netr-10q_20150930.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

At November 13, 2015, registrant had issued and outstanding 17,080,067 shares of its common stock, $0.01 par value.

Statements contained in this quarterly report on Form 10-Q that are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to materially differ from those projected. Some of the information presented is forward-looking in nature, including information concerning projected future occupancy rates, rental rate increases, project development timing and investment amounts. Although the information is based on our current expectations, actual results could vary from expectations stated in this report. Numerous factors will affect our actual results, some of which are beyond our control. These include the timing and strength of national and regional economic growth, the strength of commercial and residential markets, competitive market conditions, fluctuations in availability and cost of construction materials and labor resulting from the effects of worldwide demand, future interest rate levels and capital market conditions. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report. We assume no obligation to update publicly any forward-looking information, whether as a result of new information, future events or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws to disclose material information. For a discussion of important risks related to our business, and an investment in our securities, including risks that could cause actual results and events to differ materially from results and events referred to in the forward-looking information.

	September 30,			December 31,
	2015			2014
	(Unaudited)
ASSETS
Real estate assets and lease intangibles:
Land	$	47,885,743		$	40,422,812
Buildings and improvements		158,046,429			128,719,410
Tenant improvements		17,282,076			13,164,998
Lease intangibles		11,777,904			9,793,814
Real estate assets and lease intangibles, cost		234,992,152			192,101,034
Accumulated depreciation and amortization		(27,873,559	)		(23,011,006	)
Real estate assets and lease intangibles, net		207,118,593			169,090,028
Real estate assets held for sale, net		-			29,107,675
Cash and cash equivalents		11,146,053			5,636,002
Restricted cash		6,588,606			4,086,498
Deferred leasing and financing costs, net		5,130,025			5,438,857
Goodwill		2,423,000			2,423,000
Other assets, net		5,630,369			4,842,878
TOTAL ASSETS	$	238,036,646		$	220,624,938

LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable	$	128,208,218		$	106,966,774
Mortgage notes payable related to assets held for sale		-			16,932,524
Accounts payable and accrued liabilities		8,277,930			6,631,804
Dividends payable		829,856			997,175
Below-market rent, net		1,592,847			960,328
Mandatorily redeemable Series B Preferred Stock, $0.01 par value, $1,000 liquidating preference; shares authorized: 40,000; 30,000 and 16,600 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively		30,000,000			16,600,000
Total liabilities		168,908,851			149,088,605

Commitments and contingencies

Equity:
Common stock series A, $0.01 par value, shares authorized: 100,000,000; 17,080,067 and 16,887,377 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively		170,801			168,874
Additional paid-in capital		145,626,090			143,715,876
Dividends in excess of accumulated losses		(88,822,828	)		(83,150,866	)
Total stockholders' equity before noncontrolling interest		56,974,063			60,733,884
Noncontrolling interest		12,153,732			10,802,449
Total equity		69,127,795			71,536,333
TOTAL LIABILITIES AND EQUITY	$	238,036,646		$	220,624,938

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues:
Rental income	$	6,007,567		$	4,227,121		$	16,747,951		$	11,930,730
Fee and other income		104,035			24,354			327,745			82,776
		6,111,602			4,251,475			17,075,696			12,013,506

Costs and expenses:
Rental operating costs		1,902,454			1,523,297			5,742,548			4,139,147
General and administrative		1,181,714			1,200,536			3,475,628			3,889,185
Depreciation and amortization		1,884,193			1,448,108			5,560,525			3,887,117
Total costs and expenses		4,968,361			4,171,941			14,778,701			11,915,449

Other income (expense):
Interest expense-Series B preferred stock		(1,160,106	)		(353,014	)		(2,924,697	)		(353,014	)
Interest expense-mortgage notes		(1,470,631	)		(1,123,270	)		(4,361,654	)		(3,322,325	)
Interest and other income		26,220			15,418			61,976			75,577
Gain on sale of real estate and partnerships		10,858			1,221,680			1,205,612			2,885,486
Impairment of real estate		-			(950,000	)		-			(950,000	)
Total other expense, net		(2,593,659	)		(1,189,186	)		(6,018,763	)		(1,664,276	)

Loss from continuing operations		(1,450,418	)		(1,109,652	)		(3,721,768	)		(1,566,219	)

Discontinued operations
Gain (loss) on the sale of real estate		-			-			4,730,398			(156,651	)
(Loss) income from discontinued operations, net		-			(15,682	)		(131,375	)		124,008
(Loss) income from discontinued operations		-			(15,682	)		4,599,023			(32,643	)

Net (loss) income		(1,450,418	)		(1,125,334	)		877,255			(1,598,862	)

Less: Income attributable to noncontrolling interests		(96,116	)		(726,222	)		(1,414,642	)		(1,709,127	)

Net loss attributable to NetREIT, Inc. common stockholders	$	(1,546,534	)	$	(1,851,556	)	$	(537,387	)	$	(3,307,989	)

Basic and diluted (loss) income per common share
Continuing operations	$	(0.08	)	$	(0.07	)	$	(0.22	)	$	(0.09	)
Discontinued operations	$	-		$	(0.00	)	$	0.27		$	(0.00	)
Loss per common share	$	(0.09	)	$	(0.11	)	$	(0.03	)	$	(0.20	)
Weighted average number of common shares outstanding - basic and diluted		17,073,986			16,745,003			16,979,533			16,768,211

										Dividends
							Additional			In Excess of			Total			Non-
	Common Stock						Paid-in			Accumulated			Stockholders’			controlling			Total
	Shares			Amount			Capital			Losses			Equity			Interest			Equity
Balance, December 31, 2014		16,887,377		$	168,874		$	143,715,876		$	(83,150,866	)	$	60,733,884		$	10,802,449		$	71,536,333
Net income (loss)		-			-			-			(537,387	)		(537,387	)		1,414,642			877,255
Dividends declared/reinvested		68,963			690			654,462			(1,717,469	)		(1,062,317	)		-			(1,062,317	)
Dividends paid		142,564			1,425			1,353,339			(3,417,106	)		(2,062,342	)		-			(2,062,342	)
Common stock issued		2,163			22			49,977			-			49,999			-			49,999
Common stock repurchased - related party		(21,000	)		(210	)		(147,564	)		-			(147,774	)		-			(147,774	)
Contributions received from noncontrolling interests, net of distributions paid		-			-			-			-			-			(63,359	)		(63,359	)
Balance, September 30, 2015		17,080,067		$	170,801		$	145,626,090		$	(88,822,828	)	$	56,974,063		$	12,153,732		$	69,127,795

	Nine Months Ended			Nine Months Ended
	September 30,			September 30,
	2015			2014
Cash flows from operating activities:
Net income (loss)	$	877,255		$	(1,598,862	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization from continuing operations		5,560,525			4,628,732
Depreciation and amortization from discontinued operations		165,646			-
Stock compensation		350,014			298,546
Bad debt expense		-			95,790
Gain on sales of real estate assets and partnerships, net		(5,936,010	)		(1,507,155	)
Real estate asset impairment		-			950,000
Amortization of financing costs		941,836			474,009
Amortization of above-market rent		161,163			138,229
Amortization of below-market rent		(94,196	)		(21,036	)
Changes in operating assets and liabilities:
Other assets		(848,166	)		146,347
Accounts payable and accrued liabilities		1,296,112			408,354
Net cash provided by operating activities		2,474,179			4,012,954

Cash flows from investing activities:
Real estate acquisitions		(42,528,263	)		(17,509,525	)
Building and tenant improvements		(2,354,988	)		(1,978,375	)
Deferred leasing costs		(332,927	)		(336,632	)
Proceeds received from sale of real estate assets and partnerships		37,101,304			13,094,596
Restricted cash		(2,502,108	)		(8,778,384	)
Net cash used in investing activities		(10,616,982	)		(15,508,320	)

Cash flows from financing activities:
Proceeds from mortgage notes payable, net of issuance costs		33,429,870			22,142,153
Repayment of mortgage notes payable		(29,723,904	)		(12,866,440	)
Proceeds from issuance of mandatorily redeemable preferred stock, net of offering costs		13,400,000			12,275,748
Proceeds from issuance of common stock		49,999			-
Distributions paid to noncontrolling interests in excess of contributions received		(63,359	)		(2,671,269	)
Repurchase of common stock		(147,774	)		(212,212	)
Redemption of Series 6.3% preferred stock		-			(1,649,266	)
Dividends paid to stockholders		(3,291,978	)		(3,837,162	)
Net cash provided by financing activities		13,652,854			13,181,552

Net increase in cash and cash equivalents		5,510,051			1,686,186
Cash and cash equivalents - beginning of period		5,636,002			10,207,001
Cash and cash equivalents - end of period	$	11,146,053		$	11,893,187
Supplemental disclosure of cash flow information:
Interest paid Series B preferred stock	$	2,244,411		$	201,666
Interest paid-mortgage notes payable	$	4,542,269		$	3,936,607
Non-cash investing and financing activities:
Reinvestment of cash dividends	$	2,009,916		$	2,647,443
Accrual of dividends payable	$	829,856		$	997,175
Conversion of partnership interests into common stock	$	—		$	165,018

Organization. NetREIT (the “Company”) was incorporated in the State of California in January 1999 for the purpose of investing in real estate properties. Effective August 2010, NetREIT merged into NetREIT, Inc., a Maryland Corporation, with NetREIT, Inc. becoming the surviving Corporation. As a result of the merger, NetREIT is now incorporated in the State of Maryland. 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’s portfolio includes the following properties:

The Company sold all seven of its self-storage facilities (“Self-Storage Properties”) which totaled approximately 652,000 rentable square feet on April 10, 2015.

