Messrs. Gottlieb and Lebowitz while the Loan is in
effect.

The Operating Partnership used $28.1 million of the Loan proceeds to fund
the Merger consideration of $13.00 per share for each outstanding share of the
Company's Common Stock, other than a portion of the shares held by Messrs.
Gottlieb and Lebowitz. 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. For purposes of presentation in these consolidated
financial statements, the $5.2 million loaned to Messrs. Gottlieb and Lebowitz
and been shown as a deduction to stockholders' equity. The remaining Loan
proceeds were used to purchase the LIBOR cap described above and to pay fees and
other costs associated with the Loan.

Immediately prior to the Merger, the Company created a new partnership
named G&L Senior Care Partnership, L.P. (the "Senior Care Partnership") and the
Operating Partnership transferred its interest in Maryland Gardens, GL/PHP,
Hampden, Pacific Gardens, Hoquiam, Tarzana, Heritage, Massachusetts, Aspen, GLN,
Penasquitos LLC, Penasquitos Inc., Eagle Run, Eagle Run Inc., Lakeview and
Heritage to the Senior Care Partnership. In addition, the Operating Partnership
also transferred its direct ownership of a 183-bed hospital in Tustin,
California along with the debt secured by this property, a 20-unit apartment
complex in Phoenix, Arizona and all of its mortgage and notes receivable
outstanding to the Senior Care Partnership. The creation of the Senior Care
Partnership and the transfer of the Company's Non-MOB assets to this partnership
were part of the terms and conditions of the Loan.

F-23

Also immediately prior to the Merger, two of the limited partners of the
Operating Partnership traded their limited partnership units back to the
Operating Partnership in exchange for an increased limited partnership interest
in the Roxbury Partnership. This exchange decreased the Operating Partnership's
interest in the Roxbury Partnership from 61.75% to 32.81%.

Distributions in excess of net income-- As described in Note 2, the
Company has elected to be treated as a REIT for Federal income tax purposes. As
such, the Company is required to distribute at least 90% of its annual taxable
income.

For the years ended December 31, 2001, 2000 and 1999, cash distributed in
the form of dividends to holders of the Company's Common Stock exceeded the
Company's taxable income and is therefore considered to be a return of capital.
In 2001 and 2000, 100% of the Company's dividend was considered a return of
capital to common stockholders. For 1999, 4.46% of the dividend was taxable as
long-term capital gains and the remaining 95.54% represented a return of
capital. For 1998, 18.55% of the dividend was taxable as ordinary income and the
remaining 81.45% represented a return of capital. In 2001, dividends paid to
holders of the Company's preferred stock were considered a 26.1% return of
capital to preferred stockholders. In 2000, dividends paid to holders of the
Company's preferred stock were considered a 100% return of capital to preferred
stockholders. In previous years, the dividends paid to holders of the Company's
preferred stock were fully taxable as ordinary income.

14. STOCK INCENTIVE PLAN

Until October 29, 2001, the Company had a stock incentive plan under which
an aggregate of 209,500 shares of the Company's Common Stock were reserved for
issuance. Options were granted at per share amounts not less than fair market
value at the date of grant and expire ten years thereafter. Granted options
vested in even increments over a two or three year period beginning one year
from the grant date. The Company does not charge the estimated compensation cost
of options granted against income. Compensation cost is estimated to be the fair
value of all options granted based on the Binomial option-pricing model. Based
upon the stock price at the date of grant, the costs associated with options
granted in each of the years ended December 31, 2000 and 1999 are $265,000, and
$5,000, respectively. If the compensation costs had been charged against income
at the time of vesting, adjusted for shares exercised and canceled during the
period, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:

Year Ended December 31,
2001 2000 1999
----------------------------------------------
(in thousands, except per share amounts)

Net Income (Loss):
As reported $6,130 $1,149 $(2,115)
Pro forma N/A $1,061 $(2,120)

Loss per share:
As reported:
Basic N/A $(2.53) $(2.48)
Fully diluted N/A $(2.53) $(2.48)
Pro forma:
Basic N/A $(2.57) $(2.48)
Fully diluted N/A $(2.57) $(2.48)

Pursuant to the merger agreement dated October 29, 2001, each outstanding
option has been cancelled. The agreement provided that each option holder would
be entitled to receive a cash amount equal to $13.00 less the exercise price for
each share of common stock subject to the option, payable after the effective
time of the merger for a vested or unvested option. In addition, upon the
execution of the merger agreement, all unvested options held

F-24

by Daniel M.Gottlieb and Steven D. Lebowitz became fully vested and
exercisable. As of December 31, 2001, the amount paid by the Company to
cancelled option holders was approximately $683,000.

