##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended September 30, 2005                                           
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

Commission File Number 0-49782


T REIT, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Virginia                                                           |  | 52-2140299                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|1551 N. Tustin Avenue, Suite 200                                   |  | (877) 888-7348                          
|Santa Ana, California 92705                                        |  | (Registrants telephone number,         
|(Address of principal executive offices)                           |  | including area code)                    

N/A


(Former name)


þ o


o þ


o þ












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INDEX


|                                   |  |                                                                                                                                                                                                                             |  |      |    | 
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                   |  |                                                                                                                                                                                                                             |  | Page |   
|                                   |  |                                                                                                                                                                                                                             |  |      |   
|PART I  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements (Unaudited)                                                                                                                                                                                            |  |      | 2  | 
|                                   |  | Condensed Consolidated Statement of Net
    Assets as of September 30, 2005 (Liquidation
    Basis  Unaudited)                                                                                                             |  |      | 3  | 
|                                   |  | Condensed Consolidated Balance Sheet as of
    December 31, 2004 (Going Concern Basis 
    Unaudited)                                                                                                                      |  |      | 4  | 
|                                   |  | Condensed Consolidated Statement of Changes
    in Net Assets for the Three Months Ended September 30, 2005
    (Liquidation Basis  Unaudited)                                                                             |  |      | 5  | 
|                                   |  | Condensed Consolidated Statements of
    Operations and Comprehensive Income (Loss) for the Six Months
    Ended June 30, 2005 and Three and Nine Months Ended
    September 30, 2004 (Going Concern Basis 
    Unaudited) |  |      | 6  | 
|                                   |  | Condensed Consolidated Statement of
    Shareholders Equity for the Six Months Ended June 30,
    2005 (Going Concern Basis  Unaudited)                                                                                   |  |      | 7  | 
|                                   |  | Condensed Consolidated Statements of Cash
    Flows for the Six Months Ended June 30, 2005 and Nine
    Months Ended September 30, 2004 (Going Concern
    Basis  Unaudited)                                               |  |      | 8  | 
|                                   |  | Notes to Condensed Consolidated Financial
    Statements                                                                                                                                                                    |  |      | 9  | 
|Item 2.                            |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                                                                                                                   |  |      | 30 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                                                                                                                              |  |      | 44 | 
|Item 4.                            |  | Controls and Procedures                                                                                                                                                                                                     |  |      | 44 | 
|                                  
|PART II  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                                                                                                                                           |  |      | 46 | 
|Item 2.                            |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                                                                                                             |  |      | 47 | 
|Item 3.                            |  | Defaults Upon Senior Securities                                                                                                                                                                                             |  |      | 47 | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                                                                                                                                                     |  |      | 47 | 
|Item 5.                            |  | Other Information                                                                                                                                                                                                           |  |      | 47 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                            |  |      | 47 | 
|Signatures                         |  |                                                                                                                                                                                                                             |  |      | 48 | 
|EXHIBIT 10.2                      
|EXHIBIT 10.3                      
|EXHIBIT 10.4                      
|EXHIBIT 31.1                      
|EXHIBIT 31.2                      
|EXHIBIT 32.1                      
|EXHIBIT 32.2                      



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##### Table of Contents



T REIT, INC


FORWARD-LOOKING STATEMENTS





PART I  FINANCIAL INFORMATION







|        |                     
|------- | --------------------
|Item 1. | Financial Statements



2



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##### Table of Contents



T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS


As of September 30, 2005 (Liquidation Basis)
(Unaudited)


|                                                                                 |                                           |               |            |            | 
|-------------------------------------------------------------------------------- | ----------------------------------------- | ------------- | ---------- | ---------- | 
|                                                                                 |                                           | September 30, |           
|                                                                                 |                                           | 2005          |           
|                                                                                 |                                           |               |           
|ASSETS                                                                          
|Real estate investments:                                                         |                                           |               |            |           
|                                                                                 | Real estate held for sale                 |               | $          | 24,022,000 | 
|                                                                                 | Investments in unconsolidated real estate |               |            | 13,171,000 | 
|                                                                                 |                                           |               |           
|                                                                                 |                                           |               | 37,193,000 |           
|Cash and cash equivalents                                                        |                                           |               | 1,950,000  |           
|Restricted cash                                                                  |                                           |               | 1,458,000  |           
|Investment in marketable securities                                              |                                           |               | 3,072,000  |           
|Accounts receivable, net                                                         |                                           |               | 46,000     |           
|Accounts receivable from related parties                                         |                                           |               | 299,000    |           
|Notes receivable                                                                 |                                           |               | 2,765,000  |           
|Asset for estimated receipts in excess of estimated costs during
    liquidation |                                           |               | 1,021,000  |           
|                                                                                 |                                           |               |           
|Total assets                                                                     |                                           |               | 47,804,000 |           
|                                                                                
|LIABILITIES                                                                     
|Mortgages payable secured by properties held for sale and other
    debt         |                                           |               | 16,952,000 |           
|Accounts payable and accrued liabilities                                         |                                           |               | 556,000    |           
|Accounts payable to related parties                                              |                                           |               | 2,000      |           
|Security deposits and prepaid rent                                               |                                           |               | 314,000    |           
|                                                                                 |                                           |               |           
|Total liabilities                                                                |                                           |               | 17,824,000 |           
|                                                                                 |                                           |               |           
|Net assets in liquidation                                                        |                                           | $             | 29,980,000 |           
|                                                                                 |                                           |               |           



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T REIT, INC.





CONDENSED CONSOLIDATED BALANCE SHEET


(Going Concern Basis)


December 31, 2004 (Unaudited)


|                                                                                                                           |                                           |              |            |            | 
|-------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------ | ---------- | ---------- | 
|                                                                                                                           |                                           | December 31, |           
|                                                                                                                           |                                           | 2004         |           
|                                                                                                                           |                                           |              |           
|ASSETS                                                                                                                    
|Real estate investments:                                                                                                   |                                           |              |            |           
|                                                                                                                           | Properties held for sale, net             |              | $          | 23,874,000 | 
|                                                                                                                           | Investments in unconsolidated real estate |              |            | 19,272,000 | 
|                                                                                                                           |                                           |              |           
|                                                                                                                           |                                           |              | 43,146,000 |           
|Cash and cash equivalents                                                                                                  |                                           |              | 7,229,000  |           
|Restricted cash                                                                                                            |                                           |              | 1,691,000  |           
|Investment in marketable securities                                                                                        |                                           |              | 491,000    |           
|Accounts receivable, net                                                                                                   |                                           |              | 125,000    |           
|Accounts receivable from related parties                                                                                   |                                           |              | 514,000    |           
|Other assets  properties held for sale, net                                                                               |                                           |              | 3,822,000  |           
|Other assets                                                                                                               |                                           |              | 236,000    |           
|Notes receivable                                                                                                           |                                           |              | 3,299,000  |           
|                                                                                                                           |                                           |              |           
|Total assets                                                                                                               |                                           | $            | 60,553,000 |           
|                                                                                                                           |                                           |              |           
|                                                                                                                          
|LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS
    EQUITY                                                              
|Mortgages payable secured by properties held for sale                                                                      |                                           | $            | 19,285,000 |           
|Accounts payable and accrued liabilities                                                                                   |                                           |              | 1,904,000  |           
|Accounts payable due to related parties                                                                                    |                                           |              | 49,000     |           
|Distributions payable                                                                                                      |                                           |              | 327,000    |           
|Security deposits and prepaid rent                                                                                         |                                           |              | 253,000    |           
|                                                                                                                           |                                           |              |           
|                                                                                                                           |                                           |              | 21,818,000 |           
|Minority interests  property held for sale                                                                                |                                           |              | 1,916,000  |           
|Commitments and contingencies (Note 13)                                                                                    |                                           |              |            |           
|Shareholders equity:                                                                                                      |                                           |              |            |           
|Common stock, $0.01 par value; 10,000,000 shares
    authorized; 4,720,000 shares issued; 4,605,000 shares
    outstanding |                                           |              | 47,000     |           
|Additional paid-in capital                                                                                                 |                                           |              | 41,533,000 |           
|Treasury stock, 107,000 shares                                                                                             |                                           |              | (979,000   | )         
|Distributions in excess of earnings                                                                                        |                                           |              | (3,792,000 | )         
|Accumulated other comprehensive income                                                                                     |                                           |              | 10,000     |           
|                                                                                                                           |                                           |              |           
|Total shareholders equity                                                                                                 |                                           |              | 36,819,000 |           
|                                                                                                                           |                                           |              |           
|Total liabilities, minority interests and shareholders
    equity                                                         |                                           | $            | 60,553,000 |           
|                                                                                                                           |                                           |              |           



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT


OF CHANGES IN NET ASSETS


(Liquidation Basis)


