UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549 ________________ FORM 10-K/A (Amendment No. 3)  (mark one)  RANNUAL REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIESACT OF 1934  For the fiscal year ended December 31,
2014  or  £TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934  For the transition period from ________
to________  Commission file number 000-53673  NetREIT, Inc. (Exact name of registrant as specified
in its charter)  Maryland
 
 33-0841255(State of other jurisdiction of
  incorporation or organization)
 
 (IRS Employer Identification Number)1282 Pacific Oaks Place
  Escondido, CA
 
 92029-2900(Address of principal executive
  offices)
 
 (Zip code)
  (760) 471-8536 (Registrant’s telephone number,
including area code)  Securities registered pursuant to
Section 12(b) of the Act: None  Securities registered pursuant to
Section 12(g) of the Act: Common Stock, Series A, par value $0.01
per share (Title of class)  Indicate by check mark whether the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.£YesRNo  Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act.£YesRNo  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.RYes£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.R  Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate website, if
any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files).RYes£No  Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):  Large accelerated filer£
 Accelerated
  filer£
 Non-accelerated
  filer£
 Smaller
  reporting companyR(Do not check if
  a smaller reporting company)
  Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).£YesRNo  At March 15, 2015, registrant had issued and outstanding
16,877,377 shares of its common stock, par value $0.01 per share.  DOCUMENTS INCORPORATED BY REFERENCE  Part III, Items 10, 11, 12, 13 and 14 incorporate by reference
certain specific portions of the definitive Proxy Statement for NetREIT’s
Annual Meeting currently scheduled to be held on June 12, 2015. Only those
portions of the proxy statement which are specifically incorporated by
reference herein shall constitute a part of this annual report.


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EXPLANATORY
NOTE This Amendment on Form 10-K/A to the NetREIT, Inc.
(“NetREIT”) Annual Report (“Annual Report”) on Form 10-K for the fiscal year
ended December 31, 2014 (the “Original Filing”), Form 10-K/A (Amendment
No. 1) as filed on April 21, 2015 and Form 10-K/A (Amendment No. 2) as filed on
June 16, 2015, is being filed solely (i) for the purposes of amending Part II,
Item 7 Management’s discussion and analysis of financial condition and
results of operations, (ii) to provide a signature page omitted in Amendment
No. 2 and (iii) to include as exhibits the new certifications required by Rule
13a-14(a) under the U.S. Securities Exchange Act of 1934, as amended (the
“Exchange Act”).  The purpose of this amendment is to correct the table of
“Same-property operating results” included in Part II, Item 7 in the Section
titled “results of operations for the years ended December 31, 2014 and 2013.” The
table in the Original Filing and Amendment No. 1 erroneously included
properties that were not held for the full year during each year, in “Rental
revenues – Commercial properties,” “Rental revenues – Model Homes,”  and “General
and administrative – Model Homes” and a mathematical formula error in the
totals for “Net operating income.”  In accordance with Rule 12b-15 under the Exchange Act, Part
II, Item 7 of the Original Filing has been amended and restated in its
entirety. This Amendment does not amend or otherwise update any other
information in the Original Filing. Accordingly, this Amendment should be read
in conjunction with the Original Filing and Amendment No. 1.     2


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ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  The following
discussion relates to our financial statements and should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
in this report. Statements contained in this “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” that are not historical facts
may be forward-looking statements. Such statements are subject to certain risks
and uncertainties, which could cause actual results to materially differ from
those projected. Some of the information presented is forward-looking in
nature, including information concerning projected future occupancy rates,
rental rate increases, project development timing and investment amounts.
Although the information is based on our current expectations, actual results
could vary from expectations stated in this report. Numerous factors will
affect our actual results, some of which are beyond our control. These include
the timing and strength of national and regional economic growth, the strength
of commercial and residential markets, competitive market conditions,
fluctuations in availability and cost of construction materials and labor
resulting from the effects of worldwide demand, future interest rate levels and
capital market conditions. You are cautioned not to place undue reliance on
this information, which speaks only as of the date of this report. We assume no
obligation to update publicly any forward-looking information, whether as a
result of new information, future events or otherwise, except to the extent we
are required to do so in connection with our ongoing requirements under federal
securities laws to disclose material information. For a discussion of important
risks related to our business, and an investment in our securities, including
risks that could cause actual results and events to differ materially from
results and events referred to in the forward-looking information. See Item 1A
for a discussion of material risks.  OVERVIEW  The Companyoperates as a self-managed and self-administered
real estate investment trust, orREIT.  The Company
invests in a diverse portfolio of real estate assets including industrial,
office, residential, retail, self-storage and model home leased residential
properties located primarily in the western United States. As of December 31,
2014, including properties held for sale, the Company owned or had an equity
interest in: ·Fourteen office buildings and one
industrial building (“Office Properties”) which total approximately 1,152,000
rentable square feet, ·Five retail shopping centers (“Retail
Properties”) which total approximately 230,000 rentable square feet, ·Seven self-storage facilities
(“Self-Storage Properties”) which total approximately 652,000 rentable square
feet, and ·Fifty-four Model Homes owned by three
affiliated limited partnerships (“Residential Properties”).  NetREIT’s
office, retail and industrial properties are located primarily in Southern
California and Colorado, with two properties located in North Dakota. Our Model
Home properties are located in seven states. We do not develop properties but
acquire properties that are stabilized or that we anticipate will be stabilized
within two or three years of acquisition. We consider a property to be
stabilized once it has achieved an 80% occupancy rate for a full year as of
January 1 of such year, or has been operating for three years. Our geographical
clustering of assets enables us to reduce our operating costs through economies
of scale by servicing a number of properties with less staff, but it also makes
us more susceptible to changing market conditions in these discrete geographic
areas.  Most of our office and retail properties are leased to a variety
of tenants ranging from small businesses to large public companies, many of which
do not have publicly rated debt. We have in the past entered into, and intend
in the future to enter into, purchase agreements for real estate having net
leases that require the tenant to pay all of the operating expense (Net, Net,
Net Leases) or pay increases in operating expenses over specific base years. Most
of our office leases are for terms of 3 to 5 years with annual rental increases
built into such leases. In general, we have experienced decreases in rental
rates in many of our submarkets due to recessionary conditions and other
related factors when leases expire and are extended. During 2013 and 2012, the
changes in rental rates have affected our operating results due to the older
leases being extended at market rates lower than the old rates. We cannot give
any assurance that as the older leases expire or as we add new tenants that
rental rates will be equal to or above the current market rates. Also,
decreased demand and other negative trends or unforeseeable events that impair
our 3


