##### 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 March 31, 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
     Santa Ana, California 92705(Address of principal executive offices) |  | (877) 888-7348(Registrants telephone number,
     including area code)

N/A


(Former name)


þ o


o þ












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INDEX







|                                   |  |                                                                                           |    |                                                                                                                                                               |    |  |   | 
|---------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- |  | - | 
|                                   |  |                                                                                           |    | Page                                                                                                                                                          |   
|                                   |  |                                                                                           |    |                                                                                                                                                               |   
|PART I  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements                                                                      |    |                                                                                                                                                               | 2  | 
|                                   |  |                                                                                           |    | Condensed Consolidated Balance Sheets as of
    March 31, 2005 and December 31, 2004 (Unaudited)                                                              |    |  | 3 | 
|                                   |  |                                                                                           |    | Condensed Consolidated Statements of
    Operations and Comprehensive Income (Loss) for the three-month
    periods ended March 31, 2005 and 2004 (Unaudited) |    |  | 4 | 
|                                   |  |                                                                                           |    | Condensed Consolidated Statement of
    Shareholders Equity for the three-month period ended
    March 31, 2005 (Unaudited)                                  |    |  | 5 | 
|                                   |  |                                                                                           |    | Condensed Consolidated Statements of Cash
    Flows for the three-month periods ended March 31, 2005 and
    2004 (Unaudited)                                 |    |  | 6 | 
|                                   |  |                                                                                           |    | Notes to Condensed Consolidated Financial
    Statements (Unaudited)                                                                                          |    |  | 7 | 
|Item 2.                            |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |                                                                                                                                                               | 25 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosure
    About Market Risks                            |    |                                                                                                                                                               | 40 | 
|Item 4.                            |  | Controls and Procedures                                                                   |    |                                                                                                                                                               | 41 | 
|PART II  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                         |    |                                                                                                                                                               | 42 | 
|Item 2.                            |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                           |    |                                                                                                                                                               | 43 | 
|Item 3.                            |  | Defaults Upon Senior Securities                                                           |    |                                                                                                                                                               | 43 | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                   |    |                                                                                                                                                               | 43 | 
|Item 5.                            |  | Other Information                                                                         |    |                                                                                                                                                               | 43 | 
|Item 6.                            |  | Exhibits                                                                                  |    |                                                                                                                                                               | 43 | 
|Signatures                         |  |                                                                                           | 44 |                                                                                                                                                              
|EXHIBIT 31.1                      
|EXHIBIT 31.2                      
|EXHIBIT 32.1                      
|EXHIBIT 32.2                      



1



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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 BALANCE SHEETS