For the Three Months Ended September 30, 2005
(Unaudited)


|                                                                                             |                                                                                                                                          |               |             |             |  
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ----------- | ----------- | -
|                                                                                             |                                                                                                                                          | Three Months  |            
|                                                                                             |                                                                                                                                          | Ended         |            
|                                                                                             |                                                                                                                                          | September 30, |            
|                                                                                             |                                                                                                                                          | 2005          |            
|                                                                                             |                                                                                                                                          |               |            
|Net assets in liquidation, beginning of period                                               |                                                                                                                                          | $             | 47,953,000  |            
|                                                                                             |                                                                                                                                          |               |            
|Changes in net assets in liquidation:                                                        |                                                                                                                                          |               |             |            
|Changes to asset for estimated receipts in excess of estimated
    costs during liquidation: |                                                                                                                                          |               |             |            
|                                                                                             | Operating income                                                                                                                         |               |             | (713,000    | )
|                                                                                             | Distributions received from unconsolidated properties                                                                                    |               |             | (275,000    | )
|                                                                                             | Payments of liquidation costs and other amounts                                                                                          |               |             | 475,000     |  
|                                                                                             | Change in estimated receipts in excess of estimated costs during
    liquidation                                                         |               |             | (422,000    | )
|                                                                                             |                                                                                                                                          |               |            
|                                                                                             | Change to asset for estimated receipts in excess of estimated
    costs during liquidation                                               |               |             | (935,000    | )
|                                                                                             |                                                                                                                                          |               |            
|                                                                                             | Change in fair value of assets and liabilities:                                                                                          |               |             |             |  
|                                                                                             | Distributions to shareholders                                                                                                            |               |             | (17,995,000 | )
|                                                                                             | Change in fair value of marketable securities                                                                                            |               |             | (67,000     | )
|                                                                                             | Change in fair value of real estate investments                                                                                          |               |             | 511,000     |  
|                                                                                             | Change in assets and liabilities due to activity in asset for
    estimated receipts in excess of estimated costs during
    liquidation |               |             | 513,000     |  
|                                                                                             |                                                                                                                                          |               |            
|                                                                                             | Net decrease in fair value                                                                                                               |               |             | (17,038,000 | )
|                                                                                             |                                                                                                                                          |               |            
|Change in net assets in liquidation                                                          |                                                                                                                                          |               | (17,973,000 | )          
|                                                                                             |                                                                                                                                          |               |            
|Net assets in liquidation, end of period                                                     |                                                                                                                                          | $             | 29,980,000  |            
|                                                                                             |                                                                                                                                          |               |            



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


AND COMPREHENSIVE INCOME (LOSS)


(Going Concern Basis)


For the Six Months Ended June 30, 2005 and the Three
and


Nine Months Ended September 30, 2004 (Unaudited)


|                                                                            |                                                               |               |           |           |               |   |             |               |   |   |           |           |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------- | --------- | --------- | ------------- | - | ----------- | ------------- | - | - | --------- | --------- | -
|                                                                            |                                                               | Three Months  |           |           |               |   | Nine Months |              
|                                                                            |                                                               | Ended         |           |           | Six Months    |   |             | Ended         |  
|                                                                            |                                                               | September 30, |           |           | Ended         |   |             | September 30, |  
|                                                                            |                                                               | 2004          |           |           | June 30, 2005 |   |             | 2004          |  
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Expenses:                                                                   |                                                               |               |           |           |               |   |             |               |   |   |           |          
|General and administrative                                                  |                                                               | $             | 434,000   |           |               | $ | 1,013,000   |               |   | $ | 779,000   |          
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Operating loss                                                              |                                                               |               | (434,000  | )         |               |   | (1,013,000  | )             |   |   | (779,000  | )        
|Other income (expense):                                                     |                                                               |               |           |           |               |   |             |               |   |   |           |          
|                                                                            | Other income                                                  |               |           | 56,000    |               |   |             | 52,000        |   |   |           | 56,000    |  
|                                                                            | Interest (including amortization of deferred financing costs) |               |           | (9,000    | )             |   |             | (44,000       | ) |   |           | (35,000   | )
|                                                                            | Interest and dividend income                                  |               |           | 83,000    |               |   |             | 233,000       |   |   |           | 323,000   |  
|                                                                            | Gain on sale of marketable securities                         |               |           | 82,000    |               |   |             | 126,000       |   |   |           | 132,000   |  
|                                                                            | Gain on sale of unconsolidated real estate investments        |               |           |          |               |   |             | 191,000       |   |   |           |          |  
|                                                                            | Equity in earnings of unconsolidated real estate              |               |           | 50,000    |               |   |             | 787,000       |   |   |           | 683,000   |  
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Income (loss) from continuing operations                                    |                                                               |               | (172,000  | )         |               |   | 332,000     |               |   |   | 380,000   |          
|Discontinued operations:                                                    |                                                               |               |           |           |               |   |             |               |   |   |           |          
|                                                                            | Gain on sale on real estate                                   |               |           | 821,000   |               |   |             |              |   |   |           | 1,634,000 |  
|                                                                            | Income (loss) from discontinued operations                    |               |           | 444,000   |               |   |             | (272,000      | ) |   |           | 387,000   |  
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Net income                                                                  |                                                               | $             | 1,093,000 |           |               | $ | 60,000      |               |   | $ | 2,401,000 |          
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Comprehensive income:                                                       |                                                               |               |           |           |               |   |             |               |   |   |           |          
|                                                                            | Net income                                                    |               | $         | 1,093,000 |               |   | $           | 60,000        |   |   | $         | 2,401,000 |  
|                                                                            | Unrealized loss on marketable securities                      |               |           | (25,000   | )             |   |             | (24,000       | ) |   |           | (34,000   | )
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Comprehensive income                                                        |                                                               | $             | 1,068,000 |           |               | $ | 36,000      |               |   | $ | 2,367,000 |          
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Net income (loss) per common share:                                         |                                                               |               |           |           |               |   |             |               |   |   |           |          
|                                                                            | Continuing operations  basic and diluted                     |               | $         | (0.03     | )             |   | $           | 0.07          |   |   | $         | 0.08      |  
|                                                                            | Discontinued operations  basic and diluted                   |               |           | 0.27      |               |   |             | (0.06         | ) |   |           | 0.44      |  
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Total net income per common share  basic and diluted                       |                                                               | $             | 0.24      |           |               | $ | 0.01        |               |   | $ | 0.52      |          
|                                                                            |                                                               |               |           |           |               |   |             |               |  
|Weighted average shares of common stock outstanding 
    basic and diluted |                                                               |               | 4,620,000 |           |               |   | 4,605,000   |               |   |   | 4,636,000 |          
|                                                                            |                                                               |               |           |           |               |   |             |               |  



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT


OF SHAREHOLDERS EQUITY


(Going Concern Basis)


For the Six Months Ended June 30, 2005 (Unaudited)


|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       |  |   |         |   |  |   |            |  
|---------------------------------------- |  | ------------ | --------- | ---------- | --------- | - | ----------- | ------- | ------------- | -------- | ---------- | ----- | ------------ | -------- | ---------- | ------------- | ---- | - | ---------- | ----- |  | - | ------- | - |  | - | ---------- | -
|                                         |  | Common Stock |           |            |           |   |             |         |              
|                                         |  |              |           |            |           |   | Accumulated |         |               |         
|                                         |  |              |           | Additional |           |   |             |         | Distributions |          |            | Other |              |          |           
|                                         |  | Number of    |           |            |           |   | Paid-In     |         |               | Treasury |            |       | in Excess of |          |            | Comprehensive |      |   |           
|                                         |  | Shares       |           |            | Par Value |   |             | Capital |               |          | Stock      |       |              | Earnings |            |               | Loss |   |            | Total | 
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 
|BALANCE  December 31, 2004              |  |              | 4,609,000 |            |           | $ | 47,000      |         |               | $        | 41,533,000 |       |              | $        | (979,000   | )             |      | $ | (3,792,000 | )     |  | $ | 10,000  |   |  | $ | 36,819,000 |  
|Net income                               |  |              |          |            |           |   |            |         |               |          |           |       |              |          |           |               |      |   | 60,000     |       |  |   |        |   |  |   | 60,000     |  
|Unrealized loss on marketable securities |  |              |          |            |           |   |            |         |               |          |           |       |              |          |           |               |      |   |           |       |  |   | (24,000 | ) |  |   | (24,000    | )
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 
|Comprehensive income                     |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       |  |   |         |   |  |   | 36,000     |  
|Stock based compensation                 |  |              |          |            |           |   |            |         |               |          | 64,000     |       |              |          |           |               |      |   |           |       |  |   |        |   |  |   | 64,000     |  
|Distributions                            |  |              |          |            |           |   |            |         |               |          |           |       |              |          |           |               |      |   | (1,910,000 | )     |  |   |        |   |  |   | (1,910,000 | )
|Repurchase of shares                     |  |              | (10,000   | )          |           |   |            |         |               |          |           |       |              |          | (87,000    | )             |      |   |           |       |  |   |        |   |  |   | (87,000    | )
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 
|BALANCE  June 30, 2005                  |  |              | 4,605,000 |            |           | $ | 47,000      |         |               | $        | 41,597,000 |       |              | $        | (1,066,000 | )             |      | $ | (5,642,000 | )     |  | $ | (14,000 | ) |  | $ | 34,922,000 |  
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


(Going Concern Basis)


