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Note 4 - Real Estate Assets

9 Months Ended

Sep. 30, 2024

4. REAL ESTATE ASSETS

The Company owns a diverse portfolio of real estate assets. The primary types of properties the Company invests in are office, industrial, retail, and triple-net leased model home properties. We have five commercial properties located in Colorado, four in North Dakota, one in Southern California, one in Texas and one in Maryland. Our model home properties are located in three states. As of September 30, 2024, the Company owned or had an equity interest in:

	•	Eight office buildings and one industrial property (“Office/Industrial Properties”) which total approximately 758,175 rentable square feet (unaudited);

	•	Three retail shopping centers (“Retail Properties”) which total approximately 65,242 rentable square feet (unaudited); and

	•	83 model home residential properties (“Model Homes” or “Model Home Properties”), totaling approximately 251,602 square feet (unaudited), leased back on a triple-net basis to homebuilders, that are owned by five affiliated limited partnerships and one wholly-owned corporation, all of which we control. As of September 30, 2024, all of the model homes in Dubose Model Home Investors #206, LP had been sold.

A summary of the properties owned by the Company, including their lease intangibles, as of September 30, 2024 and December 31, 2023 is as follows:

	*Date*		*Real estate assets and lease intangibles, net*
Property Name	*Acquired*	*Location*	*September 30, 2024*		*December 31, 2023*
Genesis Plaza (1)	August 2010	San Diego, CA	$	7,216,589	$	7,542,725
Dakota Center (2)	May 2011	Fargo, ND		8,268,657		9,201,883
Grand Pacific Center (3)	March 2014	Bismarck, ND		8,556,365		8,274,454
Arapahoe Center	December 2014	Centennial, CO		9,408,010		9,341,991
Union Town Center (4)	December 2014	Colorado Springs, CO		8,917,143		8,918,742
West Fargo Industrial	August 2015	Fargo, ND		6,626,155		6,819,765
300 N.P.	August 2015	Fargo, ND		2,711,700		2,774,176
Research Parkway (4)	August 2015	Colorado Springs, CO		2,220,283		2,266,173
One Park Center (5)	August 2015	Westminster, CO		5,651,067		5,700,000
Shea Center II (6)	December 2015	Highlands Ranch, CO		18,835,122		19,367,289
Mandolin (7)	August 2021	Houston, TX		4,623,490		4,692,274
Baltimore	December 2021	Baltimore, MD		8,297,634		8,466,165
Commercial properties				91,332,215		93,365,637
Model Home properties (8)	2017 - 2024	AZ, FL, IL, TX, WI		40,082,995		50,790,147
Total real estate assets and lease intangibles, net			$	131,415,210	$	144,155,784

(1)	Genesis Plaza is owned by two tenants-in-common, NetREIT Genesis and NetREIT Genessis II, each of which own 57% and 43%, respectively, and we beneficially own an aggregate of 92.0%, based on our ownership of each entity. We have 100% ownership of NetREIT Genesis and 81.5% ownership of NetREIT Genesis II, and we have control of both entities. During July 2024 the Company completed a minority ownership conversion option as result of a death in a noncontrolling trust within NetREIT Genesis II. The Company issued the trust 78,215 shares of SQFT Series A Common Stock in exchange for their 36.4% ownership in NetREIT Genesis II, as per the original exchange agreement.
(2)	The non-recourse loan on the Dakota Center property matured on July 6, 2024. During October 2024, management has agreed with the lender to sell the property to settle the loan balance. Due to the uncertainties in the Fargo market, we have impaired the property’s book value and recorded an impairment charge of approximately $0.7 million as of September 30, 2024.
(3)	Grand Pacific Center, Bismarck, ND, was removed from held-for-sale after signing a major lease with KLJ Engineering on December 7, 2022 for approximately 33,296 usable square feet, a term of 122 months, and starting annualized rent of $532,736. KLJ Engineering moved into the building during December 2023, with rent that commenced on February 28, 2024.
(4)	As of September 30, 2024, Union Town Center and Research Parkway have been listed for sale, and included in the real estate assets held for sale, net on the consolidated balance sheet as of September 30, 2024. We expect a sale to take place during the fourth quarter of 2024, prior to the maturity of their loans. If the sales take longer than expected, we have options available to extend the maturity of the loans to accommodate for a longer sales period.
(5)	During the year ended December 31, 2023, we recorded a $2.0 million impairment charge for One Park Center that reflects management’s revised estimate of the fair market value based on sales comparable of like properties in the same geographical area as well as an evaluation of future cash flows or an executed purchase sale agreement. No additional impairment was deemed necessary during the nine months ended September 30, 2024.
(6)	On December 31, 2022, the lease for our largest tenant, Halliburton, expired. Halliburton was located in our Shea Center II property in Colorado, and made up approximately $536,080 of our annual base rent. Halliburton did not renew the lease and we placed approximately $1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, none of which has been used as of December 31, 2023. Our management team is working to fill the 45,535 square foot space and has leased approximately 35% of the space to a tenant during 2023 and 2024 and has reviewed various proposals for the remaining 65%. As of September 30, 2024, management is pursuing third party tenants who fit into our long-term plans, however, there is no guarantee we will be successful in signing new tenants.
(7)	A portion of the proceeds from the sale of Highland Court were used in like-kind exchange transactions pursued under Section 1031 of the Code for the acquisition of our Mandolin property. Mandolin is owned by NetREIT Palm Self-Storage LP, through its wholly owned subsidiary NetREIT Highland LLC, and the Company is the sole general partner and owns 61.3% of NetREIT Palm Self-Storage LP.
(8)	Includes Model Homes listed as held for sale as of September 30, 2024 and December 31, 2023. During the three and nine months ended September 30, 2024, we recorded an impairment charge for model homes totaling $41,656 and $238,449, respectively, which reflects the estimated sales prices for these specific model homes after the closing of each quarter in 2024. The short hold period, less than two years, and the builder changing their model style after we purchased the homes, contributed to the lower than expected sales price.

For the three and nine months ended September 30, 2024 depreciation expense totaled approximately $1.3 million and $3.8 million, respectively. For the three and nine months ended September 30, 2023 depreciation expense totaled approximately $1.2 million and $3.7 million, respectively.