The following partnership activity occurred during the periods covered by these consolidated financial statements:

The Company has determined that the entities described above, where it owns less than 100%, should be included in the Company’s consolidated financial statements as the Company directs their activities and believes that it controls these limited partnerships through NetREIT, the Parent Company.

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code, for federal income tax purposes. To qualify as a REIT, the Company must distribute annually at least 90% of adjusted taxable income, as defined in the Code, to its stockholders and satisfy certain other organizational and operating requirements. As a REIT, no provision is made for federal income taxes on income resulting from those sales of real estate investments which have or will be distributed to stockholders within the prescribed limits. However, taxes are provided for those gains which are not anticipated to be distributed to stockholders unless such gains are deferred pursuant to Section 1031. In addition, the Company is 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. The Company believes that it has met all of the REIT distribution and technical requirements for the nine months ended September 30, 2015 and 2014.

Earnings and profits that determine the taxability of distributions to stockholders differ from net income reported for financial reporting purposes due to differences in estimated useful lives and methods used to compute depreciation and the carrying value (basis) on the investments in properties for tax purposes, among other things. During the nine months ended September 30, 2015 and 2014, because of net losses, all distributions were considered return of capital to the stockholders and therefore non-taxable.

The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any major tax jurisdictions.

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2014. During the nine months ended September 30, 2015 we adopted guidance for reporting of discontinued operations. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”).

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") for interim financial statement and the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures required for annual consolidated financial statements have been condensed or excluded pursuant to rules and regulations of the 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 nine months ended September 30, 2015 and 2014, respectively. 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, 2015. 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, 2014. The condensed consolidated balance sheet at year ended December 31, 2014 has been derived from the audited consolidated financial statements included in the Form 10-K filed with the SEC on March 30, 2015.

Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries and entities the Company controls or of which it is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Real Estate Held for Sale and Discontinued Operations. Real estate sold during the current period is classified as “real estate held for sale” for all prior periods presented in the accompanying condensed consolidated financial statements. Mortgage notes payable related to the real estate sold during the current period is classified as “notes payable related to real estate held for sale” for all prior periods presented in the accompanying condensed consolidated financial statements. Additionally, the Company records the operating results related to real estate that has been disposed of as discontinued operations for all periods presented if the operations have been eliminated and the Company will not have any significant continuing involvement in the operations of the property following the sale.

Use of Estimates. The preparation of financial statements in conformity with GAAP 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; valuation of long-lived assets, and the allowance for doubtful accounts, which is based on an evaluation of the tenants’ ability to pay. Actual results may differ from those estimates.

Reclassifications. Certain reclassifications have been made to the previously presented consolidated financial statements and condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on previously reported results of consolidated operations or equity.

Recently Issued Accounting Pronouncements. In April 2015, the FASB issued an ASU which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, entities are required to comply with the applicable disclosures for a change in an accounting principle. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

In February 2015, the Financial Accounting Standards Board or “FASB” issued an Accounting Standards Update “ASU” which modifies the guidance for consolidations. The standard is effective for the Company’s fiscal year beginning January 1, 2018. Early

adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or related financial statement disclosures.

In January 2015, the FASB issued an ASU which eliminates the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The standard is effective for the Company’s fiscal year beginning January 1, 2016. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or related financial statement disclosures

In May 2014, the FASB issued an ASU which supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. This guidance was originally effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 31, 2016, which for the Company is January 1, 2017; early adoption was not permitted. In April 2015, the FASB voted to propose a deferral of the effective date of the new standard by one year, but to permit companies to adopt one year earlier if they choose. The Company is assessing the impact of this ASU and date of adoption.

On August 8, 2015, the Company acquired seven industrial buildings referred to as West Fargo Industrial located in West Fargo, North Dakota for a purchase price of $7.9 million paid through cash payment of $3.4 million and a promissory note of $4.5 million.

On August 8, 2015, the Company acquired an office building referred to as 300 N.P. located in West Fargo, North Dakota for a purchase price of $3.8 million paid all through a cash payment.

On August 13, 2015 the Company acquired a retail building referred to as Research Parkway located in Colorado Springs, Colorado for a purchase price of $2.8 million paid all through a cash payment.

On August 26, 2015 the Company and NetREIT Palm Self-Storage LP acquired an office building referred to as Highland Court located in Centennial, Colorado for a purchase price $13.0 million paid through a cash payment of $6 million and a note of $7 million.

On August 28, 2015, the Company acquired an office building referred to as One Parke Center located in Westminster, Colorado for a purchase price of $9.1 million paid through a cash payment of $2.6 million and a note of $6.6 million.

During the nine months ended September 30, 2015, NetREIT Dubose and the other Model Home entities acquired seventeen Model Home properties in various states and leased them back to the homebuilders. The purchase price for the properties was $5.7 million. The purchase price paid was through cash payments of $2.3 million and promissory notes of $3.4 million.

The Company allocated the purchase price of the properties acquired during the nine months ended September 30, 2015 as follows:

			Buildings		Tenant		Leases		Leasing		Total
	Land		and Other		Improvements		in Place		Costs		Purchase Price
West Fargo Industrial	$	1,693,035	$	6,021,166	$	3,166	$	99,595	$	83,038	$	7,900,000
300 N.P.		135,430		3,429,097		53,272		127,852		104,349		3,850,000
Research Parkway		407,722		2,283,689		38,022		50,300		70,267		2,850,000
Highland Court		3,608,028		6,939,286		1,412,097		621,323		469,266		13,050,000
One Park Centre		1,205,552		7,047,875		274,591		366,121		255,861		9,150,000
Model Homes Properties		797,000		4,931,263		-		-		-		5,728,263
	$	7,846,767	$	30,652,376	$	1,781,148	$	1,265,191	$	982,781	$	42,528,263

For the nine months ended September 30, 2015, the Company recognized an aggregate of $567,000 of total revenues and an aggregate of $138,000 of operating expenses from these properties.

On April 10, 2015, the Company sold 100% of the Sparky’s Self-Storage Portfolio. The net sales price was approximately $34 million and approximately $16.9 million in mortgage notes payable were repaid in connection the sale. The Company recognized a gain on sale of approximately $4.7 million.

On April 24, 2015, the Company sold a parcel of land and its building at the Yucca Valley Retail Center for approximately $1.5 million and recognized a gain of approximately $1.1 million.

During the nine months ended September 30, 2015, NetREIT Dubose and the other Model Home entities disposed of five Model Home properties. The sales price, net of selling costs, aggregated to approximately $1.5 million and approximately $702,000 in mortgage notes payable were repaid in connection with these sales. The Company recognized a gain of $156,000 related to the sale of these Model Homes.