For the Six Months Ended June 30, 2005 and the Nine
Months Ended September 30, 2004 (Unaudited)


|                                                                                                                                                                              |                                                                            |                                           |           |            |               |   |            |            |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------- | --------- | ---------- | ------------- | - | ---------- | ---------- | ---------- | -
|                                                                                                                                                                              |                                                                            | Six Months                                |           |            | Nine Months   |  
|                                                                                                                                                                              |                                                                            | Ended                                     |           |            | Ended         |  
|                                                                                                                                                                              |                                                                            | June 30,                                  |           |            | September 30, |  
|                                                                                                                                                                              |                                                                            | 2005                                      |           |            | 2004          |  
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                                          |                                                                            |                                           |           |            |               |   |            |           
|Net income                                                                                                                                                                    |                                                                            | $                                         | 60,000    |            |               | $ | 2,401,000  |           
|Adjustments to reconcile net income to net cash provided by
    operating activities Distributions received in excess of equity
    in earnings of unconsolidated real estate |                                                                            |                                           | 706,000   |            |               |   | 661,000    |           
|                                                                                                                                                                              | Gain on sale of real estate investments                                    |                                           |           |           |               |   |            | (1,634,000 | )         
|                                                                                                                                                                              | Gain on sale of investment in unconsolidated real estate                   |                                           |           | (191,000   | )             |   |            |           |           
|                                                                                                                                                                              | Gain on sale of marketable securities                                      |                                           |           | (126,000   | )             |   |            | (132,000   | )         
|                                                                                                                                                                              | Depreciation and amortization  continuing and
    discontinued operations |                                           |           | 1,237,000  |               |   |            | 1,738,000  |           
|                                                                                                                                                                              | Stock based compensation expense                                           |                                           |           | 64,000     |               |   |            | 236,000    |           
|                                                                                                                                                                              | Minority interests                                                         |                                           |           | (124,000   | )             |   |            | (125,000   | )         
|Change in operating assets and liabilities:                                                                                                                                   |                                                                            |                                           |           |            |               |   |            |           
|                                                                                                                                                                              | Accounts receivable                                                        |                                           |           | (83,000    | )             |   |            | (7,000     | )         
|                                                                                                                                                                              | Accounts receivable/payable from/to related parties                        |                                           |           | (617,000   | )             |   |            | 99,000     |           
|                                                                                                                                                                              | Other assets                                                               |                                           |           | 188,000    |               |   |            | 446,000    |           
|                                                                                                                                                                              | Accounts payable and accrued liabilities                                   |                                           |           | (440,000   | )             |   |            | (84,000    | )         
|                                                                                                                                                                              | Security deposits and prepaid rent                                         |                                           |           | 209,000    |               |   |            | 117,000    |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|                                                                                                                                                                              | Net cash provided by operating activities                                  |                                           |           | 883,000    |               |   |            | 3,716,000  |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                                          |                                                                            |                                           |           |            |               |   |            |           
|                                                                                                                                                                              | Purchase of marketable securities                                          |                                           |           | (6,101,000 | )             |   |            | (6,235,000 | )         
|                                                                                                                                                                              | Proceeds from sale of marketable securities                                |                                           |           | 4,909,000  |               |   |            | 5,734,000  |           
|                                                                                                                                                                              | Purchase of real estate operating properties                               |                                           |           |           |               |   |            | (6,462,000 | )         
|                                                                                                                                                                              | Purchase of investments in unconsolidated real estate                      |                                           |           |           |               |   |            | (1,125,000 | )         
|                                                                                                                                                                              | Restricted cash                                                            |                                           |           | 310,000    |               |   |            | (97,000    | )         
|                                                                                                                                                                              | Capital expenditures                                                       |                                           |           | (3,000     | )             |   |            | (1,666,000 | )         
|                                                                                                                                                                              | Proceeds from disposition of properties                                    |                                           |           |           |               |   |            | 3,239,000  |           
|                                                                                                                                                                              | Proceeds from sale of unconsolidated real estate                           |                                           |           | 603,000    |               |   |            |           |           
|                                                                                                                                                                              | Collections of notes receivable                                            |                                           |           | 531,000    |               |   |            | 6,511,000  |           
|                                                                                                                                                                              | Real estate deposits applied to purchases                                  |                                           |           |           |               |   |            | 11,000     |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|                                                                                                                                                                              | Net cash provided by (used in) investing activities                        |                                           |           | 249,000    |               |   |            | (90,000    | )         
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                                                                          |                                                                            |                                           |           |            |               |   |            |           
|                                                                                                                                                                              | Principal payments on mortgages payable                                    |                                           |           | (33,000    | )             |   |            | (4,949,000 | )         
|                                                                                                                                                                              | Borrowings on line of credit                                               |                                           |           |           |               |   |            | 710,000    |           
|                                                                                                                                                                              | Repayment on line of credit                                                |                                           |           |           |               |   |            | (1,255,000 | )         
|                                                                                                                                                                              | Distributions paid to shareholders                                         |                                           |           | (1,910,000 | )             |   |            | (2,858,000 | )         
|                                                                                                                                                                              | Distributions to minority shareholders                                     |                                           |           | (91,000    | )             |   |            | (430,000   | )         
|                                                                                                                                                                              | Repurchase of shares                                                       |                                           |           | (87,000    | )             |   |            | (304,000   | )         
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|                                                                                                                                                                              | Net cash used in financing activities                                      |                                           |           | (2,121,000 | )             |   |            | (9,086,000 | )         
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|                                                                                                                                                                              |                                                                            | NET DECREASE IN CASH AND CASH EQUIVALENTS |           |            | (989,000      | ) |            |            | (5,460,000 | )
|CASH AND CASH EQUIVALENTS  beginning of period                                                                                                                               |                                                                            |                                           | 7,229,000 |            |               |   | 12,189,000 |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|CASH AND CASH EQUIVALENTS  end of period                                                                                                                                     |                                                                            | $                                         | 6,240,000 |            |               | $ | 6,729,000  |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                                                                              |                                                                            |                                           |           |            |               |   |            |           
|Cash paid during the period for:                                                                                                                                              |                                                                            |                                           |           |            |               |   |            |           
|                                                                                                                                                                              | Interest                                                                   |                                           | $         | 638,000    |               |   | $          | 825,000    |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|                                                                                                                                                                              | Income taxes                                                               |                                           | $         | 3,000      |               |   | $          | 13,000     |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
    ACTIVITIES                                                                                                     |                                                                            |                                           |           |            |               |   |            |           
|Note receivable due to sale of property                                                                                                                                       |                                                                            | $                                         |          |            |               | $ | 9,228,000  |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  
|NONCASH INVESTING ACTIVITIES                                                                                                                                                  |                                                                            |                                           |           |            |               |   |            |           
|Liabilities incurred acquisitions/dispositions                                                                                                                                |                                                                            | $                                         |          |            |               | $ | 18,021,000 |           
|                                                                                                                                                                              |                                                                            |                                           |           |            |               |  



8



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##### Table of Contents



T REIT, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT




|   |                                         
|-- | ----------------------------------------
|1. | Organization and Description of Business







|   |                    
|-- | -------------------
|2. | Plan of Liquidation





9



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|   |                                           
|-- | ------------------------------------------
|3. | Summary of Significant Accounting Policies



| |                                
| | -------------------------------
| | Liquidation Basis of Accounting







| |                      
| | ---------------------
| | Basis of Presentation

Consolidation of Variable Interest Entities


Accounting for the Impairment or Disposal of
Long Lived Assets


10



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




| |                       
| | ----------------------
| | Interim Financial Data





| |                       
| | ----------------------
| | Property Held for Sale





| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | management, having the authority to approve the action, commits
    to a plan to sell the asset;                                                             
|
| |  | the asset is available for immediate sale in its present
    condition subject only to terms that are usual and customary for
    sales of such assets;      
|
| |  | an active program to locate a buyer and other actions required
    to complete the plan to sell the asset have been initiated;                               
|
| |  | the sale of the asset is probable and the transfer of the asset
    is expected to qualify for recognition as a completed sale
    within one year;          
|
| |  | the asset is being actively marketed for sale at a price that is
    reasonable in relation to its current fair value; and                                   
|
| |  | given the actions required to complete the plan, it is unlikely
    that significant changes to the plan will be made or that the
    plan will be withdrawn.



| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                                                
| | ---------------------------------------------------------------
| | Tenant Receivables and Allowance for Uncollectible
    Accounts



11



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)






| |                                    
| | -----------------------------------
| | Investment in Marketable Securities







| |                   
| | ------------------
| | Minority Interests





| |                     
| | --------------------
| | Operating Properties





12



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)








| |                
| | ---------------
| | Deferred Assets





| |                                 
| | --------------------------------
| | Derivative Financial Instruments





| |                    
| | -------------------
| | Revenue Recognition

Accounting for Leases




| |                             
| | ----------------------------
| | Concentration of Credit Risk





13



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|                                |  |              |           |               |             |  |       |          |  |        |                    |  |       |                 |        |  |  |  |            | 
|------------------------------- |  | ------------ | --------- | ------------- | ----------- |  | ----- | -------- |  | ------ | ------------------ |  | ----- | --------------- | ------ |  |  |  | ---------- | 
|                                |  |              |           | Percentage of |             |  |       |          |  |        |                   
|                                |  | 2005 Annual  |           |               | 2005 Annual |  |       |          |  | Square |                    |  | Lease |                
|Tenant                          |  | Base Rent(*) |           |               | Base Rent   |  |       | Property |  |        | Footage            |  |       | Expiration Date |       
|                                |  |              |           |               |             |  |       |          |  |        |                    |  |       |                 |       
|Netsolve, Inc.                  |  | $            | 1,112,000 |               |             |  | 41.1% |          |  |        | AmberOaks          |  |       |                 | 78,000 |  |  |  | April 2007 | 
|Newell Rubbermaid               |  | $            | 493,000   |               |             |  | 18.2% |          |  |        | AmberOaks          |  |       |                 | 51,000 |  |  |  | April 2008 | 
|General Services Administration |  | $            | 327,000   |               |             |  | 12.1% |          |  |        | University Heights |  |       |                 | 21,000 |  |  |  | Nov. 2015  | 






|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
|* | Annualized rental income based on contractual base rent set
    forth in leases in effect at September 30, 2005.



