##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934
 For the fiscal year ended December 31, 2009
 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 000-53673
 NETREIT
  California
    
    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
  
 o Yes þ No
 o þ
 o þ
 þ o
 o Yes
o No
  Large accelerated
filer o
    
    Accelerated filer
o
    
    Non-accelerated filer o
    
    Smaller reporting
company þ(Do not check if a smaller
reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 PART IItem 1 Business
    
    
    1Item 1A Risk Factors
    
    
    7Item 2 Properties
    
    
    23Item 3 Legal Proceedings
    
    
    39Item 4 [Removed and Reserved]
    
    
    39PART IIItem 5 Market for Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
    
    
    40Item 6 Selected Financial Data
    
    
    43Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    43Item 7A Quantitative and Qualitative Disclosures about Market Risk
    
    
    63Item 8 Financial Statements and Supplementary Data
    
    
    63Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    63Item 9A(T) Controls and Procedures
    
    
    63Item 9B
Other matters
    
    
    64PART IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    65Item 11 Executive Compensation
    
    
    65Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
    
    
    66Item 13 Certain Relationships and Related Transactions, and Director Independence
    
    
    66Item 14 Principal Accounting Fees and Services
    
    
    66PART IVItem 15 Exhibits and Financial Statement Schedules
    
    
    67Exhibit 31.1Exhibit 31.2Exhibit 32.1




---



##### Table of Contents



CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
AND INDUSTRY DATA
  
    
    specific risks that may be referred to in this Form 10-K, including those set
forth in the Risk Factors section of the Form 10-K;
    
    adverse economic conditions in the real estate market;
    
    adverse changes in the real estate financing markets;
    
    our inability to raise sufficient additional capital to continue to expand our
real estate investment portfolio and pay dividends on our shares;
    
    unexpected costs, lower than expected rents and revenues from our properties,
and/or increases in our operating costs;
    
    inability to attract or retain qualified personnel, including real estate
management personnel;
    
    adverse results of any legal proceedings; and
    
    changes in laws, rules and regulations affecting our business.
  Information regarding market and industry statistics contained in this Form 10-K is included based
on information available to us that we believe is accurate. We have not reviewed or included data
from all sources, and we cannot assure you of the accuracy or completeness of the data included in
this Form 10-K . Forecasts and other forward-looking information obtained from these sources are
subject to the same qualifications and the additional uncertainties accompanying any estimates of
future market size, revenue and market acceptance of products and services. We undertake no
obligation to update forward-looking information to reflect actual results or changes in
assumptions or other factors that could affect those statements. See the Risk Factors section of
this Form 10-K for a more detailed discussion of uncertainties and risks that may have an impact on
our future results.




---



##### Table of Contents



ITEM 1. BUSINESS
 Our Company, NetREIT
     Our Management
  Our Property Manager
    1




---



##### Table of Contents



Our Contracts with CHG Properties
 The Property Management Agreement.
    Right to Acquire Property Managers Business.
   2




---



##### Table of Contents



Federal Income Tax REIT Requirements
    1940 Act Considerations
   3




---



##### Table of Contents



4




---



##### Table of Contents



Our Offices and Employees
   Certain Investment Limitations
  
    
    Acquire a property if its purchase price, as defined, exceeds its appraised value
and the total acquisition expenses and real estate commissions paid do not exceed six
percent (6%) of the purchase price (or in the case of a mortgage loan, six percent (6%)
of the funds advanced), unless our board (including a majority of our independent
directors) approves the transaction as being commercially competitive, fair and
reasonable to us;
    
    Invest in commodities, commodities futures contracts, foreign currency and
bullion, with an exception for interest rate futures;
    
    Invest in installment sales contracts for the sale or purchase of real estate
(except in connection with the disposition of a property and where such contract is in
recordable form and is appropriately recorded in the chain of title);
    
    Invest in mortgage loans, unless the lien made in connection with such mortgage
loan, plus the outstanding amount of the senior debt secured by the same property, if
any, does not exceed 85% of the appraised value of the property securing the loan if,
after giving effect thereto, the value of all mortgage loans secured by junior liens on
real property would not exceed 25% of our tangible assets; or if the value of all of our
investments in junior mortgage loans which do not meet the foregoing criteria would not
exceed 10% of our tangible assets (which are included in the aforesaid 25%) and the
directors (including a majority of our independent directors) determine substantial
justification exists because of the presence of other underwriting criteria;
    
    Invest in mortgage loans unless:
 
    
    a title insurance policy or policy commitment insures the priority of the
mortgage;
    
    the mortgage loan is not subordinate to any mortgage loan or equity
interest by a member of our management or their affiliate; and
    
    the transaction is not with a member of our management or their affiliates
unless an appraisal of the property securing the mortgage has been obtained from an
independent qualified appraiser and the transaction is approved by a majority of our
independent directors.
 
    
    Invest in unimproved real property or in mortgage loans secured by liens on
unimproved real property, if the total of such investments exceeds 10% of our invested
assets;
    
    Trade, as compared to investment activities (other than investments made solely
for hedging purposes);
    
    Hold property primarily for sale to customers in the ordinary course of business;
    
    Engage in the trading, underwriting or agency distribution of securities issued
by others;
  5




---



##### Table of Contents




    
    Invest in the equity securities of any nongovernmental issuer representing less
than 100% ownership of such issuer, including another REIT, for a period in excess of 18
months or in the equity securities of any affiliate of a member of management, except
issuers formed by us to develop, own and/or operate specific properties; and
    
    Engage in any short sale, or borrowing on an unsecured basis, if such borrowing
will result in an asset coverage of less than three hundred percent (300%), unless at
least eighty percent (80%) of our tangible assets consist of first mortgage loans. For
the purposes hereof, asset coverage means the ratio that the value of the aggregate
book value of our assets, less all liabilities and indebtedness, except indebtedness for
unsecured borrowings, bears to the aggregate of our unsecured borrowings.
  Our Policies Regarding Operating Reserves
  Restrictions on Our Transactions with Management and their Affiliates
  
    
    Any loan of funds to or borrowing of funds from such person, unless a majority of
our directors (including a majority of our independent directors) not otherwise
interested in such transaction, approve the transaction as being fair, competitive,
commercially reasonable and no less favorable to us than loans between unaffiliated
lenders and borrowers under the same circumstances.
    
    Any transaction (other than through a joint venture or partnership) that involves
the acquisition of a property from, or the sale of a property to, such person, except
our acquisition of a property where such person has acquired the property for the sole
purpose of facilitating our acquisition thereof, the total consideration we pay does not
exceed the cost of the property to such person (including holding costs) and no special
benefit results to such person.
    
    Any transaction with a business organization with which such person, in his
individual capacity, is affiliated unless that transaction is approved by our board and
a majority vote of the shareholders (e.g. the Property Management Agreement with CHG
Properties).
    
    Any investment in a joint venture or partnership with such person unless a
majority of the board (including a majority of Our independent directors), excluding any
director who is interested in the transaction, approves the transaction as being fair
and reasonable to us and substantially on the same terms and conditions as those
received by other joint venturers.
    
    Any other transaction between us and such person, unless specifically prohibited,
shall require the approval of the board (including a majority of the Independent
Directors) excluding any director interested in the transaction, as being fair and
reasonable to us and on terms and conditions not less favorable to us than those
available from unaffiliated third parties.
  6




---



##### Table of Contents



Restrictions on Our Ability to Issue Securities
  
    
    Warrants, options or rights, except as part of a public offering or other
financing, a ratable distribution to or purchase by the shareholder or a stock option
plan for our officers, directors and/or key employees;
    
    Debt securities, unless the historical debt service coverage (in the most
recently completed fiscal year), as adjusted for known changes, is sufficient to
properly service that higher level of debt;
    
    Options or warrants to purchase shares at an exercise price less than the fair
market value of such securities on the date of grant and for consideration (which may
include services) that in the judgment of our independent directors, has a market value
less than the value of such option or warrant on the date of issuance;
    
    Assessable or non-voting equity securities;
    
    Shares on a deferred payment basis or similar arrangement.
 
 ITEM 1A. RISK FACTORS
 Risks Relating to an Investment in Our Securities
 If we are unable to find suitable investments, we may not be able to achieve our investment
objectives or continue to pay dividends, which could cause us to lose our status as a REIT.
 Our continued growth depends on external sources of capital.
 We may be prevented from paying dividends by legal requirements which could impair our ability to
qualify as a REIT.
  7




---



##### Table of Contents



We may change one or more of our investment policies.
 Our shareholders have a very limited right to influence our business or affairs.
 We depend on key personnel and the loss of such personnel could impair our ability to achieve our
business objectives.
 The availability and timing of cash dividends is uncertain.
 Our bylaws may prevent our participation in certain business combinations which could prevent us
from entering into a transaction that would be beneficial to our business and shareholders. 2 3 Interested Shareholder 2 3
 The limitation on the number of shares a person may own may discourage a takeover.
 Our common stock is subordinate to our Preferred Stock in rights to distributions.
  8




---



##### Table of Contents



Possible acquisition of our affiliated property managers business could result in significant
dilution to our shareholders.
 Possible future transactions with our executive management or their affiliates could create a
conflict of interest for our executive management.
 Our return to our shareholders could be reduced if we are required to register as an investment
company. 1940 Act
 Risks Relating to Private Offering Exemption and Lack of Liquidity
 If we failed to comply with applicable exemption requirements in connection with our private
placement offerings we may be forced to offer rescission rights to certain of our shareholders. 1933
Act
  9




---



##### Table of Contents



It will be difficult for our shareholders to sell their common stock because there is currently no
public market for the shares and we do not intend to list the shares on a stock exchange. If our
shareholders are able to sell their shares, they will likely have to sell them at a substantial
discount due to the lack of a public market for our shares.
  Risks Relating to Real Estate Investments
 Unsettled conditions in the
financial and equity markets could negatively affect the U.S. and
world economies and could adversely affect our business and operations.
 Current commercial mortgage market trends may affect the terms and conditions of our mortgage
financing and make it more difficult for us to obtain mortgage financing and have an adverse effect
on our ability to make suitable investments..
  10




---



##### Table of Contents



A decrease in real estate values will negatively affect our ability to refinance our properties and
possibly our existing mortgage obligations.
 We are not required to set aside and maintain specific levels of cash reserves and may have
difficulty in the event of increases in existing expenses or unanticipated expenses.
  11




---



##### Table of Contents



We may be unable to sell a property at any particular time which would limit our ability to realize
a gain on our investments and decrease the value of our shares.
 Some of our properties may depend upon a single tenant for all of their rental income and the loss
of such tenants could have an adverse effect on our operations.
 We may incur substantial costs in improving some of our properties which are suitable for only one
use if such use is no longer possible.
 We may obtain only limited warranties when we purchase a property and could suffer losses resulting
from significant defects in such properties which are not covered by such warranties.
 Our ability to operate a property may be limited by contract which could prevent us from obtaining
the maximum value from such properties.
 Shorter lease terms tend to increase our maintenance costs.
 A property that incurs a vacancy could be difficult to sell or re-lease and could have a material
adverse effect on our operations and our ability to pay dividends.
  12




---



##### Table of Contents



We may have to extend credit to buyers of our properties and a default by such buyers could have a
material adverse effect on our operations and our ability to pay dividends.
 We may not have funding for future tenant improvements which would make it difficult for us to
lease such properties to new tenants.
 Uninsured losses may adversely affect returns to our shareholders.
   13




---



##### Table of Contents



Our compliance with various legal requirements of real estate ownership may involve significant
costs.
  Competition for properties could negatively impact our profitability.
 The bankruptcy or insolvency of one of our major tenants would adversely impact our operations and
our ability to pay dividends.
  14




---



##### Table of Contents



Discovery of previously undetected environmentally hazardous conditions may adversely affect our
operating results.
    Recent unavailability of certain types of credit financing and stagnation of real estate prices
have lead to economic slowdown and a recession.
 Compliance with the Americans with Disabilities Act of 1990 and fire, safety, and other regulations
may require us to make unintended expenditures that could adversely impact our results of
operations.
  15




---



##### Table of Contents



We may acquire properties in joint ventures, partnerships or through limited liability companies
which could limit our ability to control or liquidate such holdings.
  If we invest in a DOWNREIT partnership as a general partner we would be responsible for all
liabilities of such partnership.
 In a sale-leaseback transaction, we are at risk that our seller/lessee will default if its tenants
default which could impair our operations and limit our ability to pay dividends.
 Uncertain market conditions and the broad discretion of management relating to the future
disposition of properties could adversely affect the return on our hares.
 Regulatory changes may adversely affect our specific properties and may have adverse results on our
operations and returns on our shares.
  16