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ability to timely renew or re-lease space could
have a negative effect on our future financial condition, results of operations
and cash flow.  Our Model Homes are typically leased for 2 to 3 years to the home
developer on a triple net lease.  Under a triple net lease, the tenant is
required to pay all operating, maintenance and insurance costs and real estate
taxes with respect to the leased property.  Our self-storage properties are rented pursuant to rental
agreements that are typically for no longer than six months in duration. The
self-storage properties are located in markets having other self-storage
properties. Competition with these other properties will impact the operating
results of these properties, which depends materially on our ability to timely
lease vacant self-storage units, to actively manage unit rental rates, and our
tenants’ ability to make required rental payments. To be successful, we must be
able to continue to respond quickly and effectively to changes in local and
regional economic conditions by adjusting rental rates of these properties
within their regional market in Southern California. We depend on websites,
advertisements, flyers, etc. to secure new tenants to fill any vacancies.  We seek to diversify our portfolio by commercial real estate
segments to reduce the adverse effect of a single under-performing segment,
geographic market and/or tenant. We further supplement this at the tenant level
through our credit review process, which varies by tenant class.  For example,
our commercial and industrial tenants tend to be corporations or individual
owned businesses.  In these cases, we typically obtain financial records,
including financial statements and tax returns (depending on the circumstance),
and run credit reports for any prospective tenant to support our decision to
enter into a rental arrangement. We also typically obtain security deposits
from these commercial entities. Our Model Home business partners are also
typically substantial home developers with established credit histories. These
tenants are subjected to financial review and analysis prior to us entering
into a sales-leaseback transaction. Our ownership of the underlying property
provides a further means to avoiding significant credit losses. Our
self-storage tenants, on the other hand, are typically individuals or smaller
businesses, and the underlying transaction size is much smaller due to the
short-term nature of the rental agreements. We do not perform credit reviews
for this customer class, instead relying on the small transaction size to avoid
significant credit losses. Our agreements also give us the right to auction off
the storage locker contents in instances in which payment has not been
forthcoming.  SIGNIFICANT TRANSACTIONS IN 2014 Preferred Stock
Financing- In August 2014, we closed on an offering of our Series B
Preferred Stock. The financing, which will be funded in installments, should be
completed no later than the one-year anniversary of the initial
investment. We issued 16,600 shares of our Series B Preferred Stock
for $16.6 million during 2014. These shares have a $0.01 par value and a $1,000
per share liquidation preference. The Series B Preferred Stock shall be
redeemed through a cash payment equal to the face value of the shares
outstanding at redemption. The return on these funds is 14% - 10% to be paid on
a monthly basis, and the remaining 4% shall accrue and compound monthly and be
payable at the redemption date. We expect to receive a total capital
contribution of $40.0 million from this financing by the conclusion of the
funding period. The proceeds of this financing are to be used for Series B
Preferred investor approved property acquisitions. The Series B Preferred Stock
is scheduled to be redeemed by the third anniversary of the closing date; however,
we can extend the redemption date by up to two additional years.  Acquisitions -we acquired the
following properties during 2014:  ·A93,000 square foot, multi-tenant office
building located in Bismarck, ND for $5.4 million dollars in May (through a cash
payment of $2.0 million and the assumption of the existing loan on the property
of $3.4 million). The property was 85% occupied at acquisition. ·An 84,000 square foot,
multi-tenant office building located in Lakewood, Colorado for $9.4 million in
August (through a cash payment of $2.8 million and a promissory note totaling
$6.6 million). The property was 82% occupied at acquisition. 4


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·A 110,000 square foot,
multi-tenant office property located in Colorado Springs, Colorado for $15.5
million in December (through a cash payment of $5.2 million and a promissory
note of $10.3 million).  The property is comprised of two buildings, and was
97% occupied at acquisition. ·A 79,000 square foot,
multi-tenant office property located in Centennial, Colorado was also acquired
in December for $11.8 million (through a cash payment of $3.3 million and a
promissory note of $8.5 million).  The property was 100% occupied at
acquisition. ·Also in December, a
44,000 square foot, multi-tenant retail property located in Colorado Springs,
Colorado for $11.2 million (through a cash payment of $2.4 million, a
promissory note of $8.4 million and $400,000 loan termination fee).  The
property was 97% occupied at acquisition. ·NetREIT Dubose, Dubose
Model Home Investors #201 LP and Dubose Model Home Investors #202 LP acquired
eighteen (18) Model Home properties in Pennsylvania and Arizona at various
times during the year (and leased them back to the home builders). The purchase
price for the properties totaled $4.2 million, consisting of cash payments of
$1.7 million and promissory notes of $2.5 million.  Dispositions
-We review our
portfolio of investment properties for value appreciation potential on an
on-going basis, and dispose of any properties that no longer satisfy our
requirements in this regard. The proceeds from any such property sale, after
repayment of any associated mortgage, are available forinvesting in properties that we believe will have a much greater
likelihood of future price appreciation.  During 2014,
we sold our Fontana Medical Plaza property for $4.1 million (this was a single
tenant property acquired by us in 2009 in a joint venture in which we held a
51% interest), while NetREIT Dubose and our limited partnerships (DMHI #201 and
DMHI #202) sold forty-five Model Home properties (upon the maturity of leases)
for $20.9 million.  Debttransactions -During
2014, the Company originated approximately $36.4 million of promissory
notes payable and assumed one promissory note of $3.4 million in connection
with property acquisitions.  The originated notes bear interest at interest
rates ranging from 4.3 to 4.5%. During 2014, the Company also refinanced
approximately $10.9 million of existing debt with new debt of approximately
$17.1 million, providing additional cash to invest in new acquisitions.  The
new debt bears interest at an average rate of 4.7%, compared to 5.7% on the old
debt, and,due to a four year interest-only
provision,we were able to reduce our debt service costs on the
refinanced obligations by approximately $67,000 per year. Although our
aggregate debt outstanding increased due to acquisitions of new properties and
the refinancing of existing debt, the weighted average interest rate of our
non-Model Home property mortgages decreased to 4.9% at December 31, 2014 from
5.4% at December 31, 2013.  ECONOMIC ENVIRONMENT  The United
States continues to be the path of a slow recovery from the recession that
began in 2008.  The current economic environment has shown decreases in
residential housing foreclosures and shadow inventory and a decreasing supply
of homes available for purchase resulting in an increase in single-family home
prices, housing starts and building permits. In addition, unemployment rates
have decreased over the last several years. On the commercial side vacancy
rates have decreased but are still higher than pre-recessionary levels.  U.S.
corporations, earnings and stock market investments and activity have
rebounded. We believe that the pace of the overall recovery will likely
continue to be slow and disjointed as many sections of the country have not
seen job growth. Full recovery will need increasing job growth, but even then
it will not be consistent across industries, geographies or periods of the year
causing an uneven tempo of growth.  Increases in
the size of the U.S. debt, slow economic recovery concerns, and uncertain
surrounding the continue raising of the U.S. Government federal debt ceiling
raise the possibility of additional credit-rating downgrades by rating
agencies. The possibility of further downgrades to the U.S. government’s
sovereign credit rating, or its perceived creditworthiness, and/or the impact
of the current crisis in Europe with respect to the ability of certain European
Union countries to continue to service their sovereign debt obligations are
inherently unpredictable and could adversely affect the U.S. and global
financial markets and economic conditions.  Although the United States Federal
Reserve Bank has started to scale back the quantitative easing and their intent
is to keep interest rates low through 2015, these credit ratings concerns could
cause interest rates and borrowing costs to rise, which may have a 5


