##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-51295
 NNN 2003 Value Fund, LLC
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-0122092
(I.R.S. Employer
Identification No.)1551 N. Tustin Avenue, Suite 300, Santa Ana, California
(Address of principal executive offices)
    
    92705
(Zip Code)
 (714) 667-8252
 N/A
 þ Yes o No
 o Yes o No
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o Yes þ No




---



##### 



NNN 2003 VALUE FUND, LLC
(A Delaware limited liability company)
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and
December 31, 2009
    
    
    2Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2010 and 2009
    
    
    3Unaudited Condensed Consolidated Statement of (Deficit) Equity for the Nine Months
Ended September 30, 2010
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2010 and 2009
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. [Removed and Reserved.]
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2010
    
    
    December 31, 2009(Unaudited)ASSETSReal estate investments:Properties held for non-sale disposition, net
    
    $
    27,454,000
    
    
    $
    41,540,000Investments in unconsolidated real estate
    
    
    100,000
    
    
    
    1,101,00027,554,000
    
    
    
    42,641,000Cash and cash equivalents
    
    
    1,851,000
    
    
    
    2,724,000Accounts receivable, net
    
    
    86,000
    
    
    
    354,000Accounts and loans receivable due from related parties, net
    
    
    
    
    
    
    475,000Restricted cash
    
    
    1,398,000
    
    
    
    1,351,000Intangible assets related to properties held for non-sale disposition, net
    
    
    2,026,000
    
    
    
    4,233,000Other assets related to properties held for non-sale disposition, net
    
    
    771,000
    
    
    
    2,166,000Total assets
    
    $
    33,686,000
    
    
    $
    53,944,000LIABILITIES AND (DEFICIT) EQUITYMortgage loans payable secured by properties held for non-sale disposition
    
    $
    43,382,000
    
    
    $
    60,164,000Accounts payable and accrued liabilities
    
    
    1,034,000
    
    
    
    1,842,000Accounts and loans payable due to related parties
    
    
    43,000
    
    
    
    118,000Other liabilities related to properties held for non-sale disposition, net
    
    
    439,000
    
    
    
    678,000Other liabilities
    
    
    218,000
    
    
    
    217,000Total liabilities
    
    
    45,116,000
    
    
    
    63,019,000Commitments and contingencies (Note 11)(Deficit) equity:NNN 2003 Value Fund, LLC unit holders deficit
    
    
    (11,430,000
    )
    
    
    (9,173,000
    )Noncontrolling interest equity
    
    
    
    
    
    
    98,000Total (deficit) equity
    
    
    (11,430,000
    )
    
    
    (9,075,000
    )Total liabilities and (deficit) equity
    
    $
    33,686,000
    
    
    $
    53,944,000
   2




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Rental revenue of operations held for non-sale disposition
    
    $
    1,790,000
    
    
    $
    1,664,000
    
    
    $
    5,220,000
    
    
    $
    5,212,000Expenses:Operating expenses of operations held for non-sale disposition
    
    
    1,230,000
    
    
    
    1,142,000
    
    
    
    3,955,000
    
    
    
    3,440,000General and administrative
    
    
    73,000
    
    
    
    139,000
    
    
    
    304,000
    
    
    
    502,000Real estate related impairments of operations held for non-sale disposition
    
    
    
    
    
    
    100,000
    
    
    
    5,300,000
    
    
    
    700,000Total expenses
    
    
    1,303,000
    
    
    
    1,381,000
    
    
    
    9,559,000
    
    
    
    4,642,000Income (loss) before other income (expense) and discontinued operations
    
    
    487,000
    
    
    
    283,000
    
    
    
    (4,339,000
    )
    
    
    570,000Other income (expense):Interest expense of operations held for non-sale disposition
    
    
    (769,000
    )
    
    
    (801,000
    )
    
    
    (2,307,000
    )
    
    
    (2,563,000
    )Interest and dividend income
    
    
    3,000
    
    
    
    1,000
    
    
    
    23,000
    
    
    
    25,000Equity in income (losses) of unconsolidated real estate
    
    
    6,000
    
    
    
    (194,000
    )
    
    
    615,000
    
    
    
    (2,759,000
    )Other income (expense)
    