A summary of the properties owned by the Company as of September 30, 2015 is as follows:

			Real estate
	Date		assets, net
Property Name	Acquired	Location	(in thousands)
Havana/Parker Complex	June 2006	Aurora, Colorado	$	2,103
Garden Gateway Plaza	March 2007	Colorado Springs, Colorado		11,893
World Plaza	September 2007	San Bernardino, California		6,663
Regatta Square	October 2007	Denver, Colorado		1,869
Executive Office Park	July 2008	Colorado Springs, Colorado		8,261
Waterman Plaza	August 2008	San Bernardino, California		5,899
Pacific Oaks Plaza	September 2008	Escondido, California		4,212
Morena Office Center	January 2009	San Diego, California		5,322
Rangewood Medical Office Building	March 2009	Colorado Springs, Colorado		2,330
Genesis Plaza	August 2010	San Diego, California		8,367
Dakota Bank Buildings	May 2011	Fargo, North Dakota		10,382
Yucca Valley Retail Center	September 2011	Yucca Valley, California		7,277
Port of San Diego Complex	December 2011	San Diego, California		13,871
Shoreline Medical Building	May 2012	Half Moon Bay, California		5,890
The Presidio	November 2012	Aurora, Colorado		6,563
Bismarck	March 2014	Fargo, ND		4,840
Union Terrace Building	August 2014	Lakewood, CO		8,655
Centennial Tech Center	December 2014	Colorado Springs, Colorado		15,073
Arapahoe Service Center	December 2014	Centennial, CO		11,446
Union Town Center	December 2014	Colorado Springs, Colorado		11,048
West Fargo Industrial	August 2015	Fargo, ND		7,904
300 N.P.	August 2015	Fargo, ND		3,952
Research Parkway	August 2015	Colorado Springs, Colorado		2,900
One Parke Center	August 2015	Westminster, CO		9,150
Highland Court	August 2015	Centennial, CO		13,453
NetREIT, Inc properties				189,323
Model Home properties	2009-2015	AZ, CA, NC, NJ, PA, SC, TX		17,796
	Total real estate assets and lease intangibles, net		$	207,119

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

	September 30, 2015							December 31, 2014
	Lease		Accumulated			Lease		Lease		Accumulated			Lease
	intangibles		amortization			Intangibles, net		intangibles		amortization			Intangibles, net
In-place leases	$	5,458,643	$	(2,378,147	)	$	3,080,496	$	4,255,565	$	(1,842,782	)	$	2,412,783
Leasing costs		4,194,901		(1,578,737	)	$	2,616,164		3,228,415		(1,214,967	)		2,013,448
Above-market leases		2,124,360		(1,363,984	)	$	760,376		1,977,113		(1,202,821	)		774,292
Tenant relationships		-		-			-		332,721		(332,721	)		-
	$	11,777,904	$	(5,320,868	)	$	6,457,036	$	9,793,814	$	(4,593,291	)	$	5,200,523

Aggregate approximate amortization expense for the Company's lease intangible assets is as follows: $ 509,000 (2015), $853,000 (2016), $1,607,000 (2017), $1,218,000 (2018), $848,000 (2019) and $1,422,000 (thereafter). The weighted average period for the intangible assets as of September 30, 2015 was 5.1 years.

Discontinued operations for the three and nine months ended September 30, 2015 and year ended December 31, 2014 include the operations of its Sparky’s Self-Storage Portfolio located in Southern California. The following summary presents the major components of real estate held for sale and liabilities related to real estate held for sale as of September 30, 2015 and December 31, 2014:

The following table summarizes certain revenue and expenses related to these properties for the three and nine months ended September 30, 2015 and 2014:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2015		2014			2015			2014
Rental revenues	$	-	$	746,861		$	940,048		$	2,292,339
Fee and other income		-		86,783			112,218			250,987
Rental operating expenses		-		(461,504	)		(595,832	)		(1,255,797	)
Depreciation		-		(166,394	)		(165,646	)		(500,057	)
Interest expense		-		(221,428	)		(422,163	)		(663,459	)
Gain on sale of real estate		-		-			4,730,398			(156,651	)
Discontinued operations before non-controlling interests	$	-	$	(15,682	)	$	4,599,023		$	(32,638	)

		Principal as of
		September 30,		December 31,		Loan	Interest
Mortgage note property	Notes	2015		2014		Type	Rate (1)				Maturity
Sparky's Palm, Joshua and Sunrise		$	-	$	7,986,522	Fixed		4.70	%	*		-
Sparky's Lancaster			-		1,903,982	Fixed		5.00	%	*		-
Sparky’s Thousand Palms			-		4,092,100	Variable		5.50	%	*		-
Sparky's Hesperia East			-		830,883	Variable		4.75	%	*		-
Sparky's Rialto			-		2,119,037	Fixed		4.75	%	*		-
Havana/Parker Complex			2,500,000		2,500,000	Fixed		6.51	%		7/1/16
Garden Gateway Plaza			6,841,038		6,963,381	Fixed		5.00	%		4/5/20
Genesis Plaza			6,500,000		4,491,588	Fixed		4.65	%		8/25/25
Executive Office Park	(2)		4,325,816		4,379,854	Fixed		5.80	%		7/1/25
Dakota Bank Buildings			10,866,923		10,993,386	Fixed		4.74	%		7/6/24
Yucca Valley Retail Center			6,000,000		2,982,411	Fixed		4.30	%		4/11/25
Rangewood Medical Office Building			1,043,705		1,092,778	Fixed		4.95	%		1/1/19
Regatta Square			1,191,328		1,214,799	Fixed		4.95	%		1/1/19
Port of San Diego Complex			10,180,489		10,368,228	Fixed		4.75	%		3/5/20
Morena Office Center	(3)		2,305,500		2,351,805	Fixed		4.50	%		1/1/21
Pacific Oaks Plaza	(3)		1,567,500		1,599,204	Fixed		4.50	%		6/1/21
Shoreline Medical Building	(3)		3,757,523		3,846,697	Fixed		5.10	%			-
Waterman Plaza			-		3,368,146	Fixed		6.50	%		9/1/15
The Presidio			6,000,000		6,000,000	Fixed		4.54	%		12/1/21
Bismarck Office Building			3,269,294		3,321,198	Fixed		4.50	%		10/1/16
Union Terrace Building			6,600,000		6,600,000	Fixed		4.34	%		12/5/24
Centennial Tech Center			10,250,000		10,250,000	Fixed		4.34	%		1/5/25
Arapahoe Service Center			8,500,000		8,500,000	Fixed		4.28	%		1/5/25
Highland Court			6,989,587		-	Fixed		3.82	%		8/28/22
West Fargo Industrial			4,500,000		-	Fixed		4.79	%		8/4/20
Westminster			6,610,000		-	Fixed		4.77	%		7/31/25
Union Town Center			8,440,000		8,440,000	Fixed		4.28	%		1/5/25
Subtotal, NetREIT, Inc. properties			118,238,703		116,195,999
Model Home mortgage notes	(4)		9,969,515		7,703,299	Fixed					2015-19
Mortgage Notes Payable, total		$	128,208,218	$	123,899,298

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

Scheduled principal payments of mortgage notes payable were as follows as of September 30, 2015:

In August 2014, the Company closed on a private placement offering of its mandatorily redeemable Series B Preferred Stock. The financing, which will be funded in installments, was to be completed no later than the one year anniversary of the initial investment but was subsequently extended to November 2015. At the conclusion of the funding period, the Company could generate a total capital contribution of $40.0 million which is to be used for Series B Preferred investor approved property acquisitions. Certain specified management decisions must be approved in advance by the Series B Preferred investor and upon the occurrence of an event of default, the Preferred Stock investor has certain additional rights. As of September 30, 2015, the Company had issued 30,000 shares of its Series B Preferred Stock for $30,000,000. The Company has classified the Series B Preferred Stock as a liability in accordance with FASB Accounting Standards Codification (“ASC”) Topic No. 480, “Distinguishing Liabilities from Equity,” which states that mandatorily redeemable financial instruments should be classified as liabilities and the related dividend payments and amortization of issuance costs are treated as a component of interest expense in the accompanying consolidated statements of operations.

The Series B preferred stock has a $0.01 par value and a $1,000 liquidation preference. The Series B preferred stock shall be redeemed through a cash payment of the face value of the shares outstanding at redemption. The preferred return on the funds invested is 14% (10% shall be paid on a monthly basis and the remaining 4% shall accrue and compound monthly payable at the redemption date). The Series B Preferred Stock is scheduled to be redeemed by the third anniversary of the closing date; however, the Company has the right to extend the redemption for up to two additional years. The Company incurred approximately $2.7 million in legal and underwriting costs related to this transaction. These costs have been recorded as deferred financing costs on the accompanying consolidated balance sheets and will be amortized over the term of the agreement. Amortization expense totaling approximately $241,000 and $700,000 was included in interest expense-series B preferred stock for the three and nine months ended September 30, 2015, respectively, in the accompanying condensed consolidated statement of operations.

Preferred Stock. The Company is authorized to issue up to 8,990,000 shares of preferred stock (the “Preferred Stock”). The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of the Preferred Stock, to determine the designation of any such series, and to determine or alter the rights granted to or imposed upon any wholly unissued series of preferred stock including the dividend rights, dividend rate, conversion rights, voting rights, redemption rights (including sinking fund provisions), redemption price, and liquidation preference.