| |             
| | ------------
| | Income Taxes





| |                     
| | --------------------
| | Comprehensive Income

Reporting Comprehensive Income




| |               
| | --------------
| | Per Share Data

Earnings Per Share


14



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|                                                                      |                                             |               |           |       |            |   |           |               |   |   |           |      | 
|--------------------------------------------------------------------- | ------------------------------------------- | ------------- | --------- | ----- | ---------- | - | --------- | ------------- | - | - | --------- | ---- | 
|                                                                      |                                             | Three Months  |           |       | Six Months |   |           | Nine Months   |  
|                                                                      |                                             | Ended         |           |       | Ended      |   |           | Ended         |  
|                                                                      |                                             | September 30, |           |       | June 30,   |   |           | September 30, |  
|                                                                      |                                             | 2004          |           |       | 2005       |   |           | 2004          |  
|                                                                      |                                             |               |           |       |            |   |           |               |  
|Income (loss) from continuing operations                              |                                             | $             | (172,000  | )     |            | $ | 332,000   |               |   | $ | 380,000   |     
|Income (loss) from discontinued operations                            |                                             |               | 1,265,00  |       |            |   | (272,000  | )             |   |   | 2,021,000 |     
|                                                                      |                                             |               |           |       |            |   |           |               |  
|Net income                                                            |                                             | $             | 1,093,000 |       |            | $ | 60,000    |               |   | $ | 2,401,000 |     
|                                                                      |                                             |               |           |       |            |   |           |               |  
|Net income (loss) per share:                                          |                                             |               |           |       |            |   |           |               |   |   |           |     
|                                                                      | Continuing operations  basic and diluted   |               | $         | (0.03 | )          |   | $         | 0.07          |   |   | $         | 0.08 | 
|                                                                      | Discontinued operations  basic and diluted |               |           | 0.27  |            |   |           | (0.06         | ) |   |           | 0.44 | 
|                                                                      |                                             |               |           |       |            |   |           |               |  
|Total net income per share  basic and diluted                        |                                             | $             | 0.24      |       |            | $ | 0.01      |               |   | $ | 0.52      |     
|                                                                      |                                             |               |           |       |            |   |           |               |  
|Weighted average number of shares outstanding  basic
    and diluted |                                             |               | 4,620,000 |       |            |   | 4,605,000 |               |   |   | 4,636,000 |     
|                                                                      |                                             |               |           |       |            |   |           |               |  



| |                 
| | ----------------
| | Use of Estimates





| |              
| | -------------
| | Stock Options

Accounting for Stock-Based
Compensation Accounting for
Stock-Based Compensation Transition and Disclosure Accounting for Stock Issued to Employees


15



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|                                                                                                                  |  |               |           |   |            |   |         |               |  |   |           |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------- | - | ------- | ------------- |  | - | --------- | -
|                                                                                                                  |  | Three Months  |           |   | Six Months |   |         | Nine Months   | 
|                                                                                                                  |  | Ended         |           |   | Ended      |   |         | Ended         | 
|                                                                                                                  |  | September 30, |           |   | June 20,   |   |         | September, 30 | 
|                                                                                                                  |  | 2004          |           |   | 2005       |   |         | 2004          | 
|                                                                                                                  |  |               |           |   |            |   |         |               | 
|Reported net income                                                                                               |  | $             | 1,093,000 |   |            | $ | 60,000  |               |  | $ | 2,401,000 |  
|Add: Stock based employee compensation expense included in
    reported net income                                |  |               | 236,000   |   |            |   | 64,000  |               |  |   | 236,000   |  
|Less: Total stock based employee compensation expense determined
    under fair value based method for all awards |  |               | (280,000  | ) |            |   | (83,000 | )             |  |   | (344,000  | )
|                                                                                                                  |  |               |           |   |            |   |         |               | 
|Pro forma net income                                                                                              |  | $             | 1,049,000 |   |            | $ | 41,000  |               |  | $ | 2,293,000 |  
|                                                                                                                  |  |               |           |   |            |   |         |               | 
|Reported net income per share  basic and diluted                                                                 |  | $             | 0.24      |   |            | $ | 0.01    |               |  | $ | 0.52      |  
|                                                                                                                  |  |               |           |   |            |   |         |               | 
|Pro forma net income per share  basic and diluted                                                                |  | $             | 0.23      |   |            | $ | 0.01    |               |  | $ | 0.49      |  
|                                                                                                                  |  |               |           |   |            |   |         |               | 





| |         
| | --------
| | Segments





| |                                          
| | -----------------------------------------
| | Recently Issued Accounting Pronouncements

Accounting Changes and Error Corrections  A
Replacement of APB Opinion No. 20 and
SFAS No. 3


Determining Whether a General Partner, or
the General Partners as a Group, Controls a Limited Partnership
or Similar Entity When the Limited Partners Have Certain Rights


16



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)


Accounting for
Certain Investments in Debt and Equity Securities




|   |                                                                                 
|-- | --------------------------------------------------------------------------------
|4. | Asset for Estimated Receipts in Excess of Estimated Costs
    During Liquidation





|                                                                                       |                   |          |            |            |                |   |          |           |  |   |               |          |   |   |            |            |  
|-------------------------------------------------------------------------------------- | ----------------- | -------- | ---------- | ---------- | -------------- | - | -------- | --------- |  | - | ------------- | -------- | - | - | ---------- | ---------- | -
|                                                                                       |                   | June 30, |            |            | Cash Payments  |   |          | Change in |  |   | September 30, |         
|                                                                                       |                   | 2005     |            |            | and (Receipts) |   |          | Estimates |  |   | 2005          |         
|Assets:                                                                                |                   |          |            |            |                |   |          |           |  |   |               |         
|Estimated net inflows from consolidated and unconsolidated
    operating activities    |                   | $        | 3,808,000  |            |                | $ | (988,000 | )         |  | $ | (243,000      | )        |   | $ | 2,577,000  |           
|Liabilities:                                                                           |                   |          |            |            |                |   |          |           |  |   |               |          |   |   |            |           
|                                                                                       | Liquidation costs |          |            | (1,464,000 | )              |   |          | 154,000   |  |   |               | 77,000   |   |   |            | (1,233,000 | )
|                                                                                       | Distributions     |          |            | (316,000   | )              |   |          | 316,000   |  |   |               |         |   |   |            |           |  
|                                                                                       | Other             |          |            | (72,000    | )              |   |          | 5,000     |  |   |               | (256,000 | ) |   |            | (323,000   | )
|                                                                                       |                   |          |            |            |                |   |          |           |  |   |               |         
|                                                                                       |                   |          | (1,852,000 | )          |                |   | 475,000  |           |  |   | (179,000      | )        |   |   | (1,556,000 | )         
|                                                                                       |                   |          |            |            |                |   |          |           |  |   |               |         
|Total asset for estimated receipts in excess of estimated costs
    during liquidation |                   | $        | 1,956,000  |            |                | $ | (513,000 | )         |  | $ | (422,000      | )        |   | $ | 1,021,000  |           
|                                                                                       |                   |          |            |            |                |   |          |           |  |   |               |         

17



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|   |                          
|-- | -------------------------
|5. | Net Assets in Liquidation



|                                                                                  |  |   |            |  
|--------------------------------------------------------------------------------- |  | - | ---------- | -
|Shareholders equity at June 30, 2005 
    going concern basis                   |  | $ | 34,922,000 |  
|Increase due to estimated net realizable value of operating
    properties        |  |   | 4,734,000  |  
|Increase due to estimated net realizable value of unconsolidated
    investment   |  |   | 8,559,000  |  
|Assets for estimated receipts in excess of estimated costs
    during liquidation |  |   | 1,956,000  |  
|Decrease due to the write-off of other intangible assets                          |  |   | (2,218,000 | )
|                                                                                  |  |   |           
|Adjustment to reflect the change to the liquidation basis of
    accounting       |  |   | 13,031,000 |  
|                                                                                  |  |   |           
|Estimated value of net assets in liquidation at June 30,
    2005                 |  | $ | 47,953,000 |  
|                                                                                  |  |   |           





|   |                        
|-- | -----------------------
|6. | Real Estate Investments





| |                                          
| | -----------------------------------------
| | Investments in Unconsolidated Real Estate



|                                    |  |          |                 |            |       |  |              |      |  |   |            | 
|----------------------------------- |  | -------- | --------------- | ---------- | ----- |  | ------------ | ---- |  | - | ---------- | 
|                                    |  |          |                 | Percentage |       |  | December 31, |     
|Property                            |  | Location |                 |            | Owned |  |              | 2004 | 
|                                    |  |          |                 |            |       |  |              |      | 
|City Center West A Building  TIC |  |          | Las Vegas, NV   |            |       |  | 89.1%        |      |  | $ | 8,004,000  | 
|Congress Center  LLC               |  |          | Chicago, IL     |            |       |  | 10.3%        |      |  |   | 3,875,000  | 
|Pacific Corporate Park  LLC        |  |          | Lake Forest, CA |            |       |  | 22.8%        |      |  |   | 1,830,000  | 
|Titan Building & Plaza  TIC        |  |          | San Antonio, TX |            |       |  | 48.5%        |      |  |   | 2,027,000  | 
|Reno Trademark Building  TIC       |  |          | Reno, NV        |            |       |  | 40.0%        |      |  |   | 1,154,000  | 
|Oakey Building  LLC                |  |          | Las Vegas, NV   |            |       |  | 9.8%         |      |  |   | 585,000    | 
|Enclave Parkway  LLC               |  |          | Houston, TX     |            |       |  | 3.3%         |      |  |   | 452,000    | 
|County Center Drive  TIC           |  |          | Temecula, CA    |            |       |  | 16.0%        |      |  |   | 432,000    | 
|Emerald Plaza  LLC                 |  |          | San Diego, CA   |            |       |  | 2.7%         |      |  |   | 913,000    | 
|                                    |  |          |                 |            |       |  |              |      | 
|                                    |  |          |                 |            |       |  |              |      |  | $ | 19,272,000 | 
|                                    |  |          |                 |            |       |  |              |      | 

