Presidio Property Trust, Inc. - Quarter Report: 2010 June (Form 10-Q)

INDEX

		Page
Part I FINANCIAL INFORMATION:			3
Item 1. FINANCIAL STATEMENTS:			3
Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009			4
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)			5
Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2010 (unaudited)			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (unaudited)			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			51
Item 4T. Controls and Procedures			51
Part II OTHER INFORMATION			52
Item 1. Legal Proceedings			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3. Defaults Upon Senior Securities			52
Item 4. [Removed and Reserved]			52
Item 5. Other Information			52
Item 6. Exhibits			53
Signatures			54
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

Part I. FINANCIAL INFORMATION

Item 1.		Financial Statements

NetREIT

		June 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Real estate assets, net		$	95,100,203			$	69,829,603
Lease intangibles, net			657,797				719,857
Land purchase option			1,370,000				1,370,000
Investment in real estate ventures			—				14,192,629
Mortgages receivable and interest			920,216				920,216
Cash and cash equivalents			10,125,668				9,298,523
Restricted cash			147,298				296,395
Tenant receivables, net			180,257				163,875
Due from related party			40,088				20,081
Other assets, net			5,016,843				3,180,658
TOTAL ASSETS		$	113,558,370			$	99,991,837
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable		$	34,555,890			$	26,995,502
Accounts payable and accrued liabilities			2,451,957				1,923,811
Dividends payable			718,219				649,008
Tenant security deposits			272,480				258,455
Total liabilities			37,998,546				29,826,776
Commitments and contingencies
Shareholders’ equity:
Undesignated preferred stock, no par value, shares authorized: 8,995,000, no shares issued and outstanding at June 30, 2010 and December 31, 2009			—				—
Series A preferred stock, no par value, shares authorized: 5,000, no shares issued and outstanding at June 30, 2010 and December 31, 2009			—				—
Convertible Series AA preferred stock, no par value, $25 liquidating preference, shares authorized: 1,000,000; No shares issued and outstanding at June 30, 2010; 50,200 shares issued and outstanding, liquidating value of $1,255,000 at December 31, 2009			—				1,028,916
Common stock Series A, no par value, shares authorized: 100,000,000; 11,346,928 and 10,224,262 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			95,129,146				85,445,674
Common stock Series B, no par value, shares authorized: 1,000, no shares issued and outstanding at June 30, 2010 and December 31, 2009			—				—
Additional paid-in capital			433,204				433,204
Dividends paid in excess of accumulated losses			(26,653,396	)			(21,104,741	)
Total NetREIT shareholders’ equity			68,908,954				65,803,053
Noncontrolling interests			6,650,870				4,362,008
Total Shareholders’ equity			75,559,824				70,165,061
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	113,558,370			$	99,991,837

See notes to condensed consolidated financial statements.

NetREIT

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		June 30,				June 30,				June 30,				June 30,
		2010				2009				2010				2009
Rental income		$	2,459,559			$	1,311,223			$	4,473,235			$	2,544,793
Costs and expenses:
Interest			498,909				224,623				876,064				451,179
Rental operating costs			1,125,179				612,538				2,059,641				1,195,888
General and administrative			805,319				518,790				1,567,788				1,069,462
Depreciation and amortization			889,681				506,944				1,667,163				1,000,467
Total costs and expenses			3,319,088				1,862,895				6,170,656				3,716,996
Other income (expense):
Interest income			27,842				35,621				54,757				51,588
Equity in earnings (losses) of real estate ventures			—				594				1,769				(56,104	)
Total other income (expense)			27,842				36,215				56,526				(4,516	)
Net loss before noncontrolling interests			(831,687	)			(515,457	)			(1,640,895	)			(1,176,719	)
Income attributable to noncontrolling interests			57,719				—				94,495				—
Net loss			(889,406	)			(515,457	)			(1,735,390	)			(1,176,719	)
Preferred stock dividends			(12,484	)			(21,962	)			(34,447	)			(43,925	)
Net loss attributable to common shareholders		$	(901,890	)		$	(537,419	)		$	(1,769,837	)		$	(1,220,644	)
Loss per common share — basic and diluted		$	(0.08	)		$	(0.07	)		$	(0.17	)		$	(0.16	)
Weighted average number of common shares outstanding — basic and diluted			10,978,215				8,006,005				10,687,238				7,667,935

See notes to condensed consolidated financial statements.

NetREIT

																						Dividends
		Convertible																				Paid				Total
		Series AA																Additional				in Excess of				NetREIT
		Preferred Stock								Common Stock								Paid-in				Accumulated				Shareholders’				Noncontrolling
		Shares				Amount				Shares				Amount				Capital				Losses				Equity				Interests				Total
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
Sale and other issuances of common stock and warrants at $10 per share											888,432				8,884,324												8,884,324								8,884,324
Stock issuance costs															(1,364,291	)											(1,364,291	)							(1,364,291	)
Redemption of preferred stock			(50,200	)			(1,028,916	)															(226,084	)			(1,255,000	)							(1,255,000	)
Exercise of stock options											1,452				2,000												2,000								2,000
Exercise of warrants											195				1,890												1,890								1,890
Shares issued upon expiration of warrants											52,778				453,889								(453,889	)
Vesting of restricted stock previously issued											1,050				8,715												8,715								8,715
Contributed capital of noncontrolling interests																															2,194,367				2,194,367
Net loss (income)																							(1,735,390	)			(1,735,390	)			94,495				(1,640,895	)
Dividends (paid)/reinvested											86,776				823,748								(1,541,876	)			(718,128	)							(718,128	)
Dividends (declared)/ reinvested											91,983				873,197								(1,591,416	)			(718,219	)							(718,219	)
Balance, June 30, 2010			—			$	—				11,346,928			$	95,129,146			$	433,204			$	(26,653,396	)		$	68,908,954			$	6,650,870			$	75,559,824

See notes to condensed consolidated financial statements.