---



##### Table of Contents



Changes in local conditions may adversely affect one or more of our properties.
 Each of our properties will be subject to local supply and demand for similar or competing
properties which may have an adverse effect on the amount of rent we can charge or the price we
would obtain in a liquidation.
 Risks Relating to Debt Financing
 The more leverage we use, the higher our operational risks will be.
 If we fail to make our debt payments, we could lose our investment in a property.
 Lenders may require us to enter into restrictive covenants relating to our operations which could
impair our ability to pay dividends.
 If we enter into financing arrangements involving balloon payment obligations, it may adversely
affect our ability to pay dividends.
 Our risks of losing property through a mortgage loan default will be greater where the property is
cross-collateralized.
  17




---



##### Table of Contents



Due-on-sale clauses in our mortgages may prevent us from taking advantage of interest rate changes.
 Risks Associated with Making or Investing in Mortgage Loans
 We do not have experienced loan underwriting personnel which may put us at a disadvantage in
analyzing and negotiating mortgage loans and could have an adverse effect on our ability to pay
dividends.
 Mortgage loans may be impacted by unfavorable real estate market conditions, which could decrease
the value of our mortgage investments and impair our ability to pay dividends.
 Mortgage loans may be subject to interest rate fluctuations that could reduce our returns as
compared to market interest rates.
 Returns on mortgage loans may be limited by regulations.
 Delays in liquidating a defaulted mortgage loan could reduce our investment returns.
 Foreclosures create additional ownership risks that could adversely impact our returns on mortgage
investments.
  18




---



##### Table of Contents



Risks Relating to Our Managements Conflicts of Interest
 We face certain conflicts of interest with respect to our operations.
 There is competition for the time and services of our senior management, and our property manager
and its affiliates may not dedicate all of the time necessary to manage our business.
 The amounts of compensation to be paid to our management, our property manager and possibly their
affiliates cannot be predicted and significant changes in such compensation could adversely affect
our operations and ability to pay dividends.
 Our rights, and the rights of our shareholders, to recover claims against our officers and
directors are limited.
 Risks Relating to Federal Income Taxes
 Because of recently enacted tax legislation, REIT investments are comparatively less attractive
than investments in other corporations.
  19




---



##### Table of Contents



Failure to qualify as a REIT could adversely affect our operations and our ability to pay
dividends.
  In order to maintain our REIT status, we may be forced to borrow funds during unfavorable market
conditions which could impair our long term operations.
   20




---



##### Table of Contents



Qualified plans investing in our shares will be taxed on our distributions to the extent that they
are unrelated business taxable income.
 Even if we qualify and maintain our REIT status, we still may be required to pay federal, state, or
local taxes which could have an adverse effect on our operations.
 Non-U.S. shareholders selling their Securities may be subject to withholding or other tax.
    21




---



##### Table of Contents



Retirement Plan Risks
 There are special considerations that apply to qualified plans and IRAs investing in our shares.
 
    
    their investment is consistent with their fiduciary obligations under ERISA and
the Internal Revenue Code;
    
    their investment is made in accordance with the documents and instruments
governing their Retirement Plan or IRA, including their plans investment policy;
    
    their investment satisfies the prudence and diversification requirements of
Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
    
    their investment will not impair the liquidity of the plan;
    
    their investment will not
produce Unrelated Business Taxable Income, UBTI for the plan or IRA;
    
    they will be able to value the assets of the plan annually in accordance with
ERISA requirements; and
    
    their investment will not constitute a prohibited transaction under Section 406
of ERISA or Section 4975 of the Internal Revenue Code
  22




---



##### Table of Contents



ITEM 2. PROPERTIES
 General Information
  Renovation orDate
    
    
    Type of
    
    Year Property
    
    
    Purchase
    
    
    Percent
    
    
    
    
    
    
    ImprovementProperty/Location
    
    Acquired
    
    
    Property
    
    Constructed
    
    
    Price*
    
    
    Ownership
    
    
    Occupancy
    
    
    Cost.Casa Grande Apts.(1)
    
    
    4/99
    
    
    Residential
    
    
    1973
    
    
    $
    1,020,000
    
    
    
    20.07
    %
    
    
    84.6
    %
    
    
    Cheyenne, WYHavana/Parker Complex(2)
    
    
    6/06
    
    
    Office
    
    
    1975
    
    
    $
    5,828,963
    
    
    
    100
    %
    
    
    53.0
    %
    
    $
    108,000Aurora, COEscondido 7-Eleven(3)
    
    
    9/06
    
    
    Retail
    
    
    1980
    
    
    $
    1,404,864
    
    
    
    67.6
    %
    
    
    100.0
    %
    
    
    Escondido, CAGarden Gateway Plaza(4)
    
    
    3/07
    
    
    Office
    
    
    1982
    
    
    $
    15,132,624
    
    
    
    94.01
    %
    
    
    85.1
    %
    
    
    Colorado Springs, COWorld Plaza(5)
    
    
    9/07
    
    
    Retail
    
    
    1974
    
    
    $
    7,650,679
    
    
    
    100
    %
    
    
    87.1
    %
    
    
    San Bernardino, CARegatta Square(6)
    
    
    10/07
    
    
    Retail
    
    
    1996
    
    
    $
    2,180,166
    
    
    
    100
    %
    
    
    100.0
    %
    
    
    Denver, COSparkys Palm Self-Storage(7)
    
    
    11/07
    
    
    Self-Storage
    
    
    2003
    
    
    $
    4,848,919
    
    
    
    51.97
    %
    
    
    86.7
    %
    
    
    Highland, CASparkys Joshua Self-Storage(8)
    
    
    12/07
    
    
    Self-Storage
    
    
    2003/2005
    
    
    $
    8,007,127
    
    
    
    100
    %
    
    
    75.4
    %
    
    
    Hesperia, CAExecutive Office Park(9)
    
    
    7/08
    
    
    Office
    
    
    2000/2001
    
    
    $
    10,125,881
    
    
    
    100
    %
    
    
    90.7
    %
    
    
    Colorado Springs, COWaterman Plaza(9)
    
    
    8/08
    
    
    Retail
    
    
    2008
    
    
    $
    7,164,029
    
    
    
    100
    %
    
    
    83.6
    %
    
    
    San Bernardino, CAPacific Oaks Plaza (10)
    
    
    9/08
    
    
    Office
    
    
    2005
    
    
    $
    4,876,483
    
    
    
    100
    %
    
    
    100.0
    %
    
    
    Escondido, CAMorena Office Center (2)
    
    
    1/09
    
    
    Office
    
    
    1987
    
    
    $
    6,575,000
    
    
    
    100
    %
    
    
    77.2
    %
    
    
    San Diego, CAFontana Medical Plaza (11)
    
    
    2/09
    
    
    Medical Office
    
    
    1980
    
    
    $
    1,919,800
    
    
    
    51.0
    %
    
    
    100.0
    %
    
    $
    300,000Fontana, CARangewood Medical Office
Building(2)
    
    
    3/09
    
    
    Medical Office
    
    
    1998
    
    
    $
    2,630,000
    
    
    
    100
    %
    
    
    94.3
    %
    
    
    Colorado Springs, COSparkys Thousand Palms Self-Storage
    
    
    8/09
    
    
    Self-Storage
    
    
    2007
    
    
    $
    6,200,000
    
    
    
    100
    %
    
    
    41.6
    %
    
    
    Thousand Palms, CASparkys Hesperia East Self-Storage
    
    
    12/09
    
    
    Self-Storage
    
    
    2007
    
    
    $
    2,775,000
    
    
    
    100
    %
    
    
    34.6
    %
    
    
    Hesperia, CA
 *
    
    Prior to January 1, 2009, Purchase Price includes our acquisition
related costs and expenses for the purchase of the property. After
January 1, 2009, acquisition related costs and expenses were expensed
when incurred.(1)
    
    An apartment building leased to tenants on a month-to-month basis.
This property is owned by a DOWNREIT Partnership for which we serve
as general partner and in which we own a 20.07% equity interest.(2)
    
    An office building leased to tenants on a gross basis where the
tenant may be required to pay property related expenses in excess of
the base year property related expenses.  23




---



##### Table of Contents



(3)
    
    Under single user lease to 7-Eleven, Inc. on a triple net basis,
where the tenant is responsible for paying all property related
expenses. This property is owned by a DOWNREIT Partnership for which
we serve as general partner and in which we own a 67.6% equity
interest.(4)
    
    Garden Gateway Plaza is comprised of three buildings, each on a
separate legal parcel. Information is for all 3 buildings in the
Garden Gateway Plaza in which we own 94.01% held as a tenant in
common interest.(5)
    
    A neighborhood shopping center.(6)
    
    Retail Centers.(7)
    
    Self-storage property. This property is owned by a DOWNREIT
Partnership for which we serve as general partner and in which we own
a 51.97% equity interest.(8)
    
    Self-storage property with a self serve car wash on premises.(9)
    
    Property leased on a triple net basis, where the tenant is
responsible for paying all property related expenses.(10)
    
    The Company, and related entities, occupies
approximately 12,134 square feet, or 75.8% of this property as its
corporate
offices.(11)
    
    Under single user lease to DVA Healthcare Renal Care, Inc. (DVA) on
a triple net basis, where the tenant is responsible for paying all
property related expenses. DVA is a wholly-owned subsidiary of
Davita, Inc., a leading provider of dialysis services in the United
States for patients suffering from chronic kidney failure. The
property is 51% owned by NetREIT operated as Managing Member of
Fontana Medical Plaza, LLC. The $300,000 represents a tenant
improvement allowance per the lease agreement between the parties.  24




---



##### Table of Contents



Physical Occupancy Table for Last 5 Years (1)
 Date
    
    
    Percentage Occupancy as of the Year Ended December 31,Acquired
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Casa Grande Apartments
    
    
    4/99
    
    
    
    97.2
    %
    
    
    94.2
    %
    
    
    92.0
    %
    
    
    96.1
    %
    
    
    84.6
    %Havana/Parker
Complex
    
    
    6/06
    
    
    
    
    
    
    
    79.0
    %
    
    
    74.9
    %
    
    
    54.0
    %
    
    
    53.0
    %Escondido 7-Eleven
    
    
    9/06
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Garden Gateway Plaza
    
    
    3/07
    
    
    
    
    
    
    
    
    
    
    
    85.1
    %
    
    
    88.3
    %
    
    
    85.1
    %World Plaza
    
    
    9/07
    
    
    
    
    
    
    
    
    
    
    
    98.1
    %
    
    
    94.0
    %
    
    
    87.1
    %Regatta Square
    
    
    10/07
    
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Sparkys Palm Self-Storage
    
    
    11/07
    
    
    
    
    
    
    
    
    
    
    
    85.0
    %
    
    
    84.2
    %
    
    
    86.7
    %Sparkys Joshua Self-Storage
    
    
    12/07
    
    
    
    
    
    
    
    
    
    
    
    77.0
    %
    
    
    67.8
    %
    
    
    75.4
    %Executive Office Park
    
    
    7/08
    
    
    
    
    
    
    
    
    
    
    
    94.8
    %
    
    
    94.8
    %
    
    
    90.7
    %Waterman Plaza
    
    
    8/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74.3
    %
    
    
    83.6
    %Pacific Oaks Plaza (2)
    
    
    9/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %Morena Office Center
    
    
    1/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77.2
    %Fontana Medical Plaza
    
    
    2/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.0
    %Rangewood Medical Office
Building
    
    
    3/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94.3
    %Sparkys Thousand Palms
Self-Storage
    
    
    8/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41.6
    %Sparkys Hesperia East
Self-Storage
    
    
    12/09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.6
    %
 
 (1)
    
    Information is provided only for the years that we owned the property.(2)
    
    The Company, and related entities, occupies 12,134 square feet, or
75.8% of this property as its corporate offices. The tenant occupying the other
24.2% of this property abandoned the property in February 2010 with
approximately two years remaining under the lease agreement. The
Company is in the process of negotiating a settlement with the former
tenant and is attempting to re-lease this space.  25




---



##### Table of Contents



Top Ten Tenants Physical Occupancy Table
  Percent of TotalAnnualized Base
    
    
    Annualized BaseRent as of
    
    
    Rent as ofTenant
    
    Number of Leases
    
    
    December 31, 2009(1)
    
    
    December 31, 2009County of San Bernardino
    
    
    1
    
    
    $
    519,348
    
    
    
    8.9
    %Goodwill Industries of
Southern California
    
    
    1
    
    
    $
    434,261
    
    
    
    7.4
    %Marvell Semiconductor
    
    
    1
    
    
    $
    353,685
    
    
    
    6.0
    %Keller Williams Realty
    
    
    3
    
    
    $
    346,578
    
    
    
    5.9
    %Fairchild Semiconductor
    
    
    1
    
    
    $
    307,850
    
    
    
    5.2
    %The Travelers Indemnity
Company
    
    
    1
    
    
    $
    261,611
    
    
    
    4.5
    %DVA Healthcare Renal Care
    
    
    1
    
    
    $
    258,915
    
    
    
    4.4
    %Security Title Guaranty
Corporation
    
    
    1
    
    
    $
    190,869
    
    
    
    3.3
    %Lloyds Pest Control
    
    
    1
    
    
    $
    137,098
    
    
    
    2.3
    %Citizens Business Bank
    
    
    1
    
    
    $
    128,000
    
    
    
    2.2
    %
 
 (1)
    
    Includes scheduled rent increases in 2010.  26




---



##### Table of Contents



Occupancy and Average Effective Annual Rent Per Square Foot
  Percentage
    
    
    Annual RentSquare
    
    
    Annual
    
    
    Occupied at
    
    
    Per Sq FtProperty
    
    Footage
    
    
    Gross Rent(1)
    
    
    December 31, 2009
    
    
    At Full OccupancyCasa Grande
Apts.
    