18



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|                                       |  |              |             | 
|-------------------------------------- |  | ------------ | ----------- | 
|                                       |  | As of        |            
|                                       |  | December 31, |            
|                                       |  | 2004         |            
|                                       |  |              |            
|Assets (primarily real estate)         |  | $            | 349,806,000 | 
|                                       |  |              |            
|Mortgages notes payable and other debt |  | $            | 224,756,000 | 
|Other liabilities                      |  |              | 10,179,000  | 
|Equity                                 |  |              | 114,871,000 | 
|                                       |  |              |            
|Total liabilities and equity           |  | $            | 349,806,000 | 
|                                       |  |              |            
|Our share of equity                    |  | $            | 19,272,000  | 
|                                       |  |              |            

|                          |  |               |            |   |            |   |            |               |  |   |            | 
|------------------------- |  | ------------- | ---------- | - | ---------- | - | ---------- | ------------- |  | - | ---------- | 
|                          |  | Three Months  |            |   | Six Months |   |            | Nine Months   | 
|                          |  | Ended         |            |   | Ended      |   |            | Ended         | 
|                          |  | September 30, |            |   | June 30,   |   |            | September 30, | 
|                          |  | 2004          |            |   | 2005       |   |            | 2004          | 
|                          |  |               |            |   |            |   |            |               | 
|Revenues                  |  | $             | 11,806,000 |   |            | $ | 22,380,000 |               |  | $ | 28,924,000 | 
|Rental and other expenses |  |               | 12,950,000 |   |            |   | 19,817,000 |               |  |   | 27,237,000 | 
|                          |  |               |            |   |            |   |            |               | 
|Net income (loss)         |  | $             | (1,144,000 | ) |            | $ | 2,563,000  |               |  | $ | 1,687,000  | 
|                          |  |               |            |   |            |   |            |               | 
|Our equity in earnings    |  | $             | 50,000     |   |            | $ | 787,000    |               |  | $ | 683,000    | 
|                          |  |               |            |   |            |   |            |               | 



| |                     
| | --------------------
| | Dispositions in 2005







19



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)








| |                                  
| | ---------------------------------
| | Properties Under Contract to Sell





|   |                             
|-- | ----------------------------
|7. | Marketable Equity Securities



|                  |                   |            |   |                  |       |  |           |        |  |            |   |   |  |  |   |         | 
|----------------- | ----------------- | ---------- | - | ---------------- | ----- |  | --------- | ------ |  | ---------- | - | - |  |  | - | ------- | 
|                  |                   |            |   | Gross Unrealized |       | 
|                  |                   | Historical |   |                  |       |  | Estimated |       
|                  |                   | Cost       |   |                  | Gains |  |           | Losses |  | Fair Value |  
|                  |                   |            |   |                  |       |  |           |        |  |            |  
|December 31, 2004 |                   |            |   |                  |       |  |           |        |  |            |   |   |  |  |   |        
|                  | Equity securities |            | $ | 481,000          |       |  | $         | 10,000 |  |            | $ |  |  |  | $ | 491,000 | 
|                  |                   |            |   |                  |       |  |           |        |  |            |   |  





|   |                 
|-- | ----------------
|8. | Notes Receivable



20



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)










|   |               
|-- | --------------
|9. | Line of Credit





|    |                                 
|--- | --------------------------------
|10. | Mortgages Payable and Other Debt



|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- |  | ------------ | - | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                              |  | September 30, |            |  | December 31, |  
|                                                                                                                                                                                                                                                                                                                                                                                                              |  | 2005          |            |  | 2004         |  
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |  
|Note payable to a mortgage company, secured by a deed of trust,
    rate per annum equal to an initial benchmark floor rate of 3%
    based on the 10-year Treasury note plus 2.25% and matures
    January 1, 2008. At September 30, 2005 and
    December 31, 2004 the interest rate was 5.25%. Equal
    principal and interest payments of $24,000 are payable monthly
    until repaid in full           |  | $             | 4,231,000  |  |              | $ | 4,285,000  | 
|Note payable to a bank, secured by a first deed of trust,
    monthly interest-only through February 15, 2006 and
    thereafter, principal and interest payments through the maturity
    date of January 20, 2007 at the prime rate plus 1.07%,
    subject to a floor of 5.5% per annum. The interest rate at
    September 30, 2005 and December 31, 2004 was 7.75% and
    5.75% per annum, respectively |  |               | 15,000,000 |  |              |   | 15,000,000 | 
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |  
|Total mortgages payable                                                                                                                                                                                                                                                                                                                                                                                       |  |               | 19,231,000 |  |              |   | 19,285,000 | 
|Other debt                                                                                                                                                                                                                                                                                                                                                                                                    |  |               | 1,471,000  |  |              |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |  
|Total mortgages payable and other debt                                                                                                                                                                                                                                                                                                                                                                        |  |               | 20,702,000 |  |              | $ | 19,285,000 | 
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |  
|Less minority interest share of mortgages payable and other debt                                                                                                                                                                                                                                                                                                                                              |  |               | 3,750,000  |  |              |   |            | 
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |  
|Mortgages payable and other debt (liquidation basis)                                                                                                                                                                                                                                                                                                                                                          |  | $             | 16,952,000 |  |              |   |            | 
|                                                                                                                                                                                                                                                                                                                                                                                                              |  |               |            |  |              |  

21



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)






| |           
| | ----------
| | Other Debt





|    |                     
|--- | --------------------
|11. | Shareholders Equity



| |                         
| | ------------------------
| | Share Repurchase Program







| |                   
| | ------------------
| | Stock Option Plans





|                                                |           |           |         |          |          |   |      |                  |   |   |      |       |  
|----------------------------------------------- | --------- | --------- | ------- | -------- | -------- | - | ---- | ---------------- | - | - | ---- | ----- | -
|                                                |           | Number of |         |          | Exercise |   |      | Weighted Average |  
|Options Outstanding at                          |           | Shares    |         |          | Price    |   |      | Exercise Price   |  
|                                                |           |           |         |          |          |   |      |                  |  
|December 31, 2004 (155,000 options exercisable) |           |           | 425,000 |          |          | $ | 9.05 |                  |   | $ | 9.05 |      
|                                                | Granted   |           |         |         |          |   |      |                 |   |   |      |      |  
|                                                | Cancelled |           |         | (425,000 | )        |   |      | (9.05            | ) |   |      | (9.05 | )
|                                                |           |           |         |          |          |   |      |                  |  
|September 30, 2005 (0 options exercisable)      |           |           |        |          |          | $ |     |                  |   | $ |     |      
|                                                |           |           |         |          |          |   |      |                  |  

22



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)






|    |                           
|--- | --------------------------
|12. | Related Party Transactions



| |                   
| | ------------------
| | Advisory Agreement







| |                         
| | ------------------------
| | Property Management Fees





| |                        
| | -----------------------
| | Real Estate Commissions





| |                            
| | ---------------------------
| | Real Estate Disposition Fee



23



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




| |                        
| | -----------------------
| | Incentive Distributions





| |                                           
| | ------------------------------------------
| | Related Party Accounts Receivable/ Payable





| |                                           
| | ------------------------------------------
| | Unconsolidated Debt Due to Related Parties





| |                              
| | -----------------------------
| | Cunningham Lending Group, LLC



|                    |       |         |         |         |                |   |       |        | 
|------------------- | ----- | ------- | ------- | ------- | -------------- | - | ----- | ------ | 
|                    |       | Amount  |         |         | T REIT, Inc.s |  
|Property/Issue Date |       | of Loan |         |         | Portion        |  
|                    |       |         |         |         |                |  
|Emerald Plaza:      |       |         |         |         |                |   |       |       
|02/07/05            |       | $       | 232,000 |         |                | $ | 6,000 |       
|03/04/05            |       |         | 232,000 |         |                |   | 6,000 |       
|04/06/05            |       |         | 279,000 |         |                |   | 8,000 |       
|                    |       |         |         |         |                |  
|                    | Total |         | $       | 743,000 |                |   | $     | 20,000 | 
|                    |       |         |         |         |                |  





| |                           
| | --------------------------
| | Triple Net Properties, LLC





|    |                              
|--- | -----------------------------
|13. | Commitments and Contingencies



| |                  
| | -----------------
| | SEC Investigation

In the matter of Triple Net Properties, LLC.