A summary of the status of the Company's stock incentive plan as of
December 31, 2001, 2000, 1999, and changes during the years ending on those
dates is presented in the following table. The average price presented below
represents the weighted average exercise price based upon the market value at
the grant date.

2001 2000 1999
------------------------ ------------------------ -----------------------
Average Average Average
Shares Price Shares Price Shares Price
===========================================================================

Outstanding,
Beginning of year 250,000 $11.16 151,000 $12.88 214,000 $14.49
Granted -- -- 102,000 8.85 2,000 10.50
Exercised -- -- -- -- -- --
Forfeited or canceled (250,000) 11.16 (3,000) 18.92 (65,000) 18.11
--------- ---------- -------- --------- ---------- ----------
Outstanding,
End of year -- -- 250,000 $11.16 151,000 $12.88
========= ========== ======== ========= ========== ==========

Options exercisable
At year-end -- -- 172,882 $16.11 130,998 $14.79
Weighted-average fair
value of options
granted during
the year -- $2.60 $2.40

Fair value of options- The Company estimated the fair value of the options
granted in 2000 and 1999 based on the following assumptions:

Year Ended December 31,
2000 1999
---- ----

Risk-free interest rate................... 4.98% 6.80%
Expected life of the option............... 3 years 3 years
Expected volatility of stock.............. 50.00% 36.00%
Expected dividends........................ $ 0.50 $ 0.50

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

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

15. CONCENTRATION OF CREDIT RISK

The Company is subject to the all risks associated with leasing property,
including but not limited to, the risk that upon the expiration of leases for
space located in the Company's properties, the leases may not be renewed, the
space may not be re-leased or the terms of renewal or re-leasing (including any
cost of required renovations or concessions to tenants) may be less favorable
than current lease terms. If the Company is unable to promptly re-

F-25

lease or renew leases for a significant portion of its space or if the rental
rates upon renewal or re-leasing are significantly lower than expected, the
Company's earnings and the ability to make distributions to stockholders may be
adversely affected. Most of the tenants in the Company's healthcare properties
provide specialized health care services. The ability of the tenants to honor
the terms of their respective leases is dependent upon the economic, regulatory
and social factors affecting the communities and industry in which the tenants
operate.

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

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

G&L Hampden, LLC, a wholly owned subsidiary of the Company, acquired three
SNFs in Massachusetts on October 28, 1997 from Hampden Nursing Homes, Inc.
("HNH"), a nonprofit corporation. Lenox Healthcare, Inc. ("Lenox") managed the
three facilities from October 1998 through December 1999. In November 1999,
Lenox filed for bankruptcy protection. The Company immediately moved to replace
Lenox as the manager of the nursing homes. In January 2000, the Company received
the bankruptcy court's permission to replace Lenox as the manager and a new
management firm, a subsidiary of Roush & Associates ("Roush"), was immediately
retained. Although Lenox managed these Massachusetts nursing homes, HNH held the
licenses necessary to operate the facilities. In March 2000, the Company
successfully transferred the licenses to G&L Massachusetts, LLC, a subsidiary of
the Operating Partnership. Revenue from the three Massachusetts nursing homes
represented approximately 37.4% of the Company's total revenues in 2001. Roush
is an experienced skilled nursing facility operator and the Company's management
believes that Roush will be able to profitably manage these facilities for the
Company; however, the financial position of the Company, and its ability to make
expected distributions to stockholders, may be adversely affected in the event
that Roush experiences financial difficulties.

In addition to the nursing homes in Massachusetts, the Company owns other
ALF and SNF Properties that it leases to operators. All of the leases are for
five years or less with non-credit tenants. In the event that the operators of
these facilities are unable to effectively operate the facilities, the ability
of the operators to make rental payments to the Company may become impaired and
the Company may need to commit additional capital to the facility in order to
keep it operating. If any of these operators experience financial difficulty,
the financial position of the Company and the ability of the Company to make
expected distributions may be adversely affected.

16. SEGMENT INFORMATION

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

. Medical office buildings - These investments consist of 24 high
quality MOBs, two retail facilities and one parking facility totaling
approximately 875,000 square feet and all located in Southern
California. These properties are owned either directly by the Company
or indirectly through joint ventures.