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negative effect on our ability to access both the debt and
equity markets on favorable terms. Continued adverse economic conditions could
have a material adverse effect on our business, financial condition and results
of operations.  Our ability
to make new investments is highly dependent upon our ability to procure
external financing. Our principal source of external financing includes the
issuance of equity securities and mortgages secured by properties.  The market
for mortgages has improved although the interest rates increase during 2014 but
are still low compared to pre-recessionary rates. We continue to obtain mortgages
from the CMBS market, life insurance companies and regional banks.  MANAGEMENT EVALUATION OF RESULTS OF OPERATIONS  Management’s
evaluation of operating results includes an assessment of our ability to
generate cash flow necessary to pay operating expenses, general and
administrative expenses, debt service and to fund distributions to our
stockholders. As a result, Management’s assessment of operating results gives
less emphasis to the effects of unrealized gains and losses and other non-cash
charges, such as depreciation and amortization and impairment charges, which
may cause fluctuations in net income for comparable periods but have no impact
on cash flows. Management’s evaluation of our potential for generating cash
flow includes assessments of our recently acquired properties, our
non-stabilized properties, long-term sustainability of our real estate
portfolio, our future operating cash flow from anticipated acquisitions, and
the proceeds from the sales of our real estate assets.  In addition,
Management evaluates our portfolio and individual properties results of
operations with a primary focus on increasing and enhancing the value, quality
and quantity of properties in our real estate holdings. Properties that have
reached goals in occupancy and rental rates are evaluated for potential added
value appreciation and, if lacking such potential, are sold with the equity
reinvested in properties that have better potential without foregoing cash
flow.  Management focuses its efforts on improving underperforming assets
through re-leasing efforts, including negotiation of lease renewals and rental
rates.  The ability to increase assets under management is
affected by our ability to raise borrowings and/or capital, coupled with our
ability to identify appropriate investments.  CRITICAL
ACCOUNTING POLICIES  As
a company primarily involved in owning income generating real estate assets,
management considers the following accounting policies critical as they reflect
our more significant judgments and estimates used in the preparation of our
financial statements and because they are important for understanding and
evaluating our reported financial results. These judgments affect the reported
amounts of assets and liabilities and our disclosure of contingent assets and
liabilities as of the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. With different
estimates or assumptions, materially different amounts could be reported in our
financial statements. Additionally, other companies may utilize different
estimates that may impact the comparability of our results of operations to
those of companies in similar businesses.  Real Estate Assets and Lease
Intangibles.Land, buildings and improvements are recorded at cost,
including tenant improvements and lease acquisition costs (including leasing
commissions, space planning fees, and legal fees). We capitalize any
expenditure that replaces, improves, or otherwise extends the economic life of
an asset, while ordinary repairs and maintenance are expensed as incurred. We
allocate the purchase price of acquired properties between the acquired
tangible assets and liabilities (consisting of land, building, tenant
improvements, land purchase options, and long-term debt) and identified
intangible assets and liabilities (including the value of above-market and
below-market leases, the value of in-place leases, unamortized lease
origination costs and tenant relationships), based in each case on their
respective fair values.  We allocate the purchase price to
tangible assets of an acquired property based on the estimated fair values of
those tangible assets assuming the building was vacant. Estimates of fair value
for land, building and building improvements are based on many factors
including, but not limited to, comparisons to other properties sold in the same
geographic area and independent third party valuations. We also consider
information obtained about each property as a result of its pre-acquisition due
diligence, marketing and leasing activities in estimating the fair values 6


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of the tangible and intangible assets and liabilities
acquired.  The value allocated to acquired
lease intangibles is based on management’s evaluation of the specific
characteristics of each tenant’s lease. Characteristics considered by
management in allocating these values include the nature and extent of the
existing business relationships with the tenant, growth prospects for
developing new business with the tenant, the remaining term of the lease and
the tenant’s credit quality, among other factors.  The value allocable to the
above-market or below-market market component of an acquired in-place lease is
determined based upon the present value (using a market discount rate) of the
difference between (i) the contractual rents to be paid pursuant to the lease
over its remaining term, and (ii) management’s estimate of rents that would be
paid using fair market rates over the remaining term of the lease.  The value of in-place leases,
unamortized lease origination costs and tenant relationships are amortized to
expense over the remaining term of the respective leases, which range from less
than a year to ten years. The amount allocated to acquire in-place leases is
determined based on management’s assessment of lost revenue and costs incurred
for the period required to lease the “assumed vacant” property to the occupancy
level when purchased. The amount allocated to unamortized lease origination
costs is determined by what we would have paid to a third party to secure a new
tenant reduced by the expired term of the respective lease.  Impairment of Real Estate Assets.We review
the carrying value of each property to determine if circumstances that indicate
impairment in the carrying value of the investment exist or that depreciation
periods should be modified. If circumstances support the possibility of
impairment, we prepare a projection of the undiscounted future cash flows,
without interest charges, of the specific property and determine if the
investment in such property is recoverable. If impairment is indicated, the
carrying value of the property is written down to its estimated fair value
based on our best estimate of the property’s discounted future cash flows.  Goodwill and Intangible Assets.Intangible
assets, including goodwill and lease intangibles, are comprised of finite-lived
and indefinite-lived assets. Lease intangibles represents the allocation of a
portion of the purchase price of a property acquisition representing the
estimated value of in-place leases, unamortized lease origination costs, tenant
relationships and land purchase options. Intangible assets that are not deemed
to have an indefinite useful life are amortized over their estimated useful
lives. Indefinite-lived assets are not amortized.  We test for impairment of goodwill
and other definite and indefinite lived assets at least annually, and more
frequently as circumstances warrant. Impairment is recognized only if the
carrying amount of the intangible asset is considered to be unrecoverable from
its undiscounted cash flows and is measured as the difference between the
carrying amount and the estimated fair value of the asset.  Sales of Real Estate Assets.Gains from the sale of real
estate assets will not be recognized under the full accrual method until
certain criteria are met. Gain or loss (the difference between the sales value
and the cost of the real estate sold) shall be recognized at the date of sale
if a sale has been consummated and the following criteria are met:  a.The buyer is independent of the
seller; b.Collection of the sales price is
reasonably assured; and c.The seller will not be required to
support the operations of the property or its related obligations to an extent
greater than its proportionate interest. Gains
relating to transactions which do not meet the criteria for full accrual method
of accounting are deferred and recognized when the full accrual method of
accounting criteria are met or by using the installment or deposit methods of
profit recognition, as appropriate in the circumstances.  Revenue Recognition.We recognize revenue from rent, tenant reimbursements,
and other revenue once all of the following criteria are met:  a.Persuasive evidence of an arrangement exists; b.Delivery has occurred or services have been rendered; c.The amount is fixed or
determinable; and 7


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d.The collectability of the amount
is reasonably assured. Annual rental revenue is recognized in
rental revenues on a straight-line basis over the term of the related lease.
Estimated recoveries from certain tenants for their pro rata share of real
estate taxes, insurance and other operating expenses are recognized as revenues
in the period the applicable expenses are incurred or as specified in the
leases. Other tenants pay a fixed rate and these tenant recoveries are
recognized as revenue on a straight-line basis over the term of the related
leases. Certain of our leases currently contain rental
increases at specified intervals. We record as an asset, and include in
revenues, deferred rent receivable that will be received if the tenant makes
all rent payments required through the expiration of the initial term of the
lease. Deferred rent receivable in the accompanying balance sheets includes the
cumulative difference between rental revenue recorded on a straight-line basis
and rents received from the tenants in accordance with the lease terms.
Accordingly, Management determines to what extent the deferred rent receivable
applicable to each specific tenant is collectible. We review material deferred
rent receivable, as it relates to straight-line rents, and take into
consideration the tenant’s payment history, the financial condition of the
tenant, business conditions in the industry in which the tenant operates and
economic conditions in the area in which the property is located. In the event
that the collectability of deferred rent with respect to any given tenant is in
doubt, we record an increase in the allowance for uncollectible accounts, and
write-off of the specific rent receivable. No such reserves related to deferred
rent receivables have been recorded as of December 31, 2014 or 2013.  Income Taxes.We
have elected to be taxed as a REIT under Sections 856 through 860 of the Code,
for federal income tax purposes. To qualify as a REIT, we must distribute
annually at least 90% of adjusted taxable income, as defined in the Code, to
our stockholders and satisfy certain other organizational and operating
requirements. As a REIT, no provision will be made for federal income taxes on
income resulting from those sales of real estate investments which have or will
be distributed to stockholders within the prescribed limits. However, taxes
will be provided for those gains which are not anticipated to be distributed to
stockholders unless such gains are deferred pursuant to Section 1031. In
addition, we will be subject to a federal excise tax which equals 4% of the
excess, if any, of 85% of ordinary income plus 95% of any capital gain net
income over cash distributions, as defined. We believe that we have met all of
the REIT distribution and technical requirements for the years ended December
31, 2014 and 2013, respectively.  Earnings and profits that
determine the taxability of distributions to stockholders differ from net
income reported for financial reporting purposes due to differences in
estimated useful lives and methods used to compute depreciation and the
carrying value (basis) on the investments in properties for tax purposes, among
other things. During the years ended December 31, 2014 and 2013, all
distributions were considered return of capital to the stockholders and
therefore non-taxable because of our operating losses.  Fair Value Measurements.Certain assets and liabilities are required to be
carried at fair value, or if long-lived assets are deemed to be impaired, to be
adjusted to reflect this condition. The guidance requires disclosure of fair
values calculated under each level of inputs within the following hierarchy:  Level 1 – Quoted prices in active markets for
identical assets or liabilities at the measurement date. Level 2 – Inputs other than quoted process that are
observable for the asset or liability, either directly or indirectly. Level 3 – Unobservable inputs for the asset or
liability.  Fair value is defined as the price at which an asset
or liability is exchanged between market participants in an orderly transaction
at the reporting date. Our cash equivalents, mortgage notes receivable,
accounts receivable and payables and accrued liabilities all approximate fair
value due to their short term nature. Management believes that the recorded and
fair values of notes payable are approximately the same as of December 31, 2014
and 2013.  Depreciation and
Amortization.The Company records depreciation and amortization expense
using the straight-line method over the useful lives of the respective assets.The cost of buildings are depreciated over estimated useful lives of 39
years, the costs of improvements are amortized over the shorter of the
estimated life of the asset or term of the tenant lease (which range from 1 to
10 years), and the cost of furniture, fixtures and equipment are depreciated
over 4 to 5 years.  8