    
    29,250
    
    
    $
    220,298
    
    
    
    84.6
    %
    
    $
    8.90Havana/Parker
Complex
    
    
    114,000
    
    
    $
    595,020
    
    
    
    53.0
    %
    
    $
    9.83Escondido 7-Eleven
    
    
    3,000
    
    
    $
    108,000
    
    
    
    100.0
    %
    
    $
    36.00Garden
Gateway Plaza
    
    
    115,052
    
    
    $
    1,660,314
    
    
    
    85.1
    %
    
    $
    16.96World Plaza
    
    
    55,098
    
    
    $
    701,995
    
    
    
    87.1
    %
    
    $
    14.63Regatta Square
    
    
    5,983
    
    
    $
    185,768
    
    
    
    100.0
    %
    
    $
    31.05Sparkys Palm Self-Storage
    
    
    50,250
    
    
    $
    492,484
    
    
    
    86.7
    %
    
    $
    11.30Sparkys Joshua Self-Storage
    
    
    149,750
    
    
    $
    739,719
    
    
    
    75.4
    %
    
    $
    6.55Executive Office Park
    
    
    65,084
    
    
    $
    1,109,796
    
    
    
    90.7
    %
    
    $
    18.80Waterman Plaza
    
    
    21,170
    
    
    $
    550,828
    
    
    
    83.6
    %
    
    $
    31.12Pacific Oaks Plaza(2)
    
    
    16,000
    
    
    $
    112,700
    
    
    
    100.0
    %
    
    $
    (2
    )Morena Office Center
    
    
    26,784
    
    
    $
    548,599
    
    
    
    77.2
    %
    
    $
    26.53Fontana Medical Plaza
    
    
    10,500
    
    
    $
    258,915
    
    
    
    100.0
    %
    
    $
    24.60Rangewood Medical Office Building
    
    
    18,222
    
    
    $
    372,673
    
    
    
    94.3
    %
    
    $
    21.69Sparkys Thousand Palms Self-Storage
    
    
    113,126
    
    
    $
    487,898
    
    
    
    41.6
    %
    
    $
    10.37Sparkys Hesperia East Self-Storage
    
    
    72,940
    
    
    $
    197,132
    
    
    
    34.6
    %
    
    $
    7.81
 (1)
    
    Annual Gross Rent is calculated based upon contractual rents due as of December 31, 2009,
determined using GAAP including CAM reimbursements and leases on a month-to-month basis.(2)
    
    The Company, and related entities, occupies approximately 12,134 square feet, or 75.8% of this
property as its corporate offices. The tenant occupying the other 24.2% of this property abandoned the
property in February 2010 with two years remaining under the lease agreement. The Company is in the
process of negotiating a settlement with the former tenant and is attempting to re-lease this
space.  27




---



##### Table of Contents



Average Effective Annual Rent Per Square Foot for Last 5 Years (1)
 Average Effective Annual Rent per Square FootFor the Years Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Casa Grande
Apts.
    
    $
    5.59
    
    
    $
    5.71
    
    
    $
    6.24
    
    
    $
    6.26
    
    
    $
    6.05Havana/Parker
Complex
    
    
    
    
    
    $
    8.07
    
    
    $
    7.38
    
    
    $
    6.35
    
    
    $
    5.46Escondido 7-Eleven
    
    
    
    
    
    $
    18.02
    
    
    $
    18.02
    
    
    $
    18.02
    
    
    $
    36.00Garden
Gateway Plaza
    
    
    
    
    
    
    
    
    
    $
    14.40
    
    
    $
    14.84
    
    
    $
    14.62World Plaza
    
    
    
    
    
    
    
    
    
    $
    15.49
    
    
    $
    15.40
    
    
    $
    14.09Regatta Square
    
    
    
    
    
    
    
    
    
    $
    38.17
    
    
    $
    38.17
    
    
    $
    32.08Sparkys Palm Self-Storage
    
    
    
    
    
    
    
    
    
    $
    9.32
    
    
    $
    9.45
    
    
    $
    8.02Sparkys Joshua Self-Storage
    
    
    
    
    
    
    
    
    
    $
    6.06
    
    
    $
    4.80
    
    
    $
    3.62
  28




---



##### Table of Contents



Average Effective Annual Rent per Square FootFor the Years Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Executive Office Park
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17.90
    
    
    $
    18.20Waterman Plaza
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23.32
    
    
    $
    24.81Pacific Oaks Plaza(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    33.79
    
    
    $
    33.79Morena Office Center
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23.80Fontana Medical Plaza
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    27.07Rangewood Medical Office Building
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15.62Sparkys Thousand Palms
Self-Storage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.73Sparkys Hesperia East Self-Storage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2.11
 
 (1)
    
    Annualized from date of acquisition in year acquired.(2)
    
    The Company, and related entities, occupies 75.8% of
this property as its corporate offices.
The tenant occupying the other 24.2% of this property abandoned the
property in February 2010 with two years remaining under the lease
agreement. The Company is in the process of negotiating a settlement
with the former tenant and is attempting to re-lease this space. Lease Expirations Table(1)
  Number of Leases
    
    
    
    
    
    
    Annual Rental
    
    
    PercentExpiration Year
    
    Expiring
    
    
    Square Footage
    
    
    From Lease
    
    
    of Total2010
    
    
    64
    
    
    
    68,425
    
    
    $
    1,055,470
    
    
    
    17.2
    %2011
    
    
    25
    
    
    
    97,583
    
    
    $
    1,580,070
    
    
    
    25.8
    %2012
    
    
    15
    
    
    
    68,373
    
    
    $
    1,214,095
    
    
    
    19.8
    %2013
    
    
    13
    
    
    
    49,064
    
    
    $
    957,211
    
    
    
    15.6
    %2014
    
    
    6
    
    
    
    15,419
    
    
    $
    303,732
    
    
    
    5.0
    %2015
    
    
    2
    
    
    
    6,967
    
    
    $
    166,272
    
    
    
    2.7
    %2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2018
    
    
    2
    
    
    
    18,057
    
    
    $
    539,230
    
    
    
    8.8
    %2019
    
    
    1
    
    
    
    10,525
    
    
    $
    258,915
    
    
    
    4.2
    %2020
    
    
    1
    
    
    
    2,807
    
    
    
    55,645
    
    
    
    0.9
    %Totals
    
    
    129
    
    
    
    337,220
    
    
    $
    6,130,640
    
    
    
    100.0
    %
 (1)
    
    Table excludes residential and self-storage properties.  29




---



##### Table of Contents



Concentration of Tenants
  Current Base
    
    
    % of TotalProperty
    
    Tenant
    
    Annual Rent(1)
    
    
    Rental IncomeCasa Grande Apartments (2)Havana/Parker
Complex
    
    NoneEscondido 7-Eleven
    
    7-Eleven, Inc.
    
    $
    108,000
    
    
    
    100.0
    %Garden Gateway Plaza
    
    Marvell Semiconductor
    
    $
    344,184
    
    
    
    20.7
    %Fairchild Semiconductor
    
    $
    303,912
    
    
    
    18.3
    %The Travelers Indemnity Co.
    
    $
    261,611
    
    
    
    15.8
    %World Plaza
    
    County of San Bernardino
    
    $
    508,608
    
    
    
    69.2
    %Regatta Square
    
    Indias Express Menu
    
    $
    62,826
    
    
    
    33.8
    %Pinnacle Restaurant Group
    
    $
    45,600
    
    
    
    24.5
    %5th Avenue Nails
    
    $
    41,796
    
    
    
    22.5
    %Kashdom, Inc.
    
    $
    35,546
    
    
    
    19.1
    %Sparkys Palm Self-Storage(2)Sparkys Joshua
Self-Storage(2)Executive Office Park
    
    Keller Williams Realty
    
    $
    377,184
    
    
    
    34.0
    %Security Title Guaranty Co
    
    $
    188,948
    
    
    
    17.0
    %Waterman Plaza
    
    Goodwill Industries
    
    $
    431,230
    
    
    
    78.3
    %Subway
    
    $
    72,420
    
    
    
    13.1
    %Pacific Oaks Plaza
    
    (3)
    
    
    
    
    
    
    Morena Office Center
    
    Community Research Foundation
    
    $
    331,056
    
    
    
    60.3
    %Lloyds Pest Control
    
    $
    169,180
    
    
    
    24.9
    %Fontana Medical Plaza
    
    DVA Healthcare Renal Care
    
    $
    258,915
    
    
    
    100.0
    %Rangewood Medical Office
Building
    
    Rocky Mountain Prosthetic Dentistry
    
    $
    92,405
    
    
    
    24.8
    %Dr. Ruxandra Georgescu
    
    $
    64,960
    
    
    
    17.4
    %Michael J. Foy, D.D.S.
    
    $
    61,508
    
    
    
    16.5
    %Rangewood Orthodontics
    
    $
    55,645
    
    
    
    14.9
    %Diane E. Reck, D.D.S.
    
    $
    54,680
    
    
    
    14.7
    %Sparkys Thousand Palms
Self-Storage(2)Sparkys Hesperia East
Self-Storage(2)
 
 (1)
    
    Annualized rent as of December 31, 2009 without considering scheduled rent increases.(2)
    
    These properties are
comprised of residential and self-storage units which are
rented on a short term basis, generally on a month-to-month basis or less than 12
months.(3)
    
    The Company, and related entities, occupies approximately 12,134 square feet, or
75.8% of this property as its corporate offices. The tenant occupying the other 24.2% of this
property abandoned the property in February 2010 with two years remaining under the
lease agreement. The Company is in the process of negotiating a settlement with the
former tenant and is attempting to re-lease this space.  30




---



##### Table of Contents



Percentage ofRentable
    
    
    
    
    
    
    Property
    
    
    Current Base
    
    
    RenewalProperty and Lessee
    
    Square Feet
    
    
    Lease Ends
    
    
    Leased
    
    
    Annual Rent(1)
    
    
    OptionsCasa Grande Apartments
    
    
    None
    (2)Escondido 7-Eleven
7-Eleven
    
    
    3,000
    
    
    
    12/31/2018
    
    
    
    100.0
    %
    
    $
    108,000
    
    
    Two 5 yr.Havana/Parker
Complex
    
    
    NoneGarden Gateway Plaza
Marvell Semiconductor
    
    
    20,730
    
    
    
    1/31/2012
    
    
    
    18.0
    %
    
    $
    344,184
    
    
    One 2 yr.Fairchild Semiconductor
    
    
    18,900
    
    
    
    7/31/2013
    
    
    
    16.4
    %
    
    $
    303,912
    
    
    One 5 yr.The Travelers Indemnity Co.
    
    
    15,157
    
    
    
    2/28/2011
    
    
    
    13.2
    %
    
    $
    261,611
    
    
    One 5 yr.World Plaza
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Two 1 yr.County of San Bernardino
    
    
    29,942
    
    
    
    2/28/2011
    
    
    
    54.3
    %
    
    $
    508,608
    
    
    & One 5 yr.Regatta Square
Pinnacle Restaurant Group
    
    
    2,300
    
    
    
    4/30/2011
    
    
    
    38.4
    %
    
    $
    45,600
    
    
    NoneIndias Express Menu
    
    
    1,851
    
    
    
    5/31/2013
    
    
    
    30.9
    %
    
    $
    62,826
    
    
    None5th Avenue Nails
    
    
    1,032
    
    
    
    8/31/2012
    
    
    
    17.2
    %
    
    $
    41,796
    
    
    One 5 yr.Fancy, Inc.
    
    
    800
    
    
    
    5/31/2012
    
    
    
    13.4
    %
    
    $
    35,546
    
    
    One 5 yr.Sparkys Palm Self-Storage
    
    
    None
    (2)Sparkys Joshua Self-Storage
    
    
    None
    (2)Executive Office Park
Keller Williams Realty
    
    
    19,869
    
    
    
    8/31/2012
    
    
    
    30.5
    %
    
    $
    377,184
    
    
    NoneSecurity Title Guaranty Co.
    