    
    4,000
    
    
    
    (3,000
    )
    
    
    22,000
    
    
    
    (32,000
    )Loss from continuing operations
    
    
    (269,000
    )
    
    
    (714,000
    )
    
    
    (5,986,000
    )
    
    
    (4,759,000
    )(Loss) income from discontinued operations
    
    
    (6,000
    )
    
    
    (181,000
    )
    
    
    6,131,000
    
    
    
    (3,524,000
    )Consolidated net (loss) income
    
    
    (275,000
    )
    
    
    (895,000
    )
    
    
    145,000
    
    
    
    (8,283,000
    )Income (loss) attributable to noncontrolling interests
    
    
    
    
    
    
    54,000
    
    
    
    (98,000
    )
    
    
    (198,000
    )Net (loss) income attributable to NNN 2003 Value Fund, LLC
    
    $
    (275,000
    )
    
    $
    (949,000
    )
    
    $
    243,000
    
    
    $
    (8,085,000
    )Comprehensive (loss) income:Consolidated net (loss) income
    
    $
    (275,000
    )
    
    $
    (895,000
    )
    
    $
    145,000
    
    
    $
    (8,283,000
    )Other comprehensive (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive (loss) income
    
    
    (275,000
    )
    
    
    (895,000
    )
    
    
    145,000
    
    
    
    (8,283,000
    )Comprehensive (loss) income attributable to noncontrolling interests
    
    
    
    
    
    
    54,000
    
    
    
    (98,000
    )
    
    
    (198,000
    )Comprehensive (loss) income attributable to NNN 2003 Value Fund, LLC
    
    $
    (275,000
    )
    
    $
    (949,000
    )
    
    $
    243,000
    
    
    $
    (8,085,000
    )
   3




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED STATEMENT OF (DEFICIT) EQUITY
 (Unaudited)
 NNN 2003 ValueNumber
    
    
    
    
    
    
    Fund, LLC
    
    
    Noncontrollingof Units
    
    
    Total Deficit
    
    
    Deficit
    
    
    Interests(Deficit) Equity Balance  December 31, 2009
    
    
    9,970
    
    
    $
    (9,075,000
    )
    
    $
    (9,173,000
    )
    
    $
    98,000Distributions
    
    
    
    
    
    
    (2,500,000
    )
    
    
    (2,500,000
    )
    
    
    Net income (loss)
    
    
    
    
    
    
    145,000
    
    
    
    243,000
    
    
    
    (98,000
    )Deficit Balance  September 30, 2010
    
    
    9,970
    
    
    $
    (11,430,000
    )
    
    $
    (11,430,000
    )
    
    $
    
   4




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Consolidated net income (loss)
    
    $
    145,000
    
    
    $
    (8,283,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Real estate related impairments on consolidated properties
    
    
    5,300,000
    
    
    
    4,000,000Gains on extinguishment of debt
    
    
    (6,658,000
    )
    
    
    Gain on sale of real estate
    
    
    
    
    
    
    (704,000
    )Depreciation and amortization (including deferred financing costs, deferred rent, lease inducements and above/below
market leases)
    
    
    1,852,000
    
    
    
    1,620,000Equity in (earnings) losses of unconsolidated real estate
    
    
    (615,000
    )
    
    
    2,759,000Allowance for doubtful accounts
    
    
    105,000
    
    
    
    29,000Change in operating assets and liabilities:Accounts receivable, including accounts receivable from related parties
    
    
    378,000
    
    
    
    176,000Other assets
    
    
    (403,000
    )
    
    
    (105,000
    )Restricted cash
    
    
    (624,000
    )
    
    
    (77,000
    )Accounts payable and accrued liabilities, including accounts payable to related parties
    
    
    574,000
    
    
    
    (56,000
    )Security deposits, prepaid rent and other liabilities
    
    
    (8,000
    )
    
    
    (64,000
    )Net cash provided by (used in) operating activities
    
    
    46,000
    
    
    
    (705,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of real estate
    
    
    
    
    
    
    10,983,000Capital expenditures
    
    
    (316,000
    )
    
    
    (479,000
    )Distributions from unconsolidated real estate
    
    
    1,327,000
    
    
    