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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
2014 AND 2013  Our
results of operations for 2014 and 2013 are not indicative of those expected in
future periods as we expect that rental income, interest expense, rental
operating expense, general and administrative expense and depreciation and
amortization will significantly increase in future periods as a result of the
assets acquired over the last two years and as a result of anticipated growth
through future acquisitions of real estate related investments.  Same-Property Operating
Results  The
table below presents the 2014 and 2013 operating results for the Company’s
rental properties owned as of January 1, 2013 (with the exception noted below),
thereby excluding the impact on our results of operations from the real estate
properties acquired during 2014. The Company believes that this type of
non-GAAP financial measure, when considered with our financial statements
prepared in accordance with GAAP, is useful to investors to better understand
the Company’s operating results. Properties are included in this analysis if
they were owned and operated for the entirety of both periods being compared,
except for our Lancaster and Casa Grande properties. These properties were
exchanged for one-another in a like-kind exchange in the second quarter of
2013, and so have both been included in the following analysis. Same-property
operating results should not be considered as an alternative to net income
prepared in accordance with GAAP or as a measure of liquidity, Further,
same-property operating results is a measure for which there is no standard
definition and, as such, it is not consistently defined or reported on among
the Company’s peers, and thus may not provide an adequate basis for comparison
between REITs.  The
following table summarizes certain components of same-property operating
results for the years ended December 31, 2014 and 2013.  Year Ended December 31,
 
 
 VarianceSame - property operating results:
 2014
 
 2013
 
 
 $
 %Rental revenues - Commercial properties
 $16,242,554
 
 $16,253,873
 
 
 $       (11,319)
 -0.1%Rental revenues - Model Homes
 567,492
 
 567,492
 
 
 $              -
 0.0%Rental operating costs – Commercial properties
 6,687,159
 
 6,186,831
 
 
 $      500,328
 8.1%Rental operating costs – Model Homes
 185,476
 
 195,590
 
 
 $       (10,114)
 -5.2%General and administrative – Commercial properties
 3,879,237
 
 3,700,635
 
 
 $      178,602
 4.8%General and administrative – Model Homes
 939,696
 
 1,366,021
 
 
 $    (426,325)
 -31.2%Net operating income
 $ 5,118,478
 
 $5,372,288
 
 
 $     (253,810)
 -4.7%
  Revenues.Total revenue was $19.9 million for the year ended
December 31, 2014, compared to $19.6 for the same period in 2013, an increase
of $339,000 or 1.7%. The increase in rental income as reported in 2014 as
compared to 2013 reflects:  ·A net increase in
industrial and office properties rental income of $1.0 million as a result of
the five property acquisitions we made during 2014.  The resulting $1.3 million
increase in rental revenues arising from these new properties more than
compensated for the decline in rental income owing to a non-recurring lease
cancellation fee of $345,000 received in 2013.  ·Revenues from rentals
of Model Homes decreased to $2.0 million in 2014 from $2.9 million in the prior
year. The 30.0% decrease in rental revenues arose as a result of a reduction in
the number of Model Homes that we owned in 2014 compared to the prior year. We
owned 54 Model Homes at December 31, 2014 compared to 77 homes at December 31,
2013.  ·Self-storage revenue
increased $140,000 during 2014, primarily as a result of additional revenues of
approximately $95,000 generated from our Lancaster self-storage facility. This
facility was acquired in May 2013; therefore our 2014 results reflect a full
year of site revenue compared to eight months of site revenue included in our
results of operations in 2013.  9


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Rental Operating Costs.  Rental
operating costs were $7.5 million for the year ended December 31, 2014 compared
to $6.4 million for the same period in 2013, an increase of $1.1 million or
17.0%. Costs associated with properties acquired during 2014 accounted for
$593,000 of this increase. Additionally, we experienced an increase in our
costs at properties we owned during all of 2014 and 2013 due to an increase in
third party on-site management fees ($171,000), additional repairs and
maintenance costs ($95,000), an increase in janitorial expenses ($60,000),
additional legal and accounting fees ($68,000) and an increase in the cost of
unreimbursed utilities ($66,000).  Rental operating
costs as a percentage of rental and fee income was 37.5% and 32.6% for the
years ended December 31, 2014 and 2013, respectively, primarily due to the
decline in Model Home rental revenues. Model Home rental operating costs as a
percentage of rental and fee income was 8.9% and 6.6% for the years ended
December 31, 2014 and 2013, respectively. Model Home rental operating costs are
typically low as the leasees pay for all of the expenses related to the homes,
including taxes and insurance. Although Model Home operating costs remained
relatively consistent as a percentage of revenues, the decrease in the scope of
Model Home business translated into an increase in our overall rental operating
costs as a percentage of rental and fee income.  General and
Administrative Expenses.General
and administrative (“G&A”) expenses were $5.6 million for the year ended
December 31, 2014,compared to $5.4 for the same period in
2013, representing an increase of $112,000 or 2.1%. While our overall G&A
costs remained relatively unchanged, our federal income taxes increased by
$430,000 at our taxable REIT subsidiaries due to the gains on the sales of
model homes, which increase was partially offset by a decrease in compensation
costs of $295,000 due to the reassignment of certain of our personnel to NTR
Property Management, our in-house property management company (the costs of
which are included in rental operating expenses).  Depreciation
and Amortization. Depreciation
and amortization expenses were $6.0 million for the year ended December 31,
2014,compared to $5.3 million for the same period in 2013,
representing an increase of $740,000 or 13.9%. Depreciation costs associated
with properties acquired during 2014 accounted for all of this increase.  Asset
Impairments.We review the carrying value of each of our real estate
properties annually to determine if circumstances indicate an impairment in the
carrying value of these investments exists. During fiscal 2013, we recognized
asset impairment charges on our Havana Parker and Morena Office Centre
properties of $1.5 million and $500,000, respectively. During fiscal 2014, we
recognized an additional impairment charge of $950,000 for our Havana Parker
property. These impairment charges reflect management’s estimate of the fair
market value based on sales comps of like property in the same geographical
area.  Interest
Expense.Interest expense, including amortization of deferred
finance charges, increased by $1.4 million, or 28.0%, to $6.5 million for the
year ended December 31, 2014compared to $5.1
million for the same period in 2013. The increase in interest expense was primarily
the result of the preferred return on the Series B Preferred Stock issued in
August 2014 of $776,000, and amortization of the deferred offering costs
associated with that transaction. Additionally, we incurred interest costs of $269,000
as a result of our 2014 acquisitions of the Bismarck and Union Terrace
properties. The interest expense for our other 2014 acquisitions was minimal
due to the timing of the closing (they were acquired in late-December 2014).
The weighted average interest rate on our outstanding debt was 4.9% as of
December 31, 2014 compared to 5.1% as of December 31, 2013.  Gain on Sale
of Real Estate Assets and Partnerships, net.For the year
ended December 21, 2014, we had a gain on the sale of our Fontana Medical
Center of $1.7 million, gains from the sales of Model Homes of $3.5 million and
a loss on the sale of a land parcel of $0.1 million. For the year ended
December 31, 2013, the Company had a net gain on the sale of the Casa Grande
Apartments totaling $322,000 and gains from the sales of Model Homes totaling
$1.3 million. In addition, in 2013 the Company also recognized gains from the
liquidation of its interests in the two limited partnerships totaling $372,000.  Gain on
Extinguishment of Debt.In
December 2014, the Company and the lender for the Havana Parker Complex entered
into to a loan modification agreement pursuant to which the lender agreed to
reduce the outstanding loan balance on the property by $537,000 (from
$3,037,000 to $2,500,000) and also agreed to defer a portion of the monthly
interest on the loan until loan maturity. Under the modified agreement,
interest only payments (at 2.5%) are due through in July 1, 2016, at which time
all principal and the deferred interest are due. The Company has the 10


