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 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996

OR

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

For the transaction period from to

COMMISSION FILE NUMBER 1-12566

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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:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None

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

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price of such stock, as reported on the
New York Stock Exchange, on April 2, 1997) was $69,062,500.

The number of shares outstanding of the Registrant's Common Stock, $.01 par
value (the "Common Stock"), as of April 2, 1997, was 4,062,500 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference the Registrant's Notice of Annual Meeting
of Stockholders and Proxy Statement relating to the 1997 Annual Meeting of
Stockholders (the "Proxy Statement").

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ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

PART I PAGE
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Item 1. Business....................................................... 1
Item 2. Properties..................................................... 5
Item 3. Legal Proceedings.............................................. 20
Item 4. Submission of Matters to a Vote of Security Holders............ 20

PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 21
Item 6. Selected Financial Data........................................ 22

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 24
Item 8. Financial Statements and Supplementary Data.................... 31

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 31

PART III
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Item 10. Directors and Executive Officers............................... 31
Item 11. Executive Compensation......................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management. 31
Item 13. Certain Relationships and Related Transactions................. 31

PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K............................................................ 32

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PART I

ITEM 1. BUSINESS

The Company is a self-administered and self-managed REIT that finances,
acquires, develops, manages and leases health care properties. The Company's
business currently consists of investments, either directly or through joint
ventures, in health care properties (primarily through its Medical Office
Building Division) and in debt obligations secured by health care properties
(primarily through its Senior Care Division).

Medical Office Building Division

The Medical Office Building ("MOB") Division's business strategy is to
acquire, develop, manage and lease a portfolio of medical office buildings and
related health care facilities, parking facilities and retail space. The
Company's MOB Division currently seeks growth opportunities nationwide in
major population centers through acquisition or development of additional
medical office properties directly or through strategic joint ventures. The
MOB Division's portfolio currently consists of approximately 725,000 rentable
square feet located in Southern California. The Company directly owns 15
properties exclusive of vacant land (the "Properties"), including 13 high
quality medical office buildings, an adjacent parking facility and one
hospital. Several of the Properties include retail space on the ground level.
As of February 1, 1997, the Properties were approximately 80.8% leased to over
280 tenants. In June 1996, the Company acquired Tustin Medical Plaza in
Tustin, California. Tustin Medical Plaza includes two medical office
buildings, a parcel of vacant land and a hospital (the "Tustin Properties")
which was vacant when purchased. Leases for the Tustin Hospital are currently
being negotiated. As of February 1, 1997, the Company's Properties, excluding
Tustin Hospital, had an occupancy rate of approximately 93.8%.

The Company recently entered into an operating agreement with PHP Healthcare
Corporation, a NYSE listed company ("PHP") forming a new joint venture named
"GL/PHP, LLC", a Delaware limited liability company, (the "PHP Joint
Venture"). The Company holds an 80.5% interest in the unconsolidated joint
venture, which owns six primary health care facilities located in New Jersey
consisting of approximately 80,000 aggregate rentable square feet. Until July
31, 1997 PHP has an option to purchase the Company's interest in the PHP Joint
Venture.

Senior Care Division

The Senior Care Division's business strategy is to originate short term
(typically 6-24 months) loans secured by senior care facilities throughout the
United States. Since its inception in June 1995, the Senior Care Division has
made seven loans totaling $26.9 million of which four have been repaid through
the issuance of revenue bonds. As of February 1, 1997, the Senior Care
Division had three loans aggregating $12.5 million outstanding. In October
1995, the Company invested $19.9 million to acquire outstanding Series A and
Series B bonds with an aggregate face value of $26.0 million issued by the
Massachusetts Industrial Finance Agency and secured by three nursing homes in
Massachusetts. (In March 1997 the Company sold these bonds.) These loans and
bonds generate cash flow from principal and interest payments received from
outstanding loans. The Company may receive future revenues in the form of
subordinated notes in lieu of interest or loan fees.

In November 1996, the Company expanded its activities in the Senior Care
Division by entering into an unconsolidated operating venture with Nomura
Asset Capital Corporation ("Nomura"), named GLN Capital Co., LLC (the "GLN
Venture"), having an anticipated maximum leveraged investment capacity for
short term loans of $200.0 million. GMAC-CM has previously funded four loans
with the Company and has committed to provide a credit line to the GLN Venture
of up to $50.0 million, which will be secured by loans originated by the GLN
Venture.

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The Company's Senior Care Division currently seeks growth opportunities
nationwide through short term financing and participating loans to facilitate
the purchase of senior care facilities. Sellers of senior care facilities
generally fall into one of two categories: (a) small independent operators who
are struggling to maintain operating margins in a consolidating industry, and
(b) large owner operators seeking to divest themselves of real estate
operations and concentrate on facility management and ancillary services. The
Company believes that the extensive operating requirements and budgetary
constraints of Federal, state and local governments, have caused competitive
pressures that particularly impact small operators and which in turn are
causing a consolidation of the senior care industry. Large operators have also
been affected by the consolidation of the senior care industry and often seek
to sell their senior care facilities while retaining management service
contracts, providing these large operators with ongoing revenues in connection
with their management services.

Nonprofit entities are particularly attracted to investments in senior care
facilities because of their unique ability to finance acquisitions through the
issuance of tax-exempt bonds, providing nonprofit entities with a relatively
lower cost of capital as compared to for-profit purchasers. In addition, in
certain states health care facilities owned by nonprofit entities are exempt
from taxes on real property.

General

Daniel M. Gottlieb and Steven D. Lebowitz, the two senior officers and
founders of the Company, have over 40 years of combined experience in
acquiring, developing, managing and leasing medical office properties. Messrs.
Gottlieb and Lebowitz own, in the aggregate, approximately 22.6% of the equity
of the Company, inclusive of their interests ("Units") in G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"). The Company is the sole general partner of, and owns an 89.1%
interest in, the Operating Partnership. Substantially all of the Company's
assets are held by, and operations are conducted through, the Operating
Partnership or other entities created for financing purposes.

The Company's executive offices are located at 439 North Bedford Drive,
Beverly Hills, California 90210, and its telephone number is (310) 273-9930.
The Company is a Maryland corporation that was incorporated on September 15,
1993.

Recent Developments

In February 1997, the Company formed the PHP Joint Venture which purchased
six primary health care facilities located throughout New Jersey consisting of
approximately 80,000 aggregate square feet for $22.4 million. The Company
funded its 80.5% equity contribution to the PHP Joint Venture with a loan
provided by the GLN Venture. The Company does not hold the requisite level of
control and therefore does not consolidate the PHP Joint Venture in its
financial statements. Until July 31, 1997, PHP has an option to purchase the
Company's interest in the PHP Joint Venture. PHP has leased the properties
from the PHP Joint Venture for 25 years and has a three year contract as a
preferred provider to Blue Cross/Blue Shield of New Jersey. Charles P. Reilly,
a director of the Company and Chairman of the Compensation Committee of the
Board of Directors of the Company, is Chairman of the Board of Directors of
PHP.

In February 1997, the Company funded its first senior care loan through the
GLN Venture, a $6.4 million participating loan to CoreCare Behavioral
Management. The loan has a term of 18 months and is secured by a first deed of
trust on the Institute of Pennsylvania Hospital in Philadelphia, Pennsylvania,
which CoreCare acquired in connection with the loan by the GLN Venture.

In March 1997, the Company sold Series A and B bonds issued by the
Massachusetts Industrial Finance Agency to the GLN Venture for $7.7 million
and assigned $14 million of indebtedness owed to GMAC-CM. The bonds, which
were purchased for $19.9 million in October 1995, had an outstanding balance
of $27.7 million, including principal and accrued, unpaid interest, at the
time of sale.

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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 31, 1997, the Company employed 28 persons including on-site
building employees and professional employees engaged in asset management and
administration. The Company considers its relations with its employees to be
good.

3

ORGANIZATIONAL STRUCTURE

The current structure of the Company and the ownership of interests in the
Operating Partnership and other related entities directly or indirectly
controlled by the Company, through which the Company does business, are shown
in the following chart.

[ORGANIZATIONAL STRUCTURE CHART APPEARS HERE]

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(1) G&L Realty Financing II, Inc. is the sole general partner and 1% owner of
the Realty Financing Partnership.

(2) G&L Medical, Inc. is the sole general partner and 1% owner of the Medical
Partnership.

(3) The Operating Partnership is the sole limited partner and 99% owner of the
Medical Partnership.

(4) The Operating Partnership is the sole limited partner and 99% owner of the
Realty Financing Partnership.

(5) The Company is the sole general partner and 89% owner of the Operating
Partnership. Of its 89% interest, 1% is held as general partner and 88% is
held as a limited partner. The Operating Partnership's remaining 11%
partnership interest is owned by individual limited partners.

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ITEM 2. PROPERTIES

The Properties are 13 high quality medical office buildings, an adjacent
parking facility, one hospital and incidental retail space. As of February 1,
1997, the Properties were approximately 80.8% leased to over 280 tenants. In
June 1996, the Company acquired Tustin Hospital, for which leases are
currently being negotiated. The Company's Properties, not including Tustin
Hospital, had an occupancy rate of approximately 93.8% as of February 1, 1997.
The Company's tenants are primarily established medical practitioners
representing a cross section of medical practices.

DESCRIPTION OF THE PROPERTIES AND TENANTS

Company Properties

The Company, through the MOB Division, acquires, develops, manages and
leases medical office buildings and related health care facilities. Developing
and managing medical office properties differs from developing and managing
conventional office buildings due to the special requirements of the tenants
and their patients. As a variety of medical procedures are now performed in
doctors' offices, many medical office buildings have become sophisticated
ambulatory centers that allow for out-patient surgery and procedures. In
addition, medical office buildings 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 medical
office properties 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 medical office properties to accommodate increased space
needs and managing the tenant mix at properties so that referrals by
practitioners with different specialties within the building is facilitated.
The Company stresses meeting these and other special demands of medical
property tenants.

The health care industry is facing various challenges, including increased
government and private payor pressure to reduce medical delivery costs.
Substantially all of the Company's tenants are in the medical profession and
could be adversely affected by cost containment and other health care reform
proposals. Proposals that limit access to medical care or reduce the
reimbursement of physicians' services may impact the ability of the Company's
tenants to pay rent. 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 medical office buildings which
contain surgicenters and out-patient facilities, such as those owned by the
Company.

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The following table sets forth certain information regarding each of the
Properties as of February 1, 1997. The Operating Partnership owns a 100% fee
simple interest in all of the Properties, other than 435 North Roxbury in which
it owns an indirect 61.75% interest.

PROPERTIES--SUMMARY DATA

YEAR RENTABLE RENTED TOTAL AVERAGE
CONSTRUCTED OR SQUARE SQUARE ANNUALIZED RENT PER
PROPERTY(1) REHABILITATED FEET(2) FEET(3) OCCUPANCY(3) RENT(4) SQ. FT.(5)
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405 N. Bedford, Beverly
Hills, CA.............. 1947/1987 49,037 49,037 100.0% $ 2,182,612 $44.51
415 N. Bedford, Beverly
Hills(6)............... 1955 5,977 5,977 100.0% 216,859 36.28
416 N. Bedford, Beverly
Hills.................. 1946/1986 40,776 39,803 97.6% 1,468,230 36.89
435 N. Bedford, Beverly
Hills.................. 1950/1963/1984 55,116 51,306 93.1% 1,718,281 33.49
435 N. Roxbury, Beverly
Hills.................. 1956/1983 42,455 39,719 93.6% 1,449,840 36.50
436 N. Bedford, Beverly
Hills.................. 1990 78,799 77,548 98.4% 3,089,602 39.84
Holy Cross Medical
Plaza.................. 1985 72,575 67,539 93.1% 1,895,920 28.07
11550 Indian Hills Road
Mission Hills, CA
St. Joseph's
Professional Building.. 1987 25,684 25,684 100.0% 694,250 27.03
2031 West Alameda Ave.
Burbank, CA(7)
Sherman Oaks Medical
Plaza.................. 1969/1993 69,422 60,183 86.7% 1,377,910 22.90
4955 Van Nuys Blvd.
Sherman Oaks, CA
Regents Medical Center.. 1989 62,377 62,377 100.0% 1,555,245 24.93
4150 Regents Park Row
La Jolla, CA
Cigna HealthCare
Building............... 1992 47,604 47,604 100.0% 1,096,796 23.04
12701 Schabarum Ave.
Irwindale, CA
1095 Irvine Boulevard... 1995 10,125 10,125 100.0% 197,080 19.46
Tustin, CA
Tustin--Medical Office
I...................... 1969 16,446 8,156 49.6% 119,576 14.66
14591 Newport Avenue
Tustin, CA
Tustin--Medical Office
II..................... 1985 47,954 40,826 85.1% 503,653 12.34
14642 Newport Avenue
Tustin, CA
Tustin Hospital......... 1969 101,000 -- 0.0% -- 0.00
14662 Newport Avenue
Tustin, CA
Tustin--Vacant land(8).. -- -- -- -- -- --
1101 Sycamore Avenue
Tustin, CA
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Total/Weighted average
of all properties...... 725,347 585,894 80.77% $17,565,877 $29.98
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(1) The Operating Partnership or the Realty Financing Partnership owns a 100%
fee simple interest in all of the properties except 435 North Roxbury,
which is owned by 435 North Roxbury Drive, Ltd., of which the Operating
Partnership owns a 61.75% partnership interest and is the sole general
partner.

(2) Rentable square feet includes space used for management purposes but does
not include storage space.

(3) Occupancy includes occupied space and space used for management purposes.
Rented square feet includes space that is leased but not yet occupied.

(4) Rent is based on third-party leased space billed in February 1997; no rent
is assumed from management space.

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(5) Average rent per square foot is calculated based upon third-party leased
space, excluding management space.

(6) This property includes retail space and parking facilities.

(7) The total annualized rent reflects a rental guarantee from the Sisters of
Providence discussed below, which expires October 31, 1998.

(8) This property consists of a vacant lot.

Beverly Hills, California Properties

Six of the 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 Properties include ten
operating rooms, two of which are located in the Saint John's Hospital
surgicenter at 405 North Bedford Drive. The 405, 416 and 436 North Bedford
Drive buildings each have emergency back-up generators. Parking for these six
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
medical office buildings 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 medical office building, built in 1947 and
extensively remodeled in 1988, consists of four stories plus a penthouse and a
basement. The reinforced brick building, with ground floor retail space,
features cherry wood paneled walls and brass hardware in the common areas and
decorative concrete trim on the exterior.

Saint John's Hospital is the only tenant leasing more than 10% of the
rentable square footage of 405 North Bedford, occupying 36,787 square feet
(approximately 75%) of the rentable square footage in that building. Its lease
expires on March 31, 1998 and provides for a monthly rental of $144,015. The
lease contains an option to renew for two consecutive five-year terms. Saint
John's Hospital subleases much of the space to doctors affiliated with the
hospital. Management anticipates that the Company will enter into new leases
with the existing sublease tenants at the expiration of Saint John's lease in
March 1998.

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 tandem-striped spaces and is valet
operated.

416 North Bedford Drive, Beverly Hills

The 416 North Bedford Drive property is a four-story reinforced brick
medical office building with a basement and ground floor retail space. Built
in 1946 and extensively remodeled in 1987, the building features oak paneled
walls and molding, brass hardware, tinted concrete borders on the exterior,
and fourth floor skylights that provide an open, airy atmosphere in the
hallway and some of the suites.

A plastic surgeon leases more than 10% of the rentable square footage of 416
North Bedford, occupying 4,622 square feet or 11.3% of the rentable square
footage of the building. The monthly rental is $17,293. The lease expires on
November 30, 2002 and contains a five-year renewal option.

435 North Bedford Drive, Beverly Hills

The 435 North Bedford Drive property is a four-story, reinforced brick and
masonry medical office building with a penthouse, basement, and ground floor
retail space. Built in 1959 and extensively remodeled in 1984, the

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building features oak molding, wall sconces and paneling in the hallways plus
stained runner boards and built-in stained hardwood cabinets in some of the
medical office suites.