NetREIT

		Six Months				Six Months
		Ended				Ended
		June 30,				June 30,
		2010				2009
Cash flows from operating activities:
Net loss		$	(1,735,390	)		$	(1,176,719	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,667,163				1,000,467
Stock compensation			167,400				85,200
Bad debt expense			109,440				44,777
Distributions to real estate ventures in excess of earnings			(194,350	)			255,629
Equity in (earnings) losses of real estate ventures			(1,769	)			56,104
Income attributable to noncontrolling interests			94,495				—
Changes in operating assets and liabilities:
Tenant receivables			(125,822	)			(91,860	)
Due from related parties			(20,007	)			20,959
Other assets			(202,887	)			(132,630	)
Accounts payable and accrued liabilities			(662,540	)			(414,469	)
Tenant security deposits			14,025				49,594
Net cash used in operating activities			(890,242	)			(302,948	)
Cash flows from investing activities:
Real estate investments			(5,479,379	)			(11,437,001	)
Acquisition of company			(300,000	)			—
Investment in real estate ventures			—				(981,750	)
Deposits on potential acquisitions			—				217,498
Restricted cash			149,097				510,572
Net cash used in investing activities			(5,630,282	)			(11,690,681	)
Cash flows from financing activities:
Proceeds from mortgage notes payable			2,925,000				8,861,750
Repayment of mortgage notes payable			(416,624	)			(8,894,789	)
Net proceeds from issuance of common stock			7,520,033				9,467,133
Redemption of preferred stock			(1,255,000	)			—
Repurchase of common stock			—				(40,000	)
Exercise of warrants			1,890				630
Exercise of stock options			2,000				40,302
Deferred stock issuance costs			(331,646	)			(267,621	)
Dividends paid			(1,367,136	)			(1,257,202	)
Net cash provided by financing activities			7,078,517				7,910,203
Net increase (decrease) in cash and cash equivalents			557,993				(4,083,426	)
Cash and cash equivalents:
Beginning of period			9,298,523				4,778,761
Addition to cash from consolidation of joint venture			269,152				—
End of period		$	10,125,668			$	695,335
Supplemental disclosure of cash flow information:
Interest paid		$	852,610			$	433,534
Non-cash investing activities:
Reclassification of investments in real estate ventures to real estate assets		$	21,188,400			$	—
Accrual of goodwill and related liability		$	1,032,000			$	—
Non-cash financing activities:
Common shares issued upon expiration of warrants		$	453,889			$	—
Reinvestment of cash dividend		$	1,696,945			$	1,229,618
Accrual of dividends payable		$	718,219			$	547,802

See notes to condensed consolidated financial statements.

NetREIT

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization. NetREIT (the “Company”) was incorporated in the State of California on January 28, 1999 for the purpose of investing in real estate properties. The Company qualifies and operates as a self-administered real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended, (the “Code”) and commenced operations with capital provided by its private placement offering of its equity securities in 1999.

The Company invests in a diverse portfolio of real estate assets. The primary types of properties the Company invests in include office, retail, self-storage properties and residential properties located in the western United States.

The Company is a General Partner in four limited partnerships (NetREIT 01 LP, NetREIT Palm Self-Storage LP, NetREIT Casa Grande LP and NetREIT Garden Gateway LP) and a Managing Member in one limited liability company (Fontana Medical Plaza, LLC) with ownership in real estate income producing properties. In addition, the Company is a limited partner in two partnerships that purchase and leaseback model homes from developers. We refer to these entities collectively, as the “Partnerships”.

In March 2010, the Company acquired the name, employee’s and rights to the use of the name and to do business as Dubose Model Homes USA (“DMHU”). The Company paid $300,000 cash and agreed to issue up to 120,000 shares of Company common stock if certain production levels of new business are achieved over the next three years. The transaction has been accounted for as a business combination. Management performed an analysis of intangible assets acquired with the assistance of an independent valuation specialist and it was determined that $209,000 of the purchase price is attributable to customer relationships and will be amortized over 10 years. The Company also estimated a liability of $1,032,000 associated with the 120,000 shares that it believes will be issued in the future. As a result of this acquisition, total goodwill of $1,123,000 was recorded. DMHU purchased and leased back model homes from and to developers. That business has continued doing business under the name NetREIT Dubose Model Homes. As a result of the Company’s management contract to manage the role of the former general partner, the two limited partnerships that NetREIT had an investment in at DMHU are consolidated into the financial statements of NetREIT effective March 1, 2010.

As of June 30, 2010, the Company owned or had an equity interest in seven office buildings (“Office Properties”) which total approximately 354,000 rentable square feet, three retail shopping centers and a 7-Eleven property (“Retail Properties”) which total approximately 85,000 rentable square feet, five self-storage facilities (“Self-Storage Properties”) which total approximately 487,000 rentable square feet, one 39 unit apartment building and investments in two limited partnerships with 19 model homes (“Residential Properties”).

Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures required for annual consolidated financial statements have been condensed or excluded pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of our financial position, results of our operations, and cash flows as of and for the three and six months ended June 30, 2010 and 2009. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The condensed balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements included in the Form 10-K.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of NetREIT and its subsidiaries, the Partnerships. As used herein, the “Company” refers to NetREIT and the Partnerships, collectively. All significant intercompany balances and transactions have been eliminated in consolidation.

Prior to formation of the Partnerships, the properties owned by those partnerships were held as tenants in common (“TIC”) with the other investors and accounted for using the equity method due to substantive participation rights of the TIC. Upon formation of the Partnerships, NetREIT became the sole general partner in each of these partnerships and the rights of the other partners were limited to certain protective rights. As a result of the change in the Company’s ability to influence and control the Partnerships, they are now accounted for as a subsidiary of the Company and are fully consolidated in the Company’s financial statements.