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option to extend the loan maturity date for one
additional year in exchange for making a one-time payment of $100,000 (which
will be applied to outstanding principal).  LIQUIDITY AND CAPITAL RESOURCES  Overview  As discussed above under Economic
Environment, during 2014, there have been signs of economic improvement and
stabilization in the equity markets. We expect the market turbulence could
continue in the commercial real estate arena due to the uncertainties
previously discussed. We believe that as a result of the trends, new mortgage
financing will continue remain less favorable in terms of loan amount to value
as pre-recession days, which may negatively impact our ability to finance
future acquisitions. Long-term interest rates remain relatively low by
historical standards but we anticipate that interest rates will increase during
the next couple years.  On the other hand, we believe the negative
trends in the mortgage markets for smaller properties and in some geographic
locations have reduced property prices and may, in certain cases, reduce
competition for those properties.  Our future sources of liquidity include
existing cash and cash equivalents, cash flows from operations, new mortgages
on our unencumbered properties, refinancing of existing mortgages, future sales
of our Series B Preferred Stock (as described below) and the possible sale of
additional equity/debt securities. Our available liquidity at December 31, 2014
included cash and cash equivalents of $5.6 million, as well as our potential
borrowing capacity under potential credit facilities such as a revolving line
of credit or from mortgages on unencumbered properties and refinancing of
mortgages with low debt to value. We do not have a revolving line of credit at
the current time, and we cannot guarantee that we will be able to consummate a
line of credit in the near future, but we have been exploring the possibilities
of obtaining such a line of credit. We also do not have any commitments or
other arrangements with any financial institution to borrow any amounts in the
form of mortgages on currently unencumbered properties or through refinancing
existing mortgages and we cannot be certain that a financial institution would
ultimately provide such financing, but we estimate that such borrowings
represent additional borrowing capacity of approximately $12.5 million. During
2014, for example, we refinanced approximately $10.9 million of existing debt
with new debt of approximately $17.1 million.  The new debt bears interest at
an average rate of 4.7% compared to 5.7% on the old debt and, due to a four
year interest-only provision, our annual debt service costs decreased by $67,000
as a result of this transaction. We are currently working with an institution
to refinance an existing mortgage with an outstanding principal balance of
approximately $3.0 million with interest at 5.6% with a new mortgage of $6.0
million with interest at 4.5%.  We expect this refinancing to close in the
next quarter.  Our future capital needs include paying
down existing borrowings, maintaining our existing properties, funding tenant
improvement, paying lease commissions and the payment of a competitive
distribution to our stockholders. We also are actively seeking investments that
are likely to produce income in order to pay distributions as well as long-term
gains for our stockholders. To ensure that we are able to effectively
execute these objectives, we routinely review our liquidity requirements and
continually evaluate all potential sources of liquidity.  Our short term liquidity needs include
paying our current operating costs, satisfying the debt service requirements of
our existing mortgages and funding for our distributions to stockholders.
During the year ended December 31, 2014, our principal debt service and the
cash portion of the distributions to our shareholders’ was $8.6 million, while
the net cash provided by our operating activities totaled $4.0 million. The
remainder of the distribution was covered by proceeds from sales of real estate
assets. We believe that the cash flow from our existing portfolio,
distributions from joint ventures in Model Home partnerships and our
anticipated acquisitions (when operational for the full term) will be
sufficient to fund our near term operating costs, fund the debt service costs
on our existing mortgages, and fund the cash portion of distribution to
stockholders at the current rate. However, if our cash flow from operating
activities is not sufficient to fund our short term liquidity needs, including
the payment of cash dividends at current rates to our stockholders, we will
fund a portion of these needs from additional borrowings of secured or
unsecured indebtedness or we will reduce the rate of distribution to the
stockholders.  Our long-term liquidity needs include
proceeds necessary to grow and maintain our portfolio of investments.We believe that the $23.4 million
available from the sale of preferred stock as discussed below along with the
potential financing capital available to us in the futureis sufficient to fund our long-term
liquidity needs.  We are continually 11


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reviewing our
existing portfolio for properties that have met maximized short and long term
potential with the intent of selling those properties and reinvesting the
proceeds in properties that have equivalent or better short term benefits and
better long term potential.  We expect to obtain additional cash in connection
with refinancing of maturing mortgages and assumption of existing debt
collateralized by some or all of our real property in the future to meet our long-term
liquidity needs.  If we are unable to arrange a line of credit, borrow on
unencumbered properties, or sell securities to the public we may not be able to
acquire additional properties to meet our long-term objectives.  Cash and Cash Equivalents  At December 31, 2014, we had approximately
$5.6 million in cash and cash equivalents compared to approximately $10.2
million at December 31, 2013. Our cash and cash equivalents are held in bank
accounts at third party institutions and consist of invested cash and cash in
our operating accounts.  During 2014 and 2013, we did not experience
any loss or lack of access to our cash or cash equivalents. Approximately $3.0
million of our cash balance is intended for capital expenditures on existing
Properties. We intend to use the remainder of our existing cash and cash
equivalents for acquisitions, general corporate purposes and distributions to
our stockholders.  Series B Preferred Stock  In August 2014, the Company closed on
anoffering of our Series B
Preferred Stock.We expect to receive a total capital
contribution of $40.0 million from this financing by the conclusion of the
funding period.An initial investment of $16.6
million was made at the close of the transaction, and an additional investment
of $23.4 million will be made on or before the one year anniversary of the
initial investment.We believe that the
remaining proceeds from this offering will allow us to increase the size of our
property portfolio by approximately $78.0 million. We will continue to seek
acquisitions or properties for equity in a DownREIT structure.  Our ability to
access equity markets is dependent on a number of factors including general
market conditions for the REIT industry and market perception of our Company.  Secured Debt  As of December 31, 2014, NetREIT had mortgage notes payable
in the aggregate principal amount of $116.2 million, collateralized by a total
of 26 properties with loan terms at issuance ranging from 3 to 30 years. 
The weighted-average interest rate on the mortgage notes payable as of December
31, 2014 was approximately 5.0%, and our debt to book value on these properties
was approximately 63.0%.  As of December 31, 2014, NetREIT Dubose, and related
entities, had 54 fixed-rate mortgage notes payable in the aggregate principal
amount of $7.7 million, collateralized by a total of 54 Model Home properties.
These loans generally have a term at issuance of three to five years.  The
average balance outstanding and the weighted-average interest rate on these mortgage
loans are $321,000 and 5.2%, respectively, as of December 31, 2014. Our
debt to net book value on these properties is approximately 57.0%. The Company
has guaranteed these promissory notes.  The balloon principal payments on
the notes payable are in 2016 and 2019, and are typically tied to the end of
the lease and the sale of the Model Home properties securing the debt.  Despite the disruptions in the debt market discussed in
"Overview" above, we have been able to refinance maturing debts
before scheduled maturity dates and we have also not experienced any unusual
difficulties financing our acquisitions.  Cash Flows for the Years Ended December 31, 2014 and 2013  Operating Activities:Net cash provided by operating activities
was essentially unchanged in comparison to the prior year – cash flow from
operations of $4.4 million for 2014 compared to cash flow from operations of
$4.1 million for 2013. We anticipate thatwiththe recent
acquisitions and the future anticipated acquisitions, the cash provided by operating
activities will cover the cash portion of our distributions to stockholders in
the future.  Investing Activities:Net cash used in investing activities was
$42.3 million for the year ended December 31, 2014, compared to net cash used
of $0.2 million during the same period in 2013. The increase in net cash used
in the current year was primarily due to the acquisitions of the five
properties for $53.3 million and the acquisition of 18 12