435 North Roxbury Drive, Beverly Hills

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

Two tenants in 435 North Roxbury each occupy more than 10% of the rentable
square footage. A dermatologist occupies 5,291 square feet (12.5% of the
rentable square footage) pursuant to a lease which provides for a monthly
rental of $16,667. The lease expires September 30, 2001 and contains a
provision for a five-year renewal option. An internist occupies 6,183 square
feet (14.6% of the rentable square footage) pursuant to a lease which provides
for a monthly rental of $18,549. The lease expires on November 30, 1999.

436 North Bedford Drive, Beverly Hills

The 436 North Bedford Drive property is a three-story medical office
building with three levels of subterranean parking. Built in 1990, the
building features ground floor retail and office space surrounding a central
courtyard and balconies at selected locations on the second and third floors.
The exterior is clad in rose color sandstone with cast stone and granite trim.
The central courtyard features a cascading waterfall sculpture and stone
pavers with intricate marble and stone patterns. Cherry wood paneled walls
also line the elevator lobbies on all floors and portions of the hallways.

Holy Cross Medical Plaza, Mission Hills

The Holy Cross Medical Plaza is situated on approximately 2.6 acres of the
15-acre campus of Holy Cross Medical Plaza, a 316-bed hospital. The campus
also includes the Villa de la Santa Cruz skilled nursing facility, another
medical office building, a magnetic resonance imaging center, and an
outpatient diagnostic center. Built in 1984, the Holy Cross Medical Plaza is a
three-story office building occupied primarily by medical and dental
practitioners. A two-story parking structure and an open asphalt-paved lot can
accommodate a total of 333 vehicles. The surrounding site is landscaped with
grass, trees, shrubs, and planter boxes.

Two tenants occupy more than 10% of the rentable square footage in the Holy
Cross Medical Plaza property. Holy Cross Surgical Center occupies 12,456
square feet (17.247% of the rentable square footage) pursuant to a lease that
provides for monthly rent of $37,040.20. The lease expires October 31, 2006
and provides for a ten-year renewal option. Dialysis Center occupies 10,639
square feet (14.66% of the rentable square footage) pursuant to a lease that
provides for monthly rent of $19,633.00. The lease expires March 31, 2006 and
provides for two, five-year renewal options.

St. Joseph's Professional Building, Burbank

The Saint Joseph's Professional Building is a steel frame, brick-facade
building, constructed in 1987, that features two floors of office space over
three levels of subterranean parking which can accommodate up to 100 vehicles.
The building is located one-quarter of a mile from Saint 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. The Saint Joseph's Professional Building was
acquired from the Sisters of Providence, who have guaranteed up to an annual
gross rent of $765,000 per year through October 31, 1998; however, the
guarantee is limited to a maximum annual reimbursement of $225,000. Currently,
the office building is fully leased. Since the acquisition, the Company has
negotiated with the existing tenants to extend their leases beyond the rent
guarantee period.

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Two tenants in St. Joseph's Professional Building occupy more than 10% of
the rentable square footage. Total Renal Care occupies 9,067 square feet
(35.3% of the rentable square footage) pursuant to a lease which provides for
a monthly rental of $21,403 plus expense reimbursements for excess utility
consumption. Its lease expires October 31, 2000 and provides for one, five-
year renewal option. A doctors' group occupies five medical suites totaling
8,942 square feet (34.82% of the rentable square footage) pursuant to leases
which provide for aggregate monthly rents of $19,145. The leases expire
beginning on various dates between October 31, 1998 and October 31, 2001.

Sherman Oaks Medical Plaza, Sherman Oaks

The Sherman Oaks Medical Plaza is a seven-story office building, constructed
in 1968, 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
1994. 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. As of December 31, 1996, the
Sherman Oaks Medical Plaza was 86.7% occupied.

Regents Medical Center, La Jolla

The Regents Medical Center is a three story building situated on
approximately 2.6 acres in the University Town Center area of San Diego, near
the University of California, San Diego. The building, which was constructed
in 1989, has ground level retail spaces, two upper floors of medical offices,
and subterranean and ground level parking that can accommodate a total of 285
vehicles. As of December 31, 1996, the building was 100% occupied.

UCSD Orthomed, an affiliate of the University of California, occupies 14,036
square feet (approximately 21%) of the rentable area of the building pursuant
to leases which provide for an aggregate monthly rental of $27,167. The leases
expire at various dates between January 31, 2000 and January 31, 2002.

Cigna HealthCare Building, Irwindale

The Cigna HealthCare Building in Irwindale, California is a two story
medical office building, constructed in 1992, on a site that provides two
parking areas with a total of 244 spaces. This property was 100% leased to
Cigna HealthCare of California, Inc., which subsequently assigned the lease to
Caremark International, Inc., effective January 1, 1996. The Company gave its
conditional approval of the assignment on April 5, 1996 subject to certain
conditions. Rent obligations under the lease are guaranteed by Cigna
HealthCare, Inc. The lease, which provides for monthly rent of $91,399 triple
net, expires November 30, 2004 and provides for two, five-year options.

1095 Irvine Boulevard, Tustin

The 1095 Irvine Boulevard building in Tustin, California was redeveloped in
1995 as a primary healthcare center for physicians who are part of the St.
Joseph Hospital of Orange healthcare network. The property is leased to St.
Joseph Hospital, Inc. under a net lease with a 15 year term, which began in
August 1995, and provides for annual cost of living rent escalations. The
lease provides for a monthly rental of $16,087 and expires on July 31, 2010.

Tustin Medical Plaza, Tustin

In June 1996, the Company acquired the Tustin Properties in Tustin,
California. Tustin Medical Plaza consists of two medical office buildings, a
parcel of vacant land and a hospital which was vacant when purchased. Leases
for the hospital are currently being negotiated.

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Tustin Hospital, Tustin

The 14662 Newport Avenue building in Tustin, California is a single-story,
183-bed, 101,000 square foot hospital that was developed in two phases
beginning in 1969 and ending in 1974. The hospital includes a full service
emergency room, five operating rooms, an intensive care ward, administrative
offices, conference rooms, kitchen and cafeteria, pharmacy, gift shop, x-ray
facilities and a basement service area. The hospital has an emergency back-up
generator with a 10,000 gallon underground fuel tank that complies with
current environmental requirements. In addition, all of the hospital's medical
equipment and supplies are still located within the hospital. The hospital was
vacant when the Company acquired the property on June 14, 1996.

The Company is engaged in lease negotiations with respect to the hospital
and the vacant space in the adjacent buildings. Although there can be no
assurances, management anticipates that a lease will be signed in the near
future. The hospital facility was leased to a television production company
from January 31, 1997 through March 9, 1997.

Tustin--MOB I

The 14591 Newport Avenue building in Tustin, California is a two-story
medical office building that was constructed in 1975 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 6.4 parking spaces per 1,000 square feet of building area.
The office building was approximately 49.6% leased as of December 1996.

Tustin--MOB II

The 14642 Newport Avenue building in Tustin, California is a four-story
medical office building, 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. The occupancy
rate was approximately 85.1% as of December 1996.

One tenant occupies more than 10% of the rentable square footage in the
14642 Newport Avenue Building. Pacific Health Corporation leases the surgery
center and occupies 7,444 square feet (14% of the rentable square footage)
pursuant to a lease that provides for a monthly rental of $16,749.00. The
lease expires on November 30, 2001 and provides for one, five-year renewal
option.

PHP JOINT VENTURE PROPERTIES

In February 1997, the Company entered into the PHP Joint Venture. The PHP
Joint Venture subsequently purchased six medical office properties in New
Jersey having a total of 80,415 square feet at a purchase price of $22.4
million. The Company and PHP funded the $4.4 million down payment in
proportion to their ownership interests in the PHP Joint Venture (80.5% for
the Company and 19.5% for PHP), with the Company's contribution financed by a
loan from the GLN Venture to the Company. The balance of the purchase price
was financed by two loans from PHP, secured by first and second deeds of
trust. The greater of the two loans, at $16 million, carries a term of six
months and gives PHP a right upon default to purchase the Company's interest
in the new entity. PHP has leased the properties from the PHP Joint Venture
pursuant to a 25-year net operating lease and has entered into a three-year
contract as a preferred provider to Blue Cross/Blue Shield of New Jersey.

10

The following table sets forth certain information regarding each of the PHP
properties as of March 1, 1997. Each of the following properties is 100%
leased by the PHP Joint Venture to PHP under the terms of a 25-year net
operating lease.

YEAR RENTABLE TOTAL AVERAGE
CONSTRUCTED OR SQUARE ANNUALIZED RENT PER
PROPERTY REHABILITATED FEET(1) RENT(2) SQ. FT.(3)
-------- -------------- -------- ---------- ----------

2103 Mt. Holly Rd.............. 1994 12,560 $ 414,000 $32.96
Burlington, NJ
150 Century Parkway............ 1995 12,560 371,450 29.57
Mt. Laurel, NJ
274 Highway 35, South.......... 1995 12,560 457,930 36.46
Eatontown, NJ
80 Eisenhower Drive............ 1994 12,675 401,465 31.67
Paramus, NJ
16 Commerce Drive.............. 1963 17,500 468,740 26.79
Cranford, NJ
4622 Black Horse Pike.......... 1994 12,560 416,415 33.15
Mays Landing, NJ
------ ---------- ------
Total/Weighted average....... 80,415 $2,530,000 $31.46
====== ========== ======

- --------
(1) Rentable square feet includes space used for management purposes but does
not include storage space.
(2) Rent is based on third-party leased space billed in February 1997; no rent
is assumed from management space.
(3) Average rent per square foot is calculated based upon third-party leased
space, excluding management space.

LEASES

The Company's Properties

As of February 1, 1997, the Properties were approximately 81% leased. New
leases and extensions are normally granted for a minimum of five years and
provide for annual rent increases. Office tenants generally have gross leases
whereby rents may be adjusted for a tenant's proportionate share of any
increases in the cost of operating the building. Most retail tenants have net
leases and pay their share of all operating expenses including property taxes
and insurance. The following is a lease expiration table setting forth the
number, square feet, and associated annual rent for those leases expiring in
future years.

NUMBER OF APPROXIMATE % OF
LEASES TOTAL RENTED ANNUAL TOTAL ANNUAL
YEAR OF LEASE EXPIRATION EXPIRING(1) SQUARE FEET(1) RENT RENT(2)
------------------------ ----------- ------------- --------- ------------

1997.................... 43 56,055 1,772,146 10.09%
1998.................... 55 116,966 4,211,218 23.97%(3)
1999.................... 37 54,869 1,655,215 9.42%
2000.................... 39 66,911 2,206,450 12.56%
2001.................... 33 49,530 1,570,882 8.94%
2002.................... 14 36,223 1,100,800 6.27%
2003.................... 6 8,397 260,094 1.48%
2004.................... 5 53,348 1,241,556 7.07%
2005.................... 10 25,291 889,111 5.06%
2006.................... 12 30,677 1,054,756 6.00%
2007 or later........... 5 23,882 699,227 3.98%

- --------
(1) Does not include month-to-month leases, management space or vacant space.
(2) % of Total Annual Rent is based upon annualized revenues of $17,565,877.
(3) Includes the 36,787 sq. ft. lease with St. John's Hospital. St. John's
Hospital has subleased the majority of this space to third-party doctors.
The Company will enter into new leases with the existing sublease tenants
when the lease with Saint John's Hospital expires in 1998 if St. John's
does not extend its option to renew.

11

The Company has been successful in obtaining lease renewals, achieving a
weighted average renewal rate of approximately 91.1% on medical office leases
expiring during the 12 month period ended December 31, 1996. Although there
can be no assurances that such renewal level can be maintained, the Company
believes this high renewal rate is due in part to the tendency of medical
practitioners to continue to practice in the same space over a number of
years. Also, the Company's tenants frequently invest large sums of money in
equipment and fixtures for their offices. Furthermore, relocating a doctor's
office can be disruptive to the patients who are familiar with the doctor's
office location.

The following table sets forth the scheduled annual rent increases for the
leases with respect to the Properties in effect at December 31, 1996.

% OF
TOTAL
RENTABLE
SQUARE SQUARE
SCHEDULED ANNUAL RENT INCREASES FEET(1) FEET(1)
------------------------------- ------- --------

None...................................................... 132,128 22.20%
Consumer Price Index related.............................. 190,182 31.96%
2%........................................................ 16,680 2.80%
3%........................................................ 35,986 6.05%
4%........................................................ 42,876 7.20%
5%........................................................ 136,165 22.88%
8%........................................................ 3,830 0.64%

- --------
(1) Does not include 6.3% of the total rental square feet which is leased on a
month-to-month basis, vacant space, space used for building management and
space used for management of the Company.

The historical occupancy of the Properties is shown in the following table:

PROPERTY 1996 1995 1994 1993 1992
-------- ----- ----- ----- ----- ----

405 N. Bedford............................ 100.0% 100.0% 96.2% 97.8% 96.3%
415 N. Bedford(1)......................... 100.0% 100.0% 100.0% 100.0% 84.0%
416 N. Bedford............................ 97.6% 100.0% 100.0% 97.2% 97.3%
435 N. Bedford............................ 93.1% 89.2% 85.3% 97.7% 97.9%
435 N. Roxbury............................ 93.6% 95.6% 91.7% 94.5% 98.6%
436 N. Bedford............................ 98.4% 90.0% 92.8% 100.0% 91.3%
Holy Cross Medical Plaza(2)............... 93.1% 94.7% 87.7% N/A N/A
St. Joseph's Professional Building(3)..... 100.0% 100.0% 100.0% N/A N/A
Sherman Oaks Medical Plaza(2)............. 86.7% 90.0% 79.8% N/A N/A
Regents Medical Center(2)................. 100.0% 90.9% 87.6% N/A N/A
Cigna HealthCare Building(2).............. 100.0% 100.0% 100.0% N/A N/A
1095 Irvine Boulevard(4).................. 100.0% 100.0% N/A N/A N/A
14591 Newport Avenue, Medical Office I(5). 49.6% N/A N/A N/A N/A
14642 Newport Avenue, Medical Office
II(5).................................... 85.1% N/A N/A N/A N/A
14662 Newport Avenue, Hospital(5)......... 0.0% N/A N/A N/A N/A
----- ----- ----- ----- ----
Weighted average........................ 80.8% 94.2% 90.9% 97.9% 95.4%
===== ===== ===== ===== ====

- --------
(1) Retail space and parking facilities

(2) Acquired in 1994

(3) Acquired in December 1993

(4) Placed in service in 1995

(5) Acquired in June 1996

12

The following tables set forth the base rent per square foot and annualized
base rent for the Properties for the past five years.