    
    9,217
    
    
    
    7/31/2012
    
    
    
    14.2
    %
    
    $
    188,949
    
    
    NoneWaterman Plaza
Goodwill Industries
    
    
    14,503
    
    
    
    9/24/2018
    
    
    
    68.5
    %
    
    $
    431,230
    
    
    Two 5 yr.Pacific Oaks Plaza(3)
    
    
    NoneMorena Office Center
Community Research
Foundation
    
    
    12,122
    
    
    
    3/31/2013
    
    
    
    45.3
    %
    
    $
    331,056
    
    
    NoneLloyds Pest Control
    
    
    6,722
    
    
    
    1/31/2015
    
    
    
    25.1
    %
    
    $
    169,180
    
    
    NoneFontana Medical Plaza
DVA Healthcare Renal Care
    
    
    10,525
    
    
    
    11/22/2019
    
    
    
    100.0
    %
    
    $
    258,915
    
    
    Three 5 yr.Rangewood Medical Office
Building
Rocky Mountain Prosthetic 
    Dentistry
    
    
    3,717
    
    
    
    3/31/2013
    
    
    
    20.4
    %
    
    $
    92,405
    
    
    Two 5 yr.Dr. Ruxandra Georgescu
    
    
    2,512
    
    
    
    3/31/2014
    
    
    
    13.8
    %
    
    $
    64,960
    
    
    Three 5 yr.Rangewood Orthodontics
    
    
    2,807
    
    
    
    3/31/2020
    
    
    
    13.4
    %
    
    $
    55,645
    
    
    Two 5 yr.Michael J. Foy, D.D.S
    
    
    2,778
    
    
    
    3/31/2013
    
    
    
    13.2
    %
    
    $
    61,508
    
    
    Two 5 yr.Diane E. Reck, D.D.S
    
    
    2,095
    
    
    
    3/31/2021
    
    
    
    11.5
    %
    
    $
    54,680
    
    
    Two 5 yr.Sparkys Hesperia East
Self-Storage
    
    
    None
    (1)Sparkys Thousand Palms
Self-Storage
    
    
    None
    (1)
 
 (1)
    
    Annualized rent as of December 31, 2009 without considering scheduled
rent increases.(2)
    
    Self-storage or residential units rented on a short term basis.(3)
    
    The Company, and related entities, occupies approximately 12,134 square feet, or 75.8% of this
property as its corporate offices. The tenant occupying the other 24.2% of this property abandoned the
property in February 2010 with two years remaining under the lease agreement. The Company is in the
process of negotiating a settlement with the former tenant and is attempting to re-lease this
space.  31




---



##### Table of Contents



Geographic Diversification Table
  Approximate %No. of
    
    
    Aggregate
    
    
    Approximate %
    
    
    Current Base
    
    
    of AggregateState
    
    Properties
    
    
    Square Feet
    
    
    of Square Feet
    
    
    Annual Rent(1)
    
    
    Annual RentCalifornia
    
    
    10
    
    
    
    518,618
    
    
    
    59.9
    %
    
    $
    2,281,039
    
    
    
    36.8
    %Colorado
    
    
    5
    
    
    
    318,341
    
    
    
    36.8
    %
    
    
    3,923,570
    
    
    
    63.2
    %Wyoming
    
    
    1
    
    
    
    29,250
    
    
    
    3.3
    %
    
    
    
    
    
    
    Total
    
    
    16
    
    
    
    866,209
    
    
    
    100.0
    %
    
    
    6,204,609
    
    
    
    100.0
    %
 (1)
    
    Annualized rent as of December 31, 2009 without considering scheduled rent increases.
Current base rent does not include residential and self-storage properties. Indebtedness
 Mortgage Debt
  Principal
    
    
    Current
    
    
    
    
    
    
    Balance atProperty
    
    Amount
    
    
    Interest Rate
    
    
    Maturity Date
    
    MaturityHavana/Parker Complex
    
    $
    3,393,776
    
    
    
    6.51
    %
    
    July 2016
    
    $
    2,844,980Garden Gateway Plaza(1)
    
    $
    10,075,155
    
    
    
    6.08
    %
    
    April 2014
    
    $
    8,893,175World Plaza
    
    $
    3,380,792
    
    
    
    5.31
    %
    
    February 2012
    
    $
    3,060,931Waterman Plaza
    
    $
    3,769,886
    
    
    
    6.50
    %
    
    September 2015
    
    $
    3,304,952Sparkys Thousand Palms
Self-Storage(2)
    
    $
    4,633,393
    
    
    
    5.50
    %
    
    March 2034
    
    $
    Sparkys Hesperia East Self-Storage(3)
    
    $
    1,742,500
    
    
    
    5.00
    %
    
    December 2016
    
    $
    1,564,200
 (1)
    
    Mortgage is cross-collateralized by all three buildings comprising the Garden Gateway Plaza. Mortgage has
release clause for each building.(2)
    
    Interest rate is variable with a floor of 5.50% and a ceiling of 10.5%. The variable interest rate is
calculated using the lowest New York prime rate in effect on the first day of the month as published in
the money rate section of the West Coast edition of the Wall Street Journal added to the margin of 0.50%.(3)
    
    Interest rate is fixed at 5.00% for the first 24 months and 6.25% for the remaining 60 months of the loan.  32




---



##### Table of Contents



Item
7
 Description of Properties
 Casa Grande Apartments
   33




---



##### Table of Contents



34




---



##### Table of Contents



Havana/Parker Complex
  Escondido 7-Eleven
     Garden Gateway Plaza
    35




---



##### Table of Contents



World Plaza
   Regatta Square
  Sparkys Palm Self-Storage
   Sparkys Joshua Self-Storage
   Executive Office Park
   36




---



##### Table of Contents



Waterman Plaza
   Pacific Oaks Plaza
     Morena Office Center
   Model Home Investments
     37




---



##### Table of Contents



Fontana Medical Plaza
   Rangewood Medical Office Building
  Sparkys Thousand Palms Self-Storage
   Sparkys Hesperia East Self-Storage
    38




---



##### Table of Contents



Our Real Estate Loan Investments
     
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. (REMOVED AND RESERVED)
  39




---



##### Table of Contents



ITEM 5. MARKET PRICE FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUERS
PURCHASES OF EQUITY SECURITIES
   2009
    
    
    2008Month
    
    Stock Dividend(1)
    
    
    Cash Dividend
    
    
    Cash DividendJanuary
    
    
    
    
    
    $
    0.050
    
    
    $
    0.04900February
    
    
    
    
    
    
    0.050
    
    
    
    0.04900March
    
    
    
    
    
    
    0.050
    
    
    
    0.04700April
    
    
    
    
    
    
    0.050
    
    
    
    0.04925May
    
    
    
    
    
    
    0.050
    
    
    
    0.04925June
    
    
    
    
    
    
    0.050
    
    
    
    0.04925July
    
    
    
    
    
    
    0.050
    
    
    
    0.04950August
    
    
    
    
    
    
    0.050
    
    
    
    0.04950September
    
    
    
    
    
    
    0.050
    
    
    
    0.04950October
    
    
    
    
    
    
    0.050
    
    
    
    0.04950November
    
    
    
    
    
    
    0.050
    
    
    
    0.04950December
    
    
    5
    %
    
    
    0.050
    
    
    
    0.16020Total
    
    
    
    
    
    $
    0.600
    
    
    $
    0.70045
 (1)
    
    On January 2, 2010, the Company issued a stock dividend of 5%, or 482,027 common shares, to
shareholders of record on December 31, 2009.   Market Information
  Dividend Policy
    40




---



##### Table of Contents



Number of Holders of Each Class of Stock
  Securities Authorized for Issuance under Equity Compensation Plan
  Number of securitiesNumber of securities
    
    
    
    
    
    
    remaining available forto be issued upon
    
    
    Weighted-average
    
    
    future issuance underexercise of outstanding
    
    
    exercise price of
    
    
    equity compensation plansoptions, warrants
    
    
    outstanding options,
    
    
    (excluding securitiesPlan Category
    
    and rights
    
    
    warrants and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    6,725
    
    
    $
    8.64
    
    
    
    
    (1)Equity compensation
plans not approved
by security holders
    
    
    None
    
    
    
    
    
    
    
    NoneTotals
    
    
    6,725
    
    
    $
    8.64
    
    
    
    
    (1)
 (1)
    
    The stock option compensation plan was issued under the 1999 Flexible
Incentive Plan (the Plan) that provides that no more than 10% of the
outstanding shares can be issued under the Plan. At December 31, 2009
the maximum number of shares that could be issued under the Plan was
1,022,426 shares. Excluding the exercisable stock options and the
non-vested restricted stock described in note (2) below, the number of
securities remaining available for future issuance under equity
compensation plans is 931,203 shares at December 31, 2009.(2)
    
    In addition to the stock options awarded under the Plan, the
Compensation Committee of the Board of Directors adopted a Restricted
Stock Plan under the Plan in December 2006. A table of non-vested
restricted shares granted and vested since December 31, 2007 is as
follows: Balance, December 31, 2007
    
    
    10,330Granted
    
    
    27,871Vested
    
    
    (12,144
    )Cancelled
    
    
    (126
    )Balance, December 31, 2008
    
    
    25,931Granted
    
    
    41,890Vested
    
    
    (23,607
    )Cancelled
    
    
    (539
    )Balance, December 31, 2009
    
    
    43,675
   41




---



##### Table of Contents



Issuer Purchases of Equity Securities
 (d)Maximum(c)
    
    
    Number (orTotal
    
    
    ApproximateNumber of
    
    
    DollarShares (or
    
    
    Value) ofUnits)
    
    
    Shares (orPurchased as
    
    
    Units)(a)
    
    
    
    
    
    
    Part of
    
    
    that May YetTotal
    
    
    (b)
    
    
    Publicly
    
    
    BeNumber of
    
    
    Average
    
    
    Announced
    
    
    Purchased UnderShares
    
    
    Price Paid
    
    
    Plans or
    
    
    the Plans orPeriod
    
    Purchased
    
    
    per Share
    
    
    Programs (1)
    
    
    Programs (1)March 1  March 31, 2009
    
    
    2,000
    
    
    $
    10.00July 1  July 31, 2009
    
    
    14,221
    
    
    $
    7.03November 1  November 30, 2009(2)
    
    
    25,790
    
    
    $
    9.30Total
    
    
    42,011
    
    
    $
    8.57
 (1)
    
    We do not have a formal policy with respect to a repurchase program. The repurchases of our
common stock in 2009 were made on a case by case basis and were due to financial hardship of the
selling shareholder or other considerations.(2)
    
    Shares were repurchased from the Allen Trust. William H. Allen, trustee for the Allen Trust,
has been a Director of the Company since October 2009. The shares were acquired in connection with
the NetREIT 01 LP Partnership.      42




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW AND BACKGROUND
  Economic Outlook
    43




---



##### Table of Contents



Management Evaluation of Results of Operations
      44




---



##### Table of Contents



45




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Federal Income Taxes.
   REAL ESTATE ASSETS
 Property Acquisitions.
    46




---



##### Table of Contents



Sales of Undivided Interests in Properties.
       Depreciation and Amortization of Buildings and Improvements.
  47




---



##### Table of Contents



Intangible Assets
   Impairment.
 Investments in Real Estate Ventures.
  Revenue Recognition.
 
    
    persuasive evidence of an arrangement exists;
    
    delivery has occurred or services have been rendered;
    
    the amount is fixed or determinable; and
    
    the collectability of the amount is reasonably assured.
  48




---



##### Table of Contents



New Accounting Pronouncements.
 THE FOLLOWING IS A COMPARISON OF OUR RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009
AND 2008
  RECENT EVENTS HAVING SIGNIFICANT EFFECT ON RESULTS OF OPERATIONS COMPARISONS
 Property Acquisitions
    49




---



##### Table of Contents



50




---



##### Table of Contents



Sales of Undivided Interests in Properties.
 Casa Grande Apartments
    Sparkys Palm Self-Storage
     Garden Gateway Plaza
    51




---



##### Table of Contents



Financing
    Mortgage Loan Receivables
     52




---



##### Table of Contents



Revenues
 Non-GAAP Supplemental Financial Measure: Rental Income and Rental Operating Costs before net down
for Properties Accounted for Under the Equity Method:
  Sales of Undivided Interests in Properties .
    Twelve months ended December 31, 2009
    
    
    Twelve months ended December 31, 2008EquityMethod
    
    
    
    
    
    
    
    
    