. Skilled nursing facilities - These investments consist of eight
SNFs and one senior apartment complex which is located adjacent to
the SNF in Phoenix, Arizona. The SNFs are located in Hampden,
Massachusetts; Phoenix, Arizona; Hoquiam, Washington; Hyattsville,
Maryland and Chico and Paso Robles, California. All of the SNFs and
the apartment complex are owned 100% by the Company. In addition,
the Company currently holds the operating license in three of the
eight SNFs. On March 15, 2000, the Company obtained licenses from
the Commonwealth of Massachusetts to operate the three SNFs owned by
the Company in Hampden, Massachusetts. The Company then entered
into a management agreement with a third-party company to manage the
facility. As a result, all of the assets, liabilities, revenues and
expenses of these SNFs are reflected

F-26

in the condensed consolidated financial statements of the Company
and the segment information provided below. The Company also held
the license to operate its SNF located in Phoenix, Arizona until
February 2002. On April 1, 2000, the Company terminated its lease
with the operator of this SNF and entered into a management
agreement with a new manager. For the nine months ended December
31, 2000, the assets, liabilities, revenues and expenses of this SNF
were also included in the condensed consolidated financial
statements of the Company. On January 1, 2001, the Company entered
into a new lease with a new manager which entitles the Company to
monthly lease payments. As a result of this new lease, the assets,
liabilities, revenues and expenses of this SNF are no longer
included in the consolidated financial statements of the Company.
The Company will be required to pay the applicable corporate income
tax on any net income produced by these SNFs located in Hampden,
Massachusetts, although the Company's REIT status will not be
affected. While the Company does not intend to hold these operating
licenses for the long term, the Company believes it is currently in
the best interests to own the licenses to operate these facilities.

. Assisted living facilities - These investments consist of five ALFs,
all owned through joint ventures. The five ALFs contain over 350 units
that are typically occupied by residents who require a less intense
level of care in comparison to the SNFs. The Company's joint venture
partner in each of these ALFs operates the facility.

. Debt obligations - These investments consist of short-term secured and
unsecured loans made to third parties to facilitate the acquisition of
healthcare facilities. As of December 31, 2001, the Company had ten
loans outstanding with a net book value of $16.9 million.

The tables on the following pages reconcile the Company's income and
expense activity for the years ending December 31, 2001, 2000 and 1999 and
balance sheet data as of December 31, 2001 and 2000. The Company has restated
the segment information for the year ending December 31, 1999 to reflect the
change in reportable segments.

F-27

2001 Reconciliation of Reportable Segment Information

Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ ------- ------ ----------- ----- -----
(In thousands)

Revenue:
Rents, tenant reimbursements and
parking ............................. $ 25,815 $ 1,635 $ 2,743 $ -- $ -- $ 30,193
Patient revenues....................... -- 21,057 -- -- -- 21,057
Interest and loan fees................. 130 37 2 1,906 726 2,801
Lease termination income............... 2,613 -- -- -- -- 2,613
Other income........................... 265 753 -- 794 59 1,871
------------- ------------ ----------- ---------- ----------- ------------
Total revenues...................... 28,823 23,482 2,745 2,700 785 58,535
------------- ------------ ----------- ---------- ----------- ------------
Expenses:
Property operations.................... 7,789 622 174 94 -- 8,679
Skilled nursing operations............. -- 19,004 -- -- -- 19,004
Depreciation and amortization.......... 4,466 1,038 511 -- 48 6,063
Interest............................... 9,071 1,578 1,517 671 635 13,472
Provision for doubtful accounts,
notes and bonds receivable........... 83 850 -- 71 -- 1,004
Corporate tax expense.................. -- 85 -- -- -- 85
General and administrative............. -- -- -- -- 3,953 3,953
------------- ------------ ----------- ---------- ----------- ------------
Total expenses...................... 21,409 23,177 2,202 836 4,636 52,260
------------- ------------ ----------- ---------- ----------- ------------
Income (loss) from operations............. 7,414 305 543 1,864 (3,851) 6,275
Equity in earnings (loss) of
unconsolidated affiliates.............. 207 -- 2 (4) -- 205
------------- ------------ ----------- ---------- ----------- ------------
Income (loss) from operations before
minority interests..................... $ 7,621 $ 305 $ 545 $ 1,860 $ (3,851) $ 6,480
============= ============ =========== ========== =========== ============

2001 Reconciliation of Reportable Segment Information

Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ ------- ------ ----------- ----- -----
(In thousands)