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Model
Homes for an aggregate purchase price of $5.7 million. Results for 2013 include
the acquisition of our Lancaster property and five Model Homes for $5.3
million. During 2013, our investment activities were curtailed due to the time
we spent on a very large portfolio of office buildings, only to lose out on the
opportunity after six months of due diligence and negotiations.  Hence, we only
acquired one non-Model Home property for $3.6 million. These uses of funds were
offset by the proceeds received on sales of real estate of $22.3 million from
the sale of the Fontana Medical Plaza property and 34 Model Homes in 2014,
compared to proceeds received on sales of real estate of $11.5 million from the
sale of the Casa Grande apartments and 31 Model Homes in 2013.  We anticipate that the acquisitions of
both the non-Model Home properties and of Model Homes will increase during 2015
and thereafter. Future acquisitions by the Company will depend on funds
available from cash on hand and the proceeds from the issuance of our Series B
Preferred Stock and from the sale of existing properties. Future acquisitions
of Model Homes will depend on the availability of Model Homes from developers
at acceptable prices.  We currently project that we
could spend up to $3.0 million on capital improvements, tenant improvements and
leasing costs for properties within our portfolio during 2015. Capital
expenditures may fluctuate in any given period subject to the nature, extent,
and timing of improvements required to the properties. We may spend more on
gross capital expenditures during 2015 as compared to 2014 due to rising
construction costs and the anticipated increase in property acquisitions in
2015. Tenant improvements and leasing costs may also fluctuate in any given
year depending upon factors such as the property, the term of the lease, the type
of lease, the involvement of external leasingagentsand overall market
conditions.  FinancingActivities:Net cash provided by financing activities
in 2014 was $33.7 million compared to cash used of $4.5 million for the
comparable prior year period. The increase in cash flow in the current year was
primarily attributable to net inflow of $36.4 million from new mortgage and
debt refinancing activity and the net cash inflow of $13.9 million from the
sale of Series B Preferred Stock, offset by the net cash outflow of $1.6
million used to redeem preferred shares. Net cash flows associated with
noncontrolling interests also adversely impacted our operations by $11.1
million (a net cash outflow of $7.5 million during 2014 (primarily due to special
distributions of stemming from two years of high Model Home sales activity)
compared to a net cash inflow of $3.6 million in 2013 (due to capital raising
activities of the Model Home entities).  We anticipate mortgaging one unencumbered
property and increasing mortgages balances in connection with refinancing debt
maturing in 2015 on several other properties (during the next two years) to
provide additional funds for financing activities. These properties have an
estimated market value of approximately $33.3 million and mortgage obligations of
$10.8 million, which we believe will allow us to increase our net borrowings by
approximately $12.5 million. In addition, we expect that we will generate
approximately $23.4 million from the planned issuance of Series B Preferred
Stock. We anticipate using the cash so provided to acquire approximately
$120.0 million of new properties. We are also pursuing other sources of capital
either through a line of credit facility or the possible sale of additional
equity/debt securities to provide resources to pursue future acquisitions.  On February 6, 2015, we entered into an Agreement of
Purchase and Sale and Joint Escrow Instructions to sell 100% of our Sparky’s
Self-Storage Portfolio, as defined in the Purchase Agreement, for a purchase
price of approximately $36.3 million toan
unaffiliated third party purchaser. The Self-Storage Portfolio is a portfolio
of seven self-storage properties located in San Bernardino County, California.
The Buyer is currently conducting due diligence on the Self-Storage Portfolio
during an initial 55-day inspection period.  Initially, the Buyer escrowed
a deposit in the amount of $500,000.  At the expiration of the due
diligence period, an additional $500,000 deposit will be due, and the total deposit
will become non-refundable and will be applied to the purchase price at
closing. The sale of the Self-Storage Portfolio is subject to the fulfillment
of certain closing conditions and other terms and conditions customary for real
estate transactions.  There can be no assurance that any or all of the
conditions will be satisfied or, if satisfied, that the Self-Storage Portfolio
will be sold. Assuming that outstanding contingencies are satisfied, we
anticipate that the closing of the Self-Storage Portfolio sale will take place
in the second quarter of 2015. We expect that the net proceeds from this
transaction will be redeployed into our property portfolio.  13


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Off-Balance
Sheet Arrangements  As of December 31, 2014, we do not have
any off-balance sheet arrangements or obligations, including contingent
obligations.  Non-GAAP Supplemental Financial Measures:  Funds From Operations (“FFO”)  Management believes that FFO is a useful supplemental
measure of our operating performance. We compute FFO using the definition outlined
by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT
defines FFO as net income (loss) in accordance with GAAP, plus depreciation and
amortization of real estate assets (excluding amortization of deferred
financing costs and depreciation of non-real estate assets) reduced by gains
and losses from sales of depreciable operating property and extraordinary
items, as defined by GAAP. Other REITs may use different methodologies for
calculating FFO and, accordingly, our FFO may not be comparable to other REITs.
Because FFO excludes depreciation and amortization, gains and losses from
property dispositions that are available for distribution to stockholders and
extraordinary items, it provides a performance measure that, when compared year
over year, reflects the impact to operations from trends in occupancy rates,
rental rates, operating costs, development activities, general and
administrative expenses and interest costs, providing a perspective not
immediately apparent from net income. In addition, Management believes that FFO
provides useful information to the investment community about our financial
performance when compared to other REITs since FFO is generally recognized as
the industry standard for reporting the operations of REITs. However, FFO
should not be viewed as an alternative measure of our operating performance
since it does not reflect either depreciation and amortization costs or the
level of capital expenditures and leasing costs necessary to maintain the
operating performance of our properties which are significant economic costs
and could materially impact our results from operations.  The following table presents our FFO for
the years ended December 31, 2014 and 2013. Year Ended December 31,
 
 2014
 
 2013Net
  loss
 
 $
 (4,045,683)
 
 $
 (4,089,094)Adjustments:Income
  attributable to noncontrolling interests
 
 
 3,192,082
 
 
 1,566,023Depreciation
  and amortization
 
 
 6,049,385
 
 
 5,309,560Asset
  impairments
 
 
 950,000
 
 
 2,000,000Gain
  on sale of real estate assets
 
 
 (5,120,699)
 