    
    EquityMethodAs Reported
    
    
    Adjustments
    
    
    Grossed-up
    
    
    As Reported
    
    
    Adjustments
    
    
    Grossed-upRental income
    
    $
    5,479,783
    
    
    $
    2,341,969
    
    
    $
    7,821,752
    
    
    $
    5,107,410
    
    
    $
    704,443
    
    
    $
    5,811,853Rental operating costs
    
    
    2,671,173
    
    
    
    1,024,018
    
    
    
    3,695,191
    
    
    
    2,507,664
    
    
    
    311,130
    
    
    
    2,818,794Net operating income
    
    $
    2,808,610
    
    
    $
    1,317,951
    
    
    $
    4,126,561
    
    
    $
    2,599,746
    
    
    $
    393,313
    
    
    $
    2,993,059
  53




---



##### Table of Contents




    
    The addition of the three properties acquired in 2008, which generated an additional
$1,110,196 of rent revenue in 2009 compared to 2008;
    
    The addition of the five properties acquired in 2009 which contributed $1,137,897 in rent
revenue in 2009;
    
    Offset by a decrease in rent revenue for the three properties acquired prior to 2008 which
decreased by $276,839. This decrease was due to Havana/Parker Complex, which declined
approximately $128,653 in 2009. Of this decline, $57,965 was attributable to a decline in
occupancy and $70,688 was attributable to a drop in lease rental rates. The Company has
recently hired a full time Senior Vice President, Asset Manager who will focus efforts on
improving performance at Havana/Parker Complex,  and
    
    Rental income was reduced by approximately $1,598,881 for properties that had sales of
undivided interests in 2007 and 2008 and converted to the equity method of accounting as
discussed above.
   Rental Operating Expenses
    54




---



##### Table of Contents



Interest Expense
   Date Acquired
    
    
    2009
    
    
    2008Havana/Parker Complex
    
    June 2006
    
    $
    225,993
    
    
    $
    230,824World Plaza
    
    September 2007
    
    
    182,995
    
    
    
    190,326Executive Office Park
    
    July 2008
    
    
    105,162
    
    
    
    94,726Waterman Plaza
    
    August 2008
    
    
    246,990
    
    
    
    97,152Sparkys Thousand Palms Self-Storage
    
    August 2009
    
    
    93,638
    
    
    
    Sparkys Hesperia East Self-Storage
    
    December 2009
    
    
    3,146
    
    
    
    Garden Gateway Plaza(1)
    
    March 2007
    
    
    
    
    
    
    518,830Sparkys Joshua Self-Storage
    
    December 2007
    
    
    
    
    
    
    9,543Amortization of deferred financing costs
    
    
    
    
    
    
    140,427
    
    
    
    45,080$
    998,351
    
    
    $
    1,186,481
 (1)
    
    Interest expense for Garden Gateway Plaza of $633,882 and $136,816 for the years ended December 31, 2009 and 2008, respectively, are included in the consolidated statement of operation in the line item equity in losses of real estate ventures.  55




---



##### Table of Contents



General and Administrative Expenses
         56




---



##### Table of Contents



Net Loss Available to Common Shareholders
    57




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   Cash and Cash Equivalents
    Operating Activities
  Investing Activities
   58




---



##### Table of Contents



Financing Activities
   Contractual Obligations
    Less than a year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    More than 5 Years2010
    
    
    (2011-2012)
    
    
    (2013-2014)
    
    
    (After 2014)
    
    
    TotalPrincipal payments  secured debt
    
    $
    658,687
    
    
    $
    4,341,535
    
    
    $
    9,899,980
    
    
    $
    12,095,300
    
    
    $
    26,995,502Interest payments  fixed rate debt
    
    
    1,334,213
    
    
    
    2,439,397
    
    
    
    1,804,728
    
    
    
    670,227
    
    
    
    6,248,565Interest payments  Variable rate debt
    
    
    252,293
    
    
    
    488,412
    
    
    
    464,771
    
    
    
    2,557,922
    
    
    
    3,763,398Ground lease obligation (1)
    
    
    20,040
    
    
    
    41,194
    
    
    
    43,820
    
    
    
    1,115,294
    
    
    
    1,220,348$
    2,265,233
    
    
    $
    7,310,538
    
    
    $
    12,213,299
    
    
    $
    16,438,743
    
    
    $
    38,227,813
 (1)
    
    Lease obligations represent the ground lease payments due on our World Plaza property.  59




---



##### Table of Contents



Other Liquidity Needs
   Capitalization
  AggregatePrincipalShares at
    
    
    Amount or $
    
    
    % of TotalDecember 31,
    
    
    Value
    
    
    Market2009
    
    
    Equivalent
    
    
    CapitalizationDebt:Total debt
    
    
    
    
    
    $
    26,995,502
    
    
    
    20.7
    %Equity:Convertible Series AA preferred stock (1)
    
    
    50,200
    
    
    $
    1,255,000
    
    
    
    0.9
    %Common stock outstanding (2)
    
    
    10,224,262
    
    
    
    102,242,620
    
    
    
    78.4
    %Total equity
    
    
    
    
    
    $
    103,497,620
    
    
    
    79.3
    %Total Market Capitalization
    
    
    
    
    
    $
    130,493,122
 (1)
    
    Value based on $25.00 per
share liquidation preference.(2)
    
    Value based on $10.00 per share the current price of shares being sold under the
current private placement offering.  60




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Capital Expenditures, Tenant Improvements and Leasing Costs
  Non-GAAP Supplemental Financial Measure: Funds From Operations (FFO)
    Year ended December 31,2009
    
    
    2008Net loss
    
    $
    (2,533,527
    )
    
    $
    (2,110,519
    )Adjustments:Preferred stock dividends
    
    
    (87,850
    )
    
    
    (87,850
    )Depreciation and amortization
    
    
    2,186,303
    
    
    
    2,087,877Joint venture real estate
depreciation and
amortization
    
    
    849,654
    
    
    
    209,546Loss (gain) from sale of real estate
    
    
    (219,449
    )
    
    
    41,024Funds from operations
    
    $
    195,131
    
    
    $
    140,078
  61




---



##### Table of Contents



Inflation
  Segments Disclosure
     62




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A(T). CONTROLS AND PROCEDURES
   Changes in Internal Control over Financial Reporting
  Managements Report on Internal Control over Financial Reporting
 Internal Control  Integrated Framework Internal Control  Integrated Framework
    63




---



##### Table of Contents



ITEM 9B. OTHER MATTERS
   Votes Against
    
    
    Broker Non-Votes For
    
    
    or Withheld
    
    
    VotesWilliam Allen
    
    
    3,979,387
    
    
    
    16,755
    
    
    
    0David Bruen
    
    
    3,984,430
    
    
    
    11,712
    
    
    
    0Larry G. Dubose
    
    
    3,984,265
    
    
    
    11,876
    
    
    
    0Kenneth W. Elsberry*
    
    
    3,979,810
    
    
    
    16,332
    
    
    
    0Jack K. Heilbron
    
    
    3,990,892
    
    
    
    5,250
    
    
    
    0Sumner J. Rollings
    
    
    3,993,565
    
    
    
    2,577
    
    
    
    0Thomas E. Schwartz
    
    
    3,985,104
    
    
    
    11,038
    
    
    
    0Bruce Staller
    
    
    3,986,892
    
    
    
    15,250
    
    
    
    0
  Votes Against or
    
    
    Broker Non-Votes For
    
    
    Withheld
    
    
    Votes(i) Provide for
Change in
Shareholder Meeting
Date
    
    
    3,886,848
    
    
    
    297,356
    
    
    
    0(ii) Correct
Inconsistency for
Number of Directors
    
    
    3,608,008
    
    
    
    576,196
    
    
    
    0(iii) Require
Super-Majority for
Reduction of
Directors to Less
than Five (5)
    
    
    3,811,067
    
    
    
    366,881
    
    
    
    0(iv) Allow Certain
Investments for
Hedging Purposes
only and not
Speculation
    
    
    3,616,966
    
    
    
    560,982
    
    
    
    0(v) Allow Additional
Company Structures
that may be used for
Investment in Real
Property Ownership
    
    
    3,680,111
    
    
    
    504,093
    
    
    
    0(vi) Allow for
Issuance of
Redeemable, Voting
Equity Preferred
Stock
    
    
    3,560,727
    
    
    
    623,477
    
    
    
    0(vii) Remove all
References to
Advisor and Advisory
Contracts
    
    
    3,608,008
    
    
    
    576,196
    
    
    
    0
 *
    
    On October 22, 2009, we filed a Form 8-K (the Original 8-K) reporting that each of the proposals
listed above had been approved by our shareholders. On November 2, 2009, we amended and restated
the Original 8-K (the Revised 8-K) to disclose that the amendments to our Bylaws and Articles of Incorporation has not
been approved by our shareholders. However, as of the date of the 2009 Annual Meeting of
Shareholders, the date of the Revised 8-K and the date of this Annual Report on Form 10-K, the
total number of directors authorized for election under our Bylaws and Articles of Incorporation
was and is seven (7). As a result, the Revised 8-K was incorrect in its statement that all eight
(8) directors were elected by the shareholders. Given that the three (3) directors with the lowest
vote totals all had the same number of votes, our management determined that Kenneth W. Elsberry
was the eighth director and therefore was not elected to our board of directors at the 2009 Annual
Meeting of Shareholders.  64




---



##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
   65




---



##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
   66




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
   
    
    Report of Squar, Milner, Peterson, Miranda and Williamson, LLP, Independent
Registered Public Accounting Firm
    
    Report of JH Cohn, LLP, Independent Registered Public Accounting Firm
    
    Balance Sheets as of December 31, 2009 and 2008
    
    Statements of Operations for the years ended December 31, 2009 and 2008
    
    Statements of Stockholders Equity for the years ended December 31, 2009 and 2008
    
    Statements of Cash Flows for the years ended December 31, 2009 and 2008
    
    Notes to Financial Statements
      ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation filed January 28, 1999 (A)3.2
    
    Certificate of Determination of Series AA Preferred Stock filed April 4, 2005 (A)3.3
    
    Bylaws of NetREIT (A)3.4
    
    Audit Committee Charter (A)3.5
    
    Compensation and Benefits Committee Charter (A)3.6
    
    Nominating and Corporate Governance Committee Charter (A)3.7
    
    Principles of Corporate Governance of NetREIT (A)4.1
    
    Form of Common Stock Certificate (A)4.2
    
    Form of Series AA Preferred Stock Certificate (A)4.3
    
    Registration Rights Agreement 2005 (A)4.4
    
    Registration Rights Agreement 2007 (A)10.1
    
    1999 Flexible Incentive Plan (A)10.2
    
    NetREIT Dividend Reinvestment Plan (A)10.3
    
    Form of Property Management Agreement (A)
  67




---



##### Table of Contents



ExhibitNumber
    
    Description10.4
    
    Option Agreement to acquire CHG
Properties (A)10.5
    
    Employment Agreement as of April 20, 1999 by and between the Company and Jack K.
Heilbron (B)10.6
    
    Employment Agreement as of April 20, 1999 by and between the Company and Kenneth
W. Elsberry (B)10.7
    
    Lease Agreement by and between Philip Elghanian and DVA Healthcare Renal Care, Inc.
dated February 6, 2009 1.10.8
    
    Assignment and Assumption of Lease by and between Philip Elghanian and Fontana
Medical Plaza, LLC. dated February 19, 2009 2.10.9
    
    Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate
between Philip Elghanian and Hovic Perian and Rima Perian dated September 8, 2008 3.10.10
    
    Assignment and Assumption of Purchase Agreement Philip Elghanian and Fontana
Medical Plaza, LLC. dated February 19, 2009 4.10.11
    
    Additional and/OR Amendment to Escrow Instructions between Fontana Medical Plaza,
LLC and Hovic Perian and Rima Perian dated February 18, 2009 5.10.12
    
    Buyer Final Closing Statement dated
February 20, 2009 6.10.13
    
    Loan Assumption and Security
Agreement, and Note Modification Agreement 7.10.14
    
    Promissory Note 8.20.1
    
    Notice of Adjournment of Annual Meeting of Shareholders to be
held October 16, 2009 9.31.1
    
    Certificate of the Companys Chief Executive Officer (Principal Executive
Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect
to the registrants Annual Report on Form 10-K for the year ended December 31,
2008.31.2
    
    Certification of the Companys Chief Financial Officer (Principal Financial and
Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
with respect to the registrants Annual Report on Form 10-K for the year ended
December 31, 2008.32.1
    
    Certification of principal executive officer and principal financial officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 (A)
    
    Previously filed as an
exhibit to the Form 10 for the year ended December 31, 2007.(B)
    
    Previously filed as an
exhibit to the amended Form 10 for the year ended December 31, 2007
filed June 26, 2009.1
    