Rental properties..................... $ 114,067 $ 30,419 $ 21,322 $ -- $ 201 $166,009
Mortgage loans and notes receivable, net. -- 297 -- 11,679 -- 11,976
Cash and cash equivalents.............. 31 95 260 -- 1,653 2,039
Restricted cash ....................... 2,780 581 19 872 -- 4,252
Tenant rent and reimbursement
receivable, net ................... 349 4,017 1,263 125 424 6,178
Unbilled rent receivable, net ......... 2,633 28 -- -- -- 2,661
Other receivables, net................. (7) -- -- -- 26 19
Investment in unconsolidated affiliates 1,422 -- 2,285 874 -- 4,581
Deferred financing costs, net.......... 4,584 392 412 293 -- 5,681
Pre-acquisition costs.................. -- -- -- 135 122 257
Deferred lease costs, net.............. 885 4 -- -- -- 889
Prepaid expense and other ............. 116 306 43 -- 17 482
------------- ------------- ----------- ------------ ---------- -----------
Total assets........................ $ 126,860 $ 36,139 $ 25,604 $ 13,978 $ 2,443 $ 205,024
============= ============= =========== ============ ========== ===========

F-28

2000 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION

Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ -------- ------ ----------- ----- -----
(In thousands)

Revenue:
Rents,tenant reimbursements and
parking .............................. $ 24,741 $ 1,328 $ 2,588 $ -- $ -- $ 28,657
Patient revenues........................ -- 17,820 -- -- -- 17,820
Net gain (loss) on sale of assets....... 1,405 (142) -- -- -- 1,263
Interest and loan fees.................. 246 14 -- 2,198 74 2,532
Other income............................ 147 366 -- -- 60 573
------------ ------------- ------------ --------- ---------- ----------
Total revenues....................... 26,539 19,386 2,588 2,198 134 50,845
------------ ------------- ------------ --------- ---------- ----------

Expenses:
Property operations..................... 6,999 531 150 174 -- 7,854
Skilled nursing operations.............. -- 16,548 -- -- -- 16,548
Depreciation and amortization........... 4,502 957 492 -- 64 6,015
Provision for doubtful accounts and
notes receivable...................... -- 563 -- 1,725 -- 2,288
Interest................................ 9,165 2,100 1,530 877 130 13,802
General and administrative.............. -- -- -- -- 2,892 2,892
------------ ------------- ------------ --------- ---------- ----------
Total expenses....................... 20,666 20,699 2,172 2,776 3,086 49,399
------------ ------------- ------------ --------- ---------- ----------
Income (loss) from operations.............. 5,873 (1,313) 416 (578) (2,952) 1,446
Equity in earnings (loss) of
unconsolidated affiliates............... 122 (8) (520) (11) -- (417)
------------ ------------- ------------ --------- ---------- ----------
Income (loss) from operations before
minority interests....................... $ 5,995 $ (1,321) $ (104) $ (589) $ (2,952) $ 1,029
============ ============= ============ ========= ========== ==========

2000 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION

Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ ------- ------ ----------- ----- -----
(In thousands)

Rental properties..................... $ 115,008 $ 31,040 $ 21,824 $ -- $ 237 $ 168,109
Mortgage loans and notes receivable, net. -- -- -- 11,244 -- 11,244
Cash and cash equivalents.............. 845 111 256 -- 1,579 2,791
Restricted cash ....................... 3,040 687 63 834 -- 4,624
Tenant rent and reimbursement receivable,
net........................................ 2,008 3,908 633 71 49 6,669
Unbilled rent receivable, net.......... 2,327 85 -- -- -- 2,412
Other receivables, net................. 11 -- -- 35 -- 46
Investment in unconsolidated affiliates 1,224 -- 2,795 832 -- 4,851
Deferred financing costs, net.......... 1,590 632 363 232 -- 2,817
Pre-acquisition costs.................. -- 49 -- 101 -- 150
Construction in progress............... 163 8 -- -- -- 171
Deferred lease costs, net.............. 657 11 -- -- -- 668
Prepaid expense and other ............. 675 150 43 -- 46 914
------------ ----------- ------------ ---------- --------- -----------
Total assets........................ $ 127,548 $ 36,681 $ 25,977 $ 13,349 $ 1,911 $ 205,466
============ =========== ============ ========== ========= ===========

F-29

1999 RECONCILIATION OF REPORTABLE SEGMENT INFORMATION

Medical Skilled Assisted Debt
Office Nursing Living Obligations Other Total
------ -------- ------ ----------- ----- -----
(In thousands)

