The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:
Investment in Real Estate Assets
Rental properties are stated at cost, net of accumulated depreciation, unless circumstances indicate that cost, net of accumulated depreciation, cannot be recovered, in which case the carrying value of the property is reduced to estimated fair value. Estimated fair value (i) is based upon the Company's plans for the continued operation of each property and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized net operating income based upon the age, construction and use of the building. The fulfillment of the Company's plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Company to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, the actual results of operating and disposing of the Company's properties could be materially different than current expectations.
Depreciation is provided using the straight-line method over the useful lives of the respective assets. The useful lives are as follows:

              Building and Improvements   5 to 40 years
              Tenant Improvements         Term of the related lease
              Furniture and Equipment     3 to 5 years

Allocation of Purchase Price of Acquired Assets Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, above and below market leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with SFAS No. 141, Business Combinations), and allocates the purchase price to the acquired assets and assumed liabilities. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases.
The Company evaluates acquired "above and below" market leases at their fair value (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management's estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases.
Sales of Real Estate Assets
Gains on property sales are accounted for in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real Estate. Gains are recognized in full when real estate is sold, provided (i) the gain is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and (ii) the earnings process is virtually complete, that is, the Company is not obligated to perform significant activities after the sale to earn the gain. Losses on property sales are recognized immediately.

RESULTS OF OPERATIONS
Discussion of the three months ended March 31, 2009 and 2008.
The following table shows a comparison of rental revenues and certain expenses
for the quarter ended:

                                       March 31,       March 31,            Variance
                                         2009            2008             $           %

     Rental revenue                  $ 8,891,000     $ 8,264,000     $ 627,000        7.6 %
     Operating expenses:
     Property operating expenses       4,108,000       3,528,000       580,000       15.8 %
     General and administrative          870,000         856,000        14,000        1.6 %
     Depreciation and amortization     3,712,000       3,238,000       474,000       14.6 %
     Interest expense                  3,371,000       3,105,000       266,000        8.6 %

Rental revenue. Rental revenue increased $627,000, or 7.6%, for the three months ended March 31, 2009 in comparison to the three months ended March 31, 2009. This increase was in large part attributable to $818,000 in revenue generated from an office property acquired during the second quarter of 2008. The increase was partially offset by a decrease in revenues from properties owned for the full three months ended March 31, 2009 and March 31, 2008 of $191,000. The decrease in revenue from the properties owned for the full three months ended March 31, 2009 and March 31, 2008 was primarily due to a rise in rent concessions and a decrease in lease termination revenue for the quarter ended March 31, 2009 in comparison to the quarter ended March 31, 2008.
Property operating expenses. Property operating expenses increased by $580,000, or 15.8%, for the three months ended March 31, 2009 in comparison to the three months ended March 31, 2008. The increase was partially due to operating expenses of $367,000 related to the acquired property mentioned above. Property operating expenses on properties owned for the full three months ended March 31, 2009 and 2008 accounted for the remaining increase of $213,000. The increase in property operating expenses from properties owned for the full three months ended March 31, 2009 and March 2008 was in large part due to an increase in utilities and property taxes. The increase in property taxes was attributable to an increase in the assessed value of several of the Company's properties. General and administrative. General and administrative costs increased $14,000, or 1.6%, for the three months ended March 31, 2009 in comparison to the three months ended March 31, 2008. The increase was principally due to professional fees incurred during the first quarter of 2009, primarily consulting costs. Depreciation and amortization. Depreciation and amortization expense increased $474,000, or 14.6%, for the three months ended March 31, 2009 in comparison to the three months ended March 31, 2008. The increase was principally attributable to depreciation and amortization of $276,000 related to the acquired properties mentioned above. The remainder of the increase was also due to the depreciation of additional capital improvements and amortization of capitalized lease costs associated with properties owned for the full three months ended March 31, 2009 and March 31, 2009.
Interest expense. Interest expense increased $266,000, or 8.6%, for the three months ended March 31, 2009 in comparison to the three months ended March 31, 2008. The increase was primarily due to interest expense of $417,000 attributable to the acquired property mentioned above. The increase was partially offset by a reduction in interest expense of $186,000 related to other debt. The decrease in interest expense related to other debt was due to a decrease in interest rates on several variable rate loans and an overall decrease in principal balances.
Income taxes. The Company recognized a deferred income tax benefit from continuing operations of $1,094,000 for the three months ended March 31, 2009, compared to $848,000 for the three months ended March 31, 2008. The increase in deferred income tax benefit for the first quarter of 2009 corresponds to the increase in loss from continuing operations for the first quarter of 2009, in comparison to the first quarter of 2008.