24



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




Accounting for
Contingencies.




| |                         
| | ------------------------
| | Prior Performance Tables





| |                    
| | -------------------
| | Unconsolidated Debt



25



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |             |  |  |   |            | 
|----------------------------------- |  | ---------- | ----- | ------------- | ------------- | - | ------------ | ------- | ------------ | ------------- | ------------ |  | ------------ | ------- | ----------- |  |  | - | ---------- | 
|                                    |  |            |       | Mortgage and  |               |   |              |         | Mortgage and |               |              | 
|                                    |  |            |       | Other Debt    |               |   |              |         | Other Debt   |               |              | 
|                                    |  |            |       | Balance as of |               |   | T REIT Incs |         |              | Balance as of |              |  | T REIT Incs |        
|                                    |  | Ownership  |       |               | September 30, |   |              | Portion |              |               | December 31, |  |              | Portion |            
|Property                            |  | Percentage |       |               | 2005          |   |              | of Debt |              |               | 2004         |  |              | of Debt |            
|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |            
|Reno Trademark Building  TIC       |  |            | 40.0% |               |               | $ | 4,463,000    |         |              | $             | 1,785,000    |  |              | $       | 4,504,000   |  |  | $ | 1,802,000  | 
|County Center Drive                 |  |            | 16.0% |               |               |   |             |         |              |               |             |  |              |         | 2,980,000   |  |  |   | 477,000    | 
|City Center West A Building  TIC |  |            | 89.1% |               |               |   |             |         |              |               |             |  |              |         | 12,484,000  |  |  |   | 11,127,000 | 
|Titan Building & Plaza  TIC        |  |            | 48.5% |               |               |   | 5,900,000    |         |              |               | 2,861,000    |  |              |         | 5,795,000   |  |  |   | 2,811,000  | 
|Pacific Corporate Park  LLC        |  |            | 22.8% |               |               |   |             |         |              |               |             |  |              |         | 5,474,000   |  |  |   | 1,246,000  | 
|Congress Center  LLC               |  |            | 10.2% |               |               |   | 97,500,000   |         |              |               | 9,962,000    |  |              |         | 97,500,000  |  |  |   | 9,962,000  | 
|Enclave Parkway  LLC               |  |            | 3.3%  |               |               |   | 23,076,000   |         |              |               | 752,000      |  |              |         | 23,310,000  |  |  |   | 759,000    | 
|Oakey Building  LLC                |  |            | 9.8%  |               |               |   | 6,337,000    |         |              |               | 619,000      |  |              |         | 4,000,000   |  |  |   | 390,000    | 
|Emerald Plaza  LLC                 |  |            | 2.7%  |               |               |   | 68,500,000   |         |              |               | 1,850,000    |  |              |         | 68,500,000  |  |  |   | 1,850,000  | 
|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |            
|Total                               |  |            |       |               |               | $ | 205,776,000  |         |              | $             | 17,829,000   |  |              | $       | 224,547,000 |  |  | $ | 30,424,000 | 
|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |            









26



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




| |           
| | ----------
| | Litigation









| |                      
| | ---------------------
| | Environmental Matters





| |      
| | -----
| | Other



27



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|    |                                                 
|--- | ------------------------------------------------
|14. | Discontinued Operations  Property Held for Sale



|                  |                                                              |               |           |           |            |   |           |               |  |   |           |           | 
|----------------- | ------------------------------------------------------------ | ------------- | --------- | --------- | ---------- | - | --------- | ------------- |  | - | --------- | --------- | 
|                  |                                                              | Three Months  |           |           | Six Months |   |           | Nine Months   | 
|                  |                                                              | Ended         |           |           | Ended      |   |           | Ended         | 
|                  |                                                              | September 30, |           |           | June 30,   |   |           | September 30, | 
|                  |                                                              | 2004          |           |           | 2005       |   |           | 2004          | 
|                  |                                                              |               |           |           |            |   |           |               | 
|Revenues:         |                                                              |               |           |           |            |   |           |               |  |   |           |          
|                  | Rental income                                                |               | $         | 1,513,000 |            |   | $         | 2,248,000     |  |   | $         | 3,968,000 | 
|                  | Interest income                                              |               |           |          |            |   |           | 9,000         |  |   |           |          | 
|                  |                                                              |               |           |           |            |   |           |               | 
|                  |                                                              |               | 1,513,000 |           |            |   | 2,257,000 |               |  |   | 3,968,000 |          
|Expenses:         |                                                              |               |           |           |            |   |           |               |  |   |           |          
|                  | Rental expenses                                              |               |           | 534,000   |            |   |           | 943,000       |  |   |           | 1,376,000 | 
|                  | Depreciation and amortization                                |               |           | 291,000   |            |   |           | 1,035,000     |  |   |           | 1,478,000 | 
|                  | Interest (including amortization of deferred financing fees) |               |           | 270,000   |            |   |           | 675,000       |  |   |           | 852,000   | 
|Minority interest |                                                              |               | (26,000   | )         |            |   | (124,000  | )             |  |   | (125,000  | )        
|                  |                                                              |               |           |           |            |   |           |               | 
|Net income (loss) |                                                              | $             | 444,000   |           |            | $ | (272,000  | )             |  | $ | 387,000   |          
|                  |                                                              |               |           |           |            |   |           |               | 



|                                                                                                                                         |  |              |            | 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | 
|                                                                                                                                         |  | December 31, |           
|                                                                                                                                         |  | 2004         |           
|                                                                                                                                         |  |              |           
|Properties held for sale, net of accumulated depreciation of
    $880,000                                                                |  | $            | 23,874,000 | 
|Other assets  properties held for sale, net include
    identified intangible assets, net of accumulated amortization of
    $1,805,000 |  |              | 3,822,000  | 
|Mortgages payable and other debt secured by properties held for
    sale                                                                 |  |              | 19,285,000 | 
|Minority liability  property held for sale                                                                                              |  |              | 1,916,000  | 

28



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT  (Continued)




|    |                  
|--- | -----------------
|15. | Subsequent Events









29



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Forward-Looking Statements




Overview and Background






30



---



##### Table of Contents











Critical Accounting Policies






| |                                
| | -------------------------------
| | Liquidation Basis of Accounting



31



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##### Table of Contents









| |                                                                       
| | ----------------------------------------------------------------------
| | Asset for Receipts in Excess of Estimated Costs During
    Liquidation





|                                                                                       |                                                                                     |          |            |            |                |   |          |           |   |   |               |          |   |   |            |            |  
|-------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | -------- | ---------- | ---------- | -------------- | - | -------- | --------- | - | - | ------------- | -------- | - | - | ---------- | ---------- | -
|                                                                                       |                                                                                     | June 30, |            |            | Cash Payments  |   |          | Change in |   |   | September 30, |         
|                                                                                       |                                                                                     | 2005     |            |            | and (Receipts) |   |          | Estimates |   |   | 2005          |         
|                                                                                       |                                                                                     |          |            |            |                |   |          |           |   |   |               |         
|Assets:                                                                                |                                                                                     |          |            |            |                |   |          |           |   |   |               |          |   |   |            |           
|                                                                                       | Estimated net inflows from consolidated and unconsolidated
    operating activities |          | $          | 3,808,000  |                |   | $        | (988,000  | ) |   | $             | (243,000 | ) |   | $          | 2,577,000  |  
|Liabilities:                                                                           |                                                                                     |          |            |            |                |   |          |           |   |   |               |          |   |   |            |           
|                                                                                       | Liquidation costs                                                                   |          |            | (1,464,000 | )              |   |          | 154,000   |   |   |               | 77,000   |   |   |            | (1,233,000 | )
|                                                                                       | Distributions                                                                       |          |            | (316,000   | )              |   |          | 316,000   |   |   |               |         |   |   |            |           |  
|                                                                                       | Other                                                                               |          |            | (72,000    | )              |   |          | 5,000     |   |   |               | (256,000 | ) |   |            | (323,000   | )
|                                                                                       |                                                                                     |          |            |            |                |   |          |           |   |   |               |         
|                                                                                       |                                                                                     |          | (1,852,000 | )          |                |   | 475,000  |           |   |   | (179,000      | )        |   |   | (1,556,000 | )         
|                                                                                       |                                                                                     |          |            |            |                |   |          |           |   |   |               |         
|Total asset for estimated receipts in excess of estimated costs
    during liquidation |                                                                                     | $        | 1,956,000  |            |                | $ | (513,000 | )         |   | $ | (422,000      | )        |   | $ | 1,021,000  |           
|                                                                                       |                                                                                     |          |            |            |                |   |          |           |   |   |               |         

32



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##### Table of Contents





| |                          
| | -------------------------
| | Net Assets in Liquidation



|                                                                                  |  |   |            |  
|--------------------------------------------------------------------------------- |  | - | ---------- | -
|Shareholders equity at June 30, 2005 
    going concern basis                   |  | $ | 34,922,000 |  
|Increase due to estimated net realizable value of operating
    properties        |  |   | 4,734,000  |  
|Increase due to estimated net realizable value of unconsolidated
    investment   |  |   | 8,559,000  |  
|Assets for estimated receipts in excess of estimated costs
    during liquidation |  |   | 1,956,000  |  
|Decrease due to the write-off of other intangible assets                          |  |   | (2,218,000 | )
|                                                                                  |  |   |           
|Adjustment to reflect the change to the liquidation basis of
    accounting       |  |   | 13,031,000 |  
|                                                                                  |  |   |           
|Estimated value of net assets in liquidation at June 30,
    2005                 |  | $ | 47,953,000 |  
|                                                                                  |  |   |           





| |                       
| | ----------------------
| | Property Held for Sale

Accounting for the Impairment or Disposal of Long Lived
Assets






| |                                                            
| | -----------------------------------------------------------
| | Revenue Recognition and Allowance for Doubtful
    Accounts