Revenue:
Rents, tenant reimbursements
and parking .......................... $ 25,301 $ 3,797 $ 1,253 $ -- $ -- $ 30,351
Interest and loan fees.................. 279 24 1 2,339 154 2,797
Other income............................ 138 -- -- -- 260 398
----------- ------------- ------------ ---------- ---------- ----------
Total revenues....................... 25,718 3,886 1,254 2,339 414 33,546
----------- ------------- ------------ ---------- ---------- ----------
Expenses:
Property operations..................... 6,871 338 29 121 -- 7,359
Depreciation and amortization........... 4,458 882 269 -- 81 5,690
Impairment of long-lived assets......... 6,400 -- -- -- -- 6,400
Provision for doubtful accounts and
notes receivable...................... 210 2,000 -- -- -- 2,210
Interest................................ 9,958 1,063 813 (8) 567 12,393
General and administrative.............. -- -- -- -- 3,196 3,196
----------- ------------- ------------ ---------- ---------- ----------
Total expenses....................... 27,897 4,283 1,111 113 3,844 37,248
----------- ------------- ------------ ---------- ---------- ----------
(Loss) income from operations.............. (2,179) (462) 143 2,226 (3,430) (3,072)
Equity in earnings (loss) of
unconsolidated affiliates............... 202 (28) (505) 62 -- (269)
(Loss) income from operations before ----------- ------------ ------------ ---------- ---------- ----------
minority interests....................... $ (1,977) $ (490) $ (362) $ 2,288 $ (3,430) $ (3,971)
=========== ============ ============ ========= ========== ==========

17. EXTRAORDINARY LOSS ON EARLY RETIREMENT OF LONG-TERM DEBT

During 2001, the Company recorded an extraordinary loss on the early
retirement of long-term debt in the amount of $0.1 million. This loss was the
result of the write-off of deferred loan fees related to the repayment of a $5.1
million loan secured by two of its properties located in Tustin, California

During 2000, the Company recorded an extraordinary loss on the early
retirement of long-term debt in the amount of $0.2 million. This loss was a
result of pre-payment fees and the write-off of deferred loan fees relating to
the repayment of a $5.5 million loan secured by a 33,000 square foot MOB in
Aliso Viejo, California. The building was sold to Hoag Memorial Hospital
Presbyterian on January 25, 2000 for a price of $8.3 million. The Company used a
portion of the proceeds to repay the $5.5 million loan.

During 1999, the Company obtained a $13.92 million short-term loan secured
by three skilled nursing facilities located in Massachusetts at an interest rate
of LIBOR plus 2.75%. The first portion of the loan closed on October 4, 1999 and
was used to repay a $6.0 million loan secured by the three facilities. In
repaying the $6.0 million loan, the Company incurred prepayment fees of
approximately $129,000 and wrote off an additional $42,000 in loan fees relating
to the loan. These amounts have been presented as an extraordinary loss on the
statement of operations.

18. RELATED PARTY TRANSACTIONS

On June 30, 1998, GLH Pacific Gardens, LLC, a joint venture between the
Company and American Senior Care, Inc., purchased a 92-unit senior care facility
located in Santa Monica, California. Upon acquisition, this facility was leased
to GLH Pacific Gardens Corp., an unconsolidated joint venture of the Company in
which the Company owns 93% of the equity in the form of non-voting preferred
stock. On July 1, 1999, the lease was transferred to ASL Santa Monica Inc., an

F-30

unaffiliated entity. During 1999 and 1998, GLH Pacific Gardens Corp. made lease
payments of $480,000 and $420,000 to the Company, respectively.

On April 15, 1999, the Company borrowed $2.0 million from Reese L.
Milner, a former director and an Operating Partnership unit holder of the
Company. The loan bore interest at 12% per annum and was due on May 15, 1999.
The Company also paid a loan fee of $20,000 to Mr. Milner. The loan was secured
by a first trust deed against a parcel of real property owned by the Company. On
May 13, 1999, the loan was extended until new financing on the collateralized
property was obtained. The Company repaid the loan plus all accrued interest on
June 13, 1999.

On May 4, 1999, the Company sold a vacant parcel of real property for
$1.6 million to the Craig Corporation, whose president is S. Craig Tompkins, a
director of the Company. The Company had the option to repurchase the property
beginning on November 5, 1999 and ending on December 3, 1999 for $1.8 million
plus any costs incurred by the Craig Corporation with respect to the property.
Beginning on January 24, 2000 and ending on January 31, 2000, the Craig
Corporation had the option to sell the property to the Company for $1.9 million.
Thereafter, the option sale price would have increased at a rate of 3% per
month, adjusted pro rata for any periods of less than one month. The Company
accounted for this transaction in accordance with SFAS No. 66 "Accounting for
Sales of Real Estate" and treated this sale as a financing transaction. This
amount was repaid on November 2, 1999 for $1.76 million.