March 31, 2005 and December 31, 2004


|                                                                                                                                                                                                   |                                           |             |            |            |              |   |            |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ----------- | ---------- | ---------- | ------------ | - | ---------- | ---------- | 
|                                                                                                                                                                                                   |                                           | March 31,   |            |            | December 31, |  
|                                                                                                                                                                                                   |                                           | 2005        |            |            | 2004         |  
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|                                                                                                                                                                                                   |                                           | (Unaudited) |           
|ASSETS                                                                                                                                                                                            
|Real estate investments:                                                                                                                                                                           |                                           |             |            |            |              |   |            |           
|                                                                                                                                                                                                   | Operating properties, net                 |             | $          | 23,710,000 |              |   | $          | 23,874,000 | 
|                                                                                                                                                                                                   | Investments in unconsolidated real estate |             |            | 19,145,000 |              |   |            | 19,272,000 | 
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|                                                                                                                                                                                                   |                                           |             | 42,855,000 |            |              |   | 43,146,000 |           
|Cash and cash equivalents                                                                                                                                                                          |                                           |             | 5,999,000  |            |              |   | 7,229,000  |           
|Restricted cash                                                                                                                                                                                    |                                           |             | 1,223,000  |            |              |   | 1,691,000  |           
|Investment in marketable securities                                                                                                                                                                |                                           |             | 3,298,000  |            |              |   | 491,000    |           
|Accounts receivable, net                                                                                                                                                                           |                                           |             | 138,000    |            |              |   | 125,000    |           
|Accounts receivable from related parties                                                                                                                                                           |                                           |             | 436,000    |            |              |   | 514,000    |           
|Other assets, net                                                                                                                                                                                  |                                           |             | 3,345,000  |            |              |   | 4,058,000  |           
|Notes receivable                                                                                                                                                                                   |                                           |             | 2,769,000  |            |              |   | 3,299,000  |           
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|Total assets                                                                                                                                                                                       |                                           | $           | 60,063,000 |            |              | $ | 60,553,000 |           
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|                                                                                                                                                                                                  
|LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS
    EQUITY                                                                                                                                      
|Mortgages payable and other debt                                                                                                                                                                   |                                           | $           | 20,833,000 |            |              | $ | 19,285,000 |           
|Accounts payable and accrued liabilities                                                                                                                                                           |                                           |             | 1,319,000  |            |              |   | 1,904,000  |           
|Accounts payable due to related parties                                                                                                                                                            |                                           |             | 28,000     |            |              |   | 49,000     |           
|Distributions payable                                                                                                                                                                              |                                           |             | 329,000    |            |              |   | 327,000    |           
|Security deposits and prepaid rent                                                                                                                                                                 |                                           |             | 378,000    |            |              |   | 253,000    |           
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|                                                                                                                                                                                                   |                                           |             | 22,887,000 |            |              |   | 21,818,000 |           
|Minority interests                                                                                                                                                                                 |                                           |             | 1,759,000  |            |              |   | 1,916,000  |           
|Commitments and contingencies (Note 11)                                                                                                                                                            |                                           |             |            |            |              |   |            |           
|Shareholders equity:                                                                                                                                                                              |                                           |             |            |            |              |   |            |           
|Common stock, $0.01 par value; 10,000,000 shares
    authorized; 4,720,000 shares issued; 4,605,000 and
    4,612,000 shares outstanding at March 31, 2005 and
    December 31, 2004, respectively |                                           |             | 47,000     |            |              |   | 47,000     |           
|Additional paid-in capital                                                                                                                                                                         |                                           |             | 41,565,000 |            |              |   | 41,533,000 |           
|Treasury stock, 108,000 and 74,000 shares at March 31,
    2005 and December 31, 2004, respectively                                                                                                |                                           |             | (1,043,000 | )          |              |   | (979,000   | )         
|Distributions in excess of earnings                                                                                                                                                                |                                           |             | (5,088,000 | )          |              |   | (3,792,000 | )         
|Accumulated other comprehensive income (loss)                                                                                                                                                      |                                           |             | (64,000    | )          |              |   | 10,000     |           
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|Total shareholders equity                                                                                                                                                                         |                                           |             | 35,417,000 |            |              |   | 36,819,000 |           
|                                                                                                                                                                                                   |                                           |             |            |            |              |  
|Total liabilities, minority interests and shareholders
    equity                                                                                                                                 |                                           | $           | 60,063,000 |            |              | $ | 60,553,000 |           
|                                                                                                                                                                                                   |                                           |             |            |            |              |  



3



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##### Table of Contents



T REIT, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


AND COMPREHENSIVE INCOME (LOSS)