    1,000Proceeds from repayment of loans receivable from related parties
    
    
    579,000
    
    
    
    Net cash provided by investing activities
    
    
    1,590,000
    
    
    
    10,505,000CASH FLOWS FROM FINANCING ACTIVITIES:Restricted cash
    
    
    1,000
    
    
    
    104,000Borrowings on mortgage loans payable
    
    
    203,000
    
    
    
    192,000Principal repayments on mortgage loans payable
    
    
    
    
    
    
    (8,943,000
    )Cash transferred to lender in connection with transfer of property
    
    
    (213,000
    )
    
    
    Payment of deferred financing costs
    
    
    
    
    
    
    (4,000
    )Distributions to unit holders
    
    
    (2,500,000
    )
    
    
    Net cash used in financing activities
    
    
    (2,509,000
    )
    
    
    (8,651,000
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (873,000
    )
    
    
    1,149,000CASH AND CASH EQUIVALENTS  beginning of period
    
    
    2,724,000
    
    
    
    1,459,000CASH AND CASH EQUIVALENTS  end of period
    
    $
    1,851,000
    
    
    $
    2,608,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    2,578,000
    
    
    $
    3,729,000Cash paid for income taxes
    
    $
    
    
    
    $
    19,000NONCASH INVESTING AND FINANCING ACTIVITIES:Accrual for tenant improvements and capital expenditures
    
    $
    4,000
    
    
    $
    14,000Transfer of real estate and other assets and liabilities in connection with debt extinguishment
    
    $
    10,758,000
    
    
    $
    Cancellation of debt and accrued interest in connection with transfer of real estate and other assets and liabilities
    
    $
    17,629,000
    
    
    $
    
   5




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
 1. Organization and Description of Business
        6




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 2. Summary of Significant Accounting Policies
  Interim Unaudited Financial Data
  Principles of Consolidation and Basis of Presentation
 Consolidation
   Use of Estimates
   7




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 Real Estate Related Impairments
  
    
    a significant negative industry or economic trend;
 
    
    a significant underperformance of a property relative to historical or projected future operating results; and
 
    
    a significant change in the manner in which the asset is used.
  Property, Plant and Equipment
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Real estate related impairments of operations held for non-sale disposition
    
    $
    
    
    
    $
    100,000
    
    
    $
    5,300,000
    
    
    $
    700,000Equity in income (losses) of unconsolidated real estate
    
    
    
    
    
    
    349,000
    
    
    
    374,000
    
    
    
    2,996,000(Loss) income from discontinued operations
    
    
    
    
    
    
    600,000
    
    
    
    
    
    
    
    3,300,000$
    
    
    
    $
    1,049,000
    
    
    $
    5,674,000
    
    
    $
    6,996,000
   8




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 Properties Held for Non-Sale Disposition
   Discontinued Operations
 Property, Plant and Equipment
  Fair Value Measurements
 Fair Value Measurements
  9




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
   Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalAssets
    
    
    Inputs
    
    
    Inputs
    
    
    ImpairmentAssets
    
    Carrying Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    LossesProperties held for non-sale disposition
    
    $
    27,454,000
    
    
    $
    
    
    
    $
    
    
    
    $
    27,454,000
    
    
    $
    (5,300,000
    )Investments in unconsolidated real estate
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    
  Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalAssets
    
    
    Inputs
    
    
    Inputs
    
    
    ImpairmentAssets
    
    Carrying Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    LossesProperties held for non-sale disposition
    
    $
    41,626,000
    
    
    $
    
    
    
    $
    
    
    
    $
    41,626,000
    
    
    $
    (4,000,000
    )Investments in unconsolidated real estate
    
    $
    1,274,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,274,000
    
    
    $
    
 Fair Value of Financial Instruments
 Financial Instruments
   10




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 Income Taxes
  Income Taxes
 Segments
 Segment Reporting
 Recently Issued Accounting Pronouncements
 Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140 Transfers and Servicing Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51, Consolidation
 Amendments to FASB Interpretation No. 46(R)
 Improving
Disclosures about Fair Value Measurements Fair Value Measurements and Disclosure
  11




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 3. Real Estate Investments  Properties Held for Non-Sale Disposition
  September 30, 2010
    