Noncontrolling interest. The share of loss attributable to the holders of OP Units was $250,000, compared to a share of loss of $103,000 for the three months ended March 31, 2008. The increase in the share of loss attributable to this noncontrolling interest corresponds to the increase in net loss attributable to the Company for the quarter ended March 31, 2009 in comparison to the quarter ended March 31, 2008. The noncontrolling interest represents the approximate 12% interest in the Operating Partnership not held by the Company. Discontinued operations. The Company recorded income from discontinued operations of $725,000 for the three months ended March 31, 2008. The income for the three months ended March 31, 2008 includes the operating results and gain on sale of Columbia. Columbia, a 58,783 square foot retail center located in Columbia, South Carolina, was sold in March 2008. The Company had no income or loss from discontinued operations for the quarter ended March 31, 2009.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 2009, the Company derived cash primarily from the collection of rents and insurance claim proceeds related to Hurricane Ike and a fire at one of its Houston area properties. Major uses of cash included payments for capital improvements to real estate assets, primarily for tenant improvements, payment of operational expenses, payment for damages related to the hurricane and fire, and scheduled principal and interest payments on borrowings.
The Company reported a net loss of $1,801,000 for the three months ended March 31, 2009 compared to a net loss of $697,000 for the three months ended March 31, 2008. These results include the following non-cash items:

                                                       Three Months Ended
                                                           March 31,
                                                        2009         2008
            Non-Cash Items:
            Depreciation and amortization expense    $   3,712     $ 3,260
            Income tax benefit                          (1,094 )      (427 )
            Deferred rental income                         (62 )      (212 )
            Noncontrolling interest                       (250 )      (103 )
            Stock-based compensation expense                20          13
            Amortization of loan premium                   (11 )       (11 )

Net cash used in operating activities amounted to $448,000 for the three months ended March 31, 2009. The net cash provided by operating activities included $514,000 generated by property operations, offset by a change in net operating assets and liabilities of $962,000. Net cash provided by operating activities amounted to $483,000 for the three months ended March 31, 2008. The net cash provided by operating activities included $682,000 generated by property operations partially offset by a change in net operating assets and liabilities of $199,000.
Net cash used in investing activities amounted to $270,000 for the three months ended March 31, 2009. Cash of $878,000 was used for capital expenditures, primarily tenant improvements. The Company received insurance proceeds of $1,350,000 related to its hurricane and fire claims and paid $742,000 for damages related to the hurricane and fire. Net cash provided by investing activities amounted to $1,489,000 for the three months ended March 31, 2008. This amount was comprised of proceeds of $3,014,000 (included $300,000 held in escrow for a future acquisition) received from the sale of Columbia during the first quarter of 2008, reduced by funds used for capital improvements, primarily tenant improvements, of $1,225,000.
Cash used in financing activities of $599,000 for the three months ended March 31, 2009 was attributable to scheduled principal payments on debt. Net cash used in financing activities amounted to $2,296,000 for the three months ended March 31, 2008. Repayment of borrowings on the sale of Columbia totaled $2,218,000 and scheduled principal payments on debt amounted to $409,000 for the three months ended March 31, 2008. Proceeds of $300,000 were generated from an additional borrowing on one of the Company's unsecured loans.

The current credit crisis, related turmoil in the global financial system and the recent downturn in the United States economy is impacting the Company's liquidity and capital resources. The continuation of the credit crisis and/or the downturn economy could adversely affect the Company's business in a number of ways, including effects on its ability to met its financial obligations, obtain new mortgages, to refinance current debt and to sell properties. In general, the Company expects to meet its short-term liquidity requirements for normal operating expenses from cash generated by operations. In addition, the Company anticipates generating proceeds from borrowing activities, property sales and/or equity offerings to provide funds for payments of certain accounts payables, consisting primarily of tenant improvements and capital improvements on properties. As of March 31, 2009, amounts in accounts payable over 90 days totaled $1,850,000. Also, the Company expects to incur capital costs related to leasing space and making improvements to properties provided the estimated leasing of space is completed. The Company anticipates meeting these obligations with the use of funds held in escrow by lenders, proceeds from property sales and borrowing activities. There can be no assurance, however, that these activities will occur. If these activities do no occur, the Company will not have sufficient cash to meet its obligations.
The Company has loans totaling $15,102,000, maturing over the next twelve months. Because of uncertainties with the current credit crisis, the Company's current debt level and the Company's historical losses there can be no assurances as to the Company's ability to obtain funds necessary for the refinancing of its maturing debts. If refinancing transactions are not consummated, the Company will seek extensions and/or modifications from existing lenders. If these refinancings or extensions do not occur, the Company will not have sufficient cash to meet its obligations.
The Company is not in compliance with a debt covenant on a mortgage loan secured by one of its office properties located in Houston, Texas. The debt covenant requires the Company to maintain a minimum tangible book net worth as defined in the debt agreement. In the event the lender elects to enforce the non-compliance matter, the Company will attempt to negotiate a revision to the loan covenant. If a refinance of the loan becomes necessary, the Company believes it could obtain a new mortgage loan for an amount in excess of the current debt balance and prepayment costs associated with the current loan.
INFLATION
Substantially all of the leases at the industrial and retail properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. Leases at the office properties typically provide for rent adjustment and pass-through of increases in operating expenses during the term of the lease. All of these provisions may permit the Company to increase rental rates or other charges to tenants in response to rising prices and therefore, serve to reduce the Company's exposure to the adverse effects of inflation.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are based on management's beliefs and expectations, which may not be correct. Important factors that could cause actual results to differ materially from the expectations reflected in these forward-looking statements include the following: the Company's level of indebtedness and ability to refinance its debt; the fact that the Company's predecessors have had a history of losses in the past; unforeseen liabilities which could arise as a result of the prior operations of companies acquired in the 2001 consolidation transaction; risks inherent in the Company's acquisition and development of properties in the future, including risks associated with the Company's strategy of investing in under-valued assets; general economic, business and market conditions, including the impact of the current global financial crisis and recent downturn in the United States economy; the potential delisting of the Company's stock; changes in federal and local laws, and regulations; increased competitive pressures; and other factors, as well as factors set forth elsewhere in this Report on Form 10-Q.