For the Three Months Ended March 31, 2005 and 2004


|                                                                            |                                                               |                    |           |           |      |   |           |           |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------ | --------- | --------- | ---- | - | --------- | --------- | -
|                                                                            |                                                               | Three Months Ended |          
|                                                                            |                                                               | March 31,          |          
|                                                                            |                                                               |                    |          
|                                                                            |                                                               | 2005               |           |           | 2004 |  
|                                                                            |                                                               |                    |           |           |      |  
|                                                                            |                                                               | (Unaudited)        |          
|Revenues:                                                                   |                                                               |                    |           |           |      |   |           |          
|                                                                            | Rental income                                                 |                    | $         | 1,019,000 |      |   | $         | 748,000   |  
|Expenses:                                                                   |                                                               |                    |           |           |      |   |           |          
|                                                                            | Rental expenses                                               |                    |           | 469,000   |      |   |           | 143,000   |  
|                                                                            | General and administrative                                    |                    |           | 533,000   |      |   |           | 93,000    |  
|                                                                            | Depreciation and amortization                                 |                    |           | 641,000   |      |   |           | 411,000   |  
|                                                                            |                                                               |                    |           |           |      |  
|                                                                            |                                                               |                    | 1,643,000 |           |      |   | 647,000   |          
|Operating income (loss)                                                     |                                                               |                    | (624,000  | )         |      |   | 101,000   |          
|Other income (expense):                                                     |                                                               |                    |           |           |      |   |           |          
|                                                                            | Interest (including amortization of deferred financing costs) |                    |           | (336,000  | )    |   |           | (74,000   | )
|                                                                            | Interest and dividend income                                  |                    |           | 105,000   |      |   |           | 80,000    |  
|                                                                            | Gain on sale of marketable securities                         |                    |           | 16,000    |      |   |           | 47,000    |  
|                                                                            | Equity in earnings of unconsolidated real estate              |                    |           | 380,000   |      |   |           | 265,000   |  
|                                                                            | Minority interests                                            |                    |           | 111,000   |      |   |           | (5,000    | )
|                                                                            |                                                               |                    |           |           |      |  
|Income (loss) from continuing operations                                    |                                                               |                    | (348,000  | )         |      |   | 414,000   |          
|Discontinued operations:                                                    |                                                               |                    |           |           |      |   |           |          
|                                                                            | Gain on sale on real estate dispositions                      |                    |           |          |      |   |           | 822,000   |  
|                                                                            | Income from discontinued operations                           |                    |           |          |      |   |           | 105,000   |  
|                                                                            |                                                               |                    |           |           |      |  
|Net income (loss)                                                           |                                                               | $                  | (348,000  | )         |      | $ | 1,341,000 |          
|                                                                            |                                                               |                    |           |           |      |  
|Other comprehensive income:                                                 |                                                               |                    |           |           |      |   |           |          
|                                                                            | Net income (loss)                                             |                    | $         | (348,000  | )    |   | $         | 1,341,000 |  
|                                                                            | Unrealized loss on marketable securities                      |                    |           | (74,000   | )    |   |           |          |  
|                                                                            |                                                               |                    |           |           |      |  
|Comprehensive income (loss)                                                 |                                                               | $                  | (422,000  | )         |      | $ | 1,341,000 |          
|                                                                            |                                                               |                    |           |           |      |  
|Net income (loss) per common share:                                         |                                                               |                    |           |           |      |   |           |          
|                                                                            | Continuing operations  basic and diluted                     |                    | $         | (0.08     | )    |   | $         | 0.09      |  
|                                                                            | Discontinued operations  basic and diluted                   |                    | $         |          |      |   | $         | 0.20      |  
|                                                                            |                                                               |                    |           |           |      |  
|Total net income (loss) per common share  basic and
    diluted            |                                                               | $                  | (0.08     | )         |      | $ | 0.29      |          
|                                                                            |                                                               |                    |           |           |      |  
|Weighted average shares of common stock outstanding 
    basic and diluted |                                                               |                    | 4,605,000 |           |      |   | 4,646,000 |          
|                                                                            |                                                               |                    |           |           |      |  