Common Stock. The Company is authorized to issue up to 100,000,000 shares of Series A Common Stock (“Common Stock”) $0.01 par value and 1,000 shares of Series B Common Stock $0.01 par value. The Common Stock and the Series B Common Stock have identical rights, preferences, terms and conditions except that the Series B Common Stockholders are not entitled to receive any portion of Company assets in the event of Company liquidation. There have been no Series B Common Stock shares issued. Each share of Common Stock entitles the holder to one vote. The Common Stock is not subject to redemption and it does not have any preference, conversion, exchange or pre-emptive rights. The articles of incorporation contain a restriction on ownership of the Common Stock that prevents one person from owning more than 9.8% of the outstanding shares of common stock.

In October 2006, the Company commenced a private placement offering of its common stock. Through December 31, 2011 when the offering was closed, the Company conducted a self-underwritten private placement offering and sale of 20,000,000 shares of its common stock at a price of $10 per share. This offering was made only to accredited investors (and up to thirty-five non-accredited investors) pursuant to an exemption from registration provided by Section 4(2) and Rule 506 of Regulation D under the Securities Act of 1933, as amended. No public or private market currently exists for the securities sold under this offering.

Cash Dividends. During the nine months ended September 30, 2015 and 2014 the Company paid cash dividends, net of reinvested stock dividends, of $3,292,000 and $3,830,000, respectively, or at a rate $0.471 and $0.543 per share, respectively, on an annualized basis. As the Company reported net taxable losses in both of these periods, and on a cumulative basis, these cash dividends represent a return of capital to the stockholders rather than a distribution of earnings.

The Company did not pay any cash dividends on its Convertible Series 6.3% Preferred Stock during the three and nine months ended September 30, 2015 as the preferred stock was redeemed in August 2014. The Company paid cash dividends on its Convertible Series 6.3% Preferred Stock of approximately $13,000 and $65,000 during the three and nine months ended September 30, 2014, respectively. The dividends were paid to a subsidiary that is consolidated into the condensed consolidated financial statements of the Company and, as a result, have been eliminated in consolidation.

Dividend Reinvestment Plan. The Company has adopted a distribution reinvestment plan that allows stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of Company common stock. The Company has registered 1,500,000 shares of common stock pursuant to the dividend reinvestment plan. The dividend reinvestment plan became effective on January 23, 2012. The purchase price per share is 95% of the price the Company was formerly selling its shares or $9.50 per share. No sales commission or dealer manager fee will be paid on shares sold through the dividend reinvestment plan. The Company may amend, suspend or terminate the Plan at any time. Any such amendment, suspension or termination will be effective upon a designated dividend record date and notice of such amendment, suspension or termination will be sent to all Participants at least thirty (30) days prior to such record date. As of September 30, 2015 approximately $13.2 million or approximately 1,398,000 shares of common stock have been issued under the dividend reinvestment plan to date.

The Company leases a portion of its corporate headquarters at Pacific Oaks Plaza in Escondido, California to entities 100% owned by the Company’s Chairman and Chief Executive Officer. Rental income recorded for the three months ended September 30, 2015 and 2014 totaled $7,000 and $7,000, respectively. Rental income recorded for the nine months ended September 30, 2015 and 2014 totaled $21,000 and $21,000, respectively.

In January 2014, the former limited partner of NetREIT 01, LP, a consolidated subsidiary of the Company (the "Partnership") that owns the Presidio, exercised its option to convert approximately 52.8% of its ownership interests in the Partnership in exchange for approximately 21,000 shares of Company common stock. After conversion, the Company’s interest in the Partnership increased to approximately 89%. The Company purchased these shares from the limited partner at a price that was determined when the Partnership was formed, which, adjusted for stock dividends, was $7.858 per share. The stock purchase transaction was subject to the Company's related party transaction policy, which required a review of the transaction by the non-interested parties of the Audit Committee and a subsequent vote by the Company's Board of Directors (and was formally approved in December 2013). Effective April 2014, the former limited partner elected to convert all of its remaining interest in the Partnership in exchange for 18,807 shares of Company common stock. The Company bought these shares back in January 2015 for an aggregate purchase price of approximately $148,000 at which time the Company’s interest in the Partnership increased to 100%.

The limited partner of NetREIT 01, LP is the Allen Trust DTD 7-9-1999. William H. Allen, a Director of the Company and Chairman of the Audit Committee, is a beneficiary and a trustee of this trust. The Partnership was formed approximately one year before Mr. Allen became a Board Member.

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, Industrial and Office Properties, Retail Properties; and Self-Storage Properties (sold on April 10, 2015). 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 accounting policies of the reportable segments are the same as those described in Note 2. There is no intersegment activity.

The Company evaluates the performance of its segments based upon net operating income (“NOI”), which is a non-GAAP supplemental financial measure. The Company defines NOI for its segments as operating revenues (rental income, tenant reimbursements and other operating income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management fees, impairments and provision for bad debt) less interest expense. NOI excludes certain items that are not considered to be controllable in connection with the management of an asset such as non-property income and expenses, depreciation and amortization, real estate acquisition fees and expenses and corporate general and administrative expenses. The Company uses NOI to evaluate the operating performance of the Company’s real estate investments and to make decisions about resource allocations.

The following tables reconcile the Company’s segment activity to its results of operations and financial position as of and for the three and nine months ended September 30, 2015 and 2014.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Office/Industrial Properties:
Rental income	$	4,715,807		$	3,122,426		$	13,075,111		$	8,368,703
Property and related expenses		(1,679,926	)		(1,277,080	)		(4,885,154	)		(3,418,279	)
Net operating income, as defined		3,035,881			1,845,346			8,189,957			4,950,424
Residential Properties:
Rental income		414,286			479,400			1,117,616			1,723,462
Property and related expenses		(15,530	)		(18,212	)		(50,377	)		(63,055	)
Net operating income, as defined		398,756			461,188			1,067,239			1,660,407
Retail Properties:
Rental income		981,509			649,649			2,952,646			1,921,338
Property and related expenses		(206,998	)		(228,010	)		(876,694	)		(657,814	)
Net operating income, as defined		774,511			421,639			2,075,952			1,263,524
Self-Storage Properties (discontinued operations):
Rental income		-			833,648			1,052,266			2,543,326
Property and related expenses		-			(849,325	)		(1,183,641	)		(2,419,313	)
Gain on sale of real estate		-			-			4,730,398			(156,651	)
Net operating (loss) income, as defined		-			(15,677	)		4,599,023			(32,638	)
Reconciliation to net (loss) income:
Total net operating income, as defined, for reportable segments		4,209,148			2,712,496			15,932,171			7,841,717
General and administrative expenses		(1,181,714	)		(1,200,536	)		(3,475,628	)		(3,889,185	)
Depreciation and amortization		(1,884,193	)		(1,448,108	)		(5,560,525	)		(3,887,117	)
Interest expense		(2,630,737	)		(1,476,284	)		(7,286,351	)		(3,675,339	)
Interest income		26,220			15,418			61,976			75,577
Real estate asset impairments		-			(950,000	)		-			(950,000	)
Gain on sales of real estate and partnerships, net		10,858			1,221,680			1,205,612			2,885,485
Net (loss) income	$	(1,450,418	)	$	(1,125,334	)	$	877,255		$	(1,598,862	)

	September 30,		December 31,
Assets by Reportable Segment:	2015		2014

Office/Industrial Properties:
Land, buildings and improvements, net (1)	$	153,671,739	$	122,351,316
Total assets (2)	$	166,127,174	$	130,185,089
Residential Properties:
Land, buildings and improvements, net (1)	$	13,647,962	$	13,133,827
Total assets (2)	$	14,494,846	$	13,588,922
Retail Properties:
Land, buildings and improvements, net (1)	$	35,648,243	$	33,141,294
Total assets (2)	$	37,796,814	$	34,712,223
Self-Storage Properties (real estate held for sale):
Land, buildings and improvements, net (1)	$	—	$	29,107,675
Total assets (2)	$	—	$	30,003,506
Reconciliation to Total Assets:
Total assets for reportable segments	$	218,418,834	$	208,489,740
Other unallocated assets:
Cash and cash equivalents		11,146,053		5,636,002
Other assets, net		8,471,759		6,499,196
Total Assets	$	238,036,646	$	220,624,938

Capital Expenditures by Reportable Segment	For the nine months ended
	September 30,
	2015		2014
Office/Industrial Properties:
Acquisition of operating properties	$	33,958,263	$	14,763,625
Capital expenditures and tenant improvements		2,313,655		1,506,016

Residential Properties:
Acquisition of operating properties		5,720,000		2,745,900

Retail Properties:
Acquisition of retail properties		2,850,000
Capital expenditures and tenant improvements		41,333		402,799

Self-Storage Properties (real estate held for sale):
Capital expenditures and tenant improvements		-		69,560

Totals:
Acquisition of operating properties, net		42,528,263		17,509,525
Capital expenditures and tenant improvements		2,354,988		1,978,375
Total real estate investments	$	44,883,251	$	19,487,900

The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 2014 and 2013. The Company acquired five hotel properties during the quarter ended September 30, 2015. The following unaudited pro forma information for the nine months ended September 30, 2015 and year ended December 31, 2014 has been prepared to give effect to the acquisitions of as if the acquisitions had occurred on January 1, 2014. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions occurred on this date, nor does it purport to predict the results of operations for future periods.