The Company classifies the noncontrolling interests in the Partnerships as part of consolidated net loss in the three and six months ended June 30, 2010 and includes the accumulated amount of noncontrolling interests as part of shareholders’ equity from their inception in 2009. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interest will be remeasured with the gain or loss reported in the statement of operations. Management has evaluated the noncontrolling interests and determined that they do not contain any redemption features.

Federal Income Taxes. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Code, for federal income tax purposes. To qualify as a REIT, the Company must distribute annually at least 90% of adjusted taxable income, as defined in the Code, to its shareholders and satisfy certain other organizational and operating requirements. As a REIT, no provision will be made for federal income taxes on income resulting from those sales of real estate investments which have or will be distributed to shareholders within the prescribed limits. However, taxes will be provided for those gains which are not anticipated to be distributed to shareholders unless such gains are deferred pursuant to Section 1031. In addition, the Company will be subject to a federal excise tax which equals 4% of the excess, if any, of 85% of the Company’s ordinary income plus 95% of the Company’s capital gain net income over cash distributions, as defined.

Earnings and profits that determine the taxability of distributions to shareholders differ from net income reported for financial reporting purposes due to differences in estimated useful lives and methods used to compute depreciation and the carrying value (basis) on the investments in properties for tax purposes, among other things. During the years ended December 31, 2009 and 2008, all distributions were considered return of capital to the shareholders and therefore non-taxable.

The Company believes that it has met all of the REIT distribution and technical requirements for the six months ended June 30, 2010 and for the year ended December 31, 2009.

Stock Dividend. In December 2009, the Company declared a 5% stock dividend which was paid in Company common stock on January 2, 2010 to shareholders of record on January 1, 2010. All loss per share calculations are based on adjusted shares for the stock dividend as if the shares were issued at the beginning of the first period presented.

Real Estate Assets

Property Acquisitions. The Company accounts for its acquisitions of real estate in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which requires the purchase price of acquired properties be allocated to the acquired tangible assets and liabilities, consisting of land, building, tenant improvements, a land purchase option, long-term debt and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, unamortized lease origination costs and tenant relationships, based in each case on their fair values.

The Company allocates the purchase price to tangible assets of an acquired property (which includes land, building and tenant improvements) based on the estimated fair values of those tangible assets, assuming the building was vacant. Estimates of fair value for land, building and building improvements are based on many factors including, but not limited to, comparisons to other properties sold in the same geographic area and independent third party valuations. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair values of the tangible and intangible assets and liabilities acquired.

The total value allocable to intangible assets acquired, which consists of unamortized lease origination costs, in-place leases and tenant relationships, are allocated based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the existing business relationships with the tenant, growth prospects for developing new business with the tenant, the remaining term of the lease and the tenant’s credit quality, among other factors.

The value allocable to above or below market component of an acquired in-place lease is determined based upon the present value (using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of rents that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above or below market leases are included in lease intangibles, net in the accompanying balance sheets and are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases.

The land lease acquired with the World Plaza acquisition in 2007 has a fixed purchase price option cost of $181,710 at the termination of the lease in 2062. Management valued the land option at its residual value of $1,370,000, based upon comparable land sales adjusted to present value. The difference between the strike price of the option and the recorded cost of the land purchase option is approximately $1.2 million. Accordingly, management has determined that exercise of the option is considered probable. The land purchase option was determined to be a contract based intangible asset associated with the land. As a result, this asset has an indefinite life and is treated as a non-amortizable asset. The amount is included as land purchase option on the accompanying balance sheets.

The value of in-place leases, unamortized lease origination costs and tenant relationships are amortized to expense over the remaining term of the respective leases, which range from less than a year to ten years. The amount allocated to acquire in-place leases is determined based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. The amount allocated to unamortized lease origination costs is determined by what the Company would have paid to a third party to recruit a new tenant reduced by the expired term of the respective lease. The amount allocated to tenant relationships is the benefit resulting from the likelihood of a tenant renewing its lease. Amortization expense related to these assets was $107,877 and $91,498 for the three months ended June 30, 2010 and 2009, respectively. Amortization expense related to these assets was $217,074 and $188,206 for the six months ended June 30, 2010 and 2009, respectively.

Sales of Undivided Interests in Properties. Gains from the sale of undivided interests in properties are recognized under the full accrual method by the Company when certain criteria are met. Gain or loss (the difference between the sales value and the proportionate cost of the partial interest sold) shall be recognized at the date of sale if a sale has been consummated and the following criteria are met:

	a.		The buyer is independent of the seller.
	b.		Collection of the sales price is reasonably assured.
	c.		The seller will not be required to support the operations of the property or its related obligations to an extent greater than its proportionate interest.

Gains relating to transactions which do not meet the criteria for full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met or by using the installment or deposit methods of profit recognition, as appropriate in the circumstances.

As of June 30, 2010 and December 31, 2009, the Company did not classify any properties as held for sale.

Depreciation and Amortization of Buildings and Improvements. Land, buildings and improvements are recorded at cost. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred. The cost of buildings and improvements are depreciated using the straight-line method over estimated useful lives ranging from 30 to 55 years for buildings, improvements are amortized over the shorter of the estimated life of the asset or term of the tenant lease which range from 1 to 10 years, and 4 to 5 years for furniture, fixtures and equipment. Depreciation expense for buildings and improvements for the three months ended June 30, 2010 and 2009, was $753,178 and $415,446, respectively. Depreciation expense for buildings and improvements for the six months ended June 30, 2010 and 2009, was $1,397,186 and $818,978, respectively.