    
    December 31, 2009Buildings and tenant improvements
    
    $
    26,809,000
    
    
    $
    39,074,000Land
    
    
    4,137,000
    
    
    
    7,122,00030,946,000
    
    
    
    46,196,000Less: accumulated depreciation
    
    
    (3,492,000
    )
    
    
    (4,656,000
    )$
    27,454,000
    
    
    $
    41,540,000
  4. Real Estate Investments  Unconsolidated Real Estate
  Property
    
    Location
    
    September 30, 2010
    
    
    December 31, 2009Chase Tower
    
    Austin, TX
    
    $
    
    
    
    $
    727,000Enterprise Technology Center
    
    Scotts Valley, CA
    
    
    
    
    
    
    374,000Executive Center II and III
    
    Dallas, TX
    
    
    100,000
    
    
    
    $
    100,000
    
    
    $
    1,101,000
 Summarized Financial Information
  September 30, 2010
    
    
    December 31, 2009Assets (primarily real estate, net of impairments)
    
    $
    19,792,000
    
    
    $
    140,954,000Mortgage loans and other debt payable
    
    $
    32,562,000
    
    
    $
    117,582,000Other liabilities
    
    
    4,738,000
    
    
    
    15,987,000(Deficit) equity
    
    
    (17,508,000
    )
    
    
    7,385,000Total liabilities and (deficit) equity
    
    $
    19,792,000
    
    
    $
    140,954,000Our share of equity
    
    $
    100,000
    
    
    $
    1,101,000
  12




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    307,000
    
    
    $
    1,730,000
    
    
    $
    2,525,000
    
    
    $
    4,735,000Rental and other expenses
    
    
    1,863,000
    
    
    
    1,633,000
    
    
    
    23,562,000
    
    
    
    14,675,000(Loss) income from continuing operations
    
    
    (1,556,000
    )
    
    
    97,000
    
    
    
    (21,037,000
    )
    
    
    (9,940,000
    )Income (loss) from discontinued operations
    
    
    29,000
    
    
    
    (1,327,000
    )
    
    
    2,770,000
    
    
    
    (9,538,000
    )Net income (loss)
    
    $
    (1,527,000
    )
    
    $
    (1,230,000
    )
    
    $
    (18,267,000
    )
    
    $
    (19,478,000
    )Our equity in income (losses) of unconsolidated real estate
    
    $
    6,000
    
    
    $
    (194,000
    )
    
    $
    267,000
    
    
    $
    (2,759,000
    )
   Investments  Equity Method and Joint Ventures
  OwnershipProperty
    
    Percentage
    
    
    September 30, 2010
    
    
    December 31, 2009Chase Tower
    
    
    14.8
    %
    
    $
    
    
    
    $
    67,781,000Enterprise Technology Center
    
    
    8.5
    %
    
    
    32,562,000
    
    
    
    32,771,000Executive Center II and III
    
    
    41.1
    %
    
    
    
    
    
    
    17,030,000$
    32,562,000
    
    
    $
    117,582,000
 Chase Tower
   13




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 Enterprise Technology Center
   Executive Center II and III
  Loan Covenants
  Unconsolidated Debt Due to Related Parties
    14




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NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 5. Intangible Assets Related to Properties Held for Non-Sale Disposition
  September 30, 2010
    
    
    December 31, 2009In-place leases and tenant
relationships, net of
accumulated amortization of
$1,807,000 and $3,224,000 as of
September 30, 2010 and December
31, 2009
    
    $
    2,026,000
    
    
    $
    4,233,000
  6. Other Assets Related to Properties Held for Non-Sale Disposition
  September 30, 2010
    
    
    December 31, 2009Deferred rent receivable
    
    $
    259,000
    
    
    $
    764,000Lease commissions, net of
accumulated amortization of
$251,000 and $479,000 as of
September 30, 2010 and December 31,
2009, respectively
    
    
    325,000
    
    
    
    744,000Deferred financing costs, net of
accumulated amortization of
$891,000 and $925,000 as of
September 30, 2010 and December 31,
2009, respectively
    
    
    25,000
    
    
    