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY


For the Three Months Ended March 31, 2005


|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       |  |   |         |   |  |   |            |  
|---------------------------------------- |  | ------------ | --------- | ---------- | --------- | - | ----------- | ------- | ------------- | -------- | ---------- | ----- | ------------ | -------- | ---------- | ------------- | ---- | - | ---------- | ----- |  | - | ------- | - |  | - | ---------- | -
|                                         |  | Common Stock |           |            |           |   |             |         |              
|                                         |  |              |           |            |           |   | Accumulated |         |               |         
|                                         |  |              |           | Additional |           |   |             |         | Distributions |          |            | Other |              |          |           
|                                         |  | Number of    |           |            |           |   | Paid-In     |         |               | Treasury |            |       | in Excess of |          |            | Comprehensive |      |   |           
|                                         |  | Shares       |           |            | Par Value |   |             | Capital |               |          | Stock      |       |              | Earnings |            |               | Loss |   |            | Total | 
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 
|                                         |  | (Unaudited)  |          
|BALANCE  December 31, 2004              |  |              | 4,612,000 |            |           | $ | 47,000      |         |               | $        | 41,533,000 |       |              | $        | (979,000   | )             |      | $ | (3,792,000 | )     |  | $ | 10,000  |   |  | $ | 36,819,000 |  
|Net loss                                 |  |              |          |            |           |   |            |         |               |          |           |       |              |          |           |               |      |   | (348,000   | )     |  |   |        |   |  |   | (348,000   | )
|Unrealized loss on marketable securities |  |              |          |            |           |   |            |         |               |          |           |       |              |          |           |               |      |   |           |       |  |   | (74,000 | ) |  |   | (74,000    | )
|Stock based compensation                 |  |              |          |            |           |   |            |         |               |          | 32,000     |       |              |          |           |               |      |   |           |       |  |   |        |   |  |   | 32,000     |  
|Distributions                            |  |              |          |            |           |   |            |         |               |          |           |       |              |          |           |               |      |   | (948,000   | )     |  |   |        |   |  |   | (948,000   | )
|Repurchase of shares                     |  |              | (7,000    | )          |           |   |            |         |               |          |           |       |              |          | (64,000    | )             |      |   |           |       |  |   |        |   |  |   | (64,000    | )
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 
|BALANCE  March 31, 2005                 |  |              | 4,605,000 |            |           | $ | 47,000      |         |               | $        | 41,565,000 |       |              | $        | (1,043,000 | )             |      | $ | (5,088,000 | )     |  | $ | (64,000 | ) |  | $ | 35,417,000 |  
|                                         |  |              |           |            |           |   |             |         |               |          |            |       |              |          |            |               |      |   |            |       | 