Impairment of Real Estate Assets. The Company reviews the carrying value of each property to determine if circumstances that indicate impairment in the carrying value of the investment exist or that depreciation periods should be modified. If circumstances support the possibility of impairment, the Company prepares a projection of the undiscounted future cash flows, without interest charges, of the specific property and determines if the investment in such property is recoverable. If impairment is indicated, the carrying value of the property would be written down to its estimated fair value based on the Company’s best estimate of the property’s discounted future cash flows. There have been no impairments recognized on the Company’s real estate assets at December 31, 2009 and, as of June 30, 2010, management does not believe that any indicators of impairment were evident.

Intangible Assets. Lease intangibles represents the allocation of a portion of the purchase price of a property acquisition representing the estimated value of in-place leases, unamortized lease origination costs, tenant relationships and a land purchase option. Intangible assets are comprised of finite-lived and indefinite-lived assets. Indefinite-lived assets are not amortized. Finite-lived intangibles are amortized over their expected useful lives.

The Company is required to perform a test for impairment of goodwill and other definite and indefinite lived assets at least annually, and more frequently as circumstances warrant. Based on the review, no impairment was deemed necessary at December 31, 2009 and, as of June 30, 2010, management does not believe that any indicators of impairment were evident.

Other intangible assets that are not deemed to have an indefinite useful life are amortized over their estimated useful lives. The carrying amount of intangible assets that are not deemed to have an indefinite useful life is regularly reviewed for indicators of impairments in value. Impairment is recognized only if the carrying amount of the intangible asset is considered to be unrecoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and the estimated fair value of the asset. Based on the review, no impairment was deemed necessary at December 31, 2009 and, as of June 30, 2010, management does not believe that any indicators of impairment were evident.

Investments in Real Estate Ventures. The Company analyzes its investments in joint ventures to determine whether the joint venture should be accounted for under the equity method of accounting or consolidated into the financial statements. The Company has determined that the tenant in common investors in its real estate ventures have certain protective and substantive participation rights that limit the Company’s control of the investment. Therefore, the Company’s share of its investment in real estate ventures were accounted for under the equity method of accounting in the accompanying financial statements while properties were held as tenants in common.

Under the equity method, the Company’s investment in real estate ventures is stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on the Company’s ownership interest in the earnings of each of the unconsolidated real estate ventures. For the purposes of presentation in the statement of cash flows, the Company follows the “look through” approach for classification of distributions from joint ventures. Under this approach, distributions are reported under operating cash flow unless the facts and circumstances of a specific distribution clearly indicate that it is a return of capital (e.g., a liquidating dividend or distribution of the proceeds from the joint venture’s sale of assets) in which case it is reported as an investing activity. Management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated real estate ventures may be impaired when events or circumstances indicate that there may be an impairment. An investment is impaired if management’s estimate of the fair value of the investment is less than its carrying value. To the extent impairment has occurred, and is considered to be other than temporary, the loss is measured as the excess of the carrying amount of the investment over the fair value of the investment. The Company did not have any investments in real estate ventures as of June 30, 2010. No impairment charges were recognized for the year ended December 31, 2009.

Revenue Recognition. The Company recognizes revenue from rent, tenant reimbursements, and other revenue once all of the following criteria are met:

•

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.

Annual rental revenue is recognized in rental revenues on a straight-line basis over the term of the related lease.

Certain of the Company’s leases currently contain rental increases at specified intervals. The Company records as an asset, and includes in revenues, deferred rent receivable that will be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Deferred rent receivable in the accompanying balance sheets includes the cumulative difference between rental revenue recorded on a straight-line basis and rents received from the tenants in accordance with the lease terms. Accordingly, the Company determines, in its judgment, to what extent the deferred rent receivable applicable to each specific tenant is collectible. The Company reviews material deferred rent receivable, as it relates to straight-line rents, on a quarterly basis and takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of deferred rent with respect to any given tenant is in doubt, the Company records an increase in the allowance for uncollectible accounts or records a direct write-off of the specific rent receivable. No such reserves have been recorded as of June 30, 2010 or December 31, 2009.

Interest income on mortgages receivable is accrued as it is earned. The Company stops accruing interest income on a loan if it is past due for more than 90 days or there is doubt regarding collectability of the loan principal and/or accrued interest receivable.

Loss Per Common Share. Basic loss per common share (“Basic EPS”) is computed by dividing net loss available to common shareholders (the “numerator”) by the weighted average number of common shares outstanding (the “denominator”) during the period. Diluted loss per common share (“Diluted EPS”) is similar to the computation of Basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back the after-tax amount of interest recognized in the period associated with any convertible debt. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net earnings per share.

The following is a reconciliation of the denominator of the basic loss per common share computation to the denominator of the diluted loss per common share computations:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Weighted average shares used for Basic EPS			10,978,215				7,624,767				10,687,238				7,302,795
Stock dividend declared in December 2009 (retroactive adjustment)			—				381,238				—				365,140
Adjusted weighted average shares used for basic EPS			10,978,215				8,006,005				10,687,238				7,667,935
Effect 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 conversion of NetREIT Garden Gateway Partnership			—				—				—				—
Incremental shares from convertible preferred stock and warrants			—				—				—				—
Adjusted weighted average shares used for diluted EPS			10,978,215				8,006,005				10,687,238				7,667,935

Weighted average shares from share based compensation, shares from conversion of NetREIT 01 LP Partnership, Casa Grande LP Partnership, NetREIT Palm Self-Storage LP Partnership, NetREIT Garden Gateway LP Partnership and shares from convertible preferred stock and warrants with respect to a total of 967,607 and 1,029,666 shares of common stock for the three and six months ended June 30, 2010 and 2009, respectively, were excluded from the computation of diluted earnings per share as their effect was anti-dilutive.