    164,000Prepaid expenses, deposits and other
    
    
    162,000
    
    
    
    494,000$
    771,000
    
    
    $
    2,166,000
 7. Mortgage Loans Payable Secured by Properties Held for Non-Sale Disposition
  Total Mortgage
    
    
    Weighted AverageLoans Payable
    
    
    Interest RateSeptember 30, 2010
    
    
    December 31, 2009
    
    
    September 30, 2010
    
    
    December 31, 2009Variable rate
    
    $
    22,382,000
    
    
    $
    34,574,000
    
    
    
    7.15
    %
    
    
    7.47
    %Fixed rate
    
    
    21,000,000
    
    
    
    25,590,000
    
    
    
    5.95
    %
    
    
    7.04
    %$
    43,382,000
    
    
    $
    60,164,000
    
    
    
    6.57
    %
    
    
    7.28
    %
   15




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
  Maturity
    
    
    Outstanding PrincipalProperty
    
    Date
    
    
    September 30, 2010
    
    
    December 31, 2009Sevens Building
    
    
    10/31/2010
    
    
    $
    21,494,000
    
    
    $
    21,382,000Four Resource Square
    
    
    11/30/2010
    
    
    
    21,888,000
    
    
    
    21,797,000Tiffany Square
    
    
    N/A
    
    
    
    
    
    
    
    12,395,000Executive Center I
    
    
    N/A
    
    
    
    
    
    
    
    4,590,000$
    43,382,000
    
    
    $
    60,164,000
 Sevens Building Mortgage Loan Default
  Four Resource Square Mortgage Loan Extension
   Tiffany Square Mortgage Loan Cancellation
  Executive Center I Mortgage Loan Cancellation
   16




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 8. Noncontrolling Interests
  Entity
    
    Date Acquired
    
    
    Noncontrolling InterestsNNN Enterprise Way, LLC
    
    
    05/07/2004
    
    
    
    26.7
    %NNN 901 Civic Center, LLC
    
    
    04/24/2006
    
    
    
    3.1
    %
  9. NNN 2003 Value Fund, LLC Unit Holders Deficit
      10. Related Party Transactions
 The Management Agreement
   17




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
  Property Management Fees
  Real Estate Acquisition Fees
  Real Estate Disposition Fees
  Leasing Commissions
  Accounting Fees
  Construction Management Fees
  Loan Fees
  Related Party Payables
   18




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
 Related Party Receivables
   11. Commitments and Contingencies
 Litigation
  Environmental Matters
  12. Concentration of Credit Risk
    19




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
  LeaseExpirationTenant
    
    Property
    
    
    DateMcKesson Information Solutions, Inc.
    
    Four Resource Square
    
    
    06/30/2012
  LeaseExpirationTenant
    
    Property
    
    
    DateMcKesson Information Solutions, Inc.
    
    Four Resource Square
    
    
    06/30/2012PRC, LLC
    
    Tiffany Square
    
    
    05/31/2012Westwood College of Technology
    
    Executive Center I
    
    
    01/31/2013
 13. Discontinued Operations
 Property, Plant and Equipment
 Date DesignatedProperty
    
    Date Acquired
    
    
    for Sale
    
    
    Date of Disposal901 Civic Center
    
    
    04/24/2006
    
    
    
    09/26/2008
    
    
    
    07/17/2009Tiffany Square
    
    
    11/15/2006
    
    
    
    N/A
    
    
    
    05/07/2010Executive Center I
    
    
    12/30/2003
    
    
    
    N/A
    
    
    
    06/02/2010
     20




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##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  Continued
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Rental revenue
    
    $
    
    
    
    $
    599,000
    
    
    $
    936,000
    
    
    $
    2,558,000Rental expense (including general, administrative, depreciation and amortization)
    
    
    3,000
    
    
    
    (419,000
    )
    
    
    (842,000
    )
    
    
    (1,939,000
    )Real estate related impairments
    
    
    
    
    
    
    (600,000
    )
    
    
    
    
    
    
    (3,300,000
    )Income (loss) from discontinued operations before other income (expense)
    
    
    3,000
    
    
    
    (420,000
    )
    
    
    94,000
    
    
    
    (2,681,000
    )Interest and other expense
    
    
    