    Originally filed as Exhibit 10.1 on Form 8-K filed February 25, 2009.2
    
    Originally filed as Exhibit 10.2 on Form 8-K filed February 25, 2009.3
    
    Originally filed as Exhibit 10.3 on Form 8-K/A filed on March 2, 2009.4
    
    Originally filed as Exhibit 10.4 on Form 8-K filed February 25, 2009.5
    
    Originally filed as Exhibit 10.5 on Form 8-K filed February 25, 2009.6
    
    Originally filed as Exhibit 10.6 on Form 8-K filed February 25, 2009.7
    
    Originally filed as Exhibit 10.7 on Form 8-K filed August 27, 2009.8
    
    Originally filed as Exhibit 10.8 on Form 8-K filed August 27, 2009.9
    
    Originally filed as Exhibit 20.1 on Form 8-K filed October 2, 2009.  68




---



##### Table of Contents



SIGNATURES
  NETREIT.By:
    /s/ Jack K. HeilbronJack K. HeilbronDate: March 30, 2010
    
    Chief Executive Officer   Signature
    
    Title
    
    Date/s/ Jack K. Heilbron
    
    Director, Chairman of the Board and Chief Executive OfficerJack K. Heilbron
    
    (Principal Executive Officer)
    
    March 30, 2010/s/ Kenneth W. Elsberry
    
    Chief Financial OfficerKenneth W. Elsberry
    
    (Principal Financial and Accounting Officer)
    
    March 30, 2010/s/ Larry G. Dubose
    
    Director, Executive Vice President  Model Homes Division
    
    March 24, 2010Larry G. Dubose/s/ David T. Bruen
    
    Director
    
    March 24, 2010David T. Bruen/s/ Sumner J. Rollins
    
    Director
    
    March 24, 2010Sumner J. Rollins/s/ Thomas E. Schwartz
    
    Director
    
    March 24, 2010Thomas E. SchwartzDirector
    
    March __, 2010Bruce A. Staller/s/ William H. Allen
    
    Director
    
    March 24, 2010William H. Allen
  69




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 PageREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
    
    
    F-2FINANCIAL STATEMENTS:Consolidated Balance Sheets
    
    
    F-4Consolidated Statements of Operations
    
    
    F-5Consolidated Statements of Shareholders Equity
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
  F-1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
  F-2




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
  F-3




---



##### Table of Contents



NetREIT


Consolidated Balance Sheets
December 31, 2009 and 2008
 December 31,
    
    
    December 31,2009
    
    
    2008ASSETSReal estate assets, net
    
    $
    69,829,603
    
    
    $
    43,375,860Lease intangibles, net
    
    
    719,857
    
    
    
    699,749Land purchase option
    
    
    1,370,000
    
    
    
    1,370,000Investment in real estate ventures
    
    
    14,192,629
    
    
    
    16,455,043Mortgages receivable and interest
    
    
    920,216
    
    
    
    3,052,845Cash and cash equivalents
    
    
    9,298,523
    
    
    
    4,778,761Restricted cash
    
    
    296,395
    
    
    
    673,507Tenant receivables, net
    
    
    163,875
    
    
    
    99,180Due from related party
    
    
    20,081
    
    
    
    39,432Deposits on potential acquisitions
    
    
    
    
    
    
    367,498Other assets, net
    
    
    3,180,658
    
    
    
    1,519,005TOTAL ASSETS
    
    $
    99,991,837
    
    
    $
    72,430,880LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Mortgage notes payable
    
    $
    26,995,502
    
    
    $
    21,506,957Accounts payable and accrued liabilities
    
    
    1,923,811
    
    
    
    1,729,675Dividends payable
    
    
    649,008
    
    
    
    754,576Tenant security deposits
    
    
    258,455
    
    
    
    217,021Total liabilities
    
    
    29,826,776
    
    
    
    24,208,229Commitments and contingenciesShareholders equity:Undesignated preferred stock, no par value,
shares authorized: 8,995,000, no shares
issued and outstanding at December 31, 2009
and 2008
    
    
    
    
    
    
    Series A preferred stock, no par value,
shares authorized: 5,000, no shares issued
and outstanding at December 31, 2009 and 2008
    
    
    
    
    
    
    Convertible Series AA preferred stock, no
par value, $25 liquidating preference,
shares authorized: 1,000,000; 50,200 shares
issued and outstanding, liquidating value of
$1,255,000 at December 31, 2009 and 2008
    
    
    1,028,916
    
    
    
    1,028,916Common stock Series A, no par value, shares
authorized: 100,000,000; 10,224,262 and
6,766,472 shares issued and outstanding at
December 31, 2009 and 2008, respectively
    
    
    85,445,674
    
    
    
    56,222,663Common stock Series B, no par value, shares
authorized: 1,000, no shares issued and
outstanding at December 31, 2009 and 2008
    
    
    
    
    
    
    Additional paid-in capital
    
    
    433,204
    
    
    
    433,204Dividends paid in excess of accumulated losses
    
    
    (21,104,741
    )
    
    
    (9,462,132
    )Total NetREIT shareholders equity
    
    
    65,803,053
    
    
    
    48,222,651Noncontrolling interests
    
    
    4,362,008
    
    
    
    Total Shareholders equity
    
    
    70,165,061
    
    
    
    48,222,651TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    99,991,837
    
    
    $
    72,430,880
 See notes to consolidated financial statements.
  F-4




---



##### Table of Contents



NetREIT


Consolidated Statements of Operations
Years ended December 31, 2009 and 2008
 Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2009
    
    
    2008Rental income
    
    $
    5,479,783
    
    
    $
    5,107,410Costs and expenses:Interest
    
    
    998,351
    
    
    
    1,186,481Rental operating costs
    
    
    2,671,173
    
    
    
    2,507,664General and administrative
    
    
    2,325,846
    
    
    
    1,678,576Depreciation and amortization
    
    
    2,186,303
    
    
    
    2,087,877Total costs and expenses
    
    
    8,181,673
    
    
    
    7,460,598Other income (expense):Interest income
    
    
    85,840
    
    
    
    336,600Gain (loss) on sale of real estate
    
    
    219,449
    
    
    
    (41,024
    )Equity in losses of real estate ventures
    
    
    (112,958
    )
    
    
    (40,723
    )Other expense
    
    
    (289
    )
    
    
    (12,184
    )Total other income
    
    
    192,042
    
    
    
    242,669Net loss before noncontrolling interests
    
    
    (2,509,848
    )
    
    
    (2,110,519
    )Income attributable to noncontrolling interests
    
    
    23,679
    
    
    
    Net loss
    
    
    (2,533,527
    )
    
    
    (2,110,519
    )Preferred stock dividends
    
    
    (87,850
    )
    
    
    (87,850
    )Loss available to common shareholders
    
    $
    (2,621,377
    )
    
    $
    (2,198,369
    )Loss per common share  basic and diluted (1)
    
    $
    (0.31
    )
    
    $
    (0.41
    )Weighted average number of common shares outstanding 
basic and diluted (1)
    
    
    8,344,054
    
    
    
    5,337,709
 (1)
    
    Data is adjusted for a 5% stock dividend declared in December 2009. See notes to consolidated financial statements.
  F-5




---



##### Table of Contents



NetREIT


Consolidated Statements of Shareholders Equity
Years ended December 31, 2009 and 2008
 DividendsConvertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paid
    
    
    TotalSeries AA
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    in Excess of
    
    
    NetREITPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Shareholders
    
    
    NoncontrollingShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Losses
    
    
    Equity
    
    
    Interests
    
    
    TotalBalance December 31, 2007
    
    
    50,200
    
    
    $
    1,028,916
    
    
    
    3,835,958
    
    
    $
    31,299,331
    
    
    $
    433,204
    
    
    $
    (3,483,546
    )
    
    $
    29,277,905
    
    
    $
    
    
    
    $
    29,277,905Sale of common stock and
warrants at $10 per share
    
    
    
    
    
    
    
    
    
    
    2,691,255
    
    
    
    26,912,553
    
    
    
    
    
    
    
    
    
    
    
    26,912,553
    
    
    
    
    
    
    
    26,912,553Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,202,029
    )
    
    
    
    
    
    
    
    
    
    
    (4,202,029
    )
    
    
    
    
    
    
    (4,202,029
    )Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (9,275
    )
    
    
    (82,190
    )
    
    
    
    
    
    
    
    
    
    
    (82,190
    )
    
    
    
    
    
    
    (82,190
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    22,248
    
    
    
    141,274
    
    
    
    
    
    
    
    
    
    
    
    141,274
    
    
    
    
    
    
    
    141,274Vesting of restricted
stock previously issued
    
    
    
    
    
    
    
    
    
    
    12,144
    
    
    
    119,575
    
    
    
    
    
    
    
    
    
    
    
    119,575
    
    
    
    
    
    
    
    119,575Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    485
    
    
    
    4,530
    
    
    
    
    
    
    
    
    
    
    
    4,530
    
    
    
    
    
    
    
    4,530Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,110,519
    )
    
    
    (2,110,519
    )
    
    
    
    
    
    
    (2,110,519
    )Dividends paid/reinvested
    
    
    
    
    
    
    
    
    
    
    121,734
    
    
    
    1,156,424
    
    
    
    
    
    
    
    (2,240,296
    )
    
    
    (1,083,872
    )
    
    
    
    
    
    
    (1,083,872
    )Dividends (declared)/
reinvested
    
    
    
    
    
    
    
    
    
    
    91,923
    
    
    
    873,195
    
    
    
    
    
    
    
    (1,627,771
    )
    
    
    (754,576
    )
    
    
    
    
    
    
    (754,576
    )Balance, December 31, 2008
    
    
    50,200
    
    
    
    1,028,916
    
    
    
    6,766,472
    
    
    
    56,222,663
    
    
    
    433,204
    
    
    
    (9,462,132
    )
    
    
    48,222,651
    
    
    
    
    
    
    
    48,222,651Sale of common stock and
warrants at $10 per share
    
    
    
    
    
    
    
    
    
    
    2,707,381
    
    
    
    27,055,384
    
    
    
    
    
    
    
    
    
    
    
    27,055,384
    
    
    
    
    
    
    
    27,055,384Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,520,490
    )
    
    
    
    
    
    
    
    
    
    
    (4,520,490
    )
    
    
    
    
    
    
    (4,520,490
    )Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (50,011
    )
    
    
    (439,842
    )
    
    
    
    
    
    
    
    
    
    
    (439,842
    )
    
    
    
    
    
    
    (439,842
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    13,528
    
    
    
    110,202
    
    
    
    
    
    
    
    
    
    
    
    110,202
    
    
    
    
    
    
    
    110,202Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    630Vesting of restricted
stock previously issued
    
    
    
    
    
    
    
    
    
    
    23,807
    
    
    
    202,000
    
    
    
    
    
    
    
    
    
    
    
    202,000
    
    
    
    
    
    
    
    202,000Contributed capital of
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,338,329
    
    
    
    4,338,329Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,533,527
    )
    
    
    (2,533,527
    )
    
    
    23,679
    
    
    
    (2,509,848
    )Dividends paid/reinvested
    
    
    
    
    
    
    
    
    
    
    201,998
    
    
    
    1,919,811
    
    
    
    
    
    
    
    (3,564,758
    )
    
    
    (1,644,947
    )
    
    
    
    
    
    
    (1,644,947
    )Stock dividend declared
    
    
    
    
    
    
    
    
    
    
    482,027
    
    
    
    4,145,432
    
    
    
    
    
    
    
    (4,145,432
    )
    
    
    
    
    
    
    
    
    
    
    Dividends (declared)/reinvested
    
    
    
    
    
    
    
    
    
    
    79,000
    
    
    
    749,884
    
    
    
    
    
    
    
    (1,398,892
    )
    
    
    (649,008
    )
    
    
    
    
    
    
    (649,008
    )Balance, December 31, 2009
    
    
    50,200
    
    
    $
    1,028,916
    
    
    
    10,224,262
    
    
    $
    85,445,674
    
    
    $
    433,204
    
    
    $
    (21,104,741
    )
    
    $
    65,803,053
    
    
    $
    4,362,008
    
    
    $
    70,165,061
 See notes to consolidated financial statements.
  F-6




---



##### Table of Contents



NetREIT


Consolidated Statements of Cash Flows
Years ended December 31, 2009 and 2008
 Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (2,533,527
    )
    
    $
    (2,110,519
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    2,186,303
    
    
    
    2,087,877Stock compensation
    
    
    202,000
    
    
    
    119,575Loss (gain) on sale of real estate
    
    
    (219,449
    )
    
    
    41,024Bad debt expense
    
    
    132,964
    
    
    
    60,717Distributions from real estate ventures
    
    
    419,782
    
    
    
    118,465Equity in losses of real estate ventures
    
    
    112,958
    
    
    
    40,723Income attributable to noncontrolling interests
    
    
    23,679
    
    
    