Fair Value of Financial Instruments and Certain Other Assets/Liabilities. The Company calculates the fair value of financial instruments using available market information and appropriate present value or other valuation techniques such as discounted cash flow analyses. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot always be substantiated by comparison to independent markets and in many cases, could not be realized in immediate settlement of the instruments. Management believes that the carrying values reflected in the accompanying balance sheets reasonably approximate the fair values for financial instruments.

The Company does not have any assets or liabilities that are measured at fair value on a recurring basis and, as of June 30, 2010 and December 31, 2009, does not have any assets or liabilities that were measured at fair value on a nonrecurring basis.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the allocation of purchase price paid for property acquisitions between land, building and intangible assets acquired including their useful lives; the allowance for doubtful accounts, which is based on an evaluation of the tenants’ ability to pay and the provision for possible loan losses with respect to mortgages receivable and interest. Actual results may differ from those estimates.

Segments. The Company acquires and operates income producing properties including office properties, residential properties, retail properties and self-storage properties and invests in real estate assets, including real estate loans and, as a result, the Company operates in five business segments. See Note 8 “Segments”.

3. REAL ESTATE ASSETS AND LEASE INTANGIBLES

A summary of the seventeen properties and investments in nineteen model homes owned by the Company as of June 30, 2010 is as follows:

Real estate

Square

Property

assets, net

Property Name

Date Acquired

Location

Footage

Description

(in thousands)

Casa Grande Apartments

April 1999

Cheyenne, Wyoming

29,250

Residential

$

1,535.9

Havana/Parker Complex

September 2006

Aurora, Colorado

114,000

Office

6,569.0

7-Eleven

September 2006

Escondido, California

3,000

Retail

1,314.8

Garden Gateway Plaza

March 2007

Colorado Springs, Colorado

115,052

Office

13,219.5

World Plaza

September 2007

San Bernardino, California

55,098

Retail

5,797.5

Regatta Square

October 2007

Denver, Colorado

5,983

Retail

2,008.9

Sparky’s Palm Self-Storage

November 2007

Highland, California

50,250

Self Storage

4,767.2

Sparky’s Joshua Self-Storage

December 2007

Hesperia, California

149,750

Self Storage

7,408.5

Executive Office Park

July 2008

Colorado Springs, Colorado

65,084

Office

8,981.0

Waterman Plaza

August 2008

San Bernardino, California

21,170

Retail

6,645.9

Pacific Oaks Plaza

September 2008

Escondido, California

16,000

Office

4,678.3

Morena Office Center

January 2009

San Diego, California

26,784

Office

6,164.5

Fontana Medical Plaza

February 2009

Fontana, California

10,500

Office

2,206.5

Rangewood Medical Office Building

March 2009

Colorado Springs, Colorado

18,222

Office

2,468.7

Sparky’s Thousand Palms Self-Storage

August 2009

Thousand Palms, California

113,126

Self Storage

6,045.9

19 Model Home Properties

Various in 2009

California and Nevada

46,637

Residential

7,645.0

Sparky’s Hesperia East Self-Storage

December 2009

Hesperia, California

72,940

Self Storage

2,772.0

Sparky’s Rialto Self-Storage

May 2010

Rialto, California

101,343

Self Storage

4,871.1

Total real estate assets, net

$

95,100.2

A summary of the fifteen properties owned by the Company as of December 31, 2009 is as follows:

Real estate

Square

Property

assets, net

Property Name

Date Acquired

Location

Footage

Description

(in thousands)

Casa Grande Apartments

April 1999

Cheyenne, Wyoming

29,250

Residential

$

1,571.9

Havana/Parker Complex

September 2006

Aurora, Colorado

114,000

Office

6,587.6

7-Eleven

September 2006

Escondido, California

3,000

Retail

1,325.6

World Plaza

September 2007

San Bernardino, California

55,098

Retail

5,810.5

Regatta Square

October 2007

Denver, Colorado

5,983

Retail

2,030.2

Sparky’s Palm Self-Storage

November 2007

Highland, California

50,250

Self Storage

4,819.4

Sparky’s Joshua Self-Storage

December 2007

Hesperia, California

149,750

Self Storage

7,491.5

Executive Office Park

July 2008

Colorado Springs, Colorado

65,084

Office

9,180.5

Waterman Plaza

August 2008

San Bernardino, California

21,170

Retail

6,699.2

Pacific Oaks Plaza

September 2008

Escondido, California

16,000

Office

4,725.3

Morena Office Center

January 2009

San Diego, California

26,784

Office

6,247.7

Fontana Medical Plaza

February 2009

Fontana, California

10,500

Office

1,929.2

Rangewood Medical Office Building

March 2009

Colorado Springs, Colorado

18,222

Office

2,513.8

Sparky’s Thousand Palms Self-Storage

August 2009

Thousand Palms, California

113,126

Self Storage

6,112.9

Sparky’s Hesperia East Self-Storage

December 2009

Hesperia, California

72,940

Self Storage

2,784.3

Total real estate assets, net

$

69,829.6

The following table sets forth the components of the Company’s in real estate assets:

		June 30,				December 31,
		2010				2009
Land		$	18,911,540			$	13,820,313
Buildings and other			78,826,366				57,269,228
Tenant improvements			3,823,955				2,061,107
			101,561,861				73,150,648
Less accumulated depreciation and amortization			(6,461,658	)			(3,321,045	)
Real estate assets, net		$	95,100,203			$	69,829,603

Operations from each property are included in the Company’s financial statements from the date of acquisition.

The Company acquired the following property in 2010:

In May 2010, the Company completed the acquisition of Sparky’s Rialto Self Storage (Formerly known as Las Colinas Self Storage) located in Rialto, California. The purchase price was $4.9 million. The Company paid the purchase price through a cash payment of approximately $2.0 million and a promissory note in the amount of approximately $2.9 million. The property consists of approximately 7.5 acres of land, 101,343 rentable square feet and approximately 771 self storage units.