BASE RENT PER SQUARE FOOT

PROPERTY 1996 1995 1994 1993 1992
-------- ------ ------ ------ ------ ------

405 N. Bedford........................... $44.51 $41.64 $42.01 $37.87 $37.02
415 N. Bedford(1)........................ 36.28 36.21 36.79 36.41 33.30
416 N. Bedford........................... 36.89 37.04 40.88 39.31 38.25
435 N. Bedford........................... 33.49 34.35 39.25 39.03 39.07
435 N. Roxbury........................... 36.50 37.11 38.39 38.12 36.02
436 N. Bedford........................... 39.84 42.13 44.71 44.17 44.34
Holy Cross Medical Plaza(2).............. 28.07 25.91 28.77 N/A N/A
St. Joseph's Professional Building(3).... 27.03 29.12 29.92 N/A N/A
Sherman Oaks Medical Plaza(2)............ 22.90 23.32 23.57 N/A N/A
Regents Medical Center(2)................ 24.93 27.11 28.38 N/A N/A
Cigna HealthCare Building(2)............. 23.04 23.04 23.01 N/A N/A
1095 Irvine Boulevard(4)................. 19.46 17.14 N/A N/A N/A
14591 Newport Avenue, Medical Office
I(5).................................... 14.66 N/A N/A N/A N/A
14642 Newport Avenue, Medical Office
II(5)................................... 12.34 N/A N/A N/A N/A
14662 Newport Avenue, Hospital(5)........ 0.00 N/A N/A N/A N/A
------ ------ ------ ------ ------
Weighted average....................... $29.98 $31.70 $34.01 $40.15 $39.50
====== ====== ====== ====== ======

- --------
(1) Retail space and parking facilities

(2) Acquired in 1994

(3) Acquired in December 1993

(4) Placed in service in 1995

(5) Acquired in June 1996

13

ANNUALIZED BASE RENT
(AMOUNTS IN THOUSANDS)

PROPERTY 1996 1995 1994 1993 1992
-------- --------- --------- --------- --------- ---------

405 N. Bedford............... $ 2,182.6 $ 2,033.3 $ 1,904.2 $ 1,914.2 $ 1,740.8
415 N. Bedford(1)............ 216.9 216.4 210.4 205.2 167.2
416 N. Bedford............... 1,468.2 1,510.5 1,658.0 1,598.9 1,517.6
435 N. Bedford............... 1,718.3 1,689.6 1,660.3 2,043.6 2,108.2
435 N. Roxbury............... 1,449.8 1,506.8 1,494.9 1,597.7 1,507.8
436 N. Bedford............... 3,089.6 2,987.7 3,221.9 3,433.8 3,189.9
Holy Cross Medical Plaza(2).. 1,895.9 1,749.2 1,784.5 N/A N/A
St. Joseph's Professional
Building(3)................. 694.3 757.5 764.4 N/A N/A
Sherman Oaks Medical
Plaza(2).................... 1,377.9 1,457.3 1,276.9 N/A N/A
Regents Medical Center(3).... 1,555.2 1,639.6 1,531.0 N/A N/A
Cigna HealthCare Building(2). 1,096.8 1,096.8 1,096.8 N/A N/A
1095 Irvine Boulevard(4)..... 197.0 173.5 N/A N/A N/A
14591 Newport Avenue, Medical
Office I(5)................. 119.6 N/A N/A N/A N/A
14642 Newport Avenue, Medical
Office II(5)................ 503.7 N/A N/A N/A N/A
14662 Newport Avenue,
Hospital (5)................ 0.0 N/A N/A N/A N/A
--------- --------- --------- --------- ---------
Total...................... $17,565.8 $16,818.3 $16,603.3 $10,793.4 $10,231.5
========= ========= ========= ========= =========

- --------
(1) Retail space and parking facilities

(2) Acquired in 1994

(3) Acquired in December 1993

(4) Placed in service in 1995

(5) Acquired in June 1996

14

The Company's medical offices include a broad mix of medical specialties and
other uses as shown in the table below:

% OF TOTAL
NUMBER LEASED MEDICAL
PRACTICE AREA OF SUITES OFFICE SPACE
------------- --------- --------------

Allergist......................................... 1 0.27%
Chiropractic...................................... 2 0.55%
Dentistry......................................... 52 13.51%
Dialysis.......................................... 4 1.93%
Dermatology....................................... 15 5.15%
Ear/Nose/Throat................................... 4 1.44%
General Practice.................................. 5 1.79%
General Surgery................................... 11 8.47%
Hospital.......................................... 6 12.84%
Internal Medicine................................. 39 14.41%
Laboratory........................................ 5 0.92%
Nephrology........................................ 1 0.41%
Neurology......................................... 1 0.20%
Obstetrics/Gyn.................................... 9 2.53%
Ophthalmology..................................... 10 3.73%
Other............................................. 10 2.36%
Pediatrics........................................ 2 1.02%
Pharmacy.......................................... 4 1.22%
Physical Therapy.................................. 9 2.99%
Plastic Surgery................................... 17 6.95%
Podiatry.......................................... 4 0.65%
Psychiatry........................................ 10 1.74%
Psychology........................................ 19 3.48%
Retail............................................ 40 10.01%
Urology........................................... 3 1.43%
--- ------
Total........................................... 280 100.00%
=== ======

15

PHP Joint Venture Properties

As of March 1, 1997, the PHP Joint Venture properties were 100% leased to
PHP pursuant to 25-year net operating leases. Each property is subject to a
single lease for 100% of the space. Each lease provides for a fixed rent
through August 31, 1999 and thereafter provides for increases (but not
decreases) related to the Consumer Price Index.

The following table sets forth the base rent per square foot and annualized
base rent for the PHP properties pursuant to leases with the PHP Venture.

BASE RENT PER SQUARE FOOT

BASE RENT
PER ANNUAL
PROPERTY SQUARE FOOT BASE RENT
-------- ----------- ----------

2103 Mt. Holly Rd. ................................... $32.96 $ 414,000
Burlington, NJ
150 Century Parkway................................... 29.57 371,450
Mt. Laurel, NJ
274 Highway 35, South................................. 36.46 457,930
Eatontown, NJ
80 Eisenhower Drive................................... 31.67 401,465
Paramus, NJ
16 Commerce Drive..................................... 26.79 468,740
Cranford, NJ
4622 Black Horse Pike................................. 33.15 416,415
Mays Landing, NJ
------ ----------
Total/Weighted average.............................. $31.46 $2,530,000
====== ==========

LENDING

Senior Care Division

The Company, through the Senior Care Division, makes first mortgage loans
for the purpose of acquiring independent senior care facilities, which loans
are secured by the facilities acquired. The loans typically are intended to
serve as bridge or interim financing (6 to 24 months) for the acquisition of
senior care facilities by unrelated parties. The maturity of the loan made by
the Company is determined primarily by the timing of the sale of tax exempt
bonds or the completion of other permanent financing. Some of the proceeds
received from the sale of newly issued bonds are used to repay the first
mortgage loan issued by the Company. The Company has from time to time
extended the maturity dates of the outstanding loans to give borrowers
additional time to obtain tax exempt financing and taken a participation
interest in such loans upon maturity in lieu of full debt repayment in the
form of cash. The loans generally bear interest at fixed rates, with the per
annum interest rate increasing under certain circumstances in which an
extension of the original maturity date is required due to the timing and
availability of financing. The Company may receive fees and certain other
consideration for making the loans. From June 1995 through December 31, 1996,
the Company made a total of seven loans in an aggregate principal amount of
approximately $26.9 million for the purpose of acquiring senior care
facilities and acquired $20.0 million in existing bonds, all of which are
secured by first mortgages on the facilities acquired.

16

The following table sets forth certain information regarding the loans
secured by senior care facilities made by the Company's Senior Care Division
from its inception in June 1995 through March 1, 1997:

LOAN MORTGAGE MATURITY
PROPERTY SECURING LOAN DATE AMOUNT DATE DEBT SERVICE
---------------------- ---- ---------- -------- ------------

93-bed nursing home located
in Huntingdon County,
Pennsylvania............... 6/23/95 $1,472,500 8/22/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$72,500.
72-unit assisted living
facility located in Berlin,
Maryland................... 6/30/95 4,042,500 5/15/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$192,500.
58-bed nursing home located
in Richfield, Pennsylvania
and a 48-bed nursing home
located in Eldred,
Pennsylvania............... 9/1/95 2,215,000 8/22/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$125,000.
60-bed intermediate care
nursing home and 16
Alzheimer's apartments
capable of accommodating 38
residents, located in
Phoenix, Arizona........... 10/13/95 4,466,000 7/31/97 Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$204,000.
235-bed nursing facility
located in Olathe, Kansas.. 4/25/96
third trust deed........ ........ 1,067,500 9/9/97 Monthly interest-only
fifth trust deed........ ........ 750,000 9/9/97 payments in arrears at
10.55% per annum for
each of the third and
fifth trust deeds. The
third trust deed
included an
origination fee of
$67,500.

122-bed nursing facility
located in Indiana County,
Pennsylvania............... 5/29/96 6,682,240 8/22/96(1) Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$267,240.
225-bed intermediate and
skilled care facility
located in Hyattsville,
Maryland................... 4/3/96 6,175,000 6/7/97 Monthly interest-only
payments in arrears at
12% per annum. The
loan included an
origination fee of
$250,000.

- --------
(1) Date of repayment

17

Medical Office Building Division

In May 1995, the Company entered into an agreement to loan $1.2 million to
an unaffiliated partnership for use in redeveloping a 120,000 square foot
medical center in Beverly Hills, California. The loan, which was originally
secured by a second deed of trust on the medical center, is personally
guaranteed by the general partner of this partnership. The guaranty is secured
by a pledge of 1.0 million shares of common stock issued by a publicly traded
company, which shares had an aggregate value of approximately $1.1 million as
of March 28, 1997. The loan, which bears interest at the rate of 10% per
annum, had an original maturity date of June 1, 1996; the maturity date was
subsequently extended to May 31, 1997. Under the terms of the extension
agreement, the medical center in Beverly Hills, California was released as
security for the loan, and a hospital facility located in Fort Worth, Texas
valued at approximately $3.0 million was pledged as replacement security.

GLN Venture

The GLN Venture markets two different loan products: a short-term loan and a
participating loan. The short-term loan is a purchase-money mortgage designed
for stabilized facilities that enables buyers to close an acquisition quickly
without the delays inherent in a bond financing transaction. The typical loan
is for approximately 12 months and is generally repaid from the proceeds of a
bond offering. The GLN Venture earns points as well as interest on these
loans. The participating loans generally has a 24-month horizon and involves
facilities in which management believes there is an opportunity to create
value in a project, in many cases a turnaround situation. The participating
loans enable the GLN Venture to participate in gains resulting from a
turnaround in addition to the standard points and interest.

The GLN Venture funded its first loan in February 1997, providing $6.4
million for the acquisition of the Institute of Pennsylvania Hospital in
Philadelphia, Pennsylvania. The loan is a participating mortgage that carries
an 18-month term, has an interest rate of 30-day LIBOR plus 6.5% and is
secured by a first deed of trust. The borrower, CoreCare Behavioral
Management, expects to operate a 162-bed psychiatric facility on the property
and lease the balance of the property, with the exception of a portion of the
land which will be sold. Pursuant to the terms of the loan, the borrower will
be required to pay an additional participation amount of up to approximately
$700,000 when the loan is repaid.

The GLN Venture funded its second loan in March 1997 in the principal amount
of $3,542,000 to the Company for purposes of funding the Company's
contribution to the PHP Joint Venture. The loan carries a term of six months
and an interest rate of 12%. The loan may be extended for additional six-month
periods, provided, however, that during each month that the loan is
outstanding after the first six-month term the interest rate is increased by
1% per month. The loan may be prepaid at any time after the first four months
and is secured by the Company's interest in the PHP Joint Venture.

INVESTMENTS IN BONDS

In October 1995, the Company acquired $20.9 million face value of tax-exempt
1989 Series A Health Care Bonds issued by the Massachusetts Industrial Finance
Agency due 2017 (the "Series A Bonds") and $5 million face value of 1989
Series B Health Care Revenue Bonds issued by the Massachusetts Industrial
Finance Agency due 2019 (the "Series B Bonds") for an aggregate purchase price
of $19.9 million. The Series A Bonds and Series B Bonds are secured by three
nursing homes owned by Hampden Nursing Homes, Inc., a Massachusetts nonprofit
corporation. Principal and interest payments due on these unrated bonds are
paid by the bond trustee out of the debt service payments received from the
underlying mortgages. The State of Massachusetts has not guaranteed the bonds
and the underlying mortgages are not insured in the event of default. Interest
on the Series A and Series B Bonds is payable at the rates of 9.75% and 9.5%,
respectively. At the time of acquisition, there was approximately $1.9 million
of unpaid interest accrued on the Series B Bonds. The Series A Bonds are not
callable and the Series B Bonds are subordinated in right of payment to the
Series A Bonds.

18

The three senior care facilities pledged as security for the bonds are
Riverdale Gardens Nursing Home located in West Springfield, Massachusetts,
Chestnut Hill Nursing Home in East Longmeadow, Massachusetts and Mary Lyon
Nursing Home in Hampden, Massachusetts.

Riverdale Gardens Nursing Home 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 masonry
building on a 3,85 acre site with a 3,366 square foot single family residence
on an adjacent 30,000 square foot lot.

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

Mary Lyon Nursing Home 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 beds. The bed compliment consists of ten private rooms, 39 double
occupancy and three quadruple occupancy rooms.

In March 1997, the Company sold the Series A and Series B Bonds, which
collectively had an outstanding face value of $25.6 million plus an additional
$1.1 million of accrued and unpaid interest, to the GLN Venture for
$7.7 million in cash and assigned to the GLN Venture $14.0 million in
indebtedness owed to GMAC-CM.

INSURANCE

The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the Properties. There are certain
types of losses which may either be uninsurable or not economically insurable.
There can be no assurance that policies maintained by the Company will be
adequate in the event of a loss. The Company carries earthquake insurance with
respect to eight of its Properties. All of the Properties directly owned by
the Company are located in Southern California (the Company indirectly owns
six properties located in New Jersey through the PHP Joint Venture of which
the Company owns approximately 80%), which has a history of seismic activity
including the 1994 Northridge earthquake, which damaged the Holy Cross Medical
Plaza property. Should an uninsured loss occur, the Company could lose its
investment in, and anticipated earnings and cash flow from, a Property. See
"Risk Factors--Uninsured Loss."

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

19

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.

As part of the normal practice of doctors, medical waste is generated. The
Company's leases require the individual tenants to make arrangements for the
disposal of medical waste and requires all tenants to provide proof that they
have contracted with a third party service to remove it 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 assurances 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.

Americans with Disabilities Act. All of the Properties are required to
comply with the 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 U.S. 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 expected distributions could be adversely affected. See "Risk Factors--
Government Regulation; Cost of Compliance with Americans with Disabilities
Act."

ITEM 3. LEGAL PROCEEDINGS

There is no material pending litigation to which the Company, the Operating
Partnership, the Realty Financing Partnership, the Medical Partnership, the
Roxbury Partnership, the Nomura Venture or the PHP Joint Venture is a party or
to which any of their properties is subject.

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

No matters were submitted to the stockholders of the Company during the
quarter ended December 31, 1996.

20

PART II

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

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

The table below sets forth the high and low sales prices of the Company's
stock for each full quarterly period since January 1, 1995, as reported by the
NYSE. The table also includes, on a per share basis, the quarterly cash
dividends declared and paid to holders of the Company's common stock for each
of the last two fiscal years.

UNIT AND
COMMON STOCK
HIGH LOW DISTRIBUTION
------- ------- ------------

1997
First quarter............................... 19 16 (1)
1996
Fourth quarter.............................. 17 5/8 15 1/2 0.36
Third quarter............................... 16 1/4 12 5/8 0.36
Second quarter.............................. 14 12 5/8 0.32
First quarter............................... 13 3/4 10 1/2 0.32
1995
Fourth quarter.............................. 10 7/8 9 5/8 0.31
Third quarter............................... 10 5/8 9 1/8 0.31
Second quarter.............................. 10 5/8 8 1/8 0.31
First quarter............................... 13 1/2 8 1/2 0.31

- --------
(1) The Company declared a quarterly distribution for the first quarter of 1997
in the amount of $0.36 per share to be paid on April 16, 1997 to
stockholders of record on March 31, 1997.

The number of holders of record of the shares of Common Stock was 162 as of
March 21, 1997. Such number does not include the total number of beneficial
holders of Common Stock.

21

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial information
for the Company and its predecessor. Data presented as of December 31, 1996,
1995, 1994 and 1993 and for each of the years ended December 31, 1996, 1995
and 1994 is for the Company. Data presented for the year ended December 31,
1993 includes data for the six Properties located in Beverly Hills (the "G&L
Development Properties") for January 1, 1993 through December 16, 1993 and for
the Company for December 16, 1993 through December 31, 1993. Data presented as
of December 31, 1992 and for the year ended December 31, 1992 is for the G&L
Development Properties. For comparison purposes only, the G&L Development
Properties are considered the predecessor entity to the Company. 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 selected
consolidated financial information as of December 31, 1996, 1995, 1994, 1993
and 1992 and for each of the years ended December 31, 1996, 1995, 1994, 1993
and 1992 have been derived from audited financial statements.

YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

OPERATING DATA:
- ---------------
Revenue:
Rental.......................... $15,796 $16,801 $14,740 $10,170 $ 9,620
Tenant reimbursements........... 728 732 587 465 426
Parking......................... 1,251 1,388 1,196 1,029 1,026
Interest, loan fees and other... 6,712 1,835 113 58 --
Other........................... 549 652 650 77 93
------- ------- ------- ------- -------
Total revenues................ 25,036 21,408 17,286 11,799 11,165
Expenses:
Property operations............. 5,696 5,199 4,317 3,084 3,488
Earthquake costs
(reimbursements)............... -- (133) 635 -- --
Depreciation and amortization... 3,276 4,047 3,697 2,503 2,464
Interest........................ 8,819 6,372 3,625 5,050 6,263
General and administrative...... 1,787 1,640 1,298 43 --
Loss on disposition of real
estate......................... 4,874 -- -- -- --
------- ------- ------- ------- -------
Total expenses................ 24,452 17,125 13,572 10,680 12,215
------- ------- ------- ------- -------
Income from operations before
minority interests and
extraordinary gains (losses)... 584 4,283 3,714 1,119 (1,050)
Minority interest in
consolidated partnership....... (129) (131) (167) (211) (247)
Minority interest in Operating
Partnership.................... (65) (418) (353) (18) --
------- ------- ------- ------- -------
Income before extraordinary
gains (losses)................. 390 3,734 3,194 890 (1,297)
Extraordinary gains (losses)
(net of minority interest)..... 9,311 (393) -- (352) --
------- ------- ------- ------- -------
Net income.................... $ 9,701 $ 3,341 $ 3,194 $ 538 $(1,297)
======= ======= ======= ======= =======
Per share data:
Before extraordinary gains
(losses)....................... $ 0.10 $ 0.91 $ 0.77 $ -- $ --
Extraordinary gains (losses).... 2.23 (0.09) -- -- --
------- ------- ------- ------- -------
Net income.................... $ 2.33 $ 0.82 $ 0.77 $ -- $ --
======= ======= ======= ======= =======

22

AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FUNDS FROM OPERATIONS:
- ----------------------
Operating Partnership funds
from operations............. $ 8,028 $ 7,397 $ 7,042 $ -- $ --
Minority interest in
consolidated partnership.... (847) (747) (700) -- --
-------- -------- -------- -------- --------
Funds from operations(1)..... $ 7,181 $ 6,650 $ 6,342 $ -- $ --
======== ======== ======== ======== ========
Distributions paid........... $ 5,525 $ 5,067 $ 6,821 $ 291 $ --
======== ======== ======== ======== ========
Payout ratio................. 76.9% 76.2% 107.6% N/A N/A
Weighted Averages:
Units outstanding.......... 4,541.7 4,550.1 4,618.3 4,618.3 --
Shares outstanding......... 4,171.5 4,090.8 4,159.0 4,159.0 --
Distributions declared per
share....................... $ 1.36 $ 1.24 $ 1.64 $ 0.07 $ --

CASH FLOW DATA:
- ---------------
Net cash provided by
operating activities........ 5,726 7,862 7,632 2,094 1,054
Net cash used in investing
activities.................. (23,413) (37,037) (31,552) (17,724) (1,100)
Net cash provided by
financing activities........ 18,639 29,286 21,849 18,871 46

BALANCE SHEET DATA:
- -------------------
Land, buildings and
improvements, net........... $ 93,231 $ 92,147 $ 92,715 $ 51,908 $ 44,885
Mortgage loans and bonds
receivable, net............. 34,549 33,634 -- 12,200 --
Total investments............ 127,780 125,781 92,715 64,108 44,885
Total assets................. 135,996 133,347 98,384 71,840 48,578
Total debt................... 109,025 111,627 74,018 45,500 89,472
Total stockholders' equity... 22,448 18,267 21,311 25,038 (40,297)

OTHER DATA:
- -----------
Ratio of earnings to fixed
charges(2).................. 1.59x 1.61x 1.83x -- --
Ratio of funds from
operations to fixed
charges(3).................. 1.88x 2.09x 2.66x -- --
Ratio of total debt to total
capitalization(4)........... 58.5% 70.3% 55.2% 35.1% --
Number of properties......... 15 12 12 7 6

- --------
(1) Funds from operations ("FFO") represents net income (computed in
accordance with generally accepted accounting principles, consistently
applied ("GAAP")), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation of real property, less preferred
stock dividends and after adjustments for consolidated and unconsolidated
entities in which the Company holds a partial interest. FFO is computed in
accordance with the definition adopted by the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO should not be considered as an
alternative to net income or any other indicator developed in compliance
with GAAP, including measures of liquidity such as cash flows from
operating, 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; therefore, FFO may be an invalid measure for
purposes of comparing companies. Also, the elimination of depreciation and
gains and losses on sales of property may not be a true indication of an
entity's ability to recover its investment in properties. The Company
implemented the new method of calculating FFO effective as of the NAREIT-
suggested adoption date of January 1, 1996. FFO has been restated for all
prior periods under the new method.
(2) For purposes of these computations, earnings consist of net income plus
fixed charges. Fixed charges consist of interest expense, capitalized
interest and amortization of deferred financing costs.
(3) For purposes of these computations, the ratio of funds from operations to
fixed charges consists of FFO as defined in Note (1) plus fixed charges.
Fixed charges consist of interest expense, capitalized interest and
amortization of deferred financing costs.
(4) Total capitalization as of the dates presented is total debt plus the
aggregate market value of the Company's Common Stock and Operating
Partnership Units not owned by the Company, assuming one Unit is
equivalent in value to one share of Common Stock.

23

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

The following discussion should be read in conjunction with the Selected
Consolidated Financial and Operating Data and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.

RESULTS OF OPERATIONS

Comparison of the Year Ended December 31, 1996 Versus the Year Ended December
31, 1995

Net income for the year ended December 31, 1996, increased approximately
$6.4 million, or 190%, from the previous year. The major component of this
increase was the $9.3 million extraordinary gain which resulted from the
surrender of the property located at 436 North Bedford Drive in Beverly Hills,
California to the holder of the $28.5 million lien on the property. The book
value of the land, buildings and related assets associated with the 436 North
Bedford property was approximately $22.9 million at the time of the
transaction. In conjunction with the transfer, the Company recorded a $4.9
million loss on disposition of the property which was the difference between
the $22.9 million book value and the estimated market value of $18.0 million.
At the same time, the Company recorded a $10.5 million extraordinary gain
resulting from the elimination of debt, which represented the difference
between the $28.5 million loan balance and the estimated $18.0 million market
value of the property. The $10.5 million extraordinary gain was partially
offset by $134,000 of other extraordinary net gains and losses resulting from
the early retirement of three other notes payable. For reporting purposes, the
net extraordinary gain was adjusted to approximately $9.3 million to reflect
the portion of the gain attributable to the minority interest partners.

Rents, tenant reimbursements and parking revenues as a group declined
approximately $1.2 million from an aggregate of approximately $19.0 million
for the year ended December 31, 1995 to $17.8 million for the same period in
1996. This decline was mainly attributed to the 436 North Bedford Drive
property which the Company surrendered to the noteholder on May 24, 1996.
Subsequent to that date, the noteholder put the property on the market for
sale and on August 30, 1996, the Company, through the Medical Partnership,
reacquired the property. During the period from May 24, 1996 to August 30,
1996, the property generated $778,000 in rents, tenant reimbursements and
parking revenues which were earned by the entity that owned the property
during that time. The remaining $368,000 decline is attributable to rents
received on leases that expired during 1995 and 1996 and renewed at lower
rates.

Interest, loan fees and related revenues are primarily the result of
investments in short term loans secured by senior care facilities. The senior
loan program, started in June 1995, has continued to expand since its
inception. Investments made in 1995 combined with new loans in 1996
contributed to the 265% increase in such revenues for the year ended December
31, 1996 as compared to the same period in 1995. In February 1996, the Company
completed a transaction whereby the Company provided the initial capital and
management expertise to facilitate the purchase of a newly constructed but
vacant hospital and medical office facility in Rancho Cucamonga, California by
Heritage Rancho Healthcare, Inc., a Nebraska nonprofit corporation
("Heritage"). Heritage converted the hospital into a long term care facility
to benefit the local community. In conjunction with the closing of this
transaction, the Company recognized cash revenues of $320,000 and received a
$840,000 ten year subordinated note, which the Company sold during the fourth
quarter of 1996 for approximately $665,000 plus accrued interest.

Property operating expense increased approximately 10.0%, or $497,000, from
approximately $5.2 million for the year ended December 31, 1995 to
approximately $5.7 million for the year ended December 31, 1996. Recurring
operating expenses declined as a result of the 436 North Bedford Drive
transactions as previously discussed. This decline was more than offset by
increases in real property taxes, the increased expense of earthquake
insurance and the acquisition of the Tustin Properties. In June 1996, the Los
Angeles County Assessor's Office notified the Company that it was increasing
its valuation on four of the Bedford Drive

24

properties as a result of a transfer of ownership in conjunction with the
Company's initial public offering (the "IPO") on December 16, 1993. The
Company retained consultants specializing in property valuation appeals and,
as of March 21, 1997, obtained partial reductions in the increased assessments
on two of the four properties. Although there can be no assurances, management
believes that the Company will be able to obtain further reductions in these
increased assessments.

The addition of earthquake insurance partially contributed to the rise in
operating expense. In 1995, earthquake coverage was added on four properties,
and in 1996, coverage was added on four additional properties. As of December
31, 1996, the Sherman Oaks, Regents and Cigna HealthCare properties all had
coverage for certain losses resulting from seismic activity, as do the five
properties located on Bedford Drive.

The acquisition of the Tustin Properties also contributed to an increase in
the Company's operating expense during 1996. At the time of the acquisition,
the hospital was vacant and the medical office buildings were approximately
50% occupied by doctors who were affiliated with the hospital before its
closure. The Company's management is currently working to revitalize these
assets. The Company is currently involved in discussions with several health
care organizations to lease the hospital and additional space in the medical
office buildings. Although there can be no assurance that these discussions
will be successfully completed, management believes the Company will obtain a
lease for the vacant hospital under favorable terms during 1997.

Depreciation and amortization expenses declined from approximately $4.0
million during 1995 to approximately $3.3 million in 1996. The decline is
primarily the result of the 436 North Bedford Drive transactions discussed
above. Prior to its transfer in May 1996, the property had a depreciable cost
basis of approximately $21.1 million. When the property was reacquired in
August 1996, the depreciable cost basis dropped to approximately $15.4
million. Also, no depreciation was recorded for the period during which the
Company did not own the property. The decline in depreciation and amortization
was partially offset by the acquisition of the Tustin Properties in June 1996.

Interest expense increased from approximately $6.4 million for the 12 months
ended December 31, 1995 to approximately $8.8 million for the same period in
1996, an increase of approximately 38%. Funding of the senior care loan
program was the primary reason for the increase. The increase would have been
larger had it not been for the decline in interest expense which was realized
when a $28.5 million loan was extinguished in May 1996 by the transfer of the
436 North Bedford Drive property to the noteholder.

General and administrative expenses increased approximately $147,000, from
approximately $1.6 million for the year ended December 31, 1995 to
approximately $1.8 million for the same period in 1996, as a result of added
travel and professional fees resulting from the expansion of the senior loan
program.

Comparison of the Year Ended December 31, 1995 Versus the Year Ended December
31, 1994

Net income for the year ended December 31, 1995, before an extraordinary
item, was $3.7 million, or $0.91 per share, an increase of 16.9% from $3.2
million, or $0.77 per share, reported in the previous year, based on 4,091,000
and 4,159,000 average shares outstanding, respectively. Net income after the
effect of an extraordinary item of $393,000, or $0.09 per share, was $3.3
million or $0.82 per share. The extraordinary item related to a one-time
charge in the third quarter for repayment of approximately $31 million in
variable rate debt with a $30 million 7.89% fixed rate 10-year loan, and the
replacement of the Company's credit line.

Revenues increased $4.1 million, or 24%, in 1995, as a result of the
properties acquired during 1994 and added revenues from the newly created
Senior Care Division. Rent revenues including tenant reimbursements and
parking fees increased $2.4 million from $16.5 million to $18.9 million. This
increase was due primarily to the acquisition of the following five properties
in 1994: Holy Cross Medical Plaza in January, Regents Medical Center in June,
Sherman Oaks Medical Plaza in June, Cigna HealthCare Building in July and 1095
Irvine Boulevard in October. Operations for the year ended December 31, 1994,
included only partial year revenues for all of the five properties except for
the 1095 Irvine Boulevard building. The 1995 revenues benefited from a full

25

year of operations except for the 1095 Irvine Boulevard building which was
placed in service in August of 1995. The MOB Division also benefited from
higher occupancy rates: 94% for 1995, up from an average of 92% in 1994.

In late 1994, the Company changed its collection practices and made a
deliberate effort to pursue all delinquent accounts. Some were resolved in
direct negotiations with tenants while others were litigated. By the end of
1995, substantially all delinquencies were resolved through judgments, payment
plans or dissolutions. The previous backlog of uncollected rents has been
reduced through a combination of collections and write-offs.

Under generally accepted accounting principals, the Company is required to
average the billable rent due over the term of its leases and include a
portion of future years' billable rent increases in the current year's rent
revenues. This accounting practice creates an "unbilled rent receivable" from
the Company's tenants. In conjunction with the preparation of its financial
statements, the Company reviews all receivable accounts, including its
unbilled rent receivable for purposes of determining the collectability of
such receivables. Management believes that the overall trend toward larger
medical provider groups has contributed toward the financial stability of the
existing tenant population which, in turn, has led to improved collections of
monthly rent billings. This improved collections rate has allowed the Company
to decrease its allowance for doubtful accounts including the corresponding
allowance for unbilled rent receivable. The Company believes that the current
level of allowance is appropriate.

Beginning late in the second quarter of 1995, the Company began recognizing
revenues from its new Senior Care Division. Interest and loan fees totaled
$1.8 million in 1995 versus $113,000 in 1994.

Total 1995 expenses increased approximately $3.5 million, or 26%, from $13.6
million in 1994 to $17.1 million in 1995. The majority of the increase was the
result of added interest expense which climbed $2.8 million from $3.6 million
in 1994 to $6.4 million in 1995. Two factors fueled the increase: higher debt
and increased rates of interest. Outstanding debt increased from $74.0 million
to $111.6 million at December 31, 1994 and 1995, respectively. In general,
1995 interest rates were up from 1994 and this was amplified by the fact that
rate caps on the Company's interest rate protection agreements also increased
from 4% in 1994 to 5% in 1995.

Property operating expense and depreciation also increased from 1994 to
1995. The overall increase of $1.2 million is primarily the result of showing
a full year of expense for the acquired properties. The effect of increased
operating expense was partially offset by a $768,000 difference relating to
costs and reimbursements from the 1994 Northridge earthquake.

General and administrative costs increased $342,000, at about the same rate
as revenues, largely as a result of investments in consulting services,
travel, professional and other fees related to creating the new Senior Care
Division.

LIQUIDITY AND CAPITAL RESOURCES

The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of medical offices
and senior care lending activities and primarily consist of FFO less
dividends. Since the IPO, external sources have primarily consisted of various
secured loans and lines of credit. The Company's ability to expand its medical
office and senior care lending operations requires continued access to capital
to fund new acquisitions and loans. During 1996, the Company's payout ratio
was approximately 77% of its funds from operations. Undistributed FFO were
used internally to fund maintenance capital expenditures necessary to maintain
the Company's existing properties. All of the Company's properties secure
existing notes payable.

26

Debt Structure

As of December 31, 1996, the Company had $109.0 million of debt, of which
$44.6 million, or 40.9%, was floating rate and $64.4 million, or 59.1%, was
fixed rate. The seven loans comprising the $109.0 million in debt are
described below.