33



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##### Table of Contents





| |           
| | ----------
| | Impairment





| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | significant negative industry or economic trend;                                                  
|
| |  | significant underperformance relative to historical or projected
    future operating results; and
|
| |  | significant change in the manner in which the asset is used.                                      







| |                                          
| | -----------------------------------------
| | Investments in Unconsolidated Real Estate



Qualification as a REIT






34



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##### Table of Contents



Investments in Unconsolidated Real Estate




|                                    |  |          |                 |            |       |            |              |      |  |   |            | 
|----------------------------------- |  | -------- | --------------- | ---------- | ----- | ---------- | ------------ | ---- |  | - | ---------- | 
|                                    |  |          |                 |            |       | Companys  |             
|                                    |  |          |                 |            |       | Investment |             
|                                    |  |          |                 | Percentage |       |            | December 31, |     
|Property                            |  | Location |                 |            | Owned |            |              | 2004 | 
|                                    |  |          |                 |            |       |            |              |      | 
|City Center West A Building  TIC |  |          | Las Vegas, NV   |            |       |            | 89.1%        |      |  | $ | 8,004,000  | 
|Congress Center  LLC               |  |          | Chicago, IL     |            |       |            | 10.3%        |      |  |   | 3,875,000  | 
|Pacific Corporate Park  LLC        |  |          | Lake Forest, CA |            |       |            | 22.8%        |      |  |   | 1,830,000  | 
|Titan Building & Plaza  TIC        |  |          | San Antonio, TX |            |       |            | 48.5%        |      |  |   | 2,027,000  | 
|Reno Trademark Building  TIC       |  |          | Reno, NV        |            |       |            | 40.0%        |      |  |   | 1,154,000  | 
|Oakey Building  LLC                |  |          | Las Vegas, NV   |            |       |            | 9.8%         |      |  |   | 585,000    | 
|Enclave Parkway  LLC               |  |          | Houston, TX     |            |       |            | 3.3%         |      |  |   | 452,000    | 
|County Center Drive  TIC           |  |          | Temecula, CA    |            |       |            | 16.0%        |      |  |   | 432,000    | 
|Emerald Plaza  LLC                 |  |          | San Diego, CA   |            |       |            | 2.7%         |      |  |   | 913,000    | 
|                                    |  |          |                 |            |       |            |              |      | 
|                                    |  |          |                 |            |       |            |              |      |  | $ | 19,272,000 | 
|                                    |  |          |                 |            |       |            |              |      | 



| |                     
| | --------------------
| | Dispositions in 2005









35



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##### Table of Contents







| |                                  
| | ---------------------------------
| | Properties Under Contract to Sell



Factors Which May Influence Future Changes in Net Assets in
Liquidation




| |              
| | -------------
| | Rental Income





| |                            
| | ---------------------------
| | Scheduled Lease Expirations





| |                   
| | ------------------
| | Sarbanes-Oxley Act



36



---



##### Table of Contents



Changes In Net Assets In Liquidation




| |                                      
| | -------------------------------------
| | Three Months Ended September 30, 2005



Liquidity and Capital Resources






| |                                         
| | ----------------------------------------
| | Current Sources of Capital and Liquidity







| |                      
| | ---------------------
| | Other Liquidity Needs





37



---



##### Table of Contents













Capital Resources




| |          
| | ---------
| | Financing







38



---



##### Table of Contents





| |               
| | --------------
| | Line of Credit





| |                    
| | -------------------
| | Unconsolidated Debt





|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |             |  |  |   |            | 
|----------------------------------- |  | ---------- | ----- | ------------- | ------------- | - | ------------ | ------- | ------------ | ------------- | ------------ |  | ------------ | ------- | ----------- |  |  | - | ---------- | 
|                                    |  |            |       | Mortgage and  |               |   |              |         | Mortgage and |               |              | 
|                                    |  |            |       | Other Debt    |               |   |              |         | Other Debt   |               |              | 
|                                    |  |            |       | Balance as of |               |   | T REIT Incs |         |              | Balance as of |              |  | T REIT Incs |        
|                                    |  | Ownership  |       |               | September 30, |   |              | Portion |              |               | December 31, |  |              | Portion |            
|Property                            |  | Percentage |       |               | 2005          |   |              | of Debt |              |               | 2004         |  |              | of Debt |            
|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |            
|Reno Trademark Building  TIC       |  |            | 40.0% |               |               | $ | 4,463,000    |         |              | $             | 1,785,000    |  |              | $       | 4,504,000   |  |  | $ | 1,802,000  | 
|County Center Drive                 |  |            | 16.0% |               |               |   |             |         |              |               |             |  |              |         | 2,980,000   |  |  |   | 477,000    | 
|City Center West A Building  TIC |  |            | 89.1% |               |               |   |             |         |              |               |             |  |              |         | 12,484,000  |  |  |   | 11,127,000 | 
|Titan Building & Plaza  TIC        |  |            | 48.5% |               |               |   | 5,900,000    |         |              |               | 2,861,000    |  |              |         | 5,795,000   |  |  |   | 2,811,000  | 
|Pacific Corporate Park  LLC        |  |            | 22.8% |               |               |   |             |         |              |               |             |  |              |         | 5,474,000   |  |  |   | 1,246,000  | 
|Congress Center  LLC               |  |            | 10.2% |               |               |   | 97,500,000   |         |              |               | 9,962,000    |  |              |         | 97,500,000  |  |  |   | 9,962,000  | 
|Enclave Parkway  LLC               |  |            | 3.3%  |               |               |   | 23,076,000   |         |              |               | 752,000      |  |              |         | 23,310,000  |  |  |   | 759,000    | 
|Oakey Building  LLC                |  |            | 9.8%  |               |               |   | 6,337,000    |         |              |               | 619,000      |  |              |         | 4,000,000   |  |  |   | 390,000    | 
|Emerald Plaza  LLC                 |  |            | 2.7%  |               |               |   | 68,500,000   |         |              |               | 1,850,000    |  |              |         | 68,500,000  |  |  |   | 1,850,000  | 
|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |            
|Total                               |  |            |       |               |               | $ | 205,776,000  |         |              | $             | 17,829,000   |  |              | $       | 224,547,000 |  |  | $ | 30,424,000 | 
|                                    |  |            |       |               |               |   |              |         |              |               |              |  |              |         |            





39



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##### Table of Contents









| |                                           
| | ------------------------------------------
| | Unconsolidated Debt Due to Related Parties





| |                              
| | -----------------------------
| | Cunningham Lending Group, LLC



|                    |       |         |         |         |                |   |       |        | 
|------------------- | ----- | ------- | ------- | ------- | -------------- | - | ----- | ------ | 
|                    |       | Amount  |         |         | T REIT, Inc.s |  
|Property/Issue Date |       | of Loan |         |         | Portion        |  
|                    |       |         |         |         |                |  
|Emerald Plaza:      |       |         |         |         |                |   |       |       
|02/07/05            |       | $       | 232,000 |         |                | $ | 6,000 |       
|03/04/05            |       |         | 232,000 |         |                |   | 6,000 |       
|04/06/05            |       |         | 279,000 |         |                |   | 8,000 |       
|                    |       |         |         |         |                |  
|                    | Total |         | $       | 743,000 |                |   | $     | 20,000 | 
|                    |       |         |         |         |                |  





| |                           
| | --------------------------
| | Triple Net Properties, LLC





| |                  
| | -----------------
| | REIT Requirements



40



---



##### Table of Contents





| |                             
| | ----------------------------
| | Commitment and Contingencies



| |                   
| | ------------------
| | Insurance Coverage



| |                                                                     
| | --------------------------------------------------------------------
| | Property Damage, Business Interruption, Earthquake and
    Terrorism



|                                          |  |                                                                                                                      
|----------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------
|Type of Insurance Coverage                |  | Loss Exposure/Deductible                                                                                             
|                                          |  |                                                                                                                      
|Property damage and business interruption |  | $200 million annual aggregate exposure, plus $10 thousand
    per occurrence deductible                              
|Earthquake                                |  | $10 million annual aggregate exposure plus 5 percent
    ($100,000 minimum) per occurrence deductible                
|Earthquake (California properties)        |  | $90 million in excess of $10 million                                                                                 
|Flood  named storm                       |  | $10 million annual aggregate exposure plus 5 percent
    ($100,000 minimum) per occurrence deductible                
|Flood  all other                         |  | $10 million annual aggregate exposure plus 5 percent
    ($25,000 minimum/$100,000 maximum) per occurrence deductible
|Liability                                 |  | $2 million annual aggregate exposure plus $1 million
    each occurrence                                             
|Umbrella (excess liability)               |  | $100 million aggregate exposure                                                                                      
|Acts of terrorism                         |  | $100 million annual aggregate exposure, plus
    $10,000 per occurrence deductible.                                  