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


For the Three Months Ended March 31, 2005 and 2004


|                                                                                            |                                                                                                                                           |                                                     |            |            |            |   |             |            |            |  
|------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | -
|                                                                                            |                                                                                                                                           | Three Months Ended                                  |           
|                                                                                            |                                                                                                                                           | March 31,                                           |           
|                                                                                            |                                                                                                                                           |                                                     |           
|                                                                                            |                                                                                                                                           | 2005                                                |            |            | 2004       |  
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|                                                                                            |                                                                                                                                           | (Unaudited)                                         |           
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |                                                                                                                                           |                                                     |            |            |            |   |             |           
|Net income (loss)                                                                           |                                                                                                                                           | $                                                   | (348,000   | )          |            | $ | 1,341,000   |           
|Adjustments to reconcile net income (loss) to net cash provided
    by operating activities |                                                                                                                                           |                                                     |            |            |            |   |             |           
|                                                                                            | Distributions received in excess of equity in earnings of
    unconsolidated real estate                                                  |                                                     |            | 127,000    |            |   |             | 601,000    |           
|                                                                                            | Gain on sale of real estate investments                                                                                                   |                                                     |            |           |            |   |             | (822,000   | )         
|                                                                                            | Gain on sale of marketable securities                                                                                                     |                                                     |            | (16,000    | )          |   |             | (47,000    | )         
|                                                                                            | Depreciation and amortization (including deferred financing
    costs and intangible assets)  continuing and
    discontinued operations |                                                     |            | 763,000    |            |   |             | 499,000    |           
|                                                                                            | Stock based compensation expense                                                                                                          |                                                     |            | 32,000     |            |   |             |           |           
|                                                                                            | Minority interests                                                                                                                        |                                                     |            | (111,000   | )          |   |             | 5,000      |           
|Change in operating assets and liabilities:                                                 |                                                                                                                                           |                                                     |            |            |            |   |             |           
|                                                                                            | Accounts receivable                                                                                                                       |                                                     |            | (13,000    | )          |   |             | (154,000   | )         
|                                                                                            | Accounts receivable/payable from/to related parties                                                                                       |                                                     |            | 57,000     |            |   |             | 715,000    |           
|                                                                                            | Other assets                                                                                                                              |                                                     |            | 117,000    |            |   |             | 386,000    |           
|                                                                                            | Accounts payable and accrued liabilities                                                                                                  |                                                     |            | (583,000   | )          |   |             | (558,000   | )         
|                                                                                            | Security deposits and prepaid rent                                                                                                        |                                                     |            | 125,000    |            |   |             | 360,000    |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|                                                                                            |                                                                                                                                           | Net cash provided by operating activities           |            |            | 150,000    |   |             |            | 2,326,000  |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |                                                                                                                                           |                                                     |            |            |            |   |             |           
|                                                                                            | Purchase of marketable securities                                                                                                         |                                                     |            | (3,376,000 | )          |   |             | (2,369,000 | )         
|                                                                                            | Proceeds from sale of marketable securities                                                                                               |                                                     |            | 511,000    |            |   |             | 2,235,000  |           
|                                                                                            | Purchase of real estate operating properties                                                                                              |                                                     |            |           |            |   |             | (5,927,000 | )         
|                                                                                            | Purchase of land                                                                                                                          |                                                     |            |           |            |   |             | (1,619,000 | )         
|                                                                                            | Restricted cash                                                                                                                           |                                                     |            | 468,000    |            |   |             |           |           
|                                                                                            | Capital expenditures                                                                                                                      |                                                     |            | (3,000     | )          |   |             | (39,000    | )         
|                                                                                            | Proceeds from disposition of properties                                                                                                   |                                                     |            |           |            |   |             | 2,452,000  |           
|                                                                                            | Net change in related party receivable/payable                                                                                            |                                                     |            |           |            |   |             | (1,112,000 | )         
|                                                                                            | Collections of notes receivable                                                                                                           |                                                     |            | 530,000    |            |   |             |           |           
|                                                                                            | Real estate deposits applied to purchases                                                                                                 |                                                     |            |           |            |   |             | (115,000   | )         
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|                                                                                            |                                                                                                                                           | Net cash used in investing activities               |            |            | (1,870,000 | ) |             |            | (6,494,000 | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |                                                                                                                                           |                                                     |            |            |            |   |             |           
|                                                                                            | Borrowings under notes payable                                                                                                            |                                                     |            | 1,565,000  |            |   |             |           |           
|                                                                                            | Principal payments on mortgages payable                                                                                                   |                                                     |            | (17,000    | )          |   |             | (4,918,000 | )         
|                                                                                            | Borrowings on line of credit                                                                                                              |                                                     |            |           |            |   |             | 500,000    |           
|                                                                                            | Repayment on line of credit                                                                                                               |                                                     |            |           |            |   |             | (500,000   | )         
|                                                                                            | Distributions paid                                                                                                                        |                                                     |            | (948,000   | )          |   |             | (954,000   | )         
|                                                                                            | Distributions to minority shareholders                                                                                                    |                                                     |            | (46,000    | )          |   |             | (34,000    | )         
|                                                                                            | Repurchase of shares                                                                                                                      |                                                     |            | (64,000    | )          |   |             |           |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|                                                                                            |                                                                                                                                           | Net cash provided by (used in) financing activities |            |            | 490,000    |   |             |            | (5,906,000 | )
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                   |                                                                                                                                           |                                                     | (1,230,000 | )          |            |   | (10,074,000 | )         
|CASH AND CASH EQUIVALENTS  beginning of period                                             |                                                                                                                                           |                                                     | 7,229,000  |            |            |   | 12,189,000  |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|CASH AND CASH EQUIVALENTS  end of period                                                   |                                                                                                                                           | $                                                   | 5,999,000  |            |            | $ | 2,115,000   |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                           |                                                                                                                                           |                                                     |            |            |            |   |             |           
|Cash paid during the period for:                                                            |                                                                                                                                           |                                                     |            |            |            |   |             |           
|                                                                                            | Interest                                                                                                                                  |                                                     | $          | 249,000    |            |   | $           | 199,000    |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|                                                                                            | Income taxes                                                                                                                              |                                                     | $          | 1,000      |            |   | $           | 3,000      |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
    ACTIVITIES:                  |                                                                                                                                           |                                                     |            |            |            |   |             |           
|                                                                                            | Note receivable due to sale of property                                                                                                   |                                                     | $          |           |            |   | $           | 8,700,000  |           
|                                                                                            |                                                                                                                                           |                                                     |            |            |            |  