In August 1995 the Company borrowed $30 million from Nomura for ten years at
a fixed rate of 7.89%. The note had an outstanding balance of approximately
$29.5 million as of December 31, 1996 and amortizes on a 25-year schedule. The
following Properties have been pledged as security for the $30 million blanket
first trust deed: 405 North Bedford, 415 North Bedford, 416 North Bedford and
435 North Bedford Drive.

Concurrently with the above described fixed rate loan from Nomura, the
Company obtained a new $20 million credit line from Tokai Bank of California.
The loan is secured by a blanket first trust deed on Holy Cross, St. Joseph's
Professional Building in Burbank, St. Joseph's Medical Center of Orange, and
the recently acquired Tustin Properties. The credit line requires monthly
interest payments at 30-day LIBOR plus 1.75% and is due August 17, 1998. At
any time prior to maturity, and upon 30 days notice, the Company may convert
the outstanding balance or increments thereof into a five year term loan. Upon
conversion, the new term loan would bear interest at the variable rate of
prime plus 50 basis points or LIBOR plus 175 basis points. As of December 31,
1996 the Company owed $15.4 million and was paying interest at the rate of
7.3% per annum. As of March 21, 1997, $18.0 million in principal is
outstanding at a rate of 7.55% per annum.

In May 1996, the Company repaid loans of $6.2 million, $6.4 million and $6.9
million secured by the Cigna HealthCare property, Sherman Oaks Medical Plaza,
and Regents Medical Center, respectively with the proceeds of a new loan from
Nomura. These loans were retired with the proceeds of a new $19.8 million ten
year fixed rate loan bearing interest at 8.5%. When the Company reacquired the
436 North Bedford Drive property, the Company borrowed an additional $15.2
million as part of the purchase price and increased the $19.8 million loan to
$35.0 million with a due date of August 10, 2006. As of December 31, 1996, the
note had an outstanding balance of approximately $34.9 million and amortizes
on a 25 year schedule. The following properties have been pledged as security
for the $35 million blanket first trust deed: Sherman Oaks Medical Plaza,
Regents Medical Center, Cigna HealthCare Building and 436 North Bedford Drive.

The 435 North Roxbury Drive property is security for the $8.1 million loan
from Citibank, N.A. ("Citibank"). The mortgagor on this loan is 435 North
Roxbury Drive, Ltd. (the "Roxbury Partnership"), of which the Operating
Partnership is the sole general partner with a 61.75% interest. The Citibank
loan came due on June 1, 1996 at which time the loan had a $9.0 million
balance. Under the terms of the extension agreement, Citibank required the
Roxbury Partnership to make two principal payments aggregating $650,000 and,
effective June 1, 1996, to begin making monthly principal reductions of
$35,000 per month plus accrued interest. The agreement extended the loan's
maturity date from June 1, 1996 to May 31, 1999. In addition, pursuant to the
loan extension agreement, the Roxbury Partnership is also required to make
additional semiannual principal reductions equal to the amount of excess cash
flow from the 435 North Roxbury Drive property. The interest rate is adjusted
monthly to 30-day LIBOR plus 1.50%. In order to comply with the terms of the
loan extension agreement, the Operating Partnership made a $350,000 unsecured
loan to the Roxbury Partnership to enable it to meet the principal repayments
required by the loan extension. As of March 31, 1997 the interest rate on the
Citibank loan was 7.4%.

In December 1995, the Company obtained a one-year $14.0 million term loan
from GMAC-CM which is secured by $21.0 million of face value, Series A Health
Care Revenue Bonds issued by the Massachusetts Industrial Finance Agency. The
loan was originally due on December 6, 1996 and required monthly interest only
payments, in arrears, at prime plus 1.5%. As of December 31, 1996 interest was
accruing at a rate of 9.75%. The Company exercised its option to extend the
loan for six months to June 6, 1997. In March 1997 the Company sold the Series
A Health Care Revenue Bonds to the GLN Venture, pursuant to which the GLN
Venture assumed the $14 million debt to GMAC-CM.

27

During 1996, the Company obtained three new loans from GMAC-CM secured by
the Company's senior care notes receivable. The three loans provided the
Senior Care Division with $12.0 million in cash which was used to fund new
senior care loans secured by The Phoenix, a senior care facility in Olathe,
Kansas, Beacon Manor in Indiana Township, Pennsylvania and Carroll Manor in
Hyattsville, Maryland. As of December 31, 1996, two loans totaling $7.1
million remained outstanding, including a $3.0 million one-year term loan due
May 31, 1997 and a $4.1 million one-year term loan due June 17, 1997. Both of
these one-year term loans require interest only monthly payments at the prime
rate of interest as established by Citibank (8.25% as of December 31, 1996).

Capital Commitments

In November 1996, the Company entered into the GLN Venture with Nomura to
expand the Senior Care Division's activities. The Company and Nomura have
agreed to contribute $10.0 million and $30.0 million, respectively, to the GLN
Venture, and GMAC-CM has agreed to provide the GLN Venture with a credit line
of up to $50.0 million secured by loans originated by the GLN Venture.

The Company is responsible for administering the short term loans originated
by the GLN Venture and will receive reimbursement from the GLN Venture for its
general and administrative expenses associated with the GLN Venture. Due to
its structure, the operations of the GLN Venture do not appear on the
Company's balance sheet and there is no recourse to the Company for the GLN
Venture. Cash flow generated by each loan made through the GLN Venture is
distributed in the following order: (i) to repay GMAC-CM's outstanding
principal and interest; (ii) to repay capital of the loan allocated to Nomura;
(iii) to repay capital of the loan allocated to the Company; (iv) to pay
Nomura a 9% return on its capital; (v) to pay the Company a 9% return on its
capital. After cash generated by loans made through the GLN Venture is
distributed as described above, Nomura and the Company share equally in any
further distributions.

In February 1997, the Company also entered into the PHP Joint Venture, which
purchased six primary health care facilities in New Jersey, totaling
approximately 80,000 rentable square feet, at a purchase price of
approximately $22.4 million. The Company and PHP funded the $4.4 million down
payment in proportion to their ownership interests in the PHP Joint Venture
(80.5% for the Operating Partnership and 19.5% for PHP), with the Company's
contribution financed by a loan from the GLN Venture to the Company. The
balance of the purchase price was financed by two loans from PHP and secured
by first and second deeds of trust. Subject to certain conditions, PHP has an
option to acquire the Company's interest in the PHP Joint Venture at any time
prior to July 31, 1997. PHP has leased the properties from the PHP Joint
Venture pursuant to a 25 year net operating lease and has a three-year
contract as a preferred provider to Blue Cross/Blue Shield of New Jersey (the
seller of the properties) whereby PHP will provide medical services on the
properties to Blue Cross/Blue Shield of New Jersey insurance plan members.
Charles P. Reilly, a director of the Company and Chairman of the Compensation
Committee of the Board of Directors of the Company, is Chairman of the Board
of Directors of PHP.

The Company owes approximately $21.1 million on notes payable that are due
in 1997. All of the Company's loans due in 1997 are secured by bonds or loans
related to senior care facilities. Management believes that the notes and
bonds receivables of the Company will be paid or sold and a portion of the
proceeds will be used to extinguish the related notes payable prior to their
due dates and in the ordinary course of business.

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

28

As of March 21, 1997, the Company had $49.3 million of outstanding debt at
variable rates ranging from 7% to 9 3/4%. The interest rates on these loans
may be affected by inflationary conditions and economic factors.

Distributions

In 1996, the Company announced two distribution increases. During the first
quarter of 1996 the Company increased the quarterly dividend from $0.31 per
share in the fourth quarter of 1995 to $0.32 per share for the first quarter
of 1996. In the third quarter, the Company again increased the dividend to
$0.36 per share from its first and second quarter levels of $0.32 per share.
The effective dividend for the year ended December 31, 1996 was $1.36 per
share as compared to $1.24 per share for the year ended December 31, 1995. The
Company declared a quarterly distribution for the first quarter of 1997 in the
amount of $0.36 per share to be paid on April 16, 1997 to stockholders of
record as of March 31, 1997, which is equal to an annualized distribution of
$1.44 per share.

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 equity
securities or any combination of the above. If, as is the case with this
Offering, the Board of Directors determines to raise additional equity capital
to fund investments by the Operating Partnership, the Company will contribute
such funds to the Operating Partnership as a contribution to capital and
purchase of additional interests in the Operating Partnership. It is
anticipated that borrowings will continue to be made through the Operating
Partnership or other entities, although the Company may also incur
indebtedness that may be re-borrowed by the Operating Partnership on the same
terms and conditions as are applicable to the Company's borrowing of such
funds. 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 also has the authority to cause the Operating
Partnership to issue additional Units in any manner (and subject to certain
limitations in the Partnership Agreement on such terms and for such
consideration) as it deems appropriate.

The Board of Directors of the Company 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.

Funds from Operations

Industry analysts generally consider Funds from Operations (FFO) to be an
appropriate measure of the performance of a REIT. The Company's financial
statements use the concept of FFO as defined by the Board of Governors of 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, 1996 for the Operating Partnership:

29

G&L REALTY CORP.

FUNDS FROM OPERATIONS
FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 1996

QUARTER YEAR
---------------------------------- -------
1ST 2ND 3RD 4TH 1996
------- ------- ------- ------- -------
(IN THOUSANDS)

FUNDS FROM OPERATIONS (1):
- --------------------------
Net income........................ $ 1,353 $ 5,957 $ 1,195 $ 1,196 $ 9,701
Extraordinary (gain).............. -- (9,311) -- -- (9,311)
Minority interest in Operating
Partnership...................... 153 (380) 151 141 65
------- ------- ------- ------- -------
Operating Partnership income
(loss) before extraordinary gain
(loss)........................... 1,506 (3,734) 1,346 1,337 455
Loss on disposition of real
property......................... -- 4,874 -- -- 4,874
Depreciation of real estate
assets........................... 667 642 610 702 2,621
Amortization of deferred lease
costs............................ 40 30 17 19 106
Adjustment for minority interest
in consolidated partnership...... (7) (7) (7) (7) (28)
------- ------- ------- ------- -------
Operating Partnership funds from
operations....................... 2,206 1,805 1,966 2,051 8,028
Minority interest in Operating
Partnership...................... (224) (184) (215) (224) (847)
------- ------- ------- ------- -------
FUNDS FROM OPERATIONS............ $ 1,982 $ 1,621 $ 1,751 $ 1,827 $ 7,181
======= ======= ======= ======= =======
Dividends declared................ $ 1,300 $ 1,300 $ 1,462 $ 1,463 $ 5,525
Pay-out ratio..................... 65.6% 80.2% 83.5% 80.1% 76.9%
Weighted average shares and
units:........................... 4,521.7 4,523.1 4,561.0 4,561.0 4,541.7
ADDITIONAL DATA
- ---------------
Cash Flows:
- -----------
Operating activities............. 854 3,087 1,378 407 5,726
Investing activities............. (149) (15,990) (9,109) (1,835) (23,413)
Financing activities............. (227) 13,891 7,447 2,472 18,639
Capital Expenditures:
- ---------------------
Building improvements............ 70 128 168 72 438
Tenant improvements.............. 328 391 372 611 1,702
Furniture, fixtures and
equipment....................... 2 25 15 38 80
Leasing commissions.............. 33 34 31 51 149
Depreciation and Amortization:
- ------------------------------
Depreciation of real estate
assets.......................... 667 642 610 702 2,621
Depreciation of non-real estate
assets.......................... 11 11 11 14 47
Amortization of deferred lease
costs........................... 40 30 17 19 106
Amortization of capitalized
financing costs................. 99 157 139 108 503
Rents:
- ------
Straight-line rent............... 4,022 3,651 3,723 4,400 15,796
Billed rent...................... 4,056 3,765 3,697 4,273 15,791

- -------
(1) FFO represents net income computed in accordance with GAAP, excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation of real property 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 effective
as of January 1, 1996. FFO should not be considered as an alternative to
net income or any other indicator developed in accordance with generally
accepted accounting principles, consistently applied, 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 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; therefore, FFO 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 indicator of an entity's ability to recover its investments in
properties.

30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements and Schedules on Page 32.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is contained in the Company's
definitive proxy statement for its 1997 annual meeting of stockholders which
will be filed on or before April 30, 1997 and is incorporated herein by
reference.

31

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, 1996 and
1995........................................................ F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994........................... F-3
Consolidated Statement of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994..................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994........................... F-5 and 6
Notes to Consolidated Financial Statements.................. F-7 to 20
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

Not applicable.

32

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, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Los Angeles, California
February 10, 1997

F-1

G&L REALTY CORP.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
--------------------------
1996 1995
------------ ------------
ASSETS
------

Rental properties (Notes 3, 7, 16, 17 and 20):
Land............................................. $ 17,095,674 $ 15,262,221
Building and improvements, net................... 76,135,387 76,884,946
------------ ------------
Total rental properties........................ 93,231,061 92,147,167
Cash and cash equivalents (Note 2)................. 2,231,913 1,280,191
Other receivables, net (Note 6).................... 681,772 129,265
Tenant rent and reimbursements receivable, net
(Note 5).......................................... 1,048,428 709,436
Unbilled rent receivable, net (Note 11)............ 1,477,527 2,581,756
Mortgage loans and bonds receivable, net (Note 8).. 14,358,181 33,633,635
Assets available for sale (Note 9)................. 20,522,652 --
Deferred charges and other assets, net (Note 4).... 2,444,751 2,865,707
------------ ------------
TOTAL ASSETS................................... $135,996,285 $133,347,157
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

LIABILITIES:
Notes payable (Note 7)........................... $109,025,417 $111,626,872
Accounts payable and other liabilities........... 1,462,210 1,766,718
Distributions payable............................ 1,641,970 1,401,607
Tenant security deposits......................... 1,033,580 1,032,437
------------ ------------
Total liabilities.............................. 113,163,177 115,827,634
Commitments and Contingencies (Note 13)............ -- --
Minority interest in consolidated partnership...... (2,718,474) (2,846,777)
Minority interest in Operating Partnership......... 3,103,479 2,099,204
STOCKHOLDERS' EQUITY (Notes 12 and 15):
Preferred shares--$.01 par value, 10,000,000
shares authorized, no shares issued............. -- --
Common shares--$.01 par value, 50,000,000 shares
authorized, 4,062,500 and 4,062,000 shares
issued and outstanding as of December 31, 1996
and 1995, respectively.......................... 40,625 40,620
Additional paid-in capital....................... 23,710,054 23,705,496
Distributions in excess of net income............ (1,302,576) (5,479,020)
------------ ------------
Total stockholders' equity..................... 22,448,103 18,267,096
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $135,996,285 $133,347,157
============ ============

See accompanying notes to Consolidated Financial Statements

F-2

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------

REVENUES:
Rental (Note 11)...................... $15,796,163 $16,801,193 $14,740,358
Tenant reimbursements................. 727,874 731,860 586,974
Parking............................... 1,250,760 1,388,042 1,196,264
Interest, loan fees and other......... 6,711,900 1,834,558 113,268
Other................................. 548,851 651,884 650,009
----------- ----------- -----------
Total revenues ..................... 25,035,548 21,407,537 17,286,873
----------- ----------- -----------
EXPENSES:
Property operations................... 5,695,802 5,198,933 4,317,016
Earthquake costs (reimbursements)..... -- (133,162) 635,075
Depreciation and amortization......... 3,276,287 4,047,277 3,696,993
Interest.............................. 8,819,270 6,372,002 3,625,316
General and administrative............ 1,786,319 1,639,678 1,297,694
Loss on disposition of real estate
(Note 16)............................ 4,873,788 -- --
----------- ----------- -----------
Total expenses...................... 24,451,466 17,124,728 13,572,094
----------- ----------- -----------
Income from operations before minority
interests and
extraordinary gains (losses)........... 584,082 4,282,809 3,714,779
Minority interest in consolidated
partnership............................ (128,303) (130,987) (167,494)
Minority interest in Operating
Partnership............................ (65,065) (417,016) (352,794)
----------- ----------- -----------
Income before extraordinary gains
(losses)............................... 390,714 3,734,806 3,194,491
Extraordinary gains (losses) (net of
minority interest) (Note 16)........... 9,310,730 (393,401) --
----------- ----------- -----------
Net income ............................. $ 9,701,444 $ 3,341,405 $ 3,194,491
=========== =========== ===========
Per share data:
Income before extraordinary gains
(losses)............................. $ 0.10 $ 0.91 $ 0.77
Extraordinary gains (losses).......... 2.23 (0.09) 0.00
----------- ----------- -----------
Net income............................ $ 2.33 $ 0.82 $ 0.77
=========== =========== ===========
Weighted average number of outstanding
shares................................. 4,171,535 4,090,769 4,159,000

