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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from              to             

Commission file number 1-12566

G & L REALTY CORP.

(Exact name of Registrant as specified in its charter)

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

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

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.  ¨

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

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

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

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

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ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

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PART I

ITEM 1. BUSINESS

General

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

Recent Developments

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

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

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

Description of Business

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

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

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

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

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

Property Management

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

Tax Status

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

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tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.

Employees

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

Dependence on Key Tenants

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

Government Regulation

Environmental Matters. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in its property. These laws impose liability without regard to whether the owner knew of, or was responsible for, the presence of any hazardous or toxic substances. The presence of such substances, or the failure to properly remediate these substances, may adversely affect the owner’s ability to borrow using the real estate as collateral and may subject the owner to material remediation costs. All of the MOB Properties have been subject to Phase I environmental assessments (which involve inspection of the subject property, but no soil sampling or groundwater analysis) by independent environmental consultants. Although restricted in scope, these independent assessments revealed no material evidence of existing environmental liability, and the Company has not been notified by any governmental authority of any noncompliance by, liability for, or other claim against the Company in connection with environmental matters related to the MOB Properties. While the Company is not aware of any environmental liability that it believes would have a material adverse effect on its business, assets or results of operations, no assurance can be given that the environmental assessments revealed all potential environmental liabilities or that a prior owner did not create any material environmental condition not known to the Company or that future uses or conditions (including changes in applicable environmental laws and regulations) will not result in imposition of environmental liability.

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

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

Healthcare Industry Regulation. Physicians are subject to heavy government regulation including the determination of the level of reimbursements for medical costs incurred and services provided under government programs. Changes in government regulations regarding medical reimbursements and other regulations affecting the healthcare industry can have a dramatic impact on the operations of medical practitioners under government programs. Both the federal government and many state governments are exploring numerous reforms concerning the healthcare industry that could have a significant impact on many healthcare-related businesses. If legislation were

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enacted that decreased the level of government medical reimbursements or increased the degree of regulatory oversight, thereby increasing the expenses of healthcare businesses, the Company’s tenant base could be adversely affected. This, in turn, could negatively impact the ability of the Company to make distributions.

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

ITEM 2. PROPERTIES

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

Description of the MOB Properties

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

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

MOB Properties—Summary Data

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MOB Properties

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

405 North Bedford Drive

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

415 North Bedford Drive

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

416 North Bedford Drive

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

435 North Bedford Drive

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

435 North Roxbury Drive

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

436 North Bedford Drive

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

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Sherman Oaks Medical Plaza

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

Coronado Plaza

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

Holy Cross Medical Plaza

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

Lyons Avenue Medical Building

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

Tustin—MOB I

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

Tustin—MOB II

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

Regents Medical Center

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

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San Pedro Medical Plaza

The San Pedro Medical Plaza in San Pedro, California is an approximately 60,000 usable square foot complex consisting of three MOBs. The buildings are located across the street from the San Pedro Peninsula Hospital and are situated on 7.85 acres incorporating a 383 space surface parking lot.

Santa Clarita Valley Medical Center

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

Santa Clarita Valley Medical Center, Bldg F

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

Santa Clarita Valley Foundation Building

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

Leases

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

MOB Properties—Lease Expirations

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

Senior Care Loans

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

Notes Receivable from Stockholders

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

Insurance

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

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

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

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

None.

PART II

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

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

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

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

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

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

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

ITEM 6. CONSOLIDATED SELECTED FINANCIAL DATA

The following table sets forth consolidated selected financial and operating information for the Company for each of the years ended December 31, 2004, 2003, 2002, 2001 and 2000. The following information should be read in conjunction with all of the financial statements and notes thereto included in this Form 10-K. This data also should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The consolidated selected financial and operating data as of December 31, 2004, 2003, 2002, 2001 and 2000 and for each of the years ended December 31, 2004, 2003, 2002, 2001 and 2000 have been derived from audited financial statements. See “Recent Developments” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a description of the Company’s spin-off of its senior care properties on November 1, 2004.

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

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

Information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other comparable terminology. Any one factor or combination of factors could cause the Company’s actual operating performance or financial results to differ substantially from those anticipated by management. Factors influencing the Company’s operating performance and financial results include, but are not limited to, changes in the general

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economy, the supply of, and demand for, healthcare related real estate in markets in which the Company has investments, the availability of financing, governmental regulations concerning, but not limited to, new construction and development, the creditworthiness of tenants and borrowers, environmental issues, healthcare services and government participation in the financing thereof, and other risks and unforeseen circumstances affecting the Company’s investments which may be discussed elsewhere in this Annual Report on Form 10-K.

Recent Developments

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

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

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

Critical Accounting Policies

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

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

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sources and Uses of Funds

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

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

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

Off- Balance Sheet Arrangements

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

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

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

Contractual Obligations

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

Debt Structure

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

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

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

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

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

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

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

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

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

Financing Policies

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

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

Inflation

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

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

New Accounting Pronouncements

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

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

Non-GAAP Supplemental Financial Measure

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

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

FUNDS FROM OPERATIONS

FOR THE FOUR QUARTERS AND YEAR ENDED DECEMBER 31, 2004

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary risk inherent in the Company’s market sensitive instruments is the risk of loss resulting from interest rate fluctuations. As of December 31, 2004, all of the Company’s notes payable bore interest at a fixed rate. As of December 31, 2003, approximately 10% of the Company’s notes payable bore interest at a rate indexed to the one-month LIBOR rate or Prime Rate. The tables below provide information as of December 31, 2004 and 2003 about the Company’s long-term debt obligations that are sensitive to changes in interest rates, including principal cash flows by scheduled maturity, weighted average interest rate and estimated fair value. The weighted average interest rates presented are the actual rates as of December 31, 2004 and 2003.