    
    
    
    (465,000
    )
    
    
    (621,000
    )
    
    
    (1,547,000
    )Gain on sale
    
    
    
    
    
    
    704,000
    
    
    
    
    
    
    
    704,000(Loss) gain on extinguishment of debt
    
    
    (9,000
    )
    
    
    
    
    
    
    6,658,000
    
    
    
    (Loss) income from discontinued operations
    
    
    (6,000
    )
    
    
    (181,000
    )
    
    
    6,131,000
    
    
    
    (3,524,000
    )Income from discontinued operations attributable to noncontrolling interests
    
    
    
    
    
    
    51,000
    
    
    
    
    
    
    
    57,000(Loss) income from discontinued operations attributable to NNN 2003 Value Fund,
LLC
    
    $
    (6,000
    )
    
    $
    (232,000
    )
    
    $
    6,131,000
    
    
    $
    (3,581,000
    )
 14. Subsequent Event
 Sevens Building Mortgage Loan Default
   21




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##### Table of Contents



Item 2. Managements Discussion and Analysis Financial Condition and Results of Operations.
 The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
  Forward-Looking Statements
  Overview and Background
     22




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##### Table of Contents



Business Strategy
   23




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##### Table of Contents



Acquisitions and Dispositions
    Critical Accounting Policies
  Interim Financial Data
  Factors Which May Influence Results of Operations
   24




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##### Table of Contents



Rental Revenue
  Scheduled Lease Expirations
  Sarbanes-Oxley Act
   Results of Operations
    25




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##### Table of Contents



Comparison of the Three Months Ended September 30, 2010 and 2009
 Three Months EndedSeptember 30,
    
    
    Change2010
    
    
    2009
    
    
    $
    
    
    %Revenues:Rental revenue of operations held for non-sale disposition
    
    $
    1,790,000
    
    
    $
    1,664,000
    
    
    $
    126,000
    
    
    
    7.6
    %Expenses:Operating expenses of operations held for non-sale disposition
    
    
    1,230,000
    
    
    
    1,142,000
    
    
    
    88,000
    
    
    
    7.7
    %General and administrative
    
    
    73,000
    
    
    
    139,000
    
    
    
    (66,000
    )
    
    
    (47.5
    )%Real estate related impairments of operations held for non-sale disposition
    
    
    
    
    
    
    100,000
    
    
    
    (100,000
    )
    
    
    (100.0
    )%1,303,000
    
    
    
    1,381,000
    
    
    
    (78,000
    )
    
    
    (5.6
    )%Income before other income (expense) and discontinued operations
    
    
    487,000
    
    
    
    283,000
    
    
    
    204,000
    
    
    
    72.1
    %Other income (expense):Interest expense of operations held for non-sale disposition
    
    
    (769,000
    )
    
    
    (801,000
    )
    
    
    32,000
    
    
    
    (4.0
    )%Interest and dividend income
    
    
    3,000
    
    
    
    1,000
    
    
    
    2,000
    
    
    
    200.0
    %Equity in income (losses) of unconsolidated real estate
    
    
    6,000
    
    
    
    (194,000
    )
    
    
    200,000
    
    
    
    103.1
    %Other income (expense)
    
    
    4,000
    
    
    
    (3,000
    )
    
    
    7,000
    
    
    
    233.3
    %Loss from continuing operations
    
    
    (269,000
    )
    
    
    (714,000
    )
    
    
    445,000
    
    
    
    (62.3
    )%Loss from discontinued operations
    
    
    (6,000
    )
    
    
    (181,000
    )
    
    
    175,000
    
    
    
    (96.7
    )%Consolidated net loss
    
    $
    (275,000
    )
    
    $
    (895,000
    )
    
    $
    620,000
    
    
    
    (69.3
    )%
 Rental Revenue of Operations Held for Non-Sale Disposition
  Operating Expenses of Operations Held for Non-Sale Disposition
  General and Administrative
  Real Estate Related Impairments of Operations Held for Non-Sale Disposition
   26




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##### Table of Contents



Interest Expense of Operations Held for Non-Sale Disposition
  Interest and Dividend Income
  Equity in Income (Losses) of Unconsolidated Real Estate
   Other Income (Expense)
  Loss from Discontinued Operations
  Consolidated Net Loss
   27