    Changes in operating assets and liabilities:Deferred rent receivable
    
    
    (85,267
    )
    
    
    (88,578
    )Tenant receivables
    
    
    (197,659
    )
    
    
    (117,261
    )Other assets
    
    
    (85,581
    )
    
    
    (376,978
    )Accounts payable and accrued liabilities
    
    
    193,826
    
    
    
    885,126Due from related parties
    
    
    19,351
    
    
    
    79,015Tenant security deposits
    
    
    41,434
    
    
    
    (55,660
    )Net cash provided by operating activities
    
    
    210,814
    
    
    
    683,526Cash flows from investing activities:Real estate investments
    
    
    (20,843,599
    )
    
    
    (22,997,254
    )Investments in real estate ventures
    
    
    (1,695,894
    )
    
    
    Proceeds received from sale of real estate
    
    
    739,449
    
    
    
    3,929,243Deposits on potential acquisitions
    
    
    367,498
    
    
    
    (367,498
    )Issuance of mortgages receivable
    
    
    
    
    
    
    (244,074
    )Restricted cash
    
    
    377,112
    
    
    
    24,387Proceeds from short-term investments
    
    
    
    
    
    
    20,457Deposit held at bankrupt institution
    
    
    
    
    
    
    (1,740,358
    )Net cash used in investing activities
    
    
    (21,055,434
    )
    
    
    (21,375,097
    )Cash flows from financing activities:Proceeds from mortgage notes payable
    
    
    15,794,117
    
    
    
    10,447,500Repayment of mortgage notes payable
    
    
    (10,305,572
    )
    
    
    (11,360,859
    )Net proceeds from issuance of common stock
    
    
    22,534,896
    
    
    
    22,710,524Repurchase of common stock
    
    
    (439,844
    )
    
    
    (82,190
    )Exercise of stock options
    
    
    110,202
    
    
    
    141,274Exercise of warrants
    
    
    630
    
    
    
    4,530Deferred stock issuance costs
    
    
    69,476
    
    
    
    109,984Dividends paid
    
    
    (2,399,523
    )
    
    
    (1,381,090
    )Net cash provided by financing activities
    
    
    25,364,382
    
    
    
    20,589,673Net increase (decrease) in cash and cash equivalents
    
    
    4,519,762
    
    
    
    (101,898
    )Cash and cash equivalents:Beginning of year
    
    
    4,778,761
    
    
    
    4,880,659End of year
    
    $
    9,298,523
    
    
    $
    4,778,761Supplemental disclosure of cash flow information:Interest paid
    
    $
    842,888
    
    
    $
    1,278,650Non-cash investing activities:Reclassification of real estate to investment in real estate ventures
    
    $
    
    
    
    $
    15,910,644Reclassification of real estate ventures to real estate
    
    $
    4,594,053
    
    
    $
    Non-cash financing activities:Issuance of mortgage notes receivable on sale of real estate
    
    $
    
    
    
    $
    920,216Stock
dividend declared
    
    $
    4,145,132
    
    
    $
    Reinvestment of cash dividend
    
    $
    2,669,695
    
    
    $
    2,029,619Accrual of dividends payable
    
    $
    649,008
    
    
    $
    754,576
 See notes to consolidated financial statements.
  F-7




---



##### Table of Contents



NetREIT


Notes to Consolidated Financial Statements
 1. ORGANIZATION
    2. SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation .
   Federal Income Taxes.
   F-8




---



##### Table of Contents



Stock Dividend.
 Real Estate Assets
 Property Acquisitions.
   F-9




---



##### Table of Contents



Sales of Undivided Interests in Properties.
        F-10




---



##### Table of Contents



Depreciation and Amortization of Buildings and Improvements.
 Intangible Assets
   Impairment.
 Investments in Real Estate Ventures.
   F-11




---



##### Table of Contents



Provision for Loan Losses.
 Cash and Cash Equivalents.
 Restricted Cash.
 Deposits held at Bankrupt Institution
 Deferred Common Stock Issuance Costs.
 Tenant Receivables.
 Deferred Leasing Costs.
 Deferred Financing Costs.
  F-12




---



##### Table of Contents



Revenue Recognition.
 
    
    persuasive evidence of an arrangement exists;
    
    delivery has occurred or services have been rendered;
    
    the amount is fixed or determinable; and
    
    the collectability of the amount is reasonably assured.
    Loss Per Common Share.
  2009
    
    
    2008Weighted average shares used for Basic EPS
    
    
    8,344,054
    
    
    
    5,083,532Stock dividend declared in December 2009
 (retroactive adjustment)
    
    
    
    
    
    
    254,177Effect of dilutive securities:Incremental shares from share-based compensation
    
    
    
    
    
    
    Incremental shares from conversion of NetREIT 01 LP Partnership
    
    
    
    
    
    
    Incremental shares from conversion of NetREIT Casa Grande LP Partnership
    
    
    
    
    
    
    Incremental shares from conversion of NetREIT Palm LP Partnership
    
    
    
    
    
    
    Incremental shares from convertible preferred stock and warrants
    
    
    
    
    
    
    Adjusted weighted average shares used for diluted EPS
    
    
    8,344,054
    
    
    
    5,337,709
  F-13




---



##### Table of Contents



Fair Value of Financial Instruments and Certain Other Assets/Liabilities.
  Use of Estimates
 Segments.
  F-14




---



##### Table of Contents



3. REAL ESTATE ASSETS AND LEASE INTANGIBLES
  Real estateSquare
    
    
    Property
    
    assets, netProperty Name
    
    Date Acquired
    
    Location
    
    Footage
    
    
    Description
    
    (in thousands)Casa Grande Apartments
    
    April 1999
    
    Cheyenne, Wyoming
    
    
    29,250
    
    
    Residential
    
    $
    1,571.9Havana/Parker Complex
    
    September 2006
    
    Aurora, Colorado
    
    
    114,000
    
    
    Office
    
    
    6,587.67-Eleven
    
    September 2006
    
    Escondido, California
    
    
    3,000
    
    
    Retail
    
    
    1,325.6World Plaza
    
    September 2007
    
    San Bernardino, California
    
    
    55,098
    
    
    Retail
    
    
    5,810.5Regatta Square
    
    October 2007
    
    Denver, Colorado
    
    
    5,983
    
    
    Retail
    
    
    2,030.2Sparkys Palm Self-Storage
    
    November 2007
    
    Highland, California
    
    
    50,250
    
    
    Self-Storage
    
    
    4,819.4Sparkys Joshua Self-Storage
    
    December 2007
    
    Hesperia, California
    
    
    149,750
    
    
    Self-Storage
    
    
    7,491.5Executive Office Park
    
    July 2008
    
    Colorado Springs, Colorado
    
    
    65,084
    
    
    Office
    
    
    9,180.5Waterman Plaza
    
    August 2008
    
    San Bernardino, California
    
    
    21,170
    
    
    Retail
    
    
    6,699.2Pacific Oaks Plaza
    
    September 2008
    
    Escondido, California
    
    
    16,000
    
    
    Office
    
    
    4,725.3Morena Office Center
    
    January 2009
    
    San Diego, California
    
    
    26,784
    
    
    Office
    
    
    6,247.7Fontana Medical Plaza
    
    February 2009
    
    Fontana, California
    
    
    10,500
    
    
    Office
    
    
    1,929.2Rangewood Medical Office Building
    
    March 2009
    
    Colorado Springs, Colorado
    
    
    18,222
    
    
    Office
    
    
    2,513.8Sparkys Thousand Palms Self-Storage
    
    August 2009
    
    Thousand Palms, California
    
    
    113,126
    
    
    Self-Storage
    
    
    6,112.9Sparkys Hesperia East Self-Storage
    
    December 2009
    
    Hesperia, California
    
    
    72,940
    
    
    Self-Storage
    
    
    2,784.3Total real estate assets, net
    
    
    
    
    
    
    
    
    
    
    
    $
    69,829.6
  Real estateSquare
    
    
    Property
    
    assets, netProperty Name
    
    Date Acquired
    
    Location
    
    Footage
    
    
    Description
    
    (in thousands)Havana/Parker Complex
    
    June 2006
    
    Aurora, Colorado
    
    
    114,000
    
    
    Office
    
    $
    6,414.0World Plaza
    
    September 2007
    
    San Bernardino,
California
    
    
    55,096
    
    
    Retail
    
    
    6,006.8Regatta Square
    
    October 2007
    
    Denver, Colorado
    
    
    5,983
    
    
    Retail
    
    
    2,074.2Sparkys Joshua
Self-Storage
    
    December 2007
    
    Hesperia, California
    
    
    149,650
    
    
    Self Storage
    
    
    7,651.9Executive Office Park
    
    July 2008
    
    Colorado Springs,
Colorado
    
    
    65,084
    
    
    Office
    
    
    9,601.3Waterman Plaza
    
    August 2008
    
    San Bernardino,
California
    
    
    21,285
    
    
    Retail
    
    
    6,806.0Pacific Oaks Plaza
    
    September 2008
    
    Escondido, California
    
    
    16,037
    
    
    Office
    
    
    4,821.7Total real estate
assets, net
    
    
    
    
    
    
    
    $
    43,375.9
  December 31,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    13,820,313
    
    
    $
    7,710,502Buildings and other
    
    
    57,269,228
    
    
    
    35,497,050Tenant improvements
    
    
    2,061,107
    
    
    
    1,530,92773,150,648
    
    
    
    44,738,479Less accumulated depreciation and amortization
    
    
    (3,321,045
    )
    
    
    (1,362,619
    )Real estate assets, net
    
    $
    69,829,603
    
    
    $
    43,375,860
  F-15




---



##### Table of Contents



F-16




---



##### Table of Contents



LandPurchase
    
    
    Buildings
    
    
    Tenant
    
    
    In-place
    
    
    Leasing
    
    
    Tenant
    
    
    Total PurchaseLand
    
    
    Option
    
    
    and other
    
    
    Improvements
    
    
    Leases
    
    
    Costs
    
    
    Relationships
    
    
    PriceExecutive Office
Park
    
    $
    1,265,735
    
    
    
    
    
    
    $
    7,747,826
    
    
    $
    797,219
    
    
    $
    195,518
    
    
    $
    119,583
    
    
    
    
    
    
    $
    10,125,881Waterman Plaza
    
    
    2,350,000
    
    
    
    
    
    
    
    4,319,736
    
    
    
    177,030
    
    
    
    135,162
    
    
    
    182,101
    
    
    
    
    
    
    
    7,164,029Pacific Oaks Plaza
    
    
    980,000
    
    
    
    
    
    
    
    3,862,791
    
    
    
    
    
    
    
    23,254
    
    
    
    10,438
    
    
    
    
    
    
    
    4,876,483Morena Office Center
    
    
    1,333,000
    
    
    
    
    
    
    
    4,833,141
    
    
    
    242,324
    
    
    
    80,861
    
    
    
    85,674
    
    
    
    
    
    
    
    6,575,000Fontana Medical
Plaza
    
    
    556,858
    
    
    
    
    
    
    
    1,362,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,919,800Rangewood Medical
Office Building
    
    
    572,000
    
    
    
    
    
    
    
    1,750,732
    
    
    
    152,683
    
    
    
    41,043
    
    
    
    113,542
    
    
    
    
    
    
    
    2,630,000Sparkys Thousand
Palms Self-Storage
    
    
    620,000
    
    
    
    
    
    
    
    5,530,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    6,200,000Sparkys Joshua
Self-Storage East
    
    
    1,470,000
    
    
    
    
    
    
    
    1,305,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,775,000
 Property sales
 Casa Grande Apartments
   Garden Gateway Plaza
  Sparkys Palm Self-Storage
    F-17




---



##### Table of Contents



Lease Intangibles
  December 31, 2009
    
    
    December 31, 2008Lease
    
    
    
    
    
    
    
    
    
    
    LeaseLease
    
    
    Accumulated
    
    
    intangibles,
    
    
    Lease
    
    
    Accumulated
    
    
    intangibles,intangibles
    
    
    Amortization
    
    
    net
    
    
    intangibles
    
    
    Amortization
    
    
    netIn-place leases
    
    $
    643,630
    
    
    $
    (255,127
    )
    
    $
    388,503
    
    
    $
    459,657
    
    
    $
    (83,231
    )
    
    $
    376,426Leasing costs
    
    
    508,621
    
    
    
    (188,100
    )
    
    
    320,521
    
    
    
    416,011
    
    
    
    (69,088
    )
    
    
    346,923Tenant
relationships
    
    
    332,721
    
    
    
    (299,388
    )
    
    
    33,333
    
    
    
    192,812
    
    
    
    (180,617
    )
    
    
    12,195Below-market
leases
    
    
    (40,160
    )
    