 
 (1,992,754)FFO
 
 $
 1,025,085
 
 $
 2,793,735
  No conclusion or comparisons should be
made from the presentation of these figures.  Modified Funds From Operations
(“MFFO”)  We define MFFO, a non-GAAP measure,
consistent with the Investment Program Association’s (“IPA”) Guideline 2010-01,Supplemental Performance Measure for Publicly Registered, Non-Listed REITModified
Funds From Operations,or the Practice Guideline, issued by the IPA in
November 2010. The Practice Guideline defines MFFO as FFO further adjusted for
the following items, as applicable, included in the determination of GAAP net
income: acquisition fees and expenses; amounts relating to deferred rent
receivables and amortization of above-market and below-market leases and
liabilities (which are adjusted in order to reflect such payments from a GAAP
accrual basis to a cash basis of disclosing the rent and lease payments);
accretion of discounts and amortization of premiums on debt investments;
nonrecurring impairments of real estate-related investments (i.e., infrequent
or unusual, not reasonably likely to recur in the ordinary course of business);
mark-to-market adjustments included in net income; nonrecurring gains or losses
included in net income from the extinguishment or sale of debt, hedges, foreign
exchange, derivatives or securities holdings where trading of such holdings is
not a fundamental attribute of the business plan, unrealized gains or losses
resulting from consolidation from, or deconsolidation to, equity accounting,
and after adjustments for consolidated and unconsolidated partnerships and
joint ventures, with such adjustments calculated to reflect MFFO on the same
basis. The accretion of discounts and amortization of premiums on debt
investments, nonrecurring unrealized gains and losses on hedges, foreign
exchange, derivatives or securities 14


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holdings,
unrealized gains and losses resulting from consolidations, as well as other
listed cash flow adjustments are adjustments made to net income in calculating
the cash flows provided by operating activities and, in some cases, reflect
gains or losses which are unrealized and may not ultimately be realized.  Our MFFO calculation complies with the
IPA’s Practice Guideline described above. In calculating MFFO, we exclude
acquisition related expenses, amortization of above-market and below-market
leases, deferred rent receivables and the adjustments of such items related to
noncontrolling interests. Under GAAP, acquisition fees and expenses are
characterized as operating expenses in determining operating net income. These
expenses are paid in cash by us. All paid and accrued acquisition fees and
expenses will have negative effects on returns to investors, the potential for
future distributions, and cash flows generated by us, unless earnings from
operations or net sales proceeds from the disposition of other properties are
generated to cover the purchase price of the property, these fees and expenses
and other costs related to such property. The acquisition of properties, and
the corresponding acquisition fees and expenses, is the key operational feature
of our business plan to generate operational income and cash flow to fund
distributions to our stockholders. Further, under GAAP, certain contemplated
non-cash fair value and other non-cash adjustments are considered operating
non-cash adjustments to net income in determining cash flow from operating
activities. In addition, we view fair value adjustments of impairment charges
and gains and losses from dispositions of assets as non-recurring items or
items which are unrealized and may not ultimately be realized, and which are
not reflective of on-going operations and are therefore typically adjusted for
when assessing operating performance. In particular, we believe it is appropriate
to disregard impairment charges, as this is a fair value adjustment that is
largely based on market fluctuations and assessments regarding general market
conditions which can change over time. An asset will only be evaluated for
impairment if certain impairment indications exist and if the carrying, or book
value, exceeds the total estimated undiscounted future cash flows (including
net rental and lease revenues, net proceeds on the sale of the property, and
any other ancillary cash flows at a property or group level under GAAP) from
such asset. Investors should note, however, that determinations of whether
impairment charges have been incurred are based partly on anticipated operating
performance, because estimated undiscounted future cash flows from a property,
including estimated future net rental and lease revenues, net proceeds on the
sale of the property, and certain other ancillary cash flows, are taken into
account in determining whether an impairment charge has been incurred. While
impairment charges are excluded from the calculation of MFFO as described
above, investors are cautioned that due to the fact that impairments are based
on estimated future undiscounted cash flows and the relatively limited term of
our operations, it could be difficult to recover any impairment charges.  The following table presents our MFFO for
the years ended December 31, 2014 and 2013. Years ended December 31,
 
 2014
 
 2013Funds
  from operations
 $
 $1,025,085
 
 $
 $2,793,735Adjustments:Straight
  line rent adjustment
 
 376,661
 
 
 329,510Above-market
  and below-market rents
 
 (156,257)
 
 
 (168,511)Lease
  commission amortization
 
 393,322
 
 
 396,760Finance
  charge amortization
 
 417,723
 
 
 297,312Acquisition
  costs
 
 163,429
 
 
 109,861MFFO
 $
 $2,219,963
 
 $
 $3,758,667
       15


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PART IVITEM 15. EXHIBITS,
  FINANCIAL STATEMENT SCHEDULES(a)(1) Financial
  Statements - the following documents are filed as part of the Annual Report:•Report of Independent Registered Public Accounting Firm• Consolidated Balance
  Sheets as of December 31, 2014 and 2013• Consolidated Statements
  of Operations for the years ended December 31, 2014 and 2013• Consolidated Statements
  of  Equity for the years ended December 31, 2014 and 2013• Consolidated Statements of
  Cash Flows for the years ended December 31, 2014 and 2013•Notes
  to Consolidated Financial Statements(2) Financial Statement
  Schedules - the following documents are filed as part of the Annual Report:•Schedule
  III - Real Estate Assets and Accumulated Depreciation and Amortization as of
  December 31, 2014All other financial
  statement schedules have been omitted for the reason that the required
  information is presentedin financial statements or
  notes thereto, the amounts involved are not significant or the schedules are
  not applicable.(3) Exhibits -an index to
  the Exhibits as filed as part of this Form 10-K is set forth below.
 Number
 
 Description2.1
 
 Plan
  and Agreement of Merger, by and between NetREIT, Inc., a Maryland
  corporation, and NetREIT, a California corporation, dated as of July 30,
  2010 (incorporated by reference to Exhibit 2.01 to NetREIT’s Report on Form
  8-K filed August 10, 2010).2.2
 
 Agreement
  of Purchase & Sale, between NetREIT, Inc. and Mullrock 3 Murphy Canyon,
  LLC, dated as of July 12, 2010 (incorporated by reference to Exhibit 2.1 to
  NetREIT’s Report on Form 8-K filed August 13, 2010).3.1
 
 Articles
  of Amendment and Restatement of the Articles of Incorporation of NetREIT,
  dated as of July 30, 2010 (incorporated by reference to Exhibit 3.01 to
  NetREIT’s Report on Form 8-K filed August 10, 2010).3.2
 
 Amended
  and Restated Bylaws of NetREIT, Inc. (incorporated by reference to Exhibit
  3.02 to NetREIT’s Report on Form 8-K filed August 10, 2010).3.3
 
 Articles
  of Merger filed with the Maryland State Department of Assessments and
  Taxation and the California Secretary of State on August 4, 2010
  (incorporated by reference to Exhibit 3.03 to NetREIT’s Report on Form 8-K
  filed August 10, 2010).3.4
 
 Articles
  of Incorporation filed January 28, 1999 (incorporated by reference to Exhibit
  3.1 to NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6,
  2008).3.5
 
 Certificate
  of Determination of Series AA Preferred Stock filed April 4, 2005(incorporated
  by reference to Exhibit 3.2 to NetREIT’s Report on Form 10-12B, file no.
  001-34049,  filed May 6, 2008).3.6
 
 Bylaws
  of NetREIT (incorporated by reference to Exhibit 3.3 to NetREIT’s Report on
  Form 10-12B, file no. 001-34049, filed May 6, 2008).
 16


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3.7
 
 Audit
  Committee Charter (incorporated by reference to Exhibit 3.4 to NetREIT’s
  Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).3.8
 
 Compensation
  and Benefits Committee Charter (incorporated by reference to Exhibit 3.5 to
  NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).3.9
 
 Nominating
  and Corporate Governance Committee Charter (incorporated by reference to
  Exhibit 3.6 to NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May
  6, 2008).3.10
 