On November 10, 2015, the Company entered into a purchase agreement to acquire a 121,000 square foot office building located in Highlands Ranch, Colorado for a purchase price of approximately $25 million. The acquisition is expected to close in December 2015.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to our financial statements and should be read in conjunction with the financial statements, footnotes and to Cautionary Statements appearing elsewhere in this report.

The Company operates as a self-managed and self-administered real estate investment trust, or REIT. The Company acquires, owns and manages a geographically diversified portfolio of real estate assets including industrial, office, retail and model home leased residential properties located throughout the United States. As of September 30, 2015, the Company owned or had an equity interest in:

NetREIT’s office, retail and industrial properties are located primarily in Southern California and Colorado, with four properties located in North Dakota. Our geographical clustering of assets enables us to reduce our operating costs through economies of scale by servicing a number of properties with less staff, but it also makes us more susceptible to changing market conditions in these discrete geographic areas. We do not develop properties but acquire properties that are stabilized or that we anticipate will be stabilized within two or three years of acquisition. We consider a property to be stabilized once it has achieved an 80% occupancy rate for a full year as of January 1 of such year, or has been operating for three years.

Most of our office and retail properties are leased to a variety of tenants ranging from small businesses to large public companies, many of which do not have publicly rated debt. We have in the past entered into, and intend in the future to enter into, purchase agreements for real estate having net leases that require the tenant to pay all of the operating expense (Net, Net, Net Leases) or pay increases in operating expenses over specific base years. Decreased demand and other negative trends or unforeseeable events that impair our ability to timely renew or re-lease space could have a negative effect on our future financial condition, results of operations and cash flow.

Our Model Homes are typically leased for 2 to 3 years to the home developer on a triple net lease. Under a triple net lease, the tenant is required to pay all operating, maintenance and insurance costs and real estate taxes with respect to the leased property. We seek to diversify our portfolio by commercial real estate segments to reduce the adverse effect of a single under-performing segment, geographic market and/or tenant. We further supplement this at the tenant level through our credit review process, which varies by tenant class. For example, our commercial and industrial tenants tend to be corporations or individual owned businesses. In these cases, we typically obtain financial records, including financial statements and tax returns, and run credit reports for any prospective tenant to support our decision to enter into a rental arrangement. We also typically obtain security deposits from these commercial entities. Our Model Home business tenants are typically substantial home developers with established credit histories. These tenants are subject to financial review and analysis prior to entering into a sale-leaseback transaction. Our ownership of the underlying property provides a further means to avoiding significant credit losses.

Preferred Stock Financing - In August 2014, the Company closed on an offering of our Series B Preferred Stock. The financing will be funded in installments with the last installment to be completed no later than November 4, 2015. We issued 16,600 shares of our Series B Preferred Stock for $16.6 million during 2014, 13,400 shares on August 4, 2015 and 5,000 shares on November 4, 2015. These shares have a $0.01 par value and a $1,000 per share liquidation preference. The Series B Preferred Stock shall be redeemed through a cash payment equal to the face value of the shares outstanding at redemption. The dividend on these funds is 14%. Monthly payments are made on 10% of the outstanding balance and the remaining 4% are accrued and compounded monthly and will be paid at the redemption date. The proceeds of this financing are to be used for Series B Preferred investor approved property acquisitions. The Series B Preferred Stock is scheduled to be redeemed by the third anniversary of the closing date; however, we can extend the redemption date by up to two additional years.

Acquisitions - we acquired the following properties during the nine months ended September 30, 2015 and the year ended December 31, 2014:

Dispositions - We review our portfolio of investment properties for value appreciation potential on an on-going basis, and dispose of any properties that no longer satisfy our requirements in this regard. The proceeds from any such property sale, after repayment of any associated mortgage, are available for investing in properties that we believe will have a much greater likelihood of future price appreciation.

Debt transactions – In addition to paying off the Waterman loan during the nine months ended September 30, 2015, the Company refinanced approximately $12.5 million of existing debt with new debt of approximately $18.1 million, providing additional $5.6 million to invest in new acquisitions. The new debt bears interest at an average weighted rate of 4.5%, compared to 5.6% on the old debt. Although our aggregate debt outstanding increased due to acquisitions of new properties and the refinancing of existing debt, the weighted average interest rate of our non-Model Home property mortgages decreased to 4.69% at September 30, 2015 from 5.1% at September 30, 2014.

The United States continued to gain momentum from the recession that began in 2008. During 2015, existing home sales reached their highest level since November 2009 and housing prices have increased as demand outpaced supply. On the supply side there has been an increase in housing starts and building permits. Published unemployment rates have decreased over the last several years, however, meager wage and salary growth has been a detriment. Vacancy rates for commercial real estate have decreased, however, in the secondary markets are still higher than pre-recession levels. Rental rates have increased in many primary and secondary markets. Corporate earnings and stock market investments have rebounded.

The significance of the U.S. Dollar in the global economy, the size of the U.S. debt and uncertainty of servicing such debt seems to be the biggest concern for continued economic recovery. The impact of the current global market instability and recent events in Europe with respect to the ability of certain European Union countries to continue to service their sovereign debt obligations are inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. The United States Federal Reserve Bank has confirmed their intent is to raise interest rates. The effect of increased interest rates on Real Estate Investment Trusts is a much debated topic at this time. However in the past when interest rates increased it has been a sign of a better economy that allowed for rental rates to increase mitigating the effect on REIT’s. Adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Our ability to execute our business strategies, particularly to make new investments is highly dependent upon our ability to procure external financing. Our principal source of external financing includes the issuance of equity securities and mortgages secured by properties. The market for mortgages has improved although the interest rates may increase they are still low compared to pre-recessionary rates. We continue to obtain mortgages from the CMBS market, life insurance companies and regional banks. Even though we have been successful in procuring equity financing and secured mortgages financing we cannot be assured that we will be successful in the future.

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 30, 2015.

Management’s evaluation of operating results includes an assessment of our ability to generate cash flow necessary to pay operating expenses, general and administrative expenses, debt service and to fund distributions to our stockholders. As a result, Management’s assessment of operating results gives less emphasis to the effects of unrealized gains and losses and other non-cash charges, such as depreciation and amortization and impairment charges, which may cause fluctuations in net income for comparable periods but have no impact on cash flows. Management’s evaluation of our potential for generating cash flow includes assessments of our recently acquired properties, our non-stabilized properties, long-term sustainability of our real estate portfolio, our future operating cash flow from anticipated acquisitions, and the proceeds from the sales of our real estate assets.

In addition, Management evaluates our portfolio and individual properties results of operations with a primary focus on increasing and enhancing the value, quality and quantity of properties in our real estate holdings. Management focuses its efforts on improving underperforming assets through re-leasing efforts, including negotiation of lease renewals and rental rates. Properties that have reached goals in occupancy and rental rates are evaluated for potential added value appreciation and, if lacking such potential, are sold with the equity reinvested in properties that have better potential without foregoing cash flow. As an example of that is management’s decision to sell the self-storage facilities that had appreciated in value but at the same time increases the price of facilities for sale limiting our ability to expand that segment of business in order to gain the benefits of size.

Our ability to increase assets under management is affected by our ability to raise borrowings and/or capital, coupled with our ability to identify appropriate investments.

Our results of operations for the three months ended September 30, 2015 and 2014 are not indicative of those expected in future periods as we expect that rental income, interest expense, rental operating expense and depreciation and amortization will significantly increase in future periods as a result of the assets acquired over the last year and as a result of anticipated growth through future acquisitions of real estate related investments.

The following discussion over our results of operations for all properties for the three months ended September 30, 2015, and 2014 relates to continuing operations.