On May 18, 1999, the Company entered into an agreement with the Craig
Corporation, whose president is S. Craig Tompkins, a director of the Company,
whereby the Craig Corporation would purchase up to 36,000 shares of the
Company's common stock on the open market and the Company would have the option
to purchase these shares from the Craig Corporation on or before December 3,
1999 at the Craig Corporation's cost plus a premium of 20% per annum, less any
dividends received. After December 3, 1999, the Craig Corporation had the option
to sell the shares to the Company between January 24 and January 31, 2000 at its
cost plus a premium of 25% per annum. Thereafter, the option sale price would
have increased at a rate of 3% per month. The exercise of the Company's option
was contingent upon the exercise of the Company's option to repurchase the
vacant parcel of land from the Craig Corporation discussed above. On December
29, 1999, the Company purchased 34,400 shares of the Company's common stock for
$404,000. This amount included $44,000 in interest.

On February 7, 2000, the board of directors of the Company unanimously
approved the guarantee of a $500,000 line of credit from Tokai Bank to each of
Daniel M. Gottlieb and Steven D. Lebowitz, both directors and officers of the
Company, for a total of $1 million. The guarantee was canceled in October 2001.
In addition, on February 29, 2000, the board of directors granted 50,000
non-qualified Common Stock options to each of Messrs. Gottlieb and Lebowitz. The
exercise price of the options was $8.875, the closing price of the Company's
Common Stock on February 29, 2000.

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

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

F-31

19. UNAUDITED CONSOLIDATED QUARTERLY INFORMATION

Unaudited consolidated quarterly financial information for the periods
as follows:

2001 Fiscal Quarter
-------------------------------------------
1st 2nd 3rd 4th
--------- ---------- --------- --------
(In thousands, except per share amounts)

Revenue:
Rental................................... $6,581 $6,509 $6,867 $6,840
Patient revenues......................... 5,008 5,353 5,289 5,407
Tenant reimbursements.................... 409 614 413 458
Parking ................................. 346 435 347 374
Lease termination income................. 2,613 -- -- --
Interest and loan fees................... 510 489 445 1,357
Other income............................. 437 149 398 887
-------- --------- -------- --------
Total revenues........................ 15,904 13,549 13,759 15,323
-------- --------- -------- --------
Expenses:
Property operations...................... 1,958 2,208 2,255 2,258
Skilled nursing operations............... 4,530 4,753 4,793 4,928
Depreciation and amortization............ 1,473 1,495 1,544 1,551
Interest................................. 3,298 3,242 3,207 3,725
General and administrative............... 848 860 834 1,411
Provision for doubtful accounts.......... 219 135 275 375
-------- --------- -------- --------
Total expenses........................ 12,326 12,693 12,908 14,248
-------- --------- -------- --------
Income from operations before minority
interests............................. 3,578 856 851 1,075
Equity in (loss) earnings of
unconsolidated affiliates.............. (83) (92) 83 297
Minority interest in consolidated
affiliates............................. (62) (71) (68) (101)
Corporate income tax expense............. -- -- (212) 127
-------- --------- -------- --------
Income before extraordinary item......... 3,433 693 654 1,398
-------- --------- -------- --------
Extraordinary loss on early
extinguishment of debt -- -- (48) --
-------- --------- -------- --------
Net income .............................. 3,433 693 606 1,398
Dividends on preferred stock ........... (1,790) (1,791) (1,790) (1,791)
-------- --------- -------- --------
Net income (loss) to common stockholders $1,643 $(1,098) $(1,184) $(393)
======== ========= ======== ========

F-32

2000 Fiscal Quarter
--------------------------------------------
1st 2nd 3rd 4th
---------- --------- --------- ---------
(In thousands, except per share amounts)

Revenue:
Rental................................... $6,789 $6,261 $6,275 $6,564
Patient revenues......................... 899 5,452 5,681 5,788
Tenant reimbursements.................... 355 371 401 368
Parking ................................. 303 307 322 341
Net gain on sale of assets .............. 1,263 -- -- --
Interest and loan fees................... 484 898 590 560
Other income............................. 109 123 99 242
--------- -------- --------- ----------
Total revenues........................ 10,202 13,412 13,368 13,863
--------- -------- --------- ----------

Expenses:
Property operations...................... 1,855 2,080 1,906 2,013
Skilled nursing operations............... 818 4,937 5,235 5,558
Depreciation and amortization............ 1,533 1,533 1,472 1,477
Interest................................. 3,423 3,421 3,491 3,467
General and administrative............... 700 768 702 722
Provision for doubtful accounts.......... 2,288 -- -- --
--------- -------- --------- ----------
Total expenses........................ 10,617 12,739 12,806 13,237
--------- -------- --------- ----------
(Loss) income from operations before
minority interests..................... (415) 673 562 626
Equity in loss of unconsolidated affiliates (143) (205) (45) (24)
Minority interest in consolidated
affiliates............................. (67) (39) (27) (49)
Minority interest in Operating Partnership 533 83 (78) (78)
--------- -------- --------- ----------
(Loss) income before extraordinary item.. (92) 512 412 475
--------- -------- --------- ----------