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##### Table of Contents



Comparison of the Nine Months Ended September 30, 2010 and 2009
 Nine Months EndedSeptember 30,
    
    
    Change2010
    
    
    2009
    
    
    $
    
    
    %Revenues:Rental revenue of operations held for non-sale disposition
    
    $
    5,220,000
    
    
    $
    5,212,000
    
    
    $
    8,000
    
    
    
    0.2
    %Expenses:Operating expenses of operations held for non-sale disposition
    
    
    3,955,000
    
    
    
    3,440,000
    
    
    
    515,000
    
    
    
    15.0
    %General and administrative
    
    
    304,000
    
    
    
    502,000
    
    
    
    (198,000
    )
    
    
    (39.4
    )%Real estate related impairments of operations held for non-sale disposition
    
    
    5,300,000
    
    
    
    700,000
    
    
    
    4,600,000
    
    
    
    657.1
    %9,559,000
    
    
    
    4,642,000
    
    
    
    4,917,000
    
    
    
    105.9
    %(Loss) income before other income (expense) and discontinued operations
    
    
    (4,339,000
    )
    
    
    570,000
    
    
    
    (4,909,000
    )
    
    
    (861.2
    )%Other income (expense):Interest expense of operations held for non-sale disposition
    
    
    (2,307,000
    )
    
    
    (2,563,000
    )
    
    
    256,000
    
    
    
    (10.0
    )%Interest and dividend income
    
    
    23,000
    
    
    
    25,000
    
    
    
    (2,000
    )
    
    
    (8.0
    )%Equity in income (losses) of unconsolidated real estate
    
    
    615,000
    
    
    
    (2,759,000
    )
    
    
    3,374,000
    
    
    
    122.3
    %Other income (expense)
    
    
    22,000
    
    
    
    (32,000
    )
    
    
    54,000
    
    
    
    168.8
    %Loss from continuing operations
    
    
    (5,986,000
    )
    
    
    (4,759,000
    )
    
    
    (1,227,000
    )
    
    
    25.8
    %Income (loss) from discontinued operations
    
    
    6,131,000
    
    
    
    (3,524,000
    )
    
    
    9,655,000
    
    
    
    274.0
    %Consolidated net income (loss)
    
    $
    145,000
    
    
    $
    (8,283,000
    )
    
    $
    8,428,000
    
    
    
    101.8
    %
 Rental Revenue of Operations Held for Non-Sale Disposition
  Operating Expenses of Operations Held for Non-Sale Disposition
  General and Administrative
  Real Estate Related Impairments of Operations Held for Non-Sale Disposition
   28




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##### Table of Contents



Interest Expense of Operations Held for Non-Sale Disposition
  Interest and Dividend Income
  Equity in Income (Losses) of Unconsolidated Real Estate
   Other Income (Expense)
  Income (Loss) from Discontinued Operations
  Consolidated Net Loss
  Liquidity and Capital Resources
 Ability to Continue as a Going Concern
   29




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##### Table of Contents



Sources and Uses of Capital and Liquidity
    30




---



##### Table of Contents



Debt Financing
   Total Mortgage Loans Payable
    
    
    Weighted-Average Interest RateSept. 30, 2010
    
    
    December 31, 2009
    
    
    Sept. 30, 2010
    
    
    December 31, 2009Variable rate
    
    $
    22,382,000
    
    
    $
    34,574,000
    
    
    
    7.15
    %
    
    
    7.47
    %Fixed rate
    
    
    21,000,000
    
    
    
    25,590,000
    
    
    
    5.95
    %
    
    
    7.04
    %$
    43,382,000
    
    
    $
    60,164,000
    
    
    
    6.57
    %
    
    
    7.28
    %
  Weighted-Average
    
    
    VariablePrincipal
    
    
    
    
    
    
    Interest
    
    
    or FixedOutstanding
    
    
    Maturity Date
    
    
    Rate
    
    
    Interest RateConsolidated Properties:Sevens Building(1)
    
    $
    21,494,000
    
    
    
    10/31/2010
    
    
    