Revenues. Total revenue was $6.1 million for the three months ended September 30, 2015 compared to $4.3 million for the same period in 2014, an increase of $1.8 million or 41.9 %. The increase in rental income as reported for the three month period in 2015 as compared to 2014 reflects:

Rental Operating Costs. Rental operating costs were $1.9 million for the three months ended September 30, 2015 compared to $1.5 million for the same period in 2014, an increase of approximately $400,000 or 26.7%. Costs associated with properties acquired subsequent to the second quarter of 2014 and the five acquisitions that occurred in August 2015 accounted for substantially all of this increase. Rental operating costs as a percentage of rental and fee income was 31.7% and 36.0% for the three months ended September 30, 2015 and 2014, respectively.

General and Administrative Expenses. General and administrative (“G&A”) expenses decreased approximately $19,000 or 1.6% during the three months ended September 30, 2015, compared to the same period in 2014. These expenses are semi-fixed and do not necessarily correlate to total revenue. These expenses correlate more to the administrative functions required for the different types of properties. With the sale of the self-storage facilities, which segment was the most administrative intense, we anticipate that our general and administrative expenses will remain fairly constant as we acquire more office, retail and industrial properties in the future. As a percentage of total revenue, our general and administrative costs decreased from 28.2% to 19.3% due to the increased revenue and the decrease in these expenses.

Depreciation and Amortization. Depreciation and amortization expense totaled approximately $1.9 million for the three months ended September 30, 2015, compared to approximately $1.4 million for the same period in 2014, representing an increase of approximately $500,000 or 35.7%. Depreciation costs associated with properties acquired during 2014 and 2015 accounted for substantially all of this increase.

Asset Impairments. We review the carrying value of each of our real estate properties quarterly to determine if circumstances indicate an impairment in the carrying value of these investments exists. During the three months ended September 30, 2015, management did not believe any impairment reserve was required.

Interest Expense-Series B preferred stock. The Series B Preferred Stock issued in August 2014 includes a mandatory redemption and therefore is treated as a liability for financial reporting purposes. The dividends paid and accrued and the amortization of the deferred offering costs are considered interest expense. Interest expense, including amortization of the deferred offering costs, totaled $1.2 million for the three months ending September 30, 2015 compared to $353,000 for the same period in 2014. An initial investment of $16.6 million was made during 2014 and an additional investment of $13.4 million was made on August 4, 2015. Dividends paid and accrued totaled $919,000 and $201,000, respectively, and the amortization of the deferred offering costs associated with that transaction totaled $241,000 and $151,000, respectively for the three months ended September 30, 2015 and 2014.

Interest Expense-mortgage notes. Interest expense, including amortization of deferred finance charges, increased by approximately $400,000, or 36%, to approximately $1.5 million for the three months ended September 30, 2015 compared to $1.1 million for the same period in 2014. Interest expenses associated with properties acquired subsequent to the second quarter of 2014 totaled $470,000, including interest expense related to the five August 2015 acquisitions, offset by decreases in interest expense related to refinancing three mortgages at lower rates. The weighted average interest rate on our outstanding debt was 4.75% as of September 30, 2015 compared to 5.10% as of September 30, 2014.

Gain on Sale of Real Estate Assets and Partnerships, net. For the three months ended September 30, 2015, we had a gain from the sale of one Model Home of approximately $10,858 and for the three months ended September 30, 2014, the Company had gains from the sales of fifteen Model Homes totaling $1.2 million.

Discontinued Operations. The Company sold 100% of the Sparky’s Self-Storage Portfolio in April 2015. During the three months ended September 30, 2014, the Company had a loss from discontinued operations of $16,000.

Income from non-controlling interests. Loss allocated to non-controlling interests for the three months ended September 30, 2015 totaled $96,000 when compared to the three months ended September 30, 2014 of $726,000. For the three months ended September 30, 2014, $691,000 was attributed to gain on sales of model homes owned under three limited partnerships of which the Company has a minority interest.

Our results of operations for the nine months ended September 30, 2015 and 2014 are not indicative of those expected in future periods as we expect that rental income, interest expense, rental operating expense and depreciation and amortization will significantly increase in future periods as a result of the assets acquired over the last year and as a result of anticipated growth through future acquisitions of real estate related investments.

The following discussion over our results of operations for all properties for the nine months ended September 30, 2015, and 2014 relates to continuing operations.

Revenues. Total revenue was $17.1 million for the nine months ended September 30, 2015 compared to $12.0 million for the same period in 2014, an increase of $5.1 million or 42.5 %. The increase in rental income as reported in 2015 as compared to 2014 reflects:

Rental Operating Costs. Rental operating costs were $5.7 million for the nine months ended September 30, 2015 compared to $4.1 million for the same period in 2014, an increase of approximately $1.6 million or 39.0%. Costs associated with properties acquired during 2014 accounted for substantially all of this increase. Rental operating costs as a percentage of rental and fee income was 34.3% and 34.7% for the nine months ended September 30, 2015 and 2014, respectively.

General and Administrative Expenses. General and administrative (“G&A”) expenses decreased approximately $414,000 or 10.6% during the nine months ended September 30, 2015, compared to the same period in 2014. The decrease relates to income taxes at our Taxable REIT Subsidiaries due to the decrease in gains on the sales of model homes during the nine months ended September 30, 2015. Otherwise these expenses are semi-fixed and do not necessarily correlate to total revenue. These expenses correlate more to the administrative functions required for the different types of properties. With the sale of the self-storage facilities, which segment was the most administrative intense, we anticipate that our general and administrative expenses will remain fairly constant as we acquire more office, retail and industrial properties in the future. As a percentage of total revenue, our general and administrative expenses decreased from 32% to 20%.

Depreciation and Amortization. Depreciation and amortization expense totaled approximately $5.6 million for the nine months ended September 30, 2015, compared to approximately $3.9 million for the same period in 2014, representing an increase of approximately

$1.7 million or 43.6%. Depreciation costs associated with properties acquired during 2014 resulted in an increase in 2015 of $1.9 million offset by a $300,000 decrease in depreciation for the self-storages properties sold on April 10, 2015.

Asset Impairments. We review the carrying value of each of our real estate properties annually to determine if circumstances indicate an impairment in the carrying value of these investments exists. During the nine months ended September 30, 2015, management did not believe any impairment reserve was required.

Interest Expense-Series B preferred stock. The Series B Preferred Stock issued in August 2014 includes a mandatory redemption and therefore is treated as a liability for financial reporting purposes and the dividends paid and accrued and the amortization of the deferred offering costs are considered interest expense. Interest expense, including amortization of the deferred offering costs, totaled $2.9 million for the nine months ended September 30, 2015 compared to $353,000 for the same period in 2014 as the stock was not issued until August 2014. Dividends paid and accrued totaled $2,224,000 and $201,000, respectively, and the amortization of the deferred offering costs associated with that transaction totaled $700,000 and $151,000 for the nine months ended September 30, 2015 and 2014, respectively.

Interest Expense-mortgage notes. Interest expense, including amortization of deferred finance charges, increased by approximately $1.0 million, or 30.3%, to approximately $4.3 million for the nine months ended September 30, 2015 compared to $3.3 million for the same period in 2014. Interest expenses associated with properties acquired subsequent to the second quarter of 2014 totaled $1.3 million offset by a $220,000 decrease in interest related to the self-storage portfolio being sold in April. The remaining decrease was attributed to the loans that were refinanced during 2015 and 2014 at lower interest rates The weighted average interest rate on our outstanding debt was 4.75% as of September 30, 2015 compared to 5.1% as of September 30, 2014.

Gain on Sale of Real Estate Assets and Partnerships, net. For the nine months ended September 30, 2015, we had gains from the sales of five Model Homes of approximately $165,000 and a gain on sale of one parcel of land and its building of approximately $1.1 million offset when compared to $2.4 million in gains from the sales of thirty-four model homes .

Discontinued Operations. Loss from discontinued operations for the nine month period ended September 30, 2015 included only one quarter of activity as the Sparky’s self-storage portfolio was sold on April 10, 2015. As we owned the division for the entire period in 2014, a comparison of financial results is not attainable. During the nine months ended September 30, 2015, the Company sold 100% of the Sparky’s Self-Storage Portfolio and recognized a gain on sale of approximately $4.7 million. During the nine months ended September 30, 2014, a parcel of land at one of the self-storage properties was sold resulting in a loss of $156,000.

Income from non-controlling interests. Loss from non-controlling interests for the nine months ended September 30, 2015 totaled $1.4 million when compared to the nine months ended September 30, 2014 of $1.7 million. The self-storage portfolio had two properties that were owned in limited partnerships and substantially all of the income allocated to non-controlling interests was due to the gain on sale of the two properties. Approximately $150,000 was attributable to the model home partnerships for the nine month period ended September 30, 2015. For the nine months ended September 30, 2014, $2.4 million was attributed to the gain on sales of the model homes that are owned under three limited partnerships of which the Company has a minority interest.