See accompanying notes to Consolidated Financial Statements

F-3

G&L REALTY CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

COMMON STOCK ADDITIONAL DISTRIBUTIONS TOTAL
------------------ PAID-IN IN EXCESS OF STOCKHOLDERS'
SHARES AMOUNT CAPITAL NET INCOME EQUITY
--------- ------- ----------- ------------- -------------

BALANCE JANUARY 1, 1994. 4,159,000 $41,590 $25,123,557 $ (127,206) $25,037,941
Adjustments to
accumulated deficit.... (100,736) (100,736)
Net income.............. 3,194,491 3,194,491
Distributions declared.. (6,820,760) (6,820,760)
--------- ------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1994................... 4,159,000 41,590 25,022,821 (3,753,475) 21,310,936
Adjustment to
accumulated deficit.... (503,763) (503,763)
Repurchase of common
stock.................. (97,000) (970) (813,562) (814,532)
Net income.............. 3,341,405 3,341,405
Distributions declared.. (5,066,950) (5,066,950)
--------- ------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1995................... 4,062,000 40,620 23,705,496 (5,479,020) 18,267,096
Additional shares
issued................. 500 5 4,558 4,563
Net income.............. 9,701,444 9,701,444
Distributions declared.. (5,525,000) (5,525,000)
--------- ------- ----------- ----------- -----------
BALANCE DECEMBER 31,
1996................... 4,062,500 $40,625 $23,710,054 $(1,302,576) $22,448,103
========= ======= =========== =========== ===========

See accompanying notes to Consolidated Financial Statements

F-4

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.......................... $ 9,701,444 $ 3,341,405 $ 3,194,491
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary (gains) losses on
retirement of debt............... (9,310,730) 393,401 --
Loss on disposition of rental
property......................... 4,873,788 -- --
Depreciation and amortization..... 3,276,287 4,047,277 3,696,993
Minority interests................ 193,368 548,003 520,288
Unbilled rent receivable.......... (5,053) (116,879) (232,402)
Allowance for doubtful notes,
bonds and accounts receivable.... 876,925 (310,074) 55,090
(Increase) decrease in:
Prepaid expense.................. (152,558) 73,720 37,374
Other receivables................ (891,165) 576,351 (263,040)
Tenant rent and reimbursements
receivable...................... (842,483) (117,456) 39,424
Accrued interest receivable and
loan fees....................... (1,102,005) (629,244) --
Increase (decrease) in:
Accounts payable and other
liabilities..................... (893,157) 11,347 316,636
Tenant security deposits......... 1,143 44,468 266,772
------------ ------------ ------------
Net cash provided by operating
activities......................... 5,725,804 7,862,319 7,631,626
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to rental properties...... (2,220,278) (1,872,508) (1,830,716)
Purchases of real estate assets..... (21,549,954) (800,000) (41,713,637)
Acquisition of assets available for
sale............................... (307,050) -- --
Pre-acquisition costs............... (1,010,749) (1,203,838) --
Return of pre-acquisition deposits.. 2,011,727 -- --
Leasing commissions................. (148,819) (156,541) (208,015)
Investment in notes and bonds
receivable......................... (14,755,383) (33,004,391) --
Principal payments received from
notes and bonds receivable......... 14,567,240 -- 12,200,000
------------ ------------ ------------
Net cash used in investing
activities......................... (23,413,266) (37,037,278) (31,552,368)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Notes payable proceeds.............. 47,000,000 82,156,447 28,652,248
Repayment of notes payable.......... (21,018,432) (44,547,752) (134,069)
Deferred financing costs............ (1,396,858) (1,775,674) (397,070)
Sale (purchase) of common stock and
partnership units.................. 4,563 (814,532) --
Distributions....................... (5,950,089) (5,732,322) (6,272,447)
------------ ------------ ------------
Net cash provided by financing
activities......................... 18,639,184 29,286,167 21,848,662
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 951,722 111,208 (2,072,080)
BEGINNING CASH AND CASH EQUIVALENTS. 1,280,191 1,168,983 3,241,063
------------ ------------ ------------
ENDING CASH AND CASH EQUIVALENTS.... $ 2,231,913 $ 1,280,191 $ 1,168,983
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for
interest........................... $ 8,874,008 $ 6,200,777 $ 3,600,365
============ ============ ============

See accompanying notes to Consolidated Financial Statements

F-5

G&L REALTY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
----------- ---------- ----------

NONCASH INVESTING ACTIVITIES:
Property acquired in exchange for
partnership units (Note 17).............. $ 549,010
===========
NONCASH FINANCING ACTIVITIES:
Net cost of assets transferred to lien
holder (Note 16):
Land...................................... $ 2,046,547
Buildings and improvements................ 21,600,736
Tenant improvements....................... 477,245
Accumulated depreciation................ (3,557,101)
-----------
Total rental property................. 20,567,427
Unbilled rent receivable, net............. 1,109,282
Other receivables, net.................... 90,658
Tenant rent and reimbursements receivable,
net...................................... 249,566
Leasing commissions, net.................. 180,782
Deferred charges and other assets......... 87,424
Accounts payable and other liabilities.... 588,649
-----------
Net cost of assets transferred to lien
holder..................................... 22,873,788
Nonrecourse debt extinguished............... 28,500,000
-----------
Excess of nonrecourse debt over net cost of
assets surrendered......................... $ 5,626,212
===========
Noncash gain from transfer of property to
lien holder:
Extraordinary gain on retirement of debt.. $ 9,310,730
Minority interest share of extraordinary
gain..................................... 1,055,650
-----------
Extraordinary gain on retirement of debt.. 10,366,380
Extraordinary loss related to other
refinancing transactions................. 133,620
-----------
Extraordinary gain on transfer of property
to lien holder........................... 10,500,000
Loss on disposition of rental property.... (4,873,788)
-----------
Net noncash gain from transfer of property
to lien holder............................. $ 5,626,212
===========
Distributions declared not yet paid......... $ 1,462,500 $1,401,607 $1,604,706
=========== ========== ==========

See accompanying notes to Consolidated Financial Statements

F-6

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

G&L Realty Corp. (the "Company") was formed as a Maryland corporation on
September 15, 1993 by Daniel M. Gottlieb and Steven D. Lebowitz to continue
the ownership, management, acquisition and development operations of medical
office buildings conducted previously by G&L Development, the Company's
predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following Delaware limited partnerships:

G&L Realty Partnership, L.P. (the "Operating Partnership")
G&L Realty Financing Partnership II, L.P. (the "Realty Financing
Partnership")
G&L Medical Partnership, L.P. (the "Medical Partnership")

The Company, as the sole general partner and as owner of an approximately
90% ownership interest, controls the Operating Partnership. The Company also
controls the Realty Financing Partnership through its wholly owned subsidiary
G&L Realty Financing II, Inc., a Delaware corporation, which is the sole
general partner and 1% owner of the Realty Financing Partnership. The sole
limited partner and 99% owner of the Realty Financing Partnership is the
Operating Partnership. In May 1996 and in conjunction with a financing
transaction, the Company transferred three buildings into a newly formed
limited partnership, the Medical Partnership, a Delaware limited partnership.
The sole limited partner and 99% owner of the Medical Partnership is the
Operating Partnership. The Company controls the Medical Partnership through
its wholly owned subsidiary, G&L Medical, Inc., a Delaware corporation, which
is the sole general partner and 1% owner of the Medical Partnership.

Reference, in these consolidated financial statements, to the Company, its
operations, assets and liabilities includes the operations, assets and
liabilities of its wholly owned subsidiaries, the Operating Partnership, the
Realty Financing Partnership, the Medical Partnership and 435 North Roxbury
Drive, Ltd., (the "Roxbury Partnership"), a California limited partnership in
which the Operating Partnership owns a 61.75% partnership interest and is the
sole general partner.

Prior to August 1995, the Company, through its wholly owned subsidiary, G&L
Financing, Inc., a Delaware corporation, was the sole general partner and 1%
owner of G&L Realty Financing Partnership, L.P. (the "Financing Partnership"),
a Delaware limited partnership. The Operating Partnership was the sole limited
partner and 99% owner of the Financing Partnership which owned six medical
office buildings. These six buildings were security for a $42.5 million credit
line which was paid off on August 17, 1995. Thereafter, the Financing
Partnership was liquidated and the assets were transferred to its partners.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of presentation. The accompanying consolidated financial statements
include the accounts of the Company, the Operating Partnership, the Realty
Financing Partnership, the Medical Partnership and, prior to its liquidation,
the Financing Partnership. The interests in the Operating Partnership and
Roxbury Partnership not owned by the Company have been reflected in minority
interests. All significant intercompany accounts and transactions have been
eliminated in consolidation. Prior year amounts have been reclassified to
conform to the current year's presentation.

Properties. The Operating Partnership, the Realty Financing Partnership, the
Medical Partnership and the Roxbury Partnership own a 100% fee simple interest
in all of the properties.

F-7

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Income taxes. The Company qualified and elected to be taxed as a REIT for
federal income tax purposes. Such qualification and taxation as a REIT depends
upon the Company's ability to meet, on a continuing basis, various REIT
qualification requirements. As a REIT, the Company is eligible for a deduction
for dividends paid to shareholders. For the years ended December 31, 1996,
1995 and 1994, the Company paid dividends to its stockholders in excess of its
earnings and profits (See Note 12). Therefore, no provisions for federal
income taxes are included in the accompanying financial statements.

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

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

Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all costs directly related to
acquisitions are capitalized.

Revenue recognition. Base rental income is recognized on a straight-line
basis over the term of the lease regardless of when payments are due. Certain
leases include rent concessions and escalation clauses creating an effective
rent which is included in unbilled rent receivable (Note 11).

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. As of December 31, 1996, the Company had $1,966,993 in a segregated
interest bearing account to be used for debt service due in January 1997,
current property taxes, insurance and property improvements. Throughout the
year, the Company maintained balances in various operating and money market
accounts in excess of federally insured limits.

Deferred charges and other assets. Deferred charges and other assets consist
of leasing commissions, deferred loan fees, financing costs, investments,
deposits and prepaid expenses.

Leasing commissions are amortized on a straight-line basis over the lives of
the leases which range typically from five to ten years. Deferred loan fees
are amortized over the terms of the respective agreements.

The Company incurred costs relating to new loans and certain refinancings,
interest rate protection agreements and a $20 million credit facility (Note
7). Refinancing costs are capitalized and amortized over the term of the
related loan. Interest rate protection agreement fees are capitalized and
amortized over the term of the agreements.

Minority interest in consolidated partnership. The Operating Partnership, as
sole general partner, has a 61.75% ownership interest in the Roxbury
Partnership which owns the property located at 435 North Roxbury Drive. The
minority interest is a debit balance that resulted from depreciation
allocations and cash distributed to minority interest partners in excess of
their original investment and subsequent accumulated earnings. It is
management's opinion that the deficit is adequately secured by the
unrecognized appreciated value of the Roxbury property and will be recovered
through an accumulation of undistributed earnings or sale of the property.

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

F-8

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Long-lived assets. The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that an asset's book
value exceeds the undiscounted expected future cash flows to be derived from
that asset. Whenever undiscounted expected future cash flows are less than the
book value, the asset will be reduced to a value equal to the net present
value of the expected future cash flows and an impairment loss will be
recognized. Management believes that the expected future cash flows of its
long-lived assets exceeded the related book values as of December 31, 1996 and
1995.

Per share data. Earnings per share are computed based upon the weighted
average number of common shares of the Company's Common Stock, $.01 par value
(the "Common Stock") outstanding during the period. The treasury stock method
is used to determine the number of incremental common equivalent shares
resulting from options granted under the Company's stock incentive plan.
Computation of the number of shares is included in Note 15.

3. BUILDINGS AND IMPROVEMENTS

Buildings and improvements consist of the following:

DECEMBER 31,
--------------------------
1996 1995
------------ ------------

Buildings and improvements................... $ 81,676,782 $ 84,638,984
Tenant improvements.......................... 4,708,425 3,450,249
Furniture, fixtures and equipment............ 358,798 296,070
------------ ------------
86,744,005 88,385,303
Less accumulated depreciation and
amortization................................ (10,608,618) (11,500,357)
------------ ------------
Total...................................... $ 76,135,387 $ 76,884,946
============ ============

4. DEFERRED CHARGES AND OTHER ASSETS

Deferred charges and other assets consist of the following:

DECEMBER 31,
----------------------
1996 1995
---------- ----------

Loan fees......................................... $2,060,620 $1,459,051
Pre-acquisition costs............................. 17,194 1,203,838
Leasing commissions............................... 462,071 1,115,595
Prepaid expense and other assets.................. 272,004 46,643
---------- ----------
2,811,889 3,825,127
Less accumulated amortization..................... (367,138) (959,420)
---------- ----------
Total........................................... $2,444,751 $2,865,707
========== ==========

F-9

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. TENANT RENT AND REIMBURSEMENTS RECEIVABLE

Tenant rent and reimbursements receivable are net of the allowance for
uncollectible amounts of $261,425, $7,500 and $107,556 as of December 31,
1996, 1995 and 1994, respectively. The activity in the allowance for
uncollectible tenant accounts consisted of the following:

YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------

Balance, beginning of year............... $ 7,500 $ 107,556 $ 213,107
Additions................................ 498,888 110,284 55,090
Charge-offs.............................. (244,963) (210,340) (160,641)
--------- --------- ---------
Balance, end of year..................... $ 261,425 $ 7,500 $ 107,556
========= ========= =========

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 $248,000 as of December 31, 1996. There was no
balance in the allowance account as of December 31, 1994 and 1995 and no
activity during the years then ended. The activity in the allowance for
uncollectible accounts for the year ended December 31, 1996 was as follows:

Balance, beginning of year...................................... $ --
Additions....................................................... 248,000
Charge-offs..................................................... --
--------
Balance, end of year............................................ $248,000
========

F-10

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. NOTES PAYABLE

Notes payable consist of the following:

DECEMBER 31,
-------------------------
1996 1995
------------ ------------

Note due August 14, 1995, collateralized by deed
of trust, interest payable monthly at 30-day
LIBOR plus 1.25% per annum (retired May 24,
1996)............................................ -- $ 28,500,000
Note due May 31, 1999, collateralized by deed of
trust, interest payable monthly at 30-day LIBOR
plus 1.50% per annum, note requires monthly
principle payments of $35,000 plus semiannual
payments equal to excess cash flow, as defined in
the loan extension agreement..................... $ 8,070,000 9,000,000
Note due June 6, 1997, collateralized by a
security interest in $20,655,000 face value of
unrated bonds, interest payable monthly at the
Prime rate of interest plus 1.5% per annum....... 14,000,000 14,000,000
Note due January 1, 1998, collateralized by deed
of trust, monthly payments of $67,908 of
principal and interest, interest at 8.75% per
annum (retired May 24, 1996)..................... -- 6,065,375
Note due February 23, 1998, collateralized by deed
of trust, monthly payments of $41,807 of
principal and interest, interest at 7.55% per
annum (retired May 24, 1996)..................... -- 5,806,821
Note due February 23, 1998, collateralized by deed
of trust, interest payable monthly at 7.55% per
annum (retired May 24, 1996)..................... -- 921,090
Credit line due August 17, 1998, collateralized by
deeds of trust, $20 million available, interest
payable monthly at 30-day LIBOR plus 1.75% per
annum............................................ 15,400,000 17,450,000
Note due June 17, 1997 collateralized by note
receivable and deed
of trust, interest payable monthly at the
Citibank Prime rate of interest ................. 4,125,000 --
Note due May 31, 1997 collateralized by note
receivable and deed of trust, interest payable
monthly at the Citibank Prime rate of interest... 3,000,000 --
Note due August 10, 2006, collateralized by deed
of trust, monthly payments of $281,641 of
principal and interest, interest at 8.515% per
annum............................................ 34,915,383 --
Note due August 10, 2005, collateralized by deed
of trust, monthly payments of $229,263 of
principal and interest, interest at 7.89% per
annum............................................ 29,515,034 29,883,586
------------ ------------
Total........................................... $109,025,417 $111,626,872
============ ============

As of December 31, 1996, 30-day LIBOR was 5.53% and the Citibank Prime rate
was 8.25%.