    5.87
    %
    
    Fixed & VariableFour Resource Square
    
    
    21,888,000
    
    
    
    11/30/2010
    
    
    
    7.25
    %
    
    Variable$
    43,382,000Unconsolidated Property:Enterprise Technology Center(2)
    
    $
    32,562,000
    
    
    
    05/11/2011
    
    
    
    11.44
    %
    
    Fixed
 
 (1)
    
    The mortgage loan on the Sevens Building property includes $21,000,000
with a fixed interest rate of 5.95% per annum and $494,000 with a
variable interest rate of 2.56% per annum as of September 30, 2010.
The mortgage loan on the Sevens Building property is currently in
default due to non-payment of principal upon maturity. We are
currently in discussions with the Sevens Building lender regarding our
options for transferring the Sevens Building property to the Sevens
Building lender, including foreclosure, deed-in-lieu of foreclosure,
or another form of transfer, which we expect may be completed in early
2011.(2)
    
    The mortgage loan on the Enterprise Technology Center property is in
default due to non-payment of monthly interest and principal, and we
are currently discussing our options regarding this property with the
Enterprise Technology Center lender. The mortgage loan has a fixed
interest rate of 6.44% per annum and a default interest rate of 11.44%
per annum.   31




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##### Table of Contents



Cash Flows
    Other Liquidity Needs
   Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(2010)
    
    
    (2011-2012)
    
    
    (2013-2014)
    
    
    (After 2014)
    
    
    TotalPrincipal payments  variable rate debt
    
    $
    22,382,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,382,000Principal payments  fixed rate debt
    
    
    21,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,000,000Interest payments  variable rate debt
(based on rates in effect as of
September 30, 2010)
    
    
    266,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266,000Interest payments  fixed rate debt
    
    
    104,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,000$
    43,752,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    43,752,000
  32




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Inflation
  Recently Issued Accounting Pronouncements
 Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140 Transfers and Servicing Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51, Consolidation
 Amendments to FASB Interpretation No. 46(R)
 Improving
Disclosures about Fair Value Measurements Fair Value Measurements and Disclosure
  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     Expected Maturity Date2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueFixed rate mortgage loans payable
    
    $
    21,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21,000,000
    
    
    $
    15,632,000Weighted average interest rate on
maturing fixed rate debt
    
    
    5.95
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    5.95
    %Variable rate mortgage loans payable
    
    $
    22,382,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,382,000
    
    
    $
    14,618,000Weighted average interest rate on
maturing variable rate debt (based
on rates in effect as of September
30, 2010)
    
    
    7.15
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    7.15
    %
    34




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##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  35




---



##### Table of Contents



PART II  OTHER INFORMATION
 The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  If we are unable to generate the necessary cash flows to meet our financial obligations,
including the payment of outstanding principal balances and accrued interest on our mortgage
loans, our lenders may declare us in default of the loans and exercise their remedies under the
loan agreements, including foreclosure on the properties, which could have a material adverse
effect on our financial position, results of operations and cash flows and has created
substantial doubt about our ability to continue as a going concern.
     36




---



##### Table of Contents



We will rely on the disposition of our properties to generate cash to fund our operations
and pay distributions to our unit holders.
       37




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. [Removed and Reserved.]
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
   38




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##### Table of Contents



SIGNATURES
  NNN 2003 Value Fund, LLC
(Registrant)November 12, 2010
    
    /s/ Kent W. PetersDate
    
    Kent W. PetersChief Executive Officer
(principal executive officer)November 12, 2010
    
    /s/ Paul E. HendersonDate
    
    Paul E. HendersonChief Accounting Officer
Grubb & Ellis Realty Investors, LLC,
the Manager of NNN 2003 Value Fund, LLC
(principal financial officer)
  39




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##### Table of Contents



EXHIBIT INDEX
   ExhibitNumber
    
    Description3.1
    
    
    Articles of Organization of NNN 2003 Value Fund, LLC, dated March 19, 2003 (included in
Exhibit 3.1 to our Form 10 filed on May 2, 2005 and incorporated herein by reference)31.1
    *
    
    Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    *
    
    Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    **
    
    Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 200232.2
    **
    
    Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.**
    
    Furnished herewith.  40