Extraordinary loss on early
extinguishment of debt (158) -- -- --
--------- -------- --------- ----------
Net (loss) income ....................... (250) 512 412 475
Dividends on preferred stock ............ (1,793) (1,790) (1,791) (1,790)
--------- -------- --------- ----------
Net loss to common stockholders.......... $(2,043) $(1,278) $(1,379) $(1,315)
========= ======== ========= ==========

F-33

20. SCHEDULE OF CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF
DECEMBER 31, 2001. (IN THOUSANDS).

Cost Capitalized Subsequent
Initial Cost to Compa to Acquisition
-------------------------- -----------------------------
Encumbrances Building and Building and
Description (See Notes) Land Improvements Land Improvement
- ------------------------- ------------ --------- ------------- -------- ------------------

Medical Office Building
California Properties:
- ----------------------
405 North Bedford Drive (See Note A) $2,186 $4,076 $452 $10,355
415 North Bedford Drive (See Note A) 292 573 -- 615
416 North Bedford Drive (See Note A) 427 247 -- 2,749
435 North Bedford Drive (See Note A) 1,144 2,853 -- 3,055
435 North Roxbury Drive $7,359 162 390 39 2,810
436 North Bedford Drive (See Note B) 2,675 15,317 -- 545
439 North Bedford Drive -- -- 109 -- 498
Holy Cross Medical Plaza 7,613 2,556 10,256 1,377
St. Joseph's Professional 3,071 1,300 3,936 -- 381
Building.
Sherman Oaks Medical Plaza (See Note B) 1,454 8,278 -- 2,539
Regents Medical Center (See Note B) 1,470 8,390 -- 1,380
Cigna HealthCare Bldg. (See Note B) 1,260 7,282 -- 1,013
1095 Irvine Boulevard 1,253 474 663 -- 454
14662 Newport Avenue (See Note D) 645 1,900 -- 72
14591 Newport Avenue (See Note E) 160 36 -- 363
14642 Newport Avenue (See Note E) 400 1,033 -- 625
26771 Aliso Creek Road 1,385 585 -- -- 1,328
23861 McBean Parkway 9,490 -- 4,164 (25) 8,318
24355 Lyons Avenue 4,817 623 6,752 -- 567
1330 Orange Avenue 7,255 809 8,753 -- 395
5 Journey Road 2,044 411 -- -- 1,612

Senior Care Facilities
Arizona Properties:
- ------------------
31 West Maryland Avenue -- 800 3,847 -- 686
39 West Maryland Avenue -- 172 835 -- 115

California Properties:
- ----------------------
1437 Seventh Street 11,220 2,357 8,427 -- 1,300
321 12th Street -- 93 373 -- 5
1645 Esplanade -- 159 636 -- 2
18700 Burbank Blvd. 7,270 2,350 8,035 -- 243

Massachusetts Properties:
- -------------------------
42 Prospect Avenue (See Note C) 1,048 4,609 -- 1
32 Chestnut Street (See Note C) 1,319 9,307 -- 522
34 Main Street (See Note C) 702 3,040 -- --

Gross amount at which carried at close of Period (See Note G)
----------------------------------------------------------------
Date of
Building and Accumulated Acquisition Construction or
Description Land Improvements Total Depreciation Date Rehabilitation
- ----------------------- -------- --------------- ----- ------------- ----------- ---------------

Medical Office Buildings
California Properties:
- -----------------------
405 North Bedford Drive $2,638 $14,431 $17,069 $4,828 1993 1947/1987
415 North Bedford Drive 292 1,188 1,480 614 1993 1955
416 North Bedford Drive 427 2,996 3,423 1,223 1993 1946/1986
435 North Bedford Drive 1,144 5,908 7,052 3,196 1993 1950/1963/1984
435 North Roxbury Drive 201 3,200 3,401 1,391 1993 1956/1983
436 North Bedford Drive 2,675 15,862 18,537 2,296 1990 1980
439 North Bedford Drive -- 607 607 404 1993 1956/1983
Holy Cross Medical Plaza 2,556 11,633 14,189 2,874 1994 1985
St. Joseph's Professional 1,300 4,317 5,617 924 1993 1987
Building.
Sherman Oaks Medical Plaza 1,454 10,817 12,271 3,101 1994 1969/1993
Regents Medical Center 1,470 9,770 11,240 2,577 1994 1989
Cigna HealthCare Bldg. 1,260 8,295 9,555 1,417 1994 1992
1095 Irvine Boulevard 474 1,117 1,591 388 1994 1994/1995
14662 Newport Avenue 645 1,972 2,617 269 1996 1969/1974
14591 Newport Avenue 160 399 559 84 1996 1969
14642 Newport Avenue 400 1,658 2,058 470 1996 1985
26771 Aliso Creek Road 560 1,328 1,888 105 1997 1998
23861 McBean Parkway -- 12,482 12,482 1,274 1998 1981/1999
24355 Lyons Avenue 623 7,319 7,942 710 1998 1990
1330 Orange Avenue 809 9,148 9,957 681 1998 1977/1985
5 Journey Road 411 1,612 2,023 116 1998 1998/1999