F-11

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Aggregate future principal payments as of December 31, 1996 are as follows:

YEAR ENDING
DECEMBER 31
-----------

1997....................................................... $ 22,339,735
1998....................................................... 16,675,042
1999....................................................... 8,158,845
2000....................................................... 994,008
2001....................................................... 1,094,840
Thereafter................................................. 59,762,949
------------
Total.................................................... $109,025,417
============

As of December 31, 1996, the Company had a $300,000 letter of credit
outstanding in favor of a secured lender. The letter of credit is held as
additional collateral for tenant security deposits outstanding in the event of
a default on the secured loan.

8. MORTGAGE LOANS AND BONDS RECEIVABLE

Mortgage loans and bonds receivable consist of the following:

DECEMBER 31,
-----------------------
1996 1995
----------- -----------

Note due December 31, 1996, collateralized by deed
of trust, interest payable monthly at 12% per
annum............................................. $ -- $ 1,472,500
Note due May 1, 1997, collateralized by deed of
trust, interest payable monthly at 12% per annum.. -- 4,042,500
Note due December 31, 1996, collateralized by deed
of trust, interest payable monthly at 12% per
annum............................................. -- 2,215,000
Note due July 31, 1997, collateralized by deed of
trust, interest accrues monthly at 12% per annum.
Interest payable in monthly installments of
$40,800........................................... 4,466,008 4,080,000
Note due May 31, 1997, construction loan,
collateralized by deed of trust and pledged stock,
interest accrues monthly at 10% per annum. Loan
commitment for $1,225,000......................... 1,185,597 1,135,597
Unsecured note due April 1, 2008, interest payable
semiannually at 10% per annum..................... 150,000 --
Note due September 9, 1997, collateralized by deed
of trust, interest payable monthly at 12% per
annum............................................. 1,285,500 --
Note due June 30, 1997, collateralized by deed of
trust, interest payable monthly at 12% per annum.. 6,175,000 --
Unrated Series A tax-exempt Industrial Revenue
Bonds due October 1, 2017, collateralized by deed
of trust, interest payable semiannually on April 1
and October 1 at the rate of 9.75% per annum...... -- 20,970,000
Unrated Series B Industrial Revenue Bonds due
October 1, 2019, collateralized by deed of trust,
interest payable semiannually on April 1 and
October 1 at the rate of 9.5% per annum........... 5,000,000 5,000,000
----------- -----------
Total mortgage loans and bonds receivable.......... $18,262,105 $38,915,597
=========== ===========

F-12

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31,
------------------------
1996 1995
----------- -----------

Mortgage loans and bonds receivable (balance from
previous page).................................. $18,262,105 $38,915,597
Accrued interest................................. 2,783,602 2,561,125
Reimbursable loan fees and costs advanced........ 100,651 161,056
Loan impound deposits............................ 326,635 --
Discount on Series A and B bonds................. (6,739,812) (8,004,143)
Allowance for uncollectible amounts.............. (375,000) --
----------- -----------
Total mortgage loans and bonds interest
receivable...................................... $14,358,181 $33,633,635
=========== ===========

Aggregate future principal pay-downs as of December 31, 1996 are as follows:

YEAR ENDING
DECEMBER 31
-----------

1997.......................................................... $13,112,105
2000.......................................................... 11,785
2001.......................................................... 12,860
After 2001.................................................... 5,125,355
-----------
Total....................................................... $18,262,105
===========

The activity in the allowance for uncollectible notes receivable for the
year ended December 31, 1996 was as follows:

Balance, beginning of year...................................... $ --
Additions....................................................... 375,000
Charge-offs..................................................... --
--------
Balance, end of year............................................ $375,000
========

9. ASSETS AVAILABLE FOR SALE

Assets available for sale as of December 31, 1996 consist of the following:

Unrated Series A tax-exempt Industrial Revenue Bonds due October
1, 2017, collateralized by deed of trust, interest payable
semiannually at 9.75% per annum (including accrued interest of
$503,466)...................................................... $20,190,602
Land............................................................ 280,000
Unsecured subordinated notes receivable due February 1, 2006,
interest payable semiannually at 12.0% per annum (including
accrued interest of $2,050).................................... 27,050
Miscellaneous supplies and equipment............................ 25,000
-----------
Total assets available for sale................................. $20,522,652
===========

10. 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.

F-13

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Cash, cash equivalents, tenant rent and other accounts receivable, accounts
payable and other liabilities. The carrying amount of these instruments
approximates fair value due to their short-term maturities.

Notes payable. The carrying amount approximates fair value because the
interest rates are comparable to rates currently being offered to the Company.

Mortgage loans and bonds receivable. The estimated fair values of these
assets are based upon market values of loans and bonds receivable with similar
characteristics adjusted for risk inherent in the underlying transactions.
Management estimates the fair value of these assets to approximate their
amortized cost basis and, as such, there are no realized or unrealized gains
or losses to report.

11. FUTURE MINIMUM RENT

The Company has operating leases with tenants that expire at various dates
through 2010. 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
renegotiated 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:

STRAIGHT- UNBILLED
YEAR ENDING LINE BILLABLE RENT
DECEMBER 31 RENT RENT RECEIVABLE
----------- ----------- ----------- ----------

1997.................................. $12,724,855 $12,619,101 $ (105,754)
1998.................................. 10,158,365 10,103,768 (54,597)
1999.................................. 8,072,534 8,056,632 (15,902)
2000.................................. 6,652,884 6,782,225 129,340
2001.................................. 5,138,925 5,309,823 170,899
Thereafter............................ 15,170,613 16,938,142 1,767,529
----------- ----------- ----------
Total............................... $57,918,176 $59,809,691 $1,891,515
=========== =========== ==========

The activity in the allowance for unbilled rent, recorded as a reduction of
rental revenue, consisted of the following:

DECEMBER 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------

Balance, beginning of the year......... $ 967,150 $1,177,168 $1,333,543
Additions.............................. -- -- --
Charge-offs............................ (553,162) (210,018) (156,375)
--------- ---------- ----------
Balance, end of the year............... $ 413,988 $ 967,150 $1,177,168
========= ========== ==========

F-14

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. STOCKHOLDERS' EQUITY

Distributions in excess of net income. As described in Note 2, the Company
has elected to be treated as a REIT for federal income tax purposes. As such,
the Company is required to distribute at least 95% of its annual taxable
income. In reporting periods for which distributions exceed net income,
stockholders' equity will be reduced by the excess of distributions over net
income. Conversely, net income in excess of distributions increases
stockholders' equity. The following table reconciles distributions in excess
of net income for the years ended December 31, 1996 and 1995:

DECEMBER 31,
------------------------
1996 1995
----------- -----------

Distributions in excess of net income at
beginning of year............................... $(5,479,020) $(3,753,475)
Net income during the year....................... 9,701,444 3,341,405
Distributions declared........................... (5,525,000) (5,066,950)
----------- -----------
Distributions in excess of net income at end of
year............................................ $(1,302,576) $(5,479,020)
=========== ===========

For years ended December 31, 1996, 1995 and 1994, cash distributed to
shareholders exceeded the Company's taxable income and is therefore considered
to be a return of capital. Approximately 42.25%, 47.66% and 64.58% of the
distributions paid for the years ended December 31, 1996, 1995 and 1994,
respectively, represent a return of capital to shareholders.

The Company declared a quarterly distribution for the first quarter of 1997
in the amount of $0.36 per share to be paid on April 16, 1997 to stockholders
of record on March 31, 1997. This distribution is equal to an annualized
distribution of $1.44 per share.

13. COMMITMENTS AND CONTINGENCIES

Neither the Company, the Operating Partnership, the Realty Financing
Partnership, the Medical Partnership, the Roxbury Partnership nor any of the
assets within their portfolios of medical office buildings, parking
facilities and retail space (the "Properties") is currently a party to any
material litigation.

14. CONCENTRATION OF CREDIT RISK

All of the Company's medical office buildings are located in southern
California, other than the properties owned by GL/PHP, LLC in which the
Company holds an 80.5% interest (see Note 18). Most of the tenants in these
properties provide specialized health care services. The customers of the
tenants primarily reside in the nearby area. 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.

A substantial 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 web of changing government regulations which have a significant impact
on economic viability.

F-15

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

15. STOCK INCENTIVE PLAN

As of December 31, 1996, the Company had a stock incentive plan under which
an aggregate of 520,000 shares of the Company's Common Stock are reserved for
issuance. Options are granted at per share amounts not less than fair market
value at the date of grant and expire ten years thereafter. Granted options
vest in even increments over a two or three year period beginning one year
from the grant date. The Company does not charge the estimated compensation
cost of options granted against income. Compensation cost is estimated to be
the fair value of all options granted based on the Binary option-pricing
model. The costs associated with options granted in each of the years ended
December 31, 1996 and 1995 are $353,132, and $392,067, respectively. No
options were issued during 1994. If the compensation costs had been charged
against income at the time of vesting, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:

YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)

Net Income
As reported......................................... $9,701 $3,341 $3,194
Pro forma........................................... $9,577 $3,289 $3,137
Earnings per share
As reported......................................... $ 2.33 $ 0.82 $ 0.77
Pro forma........................................... $ 2.30 $ 0.80 $ 0.75

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

A summary of the status of the Company's stock incentive plan as of December
31, 1996, 1995 and 1994, 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.

1996 1995 1994
---------------- ----------------- ----------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- -------- ------- ------- -------

Outstanding, beginning of
year...................... 256,500 $10.10 238,000 $18.20 240,000 $18.20
Granted.................. 142,600 15.00 241,500 9.65 -- --
Exercised................ (500) 9.15 -- -- -- --
Forfeited or canceled.... (31,500) $10.70 (223,000) $18.25 (2,000) $18.25
------- ------ -------- ------ ------- ------
Outstanding, end of year... 367,100 $11.95 256,500 $10.10 238,000 $18.20
======= ====== ======== ====== ======= ======
Options exercisable at
year-end.................. 89,433 10.80 20,500 15.50 126,400 18.20
Weighted-average fair value
of options granted during
the year.................. $ 2.50 $ 1.30 $ --

F-16

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information relating to the Company's stock
incentive plan as of December 31, 1996:

OPTIONS OUTSTANDING
----------------------
AVERAGE
REMAINING LIFE NUMBER
EXERCISE PRICE NUMBER (IN MONTHS) EXERCISABLE
-------------- ------- -------------- -----------

$ 9.15................................. 2,000 101 2,000
9.65................................. 206,800 108 68,933
10.00................................. 2,000 102 1,000
10.40................................. 3,000 107 3,000
13.65................................. 61,800 113 2,500
13.75................................. 20,000 114 --
15.65................................. 2,000 118 --
15.90................................. 7,500 116 --
17.00................................. 50,000 120 --
17.65................................. 12,000 84 12,000

Fair value of the plan. As of December 31, 1996, the Company estimated the
fair value of all options granted to be $726,291, calculated based on the
following assumptions:

Weighted average grant price of stock............................ $11.95
Risk-free interest rate.......................................... 6.43%
Expected life of the option...................................... 5 years
Expected volatility of Stock..................................... 25.12%
Expected Dividends............................................... $ 1.44

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

The Company's stock incentive plan was introduced in conjunction with its
initial public offering on December 16, 1993. As indicated earlier, most of
the options issued in 1993 were repriced and reissued in December 1995;
therefore, there is insufficient historical data to provide an accurate
indicator as to the expected life of the options. For purposes of computing
the estimated life of the outstanding option agreements, the Company has
assumed the life to be five years.

The Company uses the treasury stock method for purposes of determining the
number of shares to be issued to in conjunction with the Company's stock
incentive plan. At a weighted average exercise price of $11.95 and a market
price of $17.00 per share as of December 31, 1996, the number of shares to be
issued is 109,050.

16. LOSS ON DISPOSITION OF REAL PROPERTY AND EXTRAORDINARY GAIN

In May 1996, the Company transferred ownership of the property located at
436 North Bedford Drive in Beverly Hills, California (the "Bedford Property")
to the holder of the $28.5 million non-recourse lien in satisfaction of the
debt ( the "deed-in-lieu transaction"). In August, the Medical Partnership
reacquired the Bedford Property for approximately $18,100,000 which was funded
by a $15,200,000 loan from Nomura Asset Capital Corporation ("Nomura") and
$2,900,000 in cash.

As a result of the deed-in-lieu transaction, the Company recorded a
$4,873,788 loss on disposition of the property (the difference between book
value and market value) and a $10,500,000 extraordinary gain from retirement
of the related $28,500,000 lien.

F-17

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During 1996, the Company refinanced three properties and obtained a new
$19,800,000 loan from Nomura. The properties, pledged as collateral for the
new loan, were subsequently transferred to the Medical Partnership along with
the related $19,800,000 loan. In conjunction with the refinancing transaction,
the Company negotiated a $350,000 discount on one note, and incurred other
costs and prepayment penalties totaling $483,620. In conjunction with the
$19,800,000 refinancing, the Company incurred a net extraordinary loss of
$133,620. The net extraordinary gain was adjusted to $9,310,730 to reflect the
portion of the gain attributable to the minority interest.

In August 1996, Nomura increased the Medical Partnership's original
$19,800,000 loan by $15,200,000 in conjunction with the reacquisition of the
Bedford Property. Consequently, the repayment terms were adjusted to reflect
the new principal balance of $35,000,000.

17. ACQUISITION OF ASSETS AND RELATED PARTY TRANSACTION

On June 14, 1996 the Partnership and 445 Bedford, LLC, a California limited
liability company ("445 LLC"), acquired undivided tenant-in-common interests
in two medical office buildings, a hospital and a parcel of vacant land in
Tustin, California (the "Tustin Properties"). The Tustin Properties were
acquired for a sum of $4,633,957, of which $1,357,010 was contributed in cash
by 445 LLC. Daniel M. Gottlieb and Steven D. Lebowitz, both directors and
officers of the Company, and Reese L. Milner II, a director of G&L Realty,
have financial interests in 445 LLC.

The Partnership acquired Mr. Milner's interest in 445 LLC for $808,000,
after which 445 LLC redeemed the Partnership's interest in 445 LLC for an
increased interest in the Tustin Properties. On June 28, 1996, 445 LLC
contributed its remaining interest in the Tustin Properties to the Partnership
in exchange for 39,215 newly issued Partnership units, valued at $549,010. The
newly issued Partnership units are convertible into G&L Realty common stock
one year from the date of issuance on a one-for-one basis. These new units
were issued at an effective rate of $14.00 per unit which included a premium
over the $13.00 closing price of G&L Realty's common stock on May 1, 1996, the
commitment date.

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

18. SUBSEQUENT EVENT

On February 28, 1997, the Partnership entered into a joint venture with PHP
Healthcare Corporation ("PHP"). GL/PHP, LLC is a newly formed Delaware limited
liability company which recently purchased six medical buildings in New
Jersey. The properties, acquired from Blue Cross/Blue Shield of New Jersey for
approximately $22.4 million, will be leased to PHP under the terms of a 25
year net operating lease which provides fixed rent escalations during the term
of the lease. PHP retained a 19.5% interest in GL/PHP, LLC and has the right
to acquire the Company's 80.5 percent interest in the new venture at any time
prior to July 31, 1997. Mr. Charles P. Reilly, a director of the Company and
Chairman of the Compensation Committee of the Board of Directors of the
Company, is Chairman of the Board of Directors of PHP.