| |                        
| | -----------------------
| | Contractual Obligations



|                                                                            |  |           |           |  |             |   |            |             |           |   |              |  |       |   |   |  |  |   |            | 
|--------------------------------------------------------------------------- |  | --------- | --------- |  | ----------- | - | ---------- | ----------- | --------- | - | ------------ |  | ----- | - | - |  |  | - | ---------- | 
|                                                                            |  | Less Than |           |  |             |   |            |             | More Than |   |             
|                                                                            |  | 1 Year    |           |  | 1-3 Years   |   |            | 4-5 Years   |           |   | 5 Years      |  |      
|                                                                            |  | (2005)    |           |  | (2006-2007) |   |            | (2008-2009) |           |   | (After 2009) |  | Total |  
|                                                                            |  |           |           |  |             |   |            |             |           |   |              |  |       |  
|Principal payments   fixed rate debt                                       |  | $         | 11,000    |  |             | $ | 141,000    |             |           | $ | 4,079,000    |  |       | $ |  |  |  | $ | 4,231,000  | 
|Interest payments   fixed rate debt                                        |  |           | 56,000    |  |             |   | 442,000    |             |           |   | 18,000       |  |       |   |  |  |  |   | 516,000    | 
|Principal payments   variable rate debt                                    |  |           | 1,471,000 |  |             |   | 11,250,000 |             |           |   |             |  |       |   |  |  |  |   | 12,721,000 | 
|Interest payments   variable rate debt (rate as of
    September 30, 2005) |  |           | 456,000   |  |             |   | 915,000    |             |           |   |             |  |       |   |  |  |  |   | 1,371,000  | 
|                                                                            |  |           |           |  |             |   |            |             |           |   |              |  |       |   |  
|Total                                                                       |  | $         | 1,994,000 |  |             | $ | 12,748,000 |             |           | $ | 4,097,000    |  |       | $ |  |  |  | $ | 18,839,000 | 
|                                                                            |  |           |           |  |             |   |            |             |           |   |              |  |       |   |  

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| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements





| |                  
| | -----------------
| | SEC Investigation

In the matter of Triple Net Properties, LLC.


Accounting for
Contingencies.




| |                         
| | ------------------------
| | Prior Performance Tables





| |          
| | ---------
| | Inflation



Subsequent Events




42



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##### Table of Contents











Funds from Operations










43



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##### Table of Contents





|                                                                   |                                                                                     |            |           |           |               |   |           |            |  
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------- | ---------- | --------- | --------- | ------------- | - | --------- | ---------- | -
|                                                                   |                                                                                     | Six Months |           |           | Nine Months   |  
|                                                                   |                                                                                     | Ended      |           |           | Ended         |  
|                                                                   |                                                                                     | June 30,   |           |           | September 30, |  
|                                                                   |                                                                                     | 2005       |           |           | 2004          |  
|                                                                   |                                                                                     |            |           |           |               |  
|Net income                                                         |                                                                                     | $          | 60,000    |           |               | $ | 2,401,000 |           
|Add:                                                               |                                                                                     |            |           |           |               |   |           |           
|                                                                   | Depreciation and amortization  discontinued operations                             |            |           | 1,026,000 |               |   |           | 1,337,000  |  
|                                                                   | Depreciation and amortization  unconsolidated real
    estate operating properties |            |           | 430,000   |               |   |           | 1,041,000  |  
|Less:                                                              |                                                                                     |            |           |           |               |   |           |           
|                                                                   | Gain/(loss) on sale of property                                                     |            |           |          |               |   |           | (1,634,000 | )
|                                                                   |                                                                                     |            |           |           |               |  
|Funds from operations                                              |                                                                                     | $          | 1,516,000 |           |               | $ | 3,145,000 |           
|                                                                   |                                                                                     |            |           |           |               |  
|Weighted average common shares outstanding  basic and
    diluted |                                                                                     |            | 4,605,000 |           |               |   | 4,636,000 |           
|                                                                   |                                                                                     |            |           |           |               |  
|Gain on sale of investments included in net income and FFO         |                                                                                     | $          | 317,000   |           |               | $ | 132,000   |           
|                                                                   |                                                                                     |            |           |           |               |  






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk





|                                       |  |      |           |   |      |   |         |      |  |   |            |   |  |      |           |            |  |       |   |  |  |   |   |  |  |   |            |  
|-------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ---------- | - |  | ---- | --------- | ---------- |  | ----- | - |  |  | - | - |  |  | - | ---------- | -
|                                       |  | 2005 |           |   | 2006 |   |         | 2007 |  |   | 2008       |   |  | 2009 |           | Thereafter |  | Total |  
|                                       |  |      |           |   |      |   |         |      |  |   |            |   |  |      |           |            |  |       |  
|Fixed rate debt                        |  | $    | 11,000    |   |      | $ | 69,000  |      |  | $ | 72,000     |   |  | $    | 4,079,000 |            |  | $     |  |  |  | $ |  |  |  | $ | 4,231,000  |  
|Average interest rate on maturing debt |  |      | 5.25      | % |      |   | 5.25    | %    |  |   | 5.25       | % |  |      | 5.25      | %          |  |       |  |  |  |   |  |  |  |   | 5.25       | %
|Variable rate debt                     |  |      | 1,471,000 |   |      | $ | 120,000 |      |  | $ | 11,130,000 |   |  | $    |          |            |  | $     |  |  |  | $ |  |  |  | $ | 12,721,000 |  
|Average interest rate on maturing debt |  |      | 7.25      | % |      |   | 7.75    | %    |  |   | 7.75       | % |  |      |          |            |  |       |  |  |  |   |  |  |  |   | 7.69       | %








|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of disclosure controls and
procedures.


44



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##### Table of Contents















45



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##### Table of Contents







Changes in internal control over financial
reporting.





PART II  OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings



| |                  
| | -----------------
| | SEC Investigation

In the matter of Triple Net Properties, LLC.


Accounting for
Contingencies.




| |                         
| | ------------------------
| | Prior Performance Tables



46



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##### Table of Contents





| |           
| | ----------
| | Litigation












|        |                                                                
|------- | ---------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds








|        |                                
|------- | -------------------------------
|Item 3. | Defaults Upon Senior Securities








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders








|        |                  
|------- | -----------------
|Item 5. | Other Information








|        |         
|------- | --------
|Item 6. | Exhibits



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SIGNATURES






| |                            
| | ---------------------------
| | T REIT, Inc.               
| | (Registrant)               
|
| | By: /s/ Jack R. Maurer     
| |                            
| | Jack R. Maurer             
| | Chief Executive Officer    
|
| | By: /s/ Scott D.
    Peters
| |                            
| | Scott D. Peters            
| | Chief Financial Officer    
|
| | By: /s/ Kelly J.
    Caskey
| |                            
| | Kelly J. Caskey            
| | Chief Accounting Officer   



48



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##### Table of Contents



EXHIBIT INDEX






| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1   |  |  | Our Articles of Incorporation (included as Exhibit 3.1 to
    our Registration Statement on Form S-11 filed on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference).                                                                                                                                                                                                        
| | 3.2   |  |  | Form of our Amended and Restated Articles of Incorporation
    (included as Exhibit 3.2 to Amendment No. 3 to our
    Registration Statement on Form S-11 filed on
    November 22, 1999 (File No. 333-77229) and
    incorporated herein by this reference).                                                                                                                                                 
| | 3.3   |  |  | Form of our By-Laws (included as Exhibit 3.3 to our
    Registration Statement on Form S-11 filed on April 28,
    1999 (File No. 333-77229) and incorporated herein by this
    reference).                                                                                                                                                                                                                  
| | 3.4   |  |  | Form of our Amended By-Laws (included as Exhibit 3.4 to
    Post-Effective Amendment No. 2 to our Registration
    Statement on Form S-11 filed on July 17, 2001 (File
    No. 333-77229) and incorporated herein by reference).                                                                                                                                                                              
| | 4.1   |  |  | Form of Share Certificate (included as Exhibit 4.1 to
    Amendment No. 4 to our Registration Statement on
    Form S-11 filed on February 3, 2000 (File
    No. 333-77229) and incorporated herein by this reference).                                                                                                                                                                                       
| | 10.1  |  |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated July 15, 2005 by and between TREIT-City
    Center West A, LLC, NNN City Center West A1, LLC, NNN City
    Center West A3, LLC and NNN City Center West A4, LLC and
    Pacifica Real Estate Group, LLC (included as Exhibit 99 to
    the Form 8-K filed by us on July 20, 2005 and
    incorporated herein by reference).
| | 10.2* |  |  | First Amendment to Agreement for Purchase and Sale of Real
    Property and Escrow Instructions dated July 27, 2005 by and
    between TREIT-City Center West A, LLC, NNN City Center West A1,
    LLC, NNN City Center West A3, LLC and NNN City Center West A4,
    LLC and Pacifica Real Estate Group, LLC.                                                                                                
| | 10.3* |  |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated November 3, 2005, by and between NNN
    Oakey Building 2003, LLC and Trans-Aero Land & Development
    Corporation.                                                                                                                                                                                                       
| | 10.4* |  |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated November 11, 2005, by and between NNN
    Pacific Corporate Park 1, LLC, NNN Pacific Corporate Park VF,
    LLC and Makoil Inc.                                                                                                                                                                                            
| | 31.1* |  |  | Certification of Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                      
| | 31.2* |  |  | Certification of Chief Financial Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                      
| | 32.1* |  |  | Certification of Chief Executive Officer, pursuant to
    18 U.S.C. Section 1350, as created by Section 906
    of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                            
| | 32.2* |  |  | Certification of Chief Financial Officer, pursuant to
    18 U.S.C. Section 1350, as created by Section 906
    of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                            






|  |                
|- | ---------------
|* | Filed herewith.

49