    
    17,660
    
    
    
    (22,500
    )
    
    
    (40,160
    )
    
    
    4,365
    
    
    
    (35,795
    )$
    1,444,812
    
    
    $
    (724,955
    )
    
    $
    719,857
    
    
    $
    1,028,320
    
    
    $
    (328,571
    )
    
    $
    699,749
  EstimatedAggregateAmortizationExpense2010
    
    $
    254,8082011
    
    
    144,7912012
    
    
    117,1392013
    
    
    60,7222014
    
    
    36,683Thereafter
    
    
    105,714$
    719,857
   F-18




---



##### Table of Contents



4. INVESTMENT IN REAL ESTATE VENTURES
  Equity
    
    
    Investment balance at:Percentage
    
    
    December 31, 2009
    
    
    December 31, 2008Garden Gateway Plaza
    
    
    94.0
    %
    
    $
    12,665,799
    
    
    $
    13,232,571Sparkys Palm Self-Storage
    
    
    52.0
    
    
    
    
    
    
    
    2,380,484Escondido 7-11
    
    
    67.6
    
    
    
    
    
    
    
    694,458Casa Grande Apartments
    
    
    20.1
    
    
    
    
    
    
    
    147,530Dubose Acquisition Partners II, LTD & III, LTD
    
    
    51.0
    
    
    
    1,526,830
    
    
    
    $
    14,192,629
    
    
    $
    16,455,043
    December 31,2009
    
    
    2008Real estate assets and lease intangibles
    
    $
    20,791,102
    
    
    $
    17,107,835Total assets
    
    $
    20,791,102
    
    
    $
    17,107,835Mortgage notes payable
    
    $
    5,131,516
    
    
    $
    662,792Owners equity
    
    
    15,659,586
    
    
    
    16,445,043Total liabilities and owners equity
    
    $
    20,791,102
    
    
    $
    17,107,835
  December 31,2009
    
    
    2008Rental income
    
    $
    2,975,110
    
    
    $
    704,443Costs and expenses:Rental operating costs
    
    
    1,078,650
    
    
    
    311,130Interest expense
    
    
    818,533
    
    
    
    136,816Depreciation and amortization
    
    
    849,654
    
    
    
    209,546Partners share of net operating income
    
    
    341,231
    
    
    
    87,674Equity in losses of real estate ventures
    
    $
    (112,958
    )
    
    $
    (40,723
    )
 5. MORTGAGES RECEIVABLE
    F-19




---



##### Table of Contents



6. MORTGAGE NOTES PAYABLE
  December 31,
    
    
    December 31,2009
    
    
    2008Mortgage note payable in
monthly installments of $24,330
through July 1, 2016, including
interest at a fixed rate of
6.51%, collateralized by the
Havana/Parker Complex property
    
    $
    3,393,776
    
    
    $
    3,459,374Mortgage note payable in
monthly installments of $71,412
through April 5, 2014,
including interest at a fixed
rate of 6.08%; collateralized
by the leases and office
buildings of the Garden Gateway
Plaza property. Certain
obligations under the note are
guaranteed by the executive
officers
    
    
    10,075,155
    
    
    
    10,670,864Mortgage note payable in
monthly installments of $27,088
through February 1, 2012,
including interest at a fixed
rate of 5.31%; collateralized
by the World Plaza property
    
    
    3,380,792
    
    
    
    3,522,227Revolving line of credit
facility to borrow up to
$6,597,500, interest only
payments at a fixed rate of
6.25%; expired December 10,
2009; collateralized by the
Executive Office Park and
Regatta Square properties
    
    
    
    
    
    
    20,000Mortgage note payable in
monthly installments of $25,995
through September 1, 2015,
including interest at a fixed
rate of 6.5%; collateralized by
the Waterman Plaza property
    
    
    3,769,886
    
    
    
    3,834,492Mortgage note payable in
monthly installments of $28,842
through March 1, 2034,
including interest at a
variable rate ranging from 5.5%
to 10.5%; with a current rate
of 5.5% collateralized by the
Thousand Palms property
    
    
    4,633,393
    
    
    
    Mortgage note payable in
monthly installments of $9,432
through December 18, 2016,
including interest at a fixed
rate of 5.00%; collateralized
by the Sparkys Joshua
Self-Storage East property
    
    
    1,742,500
    
    
    
    $
    26,995,502
    
    
    $
    21,506,957
   F-20




---



##### Table of Contents



ScheduledPrincipalYears Ending:
    
    Payments2010
    
    $
    658,6872011
    
    
    698,5082012
    
    
    3,643,0272013
    
    
    605,2922014
    
    
    9,294,691Thereafter
    
    
    12,095,297Total
    
    $
    26,995,502
 7. RELATED PARTY TRANSACTIONS
        F-21




---



##### Table of Contents



8. SHAREHOLDERS EQUITY
  Common Stock.
 Undesignated Preferred Stock.
 Series A Preferred Stock.
 Convertible Series AA Preferred Stock.
  F-22




---



##### Table of Contents



Common Stock Units.
 Shareholder Warrants.
 Broker Dealer Warrants.
  F-23




---



##### Table of Contents



Limited Partnerships.
   F-24




---



##### Table of Contents



Employee Retirement and Share-Based Incentive Plans
 Stock Options.
  WeightedAverageExerciseShares
    
    
    PriceBalance, December 31, 2007
    
    
    42,501
    
    
    $
    7.06Options exercised
    
    
    (22,248
    )
    
    $
    6.36Options outstanding and exercisable, December 31, 2008
    
    
    20,253
    
    
    $
    7.28Options exercised
    
    
    (13,528
    )
    
    $
    8.15Options outstanding and exercisable, December 31, 2009
    
    
    6,725
    
    
    $
    8.64
   Share-Based Incentive Plan .
   Balance, December 31, 2007
    
    
    10,330Granted
    
    
    27,871Vested
    
    
    (12,144
    )Cancelled
    
    
    (126
    )Balance, December 31, 2008
    
    
    25,931Granted
    
    
    41,890Vested
    
    
    (23,607
    )Cancelled
    
    
    (539
    )Balance, December 31, 2009
    
    
    43,675
  F-25




---



##### Table of Contents



Stock Dividends.
 Stock
    
    
    Common StockDate of Declaration
    
    Record Date
    
    
    Dividend Rate
    
    
    Value
    
    
    Shares
    
    
    AmountDecember 4, 2009
    
    January 1, 2010
    
    
    5
    %
    
    $
    8.60
    
    
    
    482,027
    
    
    $
    4,145,432
  Cash Dividends.
  F-26




---



##### Table of Contents



9. COMMITMENTS AND CONTINGENCIES
 Operating Leases
  ScheduledYears Ending:
    
    Payments2010
    
    $
    5,793,6732011
    
    
    4,271,4722012
    
    
    3,185,3872013
    
    
    1,980,0952014
    
    
    1,376,074Thereafter
    
    
    4,129,857Total
    
    $
    20,736,558
   ScheduledYears Ending:
    
    Payments2010
    
    $
    20,0402011
    
    
    20,0402012
    
    
    21,1542013
    
    
    21,9102014
    
    
    21,910Thereafter
    
    
    1,115,294Total
    
    $
    1,220,348
 Litigation.
 Environmental Matters.
  F-27




---



##### Table of Contents



10. CONCENTRATION OF CREDIT RISKS
  11. SEGMENTS
    F-28




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008Office Properties:Rental income
    
    $
    2,939,624
    
    
    $
    2,680,847Property and related expenses
    
    
    1,650,855
    
    
    
    1,426,849Net operating income, as defined
    
    
    1,288,769
    
    
    
    1,253,998Equity in (losses) from real estate ventures
    
    
    (309,967
    )
    
    
    (66,279
    )Residential Properties:Rental income
    
    
    54,525
    
    
    
    49,517Property and related expenses
    
    
    32,086
    
    
    
    25,554Net operating income, as defined
    
    
    22,439
    
    
    
    23,963Equity in earnings from real estate ventures
    
    
    119,409
    
    
    
    21,883Retail Properties:Rental income
    
    
    1,554,562
    
    
    
    1,272,686Property and related expenses
    
    
    455,999
    
    
    
    442,551Net operating income, as defined
    
    
    1,098,563
    
    
    
    830,135Equity in earnings from real estate ventures
    
    
    30,424
    
    
    
    15,839Self Storage Properties:Rental income
    
    
    931,072
    
    
    
    1,104,360Property and related expenses
    
    
    532,233
    
    
    
    612,710Net operating income, as defined
    
    
    398,839
    
    
    
    491,650Equity in income (losses) from real estate ventures
    
    
    47,176
    
    
    
    (12,166
    )Mortgage loan activity:Interest income
    
    
    59,114
    
    
    
    270,088Reconciliation to Net Income Available to Common Shareholders:Total net operating income, as defined, for reportable segments
    
    
    2,754,766
    
    
    
    2,829,111Unallocated other income:Total other income
    
    
    26,437
    
    
    
    54,328Gain (loss) on sale of real estate
    
    
    219,449
    
    
    
    (41,024
    )Unallocated other expenses:General and administrative expenses
    
    
    2,325,846
    
    
    
    1,678,576Interest expense
    
    
    998,351
    
    
    
    1,186,481Depreciation and amortization
    
    
    2,186,303
    
    
    
    2,087,877Net loss
    
    
    (2,509,848
    )
    
    
    (2,110,519
    )Noncontrolling interests
    
    
    23,679Net loss
    
    
    (2,533,527
    )
    
    
    (2,110,519
    )Preferred dividends
    
    
    (87,850
    )
    
    
    (87,850
    )Net loss available for common shareholders
    
    $
    (2,621,377
    )
    
    $
    (2,198,369
    )
  F-29




---



##### Table of Contents



December 31,2009
    
    
    2008Assets:Office Properties:Land, buildings and improvements, net (1)
    
    $
    31,554,488
    
    
    $
    21,088,756Total assets (2)
    
    
    32,652,322
    
    
    
    22,397,320Investment in real estate ventures
    
    
    12,665,799
    
    
    
    13,232,571Residential Property:Land, buildings and improvements, net
    
    
    1,571,935Total assets
    
    
    1,594,248Investment in real estate ventures
    
    
    1,526,830
    
    
    
    147,530Retail Properties:Land, buildings and improvements, net (1)
    
    
    17,574,262
    
    
    
    16,692,805Total assets (2)
    
    
    17,746,702
    
    
    
    17,104,905Investments in real estate ventures
    
    
    
    
    
    
    694,458Self Storage Properties:Land, buildings and improvements, net (1)
    
    
    21,241,275
    
    
    
    7,664,048Total assets (2)
    
    
    21,364,770
    
    
    
    7,875,137Investment in real estate ventures
    
    
    
    
    
    
    2,380,484Mortgage loan activity:Mortgage receivable and accrued interest
    
    
    920,216
    
    
    
    3,052,845Total assets
    
    
    920,216
    
    
    
    3,052,845Reconciliation to Total Assets:Total assets for reportable segments
    
    
    88,470,887
    
    
    
    66,885,250Other unallocated assets:Cash and cash equivalents
    
    
    9,298,523
    
    
    
    4,778,761Prepaid expenses and other assets, net
    
    
    2,222,427
    
    
    
    766,869Total Assets
    
    $
    99,991,837
    
    
    $
    72,430,880
 (1)
    
    Includes lease intangibles and the land purchase option related to property acquisitions.(2)
    
    Includes land, buildings and improvements, current receivables, deferred rent receivables and
deferred leasing costs and other related intangible assets, all shown on a net basis.  F-30




---



##### Table of Contents



Years ended December 31,2009
    
    
    2008Capital Expenditures:(1)Office Properties:Acquisition of operating properties
    
    $
    11,149,618
    
    
    $
    15,002,361Capital expenditures and tenant improvements
    
    
    678,932
    
    
    
    650,466Residential Property:Capital expenditures and tenant improvementsRetail Properties:Acquisition of operating properties
    
    
    
    
    
    
    7,164,030Capital expenditures and tenant improvements
    
    
    4,290
    
    
    
    158,377Self Storage Properties:Acquisition of operating properties
    
    
    8,975,000Capital expenditures and tenant improvements
    
    
    35,759
    
    
    
    22,020Mortgage loan activity:Loans originated
    
    
    
    
    
    
    920,716Total Reportable Segments:Acquisition of operating properties
    
    
    20,124,618
    
    
    
    22,166,391Capital expenditures and tenant improvements
    
    
    718,981
    
    
    
    830,863Total real estate investments
    
    $
    20,843,599
    
    
    $
    22,997,254Total loan originations
    
    $
    
    
    
    $
    920,716
 (1)
    
    Total consolidated capital expenditures are equal to the same amounts disclosed for total
reportable segments. 12. SUBSEQUENT EVENTS
     F-31