Senior Care Facilities
Arizona Properties:
- ------------------
31 West Maryland Avenue 800 4,533 5,333 643 1997 1951-1957
39 West Maryland Avenue 172 950 1,122 102 1998 1968

California Properties:
- ----------------------
1437 Seventh Street 2,357 9,727 12,084 919 1998 1990
321 12th Street 93 378 471 17 2000 1940
1645 Esplanade 159 638 797 29 2000 1960
18700 Burbank Blvd. 2,350 8,278 10,628 471 2000 1989

Massachusetts Properties:
- -------------------------
42 Prospect Avenue 1,048 4,610 5,658 839 1997 1957/65/78/85
32 Chestnut Street 1,319 9,829 11,148 916 1997 1985
34 Main Street 702 3,040 3,742 597 1997 1965/1985

F-34

Washington Properties:
- ----------------------

3035 Cherry Street 2,349 100 3,216 -- 25
---------- --------- --------- --------- ---------
Total................ $ 65,126 $28,133 $127,333 $466 $43,950
========== ========= ========== ======== =========
Realty Financing Partnership
(See Note A) 27,126
Medical Partnership (See Note
B) 32,585
G&L Hampden, LLC
(See Note C) 13,499
G&l Realty Partnership
(See Note D) 2,342
G&l Realty Partnership
(See Note E) 7,181
Per Above 65,126
----------
Total encumbrances $147,859
==========

Washington Properties:
- ----------------------

3035 Cherry Street 100 3,241 3,341 398 1998 1954
--------- --------- --------- --------- --------- --------
Total.............. $28,599 $171,283 $199,882 $33,873
========= ========= ========= =========

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

Total Real Estate Assets
----------------------------------------------
2001 2000 1999
----------------------------------------------
(in thousands)
Balance at beginning of year $ 196,317 $ 204,121 $ 196,083
Improvements and acquisitions 3,565 14,887 15,673
Impairment of long-lived assets -- -- (6,400)
Dispositions -- (22,691) (1,235)
------------ ----------- -------------
Balance at end of year $ 199,882 $ 196,317 $ 204,121
============ =========== =============

- -----------------------

Accumulated Depreciation
---------------------------------------------
2001 2000 1999
---------------------------------------------
(in thousands)
Balance at beg. of year $ 28,208 $ 23,912 $ 18,493
Depreciation 5,665 5,697 5,419
Dispositions -- (1,401) --
------------- ------------- ------------
Balance at end of year $ 33,873 $ 28,208 $ 23,912
============= ============= ============

Note A: The Realty Financing Partnership owns the following properties which
are security for a blanket first trust deed: 405 North Bedford, 415
North Bedford, 416 North Bedford and 435 North Bedford.
Note B: The Medical Partnership owns the following properties, which are
each security for a blanket first trust deed: Sherman Oaks Medical
Plaza, Cigna HealthCare Building, Regents Medical Center and 436 North
Bedford Drive.
Note C: G&L Hampden, LLC owns the following properties, which are security for
a first trust deed: 42 Prospect Avenue, 32 Chestnut Street, and 34 Main
Street.
Note D: G&L Realty Partnership, L.P. owns the following properties which are
security for a first trust deed: 14662 Newport Avenue
Note E: G&L Realty Partnership, L.P. owns the following properties which are
security for a first trust deed: 14591 Newport Avenue, 14642 Newport
Avenue

F-35

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 29, 2002 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 Chief Executive Officer,
- ---------------------------------------
Daniel M. Gottlieb Co-Chairman of the Board and March 29, 2002
Director (Principal Executive
Officer)

/s/ Steven D. Lebowitz
- ---------------------------------------
Steven D. Lebowitz President, Co-Chairman of the March 29, 2002
Board and Director

/s/ Richard L. Lesher Director March 29, 2002
- ---------------------------------------
Richard L. Lesher

/s/ Charles P. Reilly Director March 29, 2002
- ---------------------------------------
Charles P. Reilly

/s/ S. Craig Tompkins Director March 29, 2002
- ---------------------------------------
S. Craig Tompkins

F-36