The Company acquired the following properties in 2009:

In January 2009, the Company acquired the Morena Office Center, an office building located in San Diego, California. The purchase price for the property was $6.6 million, including transaction costs. The Company purchased the property with $3.4 million cash and a $3.2 million draw on its former line of credit facility. This property consists of a building of approximately 26,784 rentable square feet.

In February 2009, the Company and Fontana Dialysis Building, LLC formed Fontana Medical Plaza, LLC (“FMP”) for which the Company is Managing Member and 51% owner. FMP assumed an agreement to purchase the Fontana Medical Plaza located in Fontana, California. The purchase price for the property was $1.9 million. The Company purchased the property with $800,000 cash and a $1,100,000 draw on its former line of credit facility. The property consists of approximately 10,500 rentable square feet.

In March 2009, the Company acquired The Rangewood Medical Office Building (“Rangewood”) located in Colorado Springs, Colorado. The purchase price for the property was $2.6 million, including transaction costs. The Company purchased the property with $200,000 cash and a $2,430,000 draw on its former line of credit facility. Rangewood is a 3-story, Class A medical office building of approximately 18,222 rentable square feet.

In August 2009, the Company completed the acquisition of Sparky’s Thousand Palms Self-Storage (Formerly known as Monterey Palms Self-Storage) (“Thousand Palms”) located in Thousand Palms, California. The purchase price for the Property was $6.2 million. The Company paid the purchase price through a cash payment of $1.5 million which was applied to closing costs and fees and to an existing loan secured by Thousand Palms, and assumed a nonrecourse, variable interest rate, promissory note with a principal balance after the closing of $4.7 million. Thousand Palms consists of 113,126 rentable square feet comprised of 549 storage units.

In December 2009, the Company completed the acquisition of Sparky’s Hesperia East Self-Storage East (Formerly known as St. Thomas Self-Storage) located in Hesperia California. The purchase price for the Property was $2.8 million. The Company paid the purchase price through a cash payment of $1.1 million and a promissory note in the amount of $1.7 million. The property consists of approximately 5.8 acres of land, 72,940 rentable square feet and approximately 479 self-storage units.

The Company allocated the purchase price of the property acquired during 2010 as follows:

Buildings

Tenant

In-place

Leasing

Tenant

Total Purchase

Land

and other

Improvements

Leases

Costs

Relationships

Price

Sparky’s Rialto Self-Storage

$

1,055,000

$

3,820,000

$

4,875,000

The Company allocated the purchase price of the properties acquired during 2009 as follows:

						Buildings				Tenant				In-place				Leasing				Tenant				Total Purchase
		Land				and other				Improvements				Leases				Costs				Relationships				Price
Morena Office Center		$	1,333,000			$	4,833,141			$	242,324			$	80,861			$	85,674							$	6,575,000
Fontana Medical Plaza			556,858				1,362,942																				1,919,800
Rangewood Medical Office Building			572,000				1,750,732				152,683				41,043				113,542								2,630,000
Sparky’s Thousand Palms Self-Storage			620,000				5,530,000																50,000				6,200,000
Sparky’s Joshua Self-Storage East			1,470,000				1,305,000																				2,775,000

Lease Intangibles

The following table summarizes the net value of other intangible assets and the accumulated amortization for each class of intangible asset:

		June 30, 2010												December 31, 2009
										Lease												Lease
		Lease				Accumulated				intangibles,				Lease				Accumulated				intangibles,
		intangibles				amortization				net				intangibles				amortization				net
In-place leases		$	812,722			$	(463,296	)		$	349,426			$	643,630			$	(255,127	)		$	388,503
Leasing costs			646,713				(346,676	)			300,037				508,621				(188,100	)			320,521
Tenant relationships			332,721				(324,387	)			8,334				332,721				(299,388	)			33,333
Below-market leases			—				—				—				(40,160	)			17,660				(22,500	)
		$	1,792,156			$	(1,134,359	)		$	657,797			$	1,444,812			$	(724,955	)		$	719,857

As of June 30, 2010, the estimated aggregate amortization expense for the six month period ending December 31, 2010, each of the four succeeding fiscal years and thereafter is as follows:

		Estimated
		Aggregate
		Amortization
		Expense
Six month period ending December 31, 2010		$	134,010
2011			182,766
2012			132,028
2013			72,131
2014			36,683
Thereafter			100,179
		$	657,797

The weighted average amortization period for the lease intangibles, consisting of in-place leases, leasing costs and tenant relationships as of June 30, 2010 was 5.5 years.

4. INVESTMENT IN REAL ESTATE VENTURES

The following table sets forth the components of the Company’s investment in real estate ventures:

		Equity
		Percentage				December 31, 2009
Garden Gateway Plaza			94.0	%		$	12,665,799
Dubose Acquisition Partners II, LTD & III, LTD			51.0				1,526,830
						$	14,192,629

The Garden Gateway Plaza property was held as tenants in common with the other investors at December 31, 2009. Effective February 1, 2010, the tenants in common exchanged their interests in the property into a partnership. As a result, the Company has consolidated this partnership as its activity as the sole general partner and majority owner.

The Company is a limited partner in the Dubose Acquisition Partners II, LTD and III, LTD (“DAP II & III”). These are investments in limited partnerships that acquired model homes from homebuilders and leased them back to the seller. Effective March 1, 2010 the Company obtained the rights to manage the role of the general partner for these two partnerships and, as a result, has consolidated this partnership as its activity as majority owner and through assumption of managing the role of the general partner.