Our available liquidity at September 30, 2015 included cash and cash equivalents of $11.1 million, $10 million available from sale of Series B Preferred shares, mortgages on unencumbered properties and refinancing of mortgages with low debt to value. We currently do not have a revolving line of credit. We cannot guarantee that we will be able to consummate a line of credit in the near future, but we have been exploring the possibilities of obtaining such a line of credit. We also do not have any commitments or other arrangements with any financial institution to borrow any amounts in the form of mortgages on currently unencumbered properties or through refinancing existing mortgages and we cannot be certain that a financial institution would ultimately provide such financing.

Based on our financing success during 2015 we believe that mortgage financing is available for future cash needs. During 2015, we refinanced three existing mortgages with outstanding principal balances aggregating approximately $12.8 million that had a weighted average interest rate of 4.95%. The new mortgages aggregating $18.5 million have a weighted average interest rate of 4.5% and extend the maturity dates by ten years. In addition, we secured three mortgage loans in the aggregate of $18.1 million on newly acquired properties at a weighted average interest rate of 4.4%.

Our short term liquidity requirements include paying our current operating costs, satisfying the debt service requirements of our existing mortgages, general and administrative expenses, capital expenditures for tenant improvements, leasing commissions and distributions to stockholders. We expect to meet our short-term liquidity requirements through available cash on hand and cash flows

from operations. As of September 30, 2015, our cash and cash equivalents totaled approximately $11.1 million and our net cash provided by operating activities approximated $2.5 million for the nine months ended September 30, 2015. We believe that the cash flow from our existing portfolio, and our anticipated acquisitions (when operational for the full term) will be sufficient to fund our short term liquidity requirements. However, if our cash flow from operating activities is not sufficient to fund our short term liquidity needs, including the payment of cash dividends at current rates to our stockholders, we will fund a portion of these needs from additional borrowings of secured or unsecured indebtedness or we will reduce the rate of distribution to the stockholders.

Our long-term liquidity needs include funds necessary to grow our portfolio of investments by acquisitions, recurring and non-recurring capital expenditures and scheduled debt maturities. We currently have $25.3 million related to one acquisition in escrow which we expect to close in the fourth quarter. We intend to satisfy our long-term liquidity needs through long-term secured borrowings, issuance of preferred shares, cash on hand, borrowings on unencumbered properties, refinancing of maturing mortgages and proceeds from sale of properties. To meet our long-term liquidity needs, we are continually reviewing our existing portfolio for properties that have met maximized short and long term potential with the intent of selling those properties and reinvesting the proceeds in properties that have equivalent or better short term benefits and better long term potential. If we are unable to arrange a line of credit, borrow on unencumbered properties, or sell securities to the public we may not be able to acquire additional properties to meet our long-term objectives.

At September 30, 2015, we had approximately $11.1 million in cash and cash equivalents compared to approximately $11.9 million at September 30, 2014. Our cash and cash equivalents are held in bank accounts at third party institutions and consist of invested cash and cash in our operating accounts. During 2015 and 2014, we did not experience any loss or lack of access to our cash or cash equivalents. Approximately $2.0 million of our cash balance is intended for capital expenditures on existing properties. We intend to use the remainder of our existing cash and cash equivalents for acquisitions, general corporate purposes and distributions to our stockholders.

In August 2014, the Company closed on an offering of our Series B Preferred Stock. The total offering was expected to be $40 million at the conclusion of the extended funding period. An initial investment of $16.6 million was made during 2014, an additional investment of $13.4 million was made on August 4, 2015 and the final investment of $5 million was made on November 4, 2015. The offering was terminated on that date. Our ability to access equity markets is dependent on a number of factors including general market conditions for the REIT industry and market perception of our Company.

As of September 30, 2015, NetREIT had fixed-rate mortgage notes payable in the aggregate principal amount of $119.1 million, collateralized by a total of 21 properties with loan terms at issuance ranging from 3 to 10 years. The weighted-average interest rate on the mortgage notes payable as of September 30, 2015 was approximately 4.75%, and our debt to book value and estimated market value on these properties was approximately 63% and 55%, respectively.

As of September 30, 2015, NetREIT Dubose, and related entities, had 62 fixed-rate mortgage notes payable in the aggregate principal amount of $9.1 million, collateralized by a total of 62 Model Home properties. These loans generally have a term at issuance of three to five years. The average loan balance outstanding and the weighted-average interest rate on these mortgage loans are approximately $146,000 and 5.4%, respectively as of September 30, 2015. Our debt to estimated value on these properties is approximately 54%. The Company has guaranteed these promissory notes. The balloon principal payments on the notes payable are due in 2016 and 2019, and are typically tied to the end of the lease and the sale of the Model Home properties securing the debt.

Despite the disruptions in the debt market discussed in "Overview" above, we have been able to refinance maturing debts before scheduled maturity dates and we have also not experienced any unusual difficulties financing our acquisitions.

Operating Activities: Net cash provided in operating activities for the nine months ended September 30, 2015 decreased by approximately $1.5 million to $2.5 million, primarily due to the $1.3 million of dividends paid during 2015 on the preferred stock issued in August 2014 that was treated as interest expense for GAAP reporting purposes. There was also an increase in working capital for such items as receivables, prepaid expenses and acquisition deposits. The net cash flow for the fourth quarter will increase due to the five properties acquired in August 2015 that will be included for the total quarter.

Investing Activities: Net cash used in investing activities during the nine months ended September 30, 2015 was $10.6 million compared to $15.5 million in the same period in 2014. During 2014, we acquired two commercial properties and nine model homes for an aggregate of approximately $17.5 million whereas during 2015 we have acquired five commercial properties and 17 model homes for an aggregate of approximately $42.5 million. Net cash provided increased due to the sale of all of our self-storage facilities for $35 million. During 2014 the use of funds for investing activities increased approximately $13.4 million primarily due to the sale of 34 model homes whereas during 2015 we only sold 5 model homes however the sale of all of our self-storage facilities resulted in an aggregate of approximately $42.3 million available for investing.

We do not expect that sales of real estate involving a total segment of our business as occurred in the 2015 sale, however, we do continue assessing the value of our individual properties that could lead to the sale of individual properties. We anticipate that the acquisitions of both the commercial properties and the Model Home properties will increase during 2015 and thereafter. Future acquisitions by the Company will depend on funds available from cash on hand, the proceeds from the issuance of our Series B Preferred Stock and from the sale of existing properties. Future acquisitions of Model Homes will depend on the availability of Model Homes from developers at acceptable prices.

We currently project that we could spend up to $2.0 million on capital improvements, tenant improvements and leasing costs for properties within our portfolio on an annual basis. Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to the properties. We may spend more on capital expenditures during in the future as compared to 2014 and 2015 due to rising construction costs and the anticipated increase in property acquisitions. Tenant improvements and leasing costs may also fluctuate in any given year depending upon factors such as the property, the term of the lease, the type of lease, the involvement of external leasing agents and overall market conditions.

Financing Activities: Net cash provided by financing activities during the nine months ended September 30, 2015 was $13.7 million compared to cash provided of $13.2 million for the same period in 2014. The fluctuation between the nine months in 2015 and the same period in 2014 was the payoff of approximately $17 million in mortgages in connection with the sale of all the self-storage facilities offset by increase in mortgages due to more acquisitions of properties in 2015. During 2014, our consolidated model home partnership raised approximately $3 million compared to no capital contributions in 2015.

During the fourth quarter of 2015 we have raised an additional $5 million by issuance of the Series B Preferred Stock and will use it to increase our portfolio by approximately $25 million through an acquisition scheduled to close in December 2015. We have unencumbered properties with an estimated value that could provide additional funds for financing activities during 2016. We are also pursuing other sources of capital either through a line of credit facility or the possible sale of additional equity/debt securities to provide resources to pursue future acquisitions.

As of September 30, 2015, we do not have any off-balance sheet arrangements or obligations, including contingent obligations.

Management believes that FFO is a useful supplemental measure of our operating performance. We compute FFO using the definition outlined by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as net income (loss) in accordance with GAAP, plus depreciation and amortization of real estate assets (excluding amortization of deferred financing costs and depreciation of non-real estate assets) reduced by gains and losses from sales of depreciable operating property and extraordinary items, as defined by GAAP. Other REITs may use different methodologies for calculating FFO and, accordingly, our FFO may not be comparable to other REITs. Because FFO excludes depreciation and amortization, gains and losses from property dispositions that are available for distribution to stockholders and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses and interest costs, providing a perspective not immediately apparent from net income. In addition, Management believes that FFO provides useful information to the investment community about our financial performance when compared to other REITs since FFO is generally recognized as the industry standard for reporting the operations of REITs. However, FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties which are significant economic costs and could materially impact our results from operations.