 Principles
  of Corporate Governance of NetREIT (incorporated by reference to Exhibit 3.7
  to NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).4.1
 
 Form
  of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
  NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).4.2
 
 Form
  of Series AA Preferred Stock Certificate (incorporated by reference to
  Exhibit 4.2 to NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May
  6, 2008).4.3
 
 Registration
  Rights Agreement 2005 (incorporated by reference to Exhibit 4.3 to NetREIT’s
  Report on Form 10-12B, file no. 001-34049, filed September 5, 2008).4.4
 
 Registration
  Rights Agreement 2007 (incorporated by reference to Exhibit 4.4 to NetREIT’s
  Report on Form 10-12B, file no. 001-34049, filed September 5, 2008).10.1
 
 1999
  Flexible Incentive Plan (incorporated by reference to Exhibit 10.1 to
  NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).10.2
 
 NetREIT
  Dividend Reinvestment Plan (incorporated by reference to Exhibit 10.2 to
  NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).10.3
 
 Form
  of Property Management Agreement (incorporated by reference to Exhibit 10.3
  to NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6, 2008).10.4
 
 Option
  Agreement to acquire CHG Properties (incorporated by reference to Exhibit
  10.4 to NetREIT’s Report on Form 10-12B, file no. 001-34049, filed May 6,
  2008).10.5
 
 Employment
  Agreement as of April 20, 1999 by and between the Company and Jack K.
  Heilbron (incorporated by reference to Exhibit 10.5 to NetREIT’s Report on
  Form 10-12G/A filed June 26, 2009).10.6
 
 Employment
  Agreement as of April 20, 1999 by and between the Company and Kenneth W.
  Elsberry (incorporated by reference to Exhibit 10.6 to NetREIT’s Report on
  Form 10-12G/A filed June 26, 2009).10.7
 
 Loan
  Assumption and Security Agreement, and Note Modification Agreement
  (incorporated by reference to Exhibit 10.7 to NetREIT’s Report on Form 8-K
  filed August 27, 2009).10.8
 
 Promissory
  Note (incorporated by reference to Exhibit 10.8 to NetREIT’s Report on Form
  8-K filed August 27, 2009).10.9
 
 Loan
  Agreement by and Between Jackson National Life Insurance Company and NetREIT
  Inc. (incorporated by reference to Exhibit 10.9 to NetREIT’s Report on Form
  8-K filed August 27, 2010).10.10
 
 Fixed
  Rate Promissory Note Between Jackson National Life Insurance Company and
  NetREIT Inc. (incorporated by reference to Exhibit 10.10 to NetREIT’s Report
  on Form 8-K filed August 27, 2010).10.11
 
 Employment
  Agreement for Mr. Heilbron Effective as of January 1, 2011 (incorporated by
  reference to Exhibit 10.11 to NetREIT’s Report on Form 8-K filed January 24,
  2011).
 17


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10.12
 
 Employment
  Agreement for Mr. Elsberry Effective as of January 1, 2011 (incorporated by
  reference to Exhibit 10.12 to NetREIT’s Report on Form 8-K filed January 24,
  2011).10.13
 
 Employment
  Agreement for Mr. Dubose Effective as of January 1, 2011 (incorporated by
  reference to Exhibit 10.13 to NetREIT’s Report on Form 8-K filed January 24,
  2011).10.14
 
 Purchase
  & Sale Agreement and Joint Escrow Instructions to acquire Dakota Bank
  Building (incorporated by reference to Exhibit 10.14 to NetREIT’s Report on
  Form 8-K filed February 3, 2011)10.15
 
 Promissory
  Note - Dakota Bank Buildings (incorporated by reference to Exhibit 10.15 to
  NetREIT’s Report on Form 8-K/A filed May 31, 2011).10.16
 
 Mortgage,
  Security Agreement and Fixture Financing Statement - Dakota Bank Buildings
  (incorporated by reference to Exhibit 10.16 to NetREIT’s Report on Form 8-K/A
  filed May 31, 2011).10.17
 
 Property
  Contribution Agreement and Joint Escrow Instructions- Port of San Diego
  Complex (incorporated by reference to Exhibit 10.17 to NetREIT’s Report on
  Form 8-K filed September 12, 2011).10.18
 
 First
  Amended and Restated NetREIT National City Partners, LP Limited Partnership
  Agreement (incorporated by reference to Exhibit 10.18 to NetREIT’s Report on
  Form 8-K filed December 30, 2011).10.19
 
 Assumption
  Agreement - NetREIT National City Partners, LP (incorporated by reference to
  Exhibit 10.19 to NetREIT’s Report on Form 8-K filed December 30, 2011).10.20
 
 Agreement
  and Plan of Merger between the Company and C I Holding Group, Inc.
  (incorporated by reference to Exhibit 10.23 to NetREIT’s Report on Form 8-K
  filed February 6, 2013).10.21
 
 NetREIT
  National City Partners LP Promissory Note (incorporated by reference to
  Exhibit 10.24 to NetREIT’s Report on Form 8-K filed March 5, 2013).10.22
 
 NetREIT
  National City Partners LP Deed of Trust (incorporated by reference to Exhibit
  10.25 to NetREIT’s Report on Form 8-K filed March 5, 2013).10.23
 
 Preferred
  Stock Purchase Agreement dated as of August 4, 2014, by and between NetREIT,
  Inc., and PFP III Sub II, LLC (incorporated by reference to Exhibit 10.23 to
  NetREIT’s Report on Form 8-K filed August 8, 2014).10.24
 
 Investor
  Agreement dated as of August 4, 2014, by and between NetREIT, Inc., and PFP
  III Sub II, LLC (incorporated by reference to Exhibit 10.24 to NetREIT’s
  Report on Form 8-K filed August 8, 2014).10.25
 
 Articles
  Supplementary filed on August 4, 2014 (incorporated by reference to Exhibit
  10.26 to NetREIT’s Report on Form 8-K filed August 8, 2014).10.26
 
 Amendment
  No. 1 to Amended and Restated Bylaws of NetREIT, Inc. effective as of August
  8, 2014 (incorporated by reference to Exhibit 10.27 to NetREIT’s Report on
  Form 8-K filed August 8, 2014).10.27
 
 Specimen
  Certificate for NetREIT, Inc. Series B Preferred Stock (incorporated by
  reference to Exhibit 10.28 to NetREIT’s Report on Form 8-K filed August 8,
  2014).23.1
 
 Consent
  of Independent Registered Public Accounting Firm **31.1
 
 Certificate
  of the Company’s Chief Executive Officer (Principal Executive Officer)
  pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002. *31.2
 
 Certification
  of the Company’s Chief Financial Officer pursuant to Exchange Act Rules
  13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
  Act of 2002. *31.3
 
 Certification
  of principal Chief Executive Officer and Chief Financial Officer pursuant to
  18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
  of 2002. *
 18


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101.INS
 
 Instance
  Document **101.SCH
 
 XBRL
  Taxonomy Extension Schema Document **101.CAL
 
 XBRL
  Taxonomy Extension Calculation Linkbase Document **101.DEF
 
 XBRL
  Taxonomy Extension Definition Linkbase Document **101.LAB
 
 XBRL
  Taxonomy Extension Label Linkbase Document **101.PRE
 
 XBRL
  Taxonomy Extension Presentation Linkbase Document *** Filed herewith
  ** 
  Previously filed as like-numbered exhibit to Original Filing and
  incorporated              by reference herein
  19


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SIGNATURES Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this amended report to be signed on its
behalf by the undersigned thereunto duly authorized. NETREIT, INC.Dated: June 18, 2015
 By:
 /s/ Kenneth W. ElsberryKenneth W. ElsberryChief Financial Officer
  20


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