Condensed balance sheets of all investments included in investment in real estate ventures as of December 31, 2009 is as follows:

		December 31, 2009
Real estate assets and lease intangibles		$	20,791,102
Total assets		$	20,791,102
Mortgage notes payable		$	5,131,516
Owner’s equity			15,659,586
Total liabilities and owners’ equity		$	20,791,102

Condensed statements of operations of all investments included in investment in real estate ventures for the three and six months ended June 30, 2010 and 2009 are as follows:

		Three months ended June 30,								Six months ended June 30,
		2010				2009				2010				2009
Rental income		$	—			$	874,245			$	297,762			$	1,518,721
Costs and expenses:
Rental operating costs			—				298,246				62,055				564,912
Interest Expense			—				223,574				106,030				387,015
Depreciation and amortization			—				249,272				99,908				442,837
Partner’s share of net operating income			—				102,559				28,000				180,061
		$	—			$	594			$	1,769			$	(56,104	)

5. MORTGAGE NOTES PAYABLE

Mortgage notes payable as of June 30, 2010 and December 31, 2009 consisted of the following:

		June 30,				December 31,
		2010				2009
Mortgage 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		$	3,359,017			$	3,393,776
Mortgage 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			9,951,409				10,075,155
Mortgage 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			3,307,214				3,380,792
Mortgage 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			3,735,918				3,769,886
Mortgage 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			4,587,064				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% through December 2011, 6.25% to maturity, collateralized by the Sparky’s Hesperia East Self-Storage property			1,730,098				1,742,500
Mortgage note payable in monthly installments of $17,226 through May 3, 2012, including interest at a fixed rate of 5.00%; monthly installments of $19,323 from June 3, 2012, including interest at 6.25% to maturity, collateralized by the Sparky’s Rialto Self-Storage property			2,917,118				—
Mortgage notes payable in monthly installments of $31,443 through February 10, 2012, including interest at a fixed rate of 5.50%, collateralized by 15 model home properties			3,041,728				—
Mortgage notes payable in monthly installments of $20,153 through September 18, 2012, including interest at a fixed rate of 6.50%, collateralized by 4 model home properties			1,926,324				—
		$	34,555,890			$	26,995,502

The Company is in compliance with all conditions and covenants of its mortgage notes payable.

Scheduled principal payments of mortgage notes payable as of June 30, 2010 for the six month period ending December 31, 2010 and the four succeeding fiscal years and thereafter, are as follows:

		Scheduled
		Principal
		Payments
Six month period ending December 31, 2010		$	506,536
2011			1,036,279
2012			8,246,422
2013			663,245
2014			9,356,423
Thereafter			14,746,985
Total		$	34,555,890

6. RELATED PARTY TRANSACTIONS

The Company leases a portion of its corporate headquarters at Pacific Oaks Plaza in Escondido, California to C.I. Holding Group, Inc. and Subsidiaries (“CI”), a small shareholder in the Company that is approximately 35% owned by the Company’s executive management and to other affiliates. Total rents charged and paid by these affiliates was $12,487 and $24,974 for the three and six months ended June 30, 2010 and 2009, respectively.

The Company has entered into a property management agreement with CHG Properties, Inc. (“CHG”), a wholly-owned subsidiary of CI, to manage all of its properties at rates up to 5% of gross income. During the three months ended June 30, 2010 and 2009, the Company paid CHG total management fees of $101,304 and $89,230, respectively. During the six months ended June 30, 2010 and 2009, the Company paid CHG total management fees of $192,767 and $181,988, respectively.

During the term of the property management agreement, the Company has an option to acquire the business conducted by CHG. The option is exercisable, with the approval of a majority of the Company’s directors not otherwise interested in the transaction, without any consent of the property manager, its board or its shareholders,. The option price is shares of the Company to be determined by a predefined formula based on the net income of CHG during the 6-month period immediately preceding the month in which the acquisition notice is delivered.

In February 2010, the Company acquired the rights to use of the name Dubose Model Homes USA (“DMHU”) and the former employees of DMHU. Larry Dubose, a director of the Company since 2005, served as President of DMHU. In addition, the Company entered into a management agreement to manage the existing partnerships of DMHU in return for the rights to receive management fees from these partnerships. DMHU has historically invested in model homes and leased them back to the developers for a period of three to five years at which time the model homes are sold. NetREIT intends to begin to invest in model homes and lease them back to the developers under similar terms. Mr. Dubose will continue to manage the business as a director, officer and employee of NetREIT.

7. SHAREHOLDERS’ EQUITY

Employee Retirement and Share-Based Incentive Plans

Stock Options. The following table summarizes the stock option activity.

						Weighted
						Average
						Exercise
		Shares				Price
Balance, December 31, 2007			21,266			$	6.93
Options exercised			(14,204	)		$	7.76
Options outstanding and exercisable, December 31, 2008			7,062			$	8.23
Options exercised			(5,610	)		$	8.23
Options outstanding and exercisable, December 31, 2009			1,452			$	8.64
Options exercised			(1,452	)		$	8.64
Balance, June 30, 2010			—				—

Share-Based Incentive Plan. An incentive award plan has been established for the purpose of attracting and retaining officers, key employees and non-employee board members. The Compensation Committee of the Board of Directors adopted a Restricted Stock plan (“Restricted Stock”) in December 2006 and granted nonvested shares of restricted common stock annually beginning on January 1, 2007. The nonvested shares have voting rights and are eligible for any dividends paid to common shares. The share awards vest in equal annual installments over a three or five year period from date of issuance. The Company recognized compensation cost for these fixed awards over the service vesting period, which represents the requisite service period, using the straight-line attribution expense method.

The value of the nonvested shares was calculated based on the offering price of the shares in the most recent private placement offering, net of issuance costs or $8.60 per share adjusted for stock dividends since granted and assumed selling costs. The value of granted nonvested restricted stock granted during the six months ended June 30, 2010 and 2009 was $461,100 and $418,900, respectively. Compensation expense recorded during the three months ended June 30, 2010 and 2009 was $83,700 and $42,600, respectively. Compensation expense recorded during the six months ended June 30, 2010 and 2009 was $167,400 and $83,700, respectively. The remaining 98,016 nonvested restricted shares will vest in equal installments over the next one to four years.