The following table presents our FFO and MFFO for the three and nine months ended September 30, 2015 and 2014:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Net loss	$	(1,546,534	)	$	(1,851,556	)	$	(537,387	)	$	(3,307,989	)
Adjustments:
Income attributable to noncontrolling interests		96,116			726,222			1,414,642			1,709,127
Depreciation and amortization (including discontinued operations)		1,884,193			1,614,502			5,726,170			4,387,175
Asset impairments		-			950,000			-			950,000
Gain on sale of real estate assets and partnerships (including discontinued operations)		(10,858	)		(1,221,680	)		(5,936,010	)		(2,728,835	)
FFO	$	422,917		$	217,488		$	667,415		$	1,009,478
Straight line rent adjustment		(126,573	)		345,882			(310,835	)		(61,075	)
Amortization of above and below market rents		(264	)		39,064			66,967			117,193
Amortization of restricted stock compensation		116,671			99,515			350,014			298,546
Amortization of financing costs		320,799			243,955			941,835			474,009
Real estate acquisition costs		174,202			19,054			261,089			72,293
MFFO	$	907,752		$	964,958		$	1,976,485		$	1,910,444

The 2015 FFO was significantly impacted by the interest expense associated with the Series B preferred stock. The interest expense totaled $1.2 million and $2.9 million for the three and nine months ended September 30, 2015, respectively. No conclusion or comparisons should be made from the presentation of these figures.

We define MFFO, a non-GAAP measure, consistent with the Investment Program Association’s (“IPA”) Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REIT Modified Funds From Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above-market and below-market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; nonrecurring impairments of real estate-related investments (i.e., infrequent or unusual, not reasonably likely to recur in the ordinary course of business); mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above-market and below-market leases, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. The acquisition of properties, and the corresponding acquisition fees and expenses, is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to our stockholders. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing

operating performance. In particular, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of MFFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.

Same-Property Operating Results For the three and nine months ending September 30, 2015 and 2014.

The table below presents the 2015 and 2014 operating results for the Company’s commercial rental properties owned as of January 1, 2014, thereby excluding the impact on our results of operations from the real estate properties acquired subsequently. The table below excludes model home operations as the rental rates do not fluctuate during the term of the lease and there are no operating expenses. Income from discontinued operations from the self-storage portfolio are not included. The Company believes that this type of non-GAAP financial measure, when considered with our financial statements prepared in accordance with GAAP, is useful to investors to better understand the Company’s operating results. Properties are included in this analysis if they were owned and operated for the entirety of both periods being compared. Further, same-property operating results is a measure for which there is no standard definition and, as such, it is not consistently defined or reported on among the Company’s peers, and thus may not provide an adequate basis for comparison between REITs.

	Three months ended September 30,						Variance					Nine months ended September 30,						Variance
	2015			2014			$					2015			2014			$			%
Rental revenues	$	2,571,231			2,420,120		$	151,111		6.2	%	$	7,719,338			7,321,683		$	397,655			5.4	%
Tenant reimbursements		705,382			686,000			19,382		2.8	%		2,126,181			1,891,088			235,093			12.4	%
Other operating income		14,126			12,277			1,849		15.1	%		93,041			62,620			30,421			48.6	%
Total rental revenues		3,290,739			3,118,397			172,342		5.5	%		9,938,560			9,275,391			663,169			7.1	%
Rental operating costs		1,246,515			1,264,691			(18,176	)	(1.4	)%		2,495,377			2,512,559			(17,182	)		(0.7	)%

Net operating income	$	2,044,224			1,853,706		$	190,518		10.3	%	$	7,443,183			6,762,832		$	680,351			10.1	%

Operating Ratios:
Number of same properties		15			15								15			15
Same-property occupancy, end of period		79.9	%		78.0	%				1.9	%		79.9	%		76.9	%					3.0	%
Same-properties operating costs as a percentage of total revenues		37.9	%		40.6	%				(2.7	)%		25.1	%		27.1	%					(2.0	)%

Property net operating income (“NOI”) basis began to improve during 2015 as evidenced by the increase in rental revenues of 5.4% and NOI of 12.7% for the nine months ended September 30, 2015, respectively, as compared to the corresponding periods in 2014. The improvement in rental revenues was almost equally due to the occupancy increase and rental rate increases that correspond to the overall increase in net absorption and the small increase in rental rates or reduction in rent abatements in the geographical areas of our portfolio. Increase in renewal rates ranged from 3-14% for the nine months ended September 30, 2015. Any absorption of currently vacated space in the portfolio due to new leasing activity could favorably impact our leased percentage, total NOI, and possibly our same property NOI comparisons once any associated periods expire.

As of September 30, 2015, scheduled expirations for the portfolio as a whole for the remainder of 2015 and 2016 represented 9.51% and 10.52%, respectively, of our annualized lease revenue; therefore, our current leasing efforts are primarily focused on leasing currently vacant space. To the extent we are able to execute new leases for currently vacant space, offset by scheduled expirations, such new leasing should favorably impact our leased percentage, total NOI, and possibly our same property NOI comparison once any associated abatement periods expire.

The downtime between a lease expiration and a new lease commencement, typically ranging from 6-24 months, can negatively impact total NOI and same property NOI. In addition, office leases, both new and lease renewals typically contain upfront rental and /or operating expense abatement periods which delay the cash flow benefits of the lease even after the new lease or renewal has commenced. If we are unable to replace expiring leases with new or renewal leases at rental rates equal to or greater than the expiring rates, rental rate roll downs can also negatively impact total NOI and same property NOI comparisons. This was the case for all leases entered into prior to 2008 the start of the recession. Most of our leases were less than seven years and therefore the rental rate roll downs should not have a significant effect on future years. Our geographically diverse portfolio model results in rent roll ups that can fluctuate widely on a market by market basis; however, given the large volume of leasing activity over the last several years, we estimate that our portfolio, taken as a whole, is currently at market. Total NOI and same property NOI comparisons for any given period may still fluctuate as a result of rent roll ups and roll downs, however, depending on the leasing activity in individual geographic markets during the respective period.

NetREIT maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Maryland		33-0841255
(State or other jurisdiction of incorporation or organization		(I.R.S. employer identification no.)

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

		Page

Part I. FINANCIAL INFORMATION:

Item 1. FINANCIAL STATEMENTS:

	Condensed Consolidated Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014	4
	Condensed Consolidated Statements of Operations for the Three and Nine months Ended September 30, 2015 and 2014 (unaudited)	5
	Condensed Consolidated Statement of Equity for the Nine months Ended September 30, 2015 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2015 and 2014 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures about Market Risk		30
Item 4. Controls and Procedures		30

Part II. OTHER INFORMATION		30

	Item 1. Legal Proceedings	30
	Item 1A. Risk Factors	30
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 3. Defaults Upon Senior Securities	30
	Item 4. Mine Safety Disclosures	30
	Item 5. Other Information	30
	Item 6. Exhibits	31

	Signatures	32

	NetREIT, Inc.		Model Homes		Principal
	Notes Payable		Notes Payable		Payments
Three months remaining in 2015	$	311,539	$	133,770	$	445,309
Years ending December 31:
2016		7,243,888		970,755	$	8,214,643
2017		1,767,576		1,524,063	$	3,291,639
2018		5,972,923		1,760,339	$	7,733,262
2019		2,988,041		1,738,478	$	4,726,519
Thereafter		99,954,736		3,842,110	$	103,796,846
Total	$	118,238,703	$	9,969,515	$	128,208,218

	For the nine months			For the year ended
	ending September 30,			December 31,
	2015			2014
Revenues	$	3,372,546		$	4,234,510
Total operating expenses	$	1,312,722		$	1,918,842
NOI	$	2,059,824		$	2,315,668
Net loss attributable to NetREIT, Inc. common stockholders	$	(111,399	)	$	(579,296	)

Exhibit Number		Description
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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.

31.2		Certification of the Company's Chief Financial Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.

31.3		Certification of the Company's Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015.

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.

Date: November 13, 2015	NetREIT, Inc.

	By:	/s/ Jack K. Heilbron
	Name:	Jack K. Heilbron
	Title:	Chief Executive Officer

		By:		/s/ Kenneth W. Elsberry
		Name:		Kenneth W. Elsberry
		Title:		Chief Financial Officer

		By:		/s/ Heather L. Pittard
		Name:		Heather L. Pittard
		Title:		Principal Accounting Officer