F-18

G&L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

19. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION

Summarized consolidated quarterly financial information for the periods as
follows:

THREE MONTHS ENDED
-----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- ----------
(UNAUDITED)

1996
Revenues.................... $6,677,826 $6,298,937 $5,821,560 $6,237,225
Expenses.................... 5,315,865 4,921,002 9,520,456 4,694,143
Income before extraordinary
gain....................... 1,195,457 1,195,452 (3,353,313) 1,353,118
Extraordinary gain.......... -- -- 9,310,730 --
---------- ---------- ---------- ----------
Net income.................. $1,195,457 $1,195,452 $5,957,417 $1,353,118
========== ========== ========== ==========
Per share data:
Before extraordinary gain. $ 0.29 $ 0.29 $ (0.80) $ 0.32
Extraordinary gain........ -- -- 2.23 --
---------- ---------- ---------- ----------
Net income................ $ 0.29 $ 0.29 $ 1.43 $ 0.32
========== ========== ========== ==========
Weighted average number of
shares outstanding......... 4,171,550 4,171,550 4,171,550 4,171,490
1995
Revenues.................... $6,141,991 $5,340,606 $5,037,020 $4,887,920
Expenses.................... 4,976,026 4,090,633 4,225,701 3,832,368
Income before extraordinary
loss....................... 1,028,583 1,089,792 689,903 926,528
Extraordinary loss.......... -- (393,401) -- --
---------- ---------- ---------- ----------
Net income.................. $1,028,583 $ 696,391 $ 689,903 $ 926,528
========== ========== ========== ==========
Per share data:
Before extraordinary loss. $ 0.25 $ 0.27 $ 0.17 $ 0.22
Extraordinary loss........ -- (0.10) -- --
---------- ---------- ---------- ----------
Net income................ $ 0.25 $ 0.17 $ 0.17 $ 0.22
========== ========== ========== ==========
Weighted average number of
shares outstanding......... 4,062,000 4,062,000 4,080,077 4,159,000

F-19

G & L REALTY CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

20. CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31,
1996

COST CAPITALIZED
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION
------------------------ --------------------------
ENCUMBRANCES BUILDING AND BUILDING AND
DESCRIPTION (SEE NOTES) LAND IMPROVEMENTS LAND IMPROVEMENT
----------- ------------ ----------- ------------ ----------- --------------

405 North Bedford
Drive............ (See Note A) $ 2,186,188 $ 4,076,313 $ 451,640 $ 9,527,242
415 North Bedford
Drive............ (See Note A) 292,120 572,705 -- 545,769
416 North Bedford
Drive............ (See Note A) 427,087 247,475 -- 2,276,228
435 North Bedford
Drive............ (See Note A) 1,143,512 2,853,168 -- 2,263,812
435 North Roxbury
Drive............ $ 8,070,000 161,652 390,494 39,149 2,353,142
436 North Bedford
Drive............ (See Note B) 2,675,000 15,317,406 -- 164,729
439 North Bedford
Drive............ -- -- 108,689 -- 31,987
Holy Cross
Medical Plaza.... (See Note C) 2,556,200 10,255,679 -- 862,308
St. Joseph's
Professional
Building......... (See Note C) 1,300,000 3,935,536 -- 132,110
Sherman Oaks
Medical Plaza.... (See Note B) 1,453,826 8,278,226 -- 1,356,672
Regents Medical
Center........... (See Note B) 1,470,000 8,389,545 -- 882,040
Cigna HealthCare
Bldg. ........... (See Note B) 1,260,000 7,282,341 -- --
1095 Irvine
Boulevard........ (See Note C) 474,300 663,465 -- 452,797
14662 Newport
Avenue........... (See Note C) 645,000 1,899,556 -- --
14591 Newport
Avenue........... (See Note C) 160,000 35,845 -- --
14642 Newport
Avenue........... (See Note C) 400,000 1,032,547 -- 197,381
------------ ----------- ------------ ----------- --------------
Total........... $ 8,070,000 $16,604,885 $65,338,990 $ 490,789 $ 21,046,217
============ =========== ============ =========== ==============

GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD (SEE NOTE E) DATE OF
-------------------------------------------------- CONSTRUCTION
BUILDING AND ACCUMULATED OR
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION REHABILITATION
----------- ----------- ------------ ------------ ------------ --------------

405 North Bedford
Drive............ $ 2,637,828 $13,603,555 $ 16,241,383 $ 2,924,138 1947/1987
415 North Bedford
Drive............ 292,120 1,118,474 1,410,594 457,927 1955
416 North Bedford
Drive............ 427,087 2,523,703 2,950,790 683,314 1946/1986
435 North Bedford
Drive............ 1,143,512 5,116,980 6,260,492 1,934,553 1950/1963/1984
435 North Roxbury
Drive............ 200,801 2,743,636 2,944,437 953,588 1956/1983
436 North Bedford
Drive............ 2,675,000 15,482,135 18,157,135 140,414 1980
439 North Bedford
Drive............ -- 140,676 140,676 17,048 1956/1983
Holy Cross
Medical Plaza.... 2,556,200 11,117,987 13,674,187 961,374 1985
St. Joseph's
Professional
Building......... 1,300,000 4,067,646 5,367,646 325,935 1987
Sherman Oaks
Medical Plaza.... 1,453,826 9,634,898 11,088,724 860,721 1969/1993
Regents Medical
Center........... 1,470,000 9,271,585 10,741,585 685,659 1989
Cigna HealthCare
Bldg. ........... 1,260,000 7,282,341 8,542,341 439,975 1992
1095 Irvine
Boulevard........ 474,300 1,116,262 1,590,562 81,653 1994
14662 Newport
Avenue........... 645,000 1,899,556 2,544,556 10,689 1969/1974
14591 Newport
Avenue........... 160,000 35,845 195,845 455 1969
14642 Newport
Avenue........... 400,000 1,229,928 1,629,928 22,832 1985
----------- ------------ ------------ ------------
Total........... $17,095,674 $86,385,207 $103,480,881 $10,500,275
=========== ============ ============ ============

Realty Financing
Partnership
(See Note A)..... 29,515,034
Medical
Partnership
(See Note B)..... 34,915,383
Credit Line (See
Note C).......... 15,400,000
Other Notes (See
Note D).......... 21,125,000
------------
Total
encumbrances..... $109,025,417
============

Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets, as follows:

Building and improvements.............. 40 years

Tenant improvements.................... Life of lease

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

TOTAL REAL ESTATE ASSETS
----------------------------------------
1996 1995 1994
------------ ------------ ------------

Balance at beginning of year...... $103,351,455 $106,057,031 $ 63,553,568
Improvements, acquisition......... 24,256,513 2,997,234 42,503,463
Dispositions...................... (24,127,087) (5,702,810) --
------------ ------------ ------------
Balance at end of year............ $103,480,881 $103,351,455 $106,057,031
============ ============ ============

ACCUMULATED DEPRECIATION
-------------------------------------
1996 1995 1994
----------- ----------- -----------

Balance at beginning of year......... $11,449,613 $13,946,965 $11,270,565
Depreciation......................... 2,606,373 3,202,929 2,676,400
Dispositions......................... (3,555,711) (5,700,281) --
----------- ----------- -----------
Balance at end of year............... $10,500,275 $11,449,613 $13,946,965
=========== =========== ===========

- -------
Note A: The Realty Financing Partnership owns the following properties, which
are each 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.
Note C: The Operating Partnership owns the following properties, which are
each security for a blanket first trust deed for the Credit Line: Holy
Cross Medical Plaza, St. Joseph's Professional Building, St. Joseph's
of Orange-Medical Office Building and the Tustin Hospital properties
on Newport Avenue which include a hospital, an adjacent parcel of
vacant land and two medical office buildings.
Note D: Total debt as of December 31, 1996 includes $14,000,000 which is
secured by unrated, tax-exempt Series A and B bonds and two term loans
totaling $7,125,000 which are secured by notes receivable.
Note E: The aggregate costs for federal income tax purposes were $111,635,622
as of December 31, 1996.

F-20

SIGNATURES

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

G&L Realty Corp.

By: /s/ Quentin Thompson
___________________________________
QUENTIN THOMPSON
CONTROLLER AND SECRETARY
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)

Date: April 9, 1996

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Daniel M. Gottlieb Chief Executive Officer, April 9, 1996
____________________________________ Co-Chairman of the Board
DANIEL M. GOTTLIEB and Director (Principal
Executive Officer)

/s/ Steven D. Lebowitz President, Co-Chairman of April 9, 1996
____________________________________ the Board and Director
STEVEN D. LEBOWITZ

/s/ Quentin Thompson Controller and Secretary April 9, 1996
____________________________________ (Principal Financial and
QUENTIN THOMPSON Accounting Officer)

/s/ Richard s. Lesher Director April 9, 1996
____________________________________
RICHARD L. LESHER

/s/ Leslie D. Michelson Director April 9, 1996
____________________________________
LESLIE D. MICHELSON

/s/ Reese L. Milner II Director April 9, 1996
____________________________________
REESE L. MILNER II

/s/ Charles P. Reilly Director April 9, 1996
____________________________________
CHARLES P. REILLY

/s/ S. Craig Tompkins Director April 9, 1996
____________________________________
S. CRAIG TOMPKINS

INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------

*1 Form of Underwriting Agreement
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.
*4.1 Form of Articles Supplementary relating to the Series
A Preferred Stock
*4.2 Form of certificate of Series A Preferred Stock
*5.1 Opinion of Piper & Marbury L.L.P. as to the legality
of the Offering
*8.1 Opinion of Gibson, Dunn & Crutcher LLP as to federal
income tax consequences of the Offering
10.1(2) Executive Employment Agreement between G&L Realty
Corp. and Daniel M. Gottlieb
10.2(2) Executive Employment Agreement between G&L Realty
Corp. and Steven D. Lebowitz
10.3(2) Agreement of Limited Partnership of G&L Realty
Partnership, L.P.
10.4(1) 1993 Stock Incentive Plan
10.5(1) Form of Indemnity Agreement between G&L Realty Corp.
and directors and certain officers
10.6(1) Option Agreement for Purchase and Sale of 4955 Van
Nuys Boulevard ("Sherman Oaks Medical Plaza") by and
between G&L Development and Arthur Gilbert, as
Trustee of the Arthur Gilbert and Rosalinde Gilbert
1982 Trust, dated as of October 29, 1993
10.7(2) Option Notice with respect to Sherman Oaks Medical
Plaza
10.8(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
10.9(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
10.10(1) Nomura Commitment Letter with respect to the
Acquisition Facility
10.11(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
10.12(1) Office Building Lease I between 405 North Bedford
Drive, Ltd. and Saint John's Hospital and Health
Center dated October 12, 1987
10.13(1) Office Building Lease II between 405 North Bedford
Drive, Ltd. and Saint John's Hospital and Health
Center dated as of October 12, 1987
10.14(1) Office Building Lease III between 405 North Bedford
Drive, Ltd. and Saint John's Hospital and Health
Center dated as of December 1, 1987
10.15(1) Investment Banking and Financial Advisory Agreement
between G&L Development and Gruntal & Co.,
Incorporated
10.16(1) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz
and Milner Investment Corporation

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------

10.17(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II
10.18(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II
10.19(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II, Helen Milner, and John Milner, as
Trustees of the Milner Trust
10.20(2) Security Agreement dated as of December 16, 1993 by
and between Daniel M. Gottlieb, Steven D. Lebowitz and
Reese L. Milner II
10.21(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
10.22(4) Revolving Loan Agreement by and between G&L Realty
Partnership, L.P. and Tokai Bank of California dated
as of August 11, 1995
10.23(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
10.24(5) Commitment Letter between G&L Realty Partnership, L.
P. and Nomura Asset Capital Corporation, dated as of
September 29, 1995
10.25(5) Loan and Security Agreement between G&L Realty
Partnership, L. P. and GMAC Commercial Mortgage
Corporation, dated as of December 5, 1995
10.26(5) Note in the amount of $14,000,000 executed by G&L
Realty Partnership, L. P. in favor of GMAC Commercial
Mortgage Corporation, dated as of December 5, 1995
10.27(5) Notification and Consent Agreement among G&L Realty
Partnership, L. P., GMAC Commercial Mortgage
Corporation, and Nomura International Trust Company,
dated as of December 5, 1995
10.28(5) Assignment of Bond executed by G&L Realty Partnership,
L. P., in favor of GMAC Commercial Mortgage
Corporation
10.27(6) Agreement of Purchase and Sale of Membership Interest
dated April 26, 1996, between Milner Investment
Corporation and G&L Realty Partnership, L.P.
10.28(7) Agreement for Deed in Lieu of Foreclosure by and among
G&L Realty Partnership, L.P., a Delaware Limited
Partnership, and Loan Asset Structured Trust I, a
Delaware trust, dated as of May 24, 1996
10.29(7) Property Management Agreement by and between Loan
Asset Structured Trust I, a Delaware trust, and G&L
Realty Partnership, L.P., a Delaware Limited
Partnership, dated as of May 24, 1996
10.30(8) 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
10.31(8) Agreement of Purchase and Sale of Membership Interest
dated April 26, 1996 by and between Milner Investment
Corporation as Seller and G&L Realty Partnership, L.P.
as Buyer
10.32(8) Letter of Agreement regarding purchase of Tustin
Hospital to 445 North Bedford Drive, LLC from G&L
Realty Partnership, L.P., dated June 12, 1996

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------

10.33(8) Redemption Agreement by and between G&L Realty
Partnership, L.P. and 445 Bedford, LLC, dated as of
June 27, 1996
10.34(8) Property Contribution Agreement by and between G&L
Realty Partnership, L.P. as Purchaser and 445 Bedford,
LLC as Seller, dated as of June 28, 1996
10.35(8) Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing between 445 Bedford, LLC and G&L
Realty Partnership, L.P. as tenants in common
("Trustor"), Chicago Title Company ("Trustee"), and
Tokai Bank of California ("Beneficiary"), made to be
effective on June 12, 1996
10.36(9) Agreement of Purchase and Sale by and between Loan
Asset Structured Trust I, a Delaware trust ("Seller")
and G&L Medical Partnership, L.P., a Delaware limited
partnership ("Buyer"), dated August 29, 1996
10.37(9) Grant Deed in which Loan Asset Structured Trust I, a
Delaware trust ("Grantor"), grants certain real
property to G&L Medical Partnership, L.P., a Delaware
limited partnership ("Grantee"), recorded August 30,
1996
10.38 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 Limited Liability Company Agreement by and between G&L
Realty Partnership, L.P., a Delaware limited
partnership, and PHP Healthcare Corporation, a
Delaware corporation, for the purpose of creating a
limited liability company to be named GL/PHP, LLC,
dated as of February 26, 1997
10.40 First Amendment To Limited Liability Company Agreement
entered into as of March 31, 1997 by and between G&L
Realty Partnership, L.P., a Delaware limited
partnership, and Property Acquisition Trust I, a
Delaware business trust, for the purpose of amending
that certain Limited Liability Company Agreement of
GLN Capital Co., LLC dated as of November 25, 1996
10.41 Bond Purchase Agreement dated as of March 31, 1997 by
and between GLN Capital Co., LLC (as Buyer) and G&L
Realty Partnership, L.P. (as Seller)
27 Financial Data Schedule

- --------

* To be filed by amendment.

(1) Previously filed as an exhibit to the Company'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 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 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 an exhibit to the Company'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 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 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and incorporated herein by
reference.

(7) Previously filed as an exhibit to the Company's Form 8-K dated May 24,
1996 and incorporated herein by reference.

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

(9) Previously filed as an exhibit to the Company's Form 8-K dated August 30,
1996 and incorporated herein by reference.