A table of non-vested restricted shares granted and vested since December 31, 2008 is as follows:

Balance, December 31, 2008			27,228
Granted			43,985
Vested			(24,787	)
Cancelled			(566	)
Balance, December 31, 2009			45,860
Granted			53,616
Vested			(1,050	)
Cancelled			(410	)
Balance, June 30, 2010			98,016

Stock Dividend. The Company’s Board of Directors declared stock dividends on common shares to all Shareholders of record and at rates shown in the table below:

				Stock				Common Stock
Date of Declaration		Record Date		Dividend Rate				Value				Shares				Amount
December 4, 2009		January 1, 2010			5	%		$	8.60				482,027			$	4,145,432

The stock dividend was issued on January 2, 2010.

Cash Dividends. Cash dividends declared per common share for the six months ended June 30, 2010 and 2009 were $0.286 and $0.30, respectively. The dividend paid to stockholders of the Series AA Preferred for the three months ended June 30, 2010 and 2009 was $34,447 and $43,925, or an annualized portion of the 7% of the liquidation preference of $25 per share. The preferred shares were redeemed in May 2010.

Sale or other issuance of Common Stock. During the six months ended June 30, 2010, the net proceeds from the sale of 886,432 shares of common stock was $7,500,033. In addition, 2,000 shares of common stock were issued in connection with the conversion of $20,000 of preferred stock during the six months ended June 30, 2010. During the six months ended June 30, 2009, the net proceeds from the sale of 1,120,405 shares of common stock was $9,467,133.

8. SEGMENTS

The Company’s reportable segments consist of the four types of commercial real estate properties for which the Company’s decision-makers internally evaluate operating performance and financial results: Residential Properties, Office Properties, Retail Properties, Self-Storage Properties and Mortgage Loans. The Company also has certain corporate level activities including accounting, finance, legal administration and management information systems which are not considered separate operating segments.

The Company’s chief operating decision maker evaluates the performance of its segments based upon net operating income. Net operating income is defined as operating revenues (rental income, tenant reimbursements and other property income) less property and related expenses (property expenses, real estate taxes, ground leases and provisions for bad debts) and excludes other non-property income and expenses, interest expense, depreciation and amortization, and general and administrative expenses. The accounting policies of the reportable segments are the same as those described in the Company’s significant accounting policies (see Note 2). There is no intersegment activity.

The following tables reconcile the Company’s segment activity to its results of operations and financial position as of and for the three and six months ended June 30, 2010 and 2009.

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Office Properties:
Rental income		$	1,226,652			$	781,927			$	2,268,971			$	1,467,138
Property and related expenses			621,962				406,806				1,119,339				769,092
Net operating income, as defined			604,690				375,121				1,149,632				698,046
Equity in (losses) from real estate ventures			—				(60,659	)			(22,378	)			(142,661	)
Residential Properties:
Rental income			338,786				—				491,665				—
Property and related expenses			48,235				—				85,599				—
Net operating income, as defined			290,551				—				406,066				—
Equity in earnings from real estate ventures			—				35,413				24,147				37,690
Retail Properties:
Rental income			417,385				366,774				826,741				752,549
Property and related expenses			117,824				112,033				247,945				239,116
Net operating income, as defined			299,561				254,741				578,796				513,433
Equity in earnings from real estate ventures			—				12,644				—				20,016
Self Storage Properties:
Rental income			476,736				162,522				885,858				325,106
Property and related expenses			337,158				93,699				606,758				187,680
Net operating income, as defined			139,578				68,823				279,100				137,426
Equity in earnings from real estate ventures			—				13,196				—				28,851
Mortgage loan activity:
Interest income			14,738				14,738				29,314				29,314
Reconciliation to Net Income Available to Common Shareholders:
Total net operating income, as defined, for reportable segments			1,349,118				714,017				2,444,677				1,322,115
Unallocated other income:
Total other income			13,104				20,883				25,443				22,274
Unallocated other expenses:
General and administrative expenses			805,319				518,790				1,567,788				1,069,462
Interest expense			498,909				224,623				876,064				451,179
Depreciation and amortization			889,681				506,944				1,667,163				1,000,467
Net loss			(831,687	)			(515,457	)			(1,640,895	)			(1,176,719	)
Noncontrolling interests			57,719				—				94,495				—
Net loss			(889,406	)			(515,457	)			(1,735,390	)			(1,176,719	)
Preferred dividends			(12,484	)			(21,962	)			(34,447	)			(43,925	)
Net loss attributable to common shareholders		$	(901,890	)		$	(537,419	)		$	(1,769,837	)		$	(1,220,644	)

		June 30,				December 31,
		2010				2009
Assets:
Office Properties:
Land, buildings and improvements, net (1)		$	44,640,159			$	31,554,488
Total assets (2)			45,615,644				32,652,322
Investment in real estate ventures			—				12,665,799
Residential Property:
Land, buildings and improvements, net			9,180,900				1,571,935
Total assets			9,248,398				1,594,248
Investment in real estate ventures			—				1,526,830
Retail Properties:
Land, buildings and improvements, net (1)			17,433,791				17,574,262
Total assets (2)			17,626,385				17,746,702
Self-Storage Properties:
Land, buildings and improvements, net (1)			25,873,148				21,241,275
Total assets (2)			25,980,721				21,364,770
Mortgage loan activity:
Mortgage receivable and accrued interest			920,216				920,216
Total assets			920,216				920,216
Reconciliation to Total Assets:
Total assets for reportable segments			99,391,364				88,470,887
Other unallocated assets:
Cash and cash equivalents			10,125,688				9,298,523
Prepaid expenses and other assets, net			4,041,318				2,222,427
Total Assets		$	113,558,370			$	99,991,837