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##### Table of Contents



T REIT, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




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





Plan of Liquidation






|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



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



7



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Consolidation of Variable Interest Entities




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





| |                          
| | -------------------------
| | Cash and cash equivalents





| |                                     
| | ------------------------------------
| | Allowance for Uncollectible Accounts





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



8



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





| |                          
| | -------------------------
| | Purchase Price Allocation

Business
Combinations










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





9



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

Accounting for Impairment
or Disposal of Long-Lived Assets,




| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



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





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





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

Accounting for
Leases,


10



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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







|                         |  |              |           |               |             |  |    |          |  |                |                 |  |       |                 |        |  |  |  |            | 
|------------------------ |  | ------------ | --------- | ------------- | ----------- |  | -- | -------- |  | -------------- | --------------- |  | ----- | --------------- | ------ |  |  |  | ---------- | 
|                         |  |              |           | Percentage of |             |  |    |          |  |                |                
|                         |  | 2005 Annual  |           |               | 2005 Annual |  |    |          |  | Square Footage |                 |  | Lease |                
|Tenant                   |  | Base Rent(*) |           |               | Base Rent   |  |    | Property |  |                | (Approximately) |  |       | Expiration Date |       
|                         |  |              |           |               |             |  |    |          |  |                |                 |  |       |                 |       
|ACS State Health Systems |  | $            | 588,000   |               |             |  | 18 | %        |  |                | AmberOaks       |  |       |                 | 44,000 |  |  |  | May 2005   | 
|Netsolve, Inc.           |  | $            | 1,073,000 |               |             |  | 32 | %        |  |                | AmberOaks       |  |       |                 | 78,000 |  |  |  | April 2007 | 
|Newell Rubbermaid, Inc.  |  | $            | 493,000   |               |             |  | 15 | %        |  |                | AmberOaks       |  |       |                 | 51,000 |  |  |  | April 2008 | 



|                         |  |              |           |               |             |  |    |          |  |                |                 |  |       |                 |        |  |  |  |            | 
|------------------------ |  | ------------ | --------- | ------------- | ----------- |  | -- | -------- |  | -------------- | --------------- |  | ----- | --------------- | ------ |  |  |  | ---------- | 
|                         |  |              |           | Percentage of |             |  |    |          |  |                |                
|                         |  | 2004 Annual  |           |               | 2004 Annual |  |    |          |  | Square Footage |                 |  | Lease |                
|Tenant                   |  | Base Rent(*) |           |               | Base Rent   |  |    | Property |  |                | (Approximately) |  |       | Expiration Date |       
|                         |  |              |           |               |             |  |    |          |  |                |                 |  |       |                 |       
|ACS State Health Systems |  | $            | 588,000   |               |             |  | 12 | %        |  |                | AmberOaks       |  |       |                 | 44,000 |  |  |  | May 2005   | 
|Netsolve, Inc.           |  | $            | 1,073,000 |               |             |  | 21 | %        |  |                | AmberOaks       |  |       |                 | 78,000 |  |  |  | April 2007 | 






|  |                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------
|* | Annualized rental income based on contractual base rent set
    forth in leases in effect at December 31, 2005 and 2004,
    respectively.



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





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

Reporting Comprehensive Income.


11



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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

Earnings Per Share.




|                                                                      |  |                    |           |   |      |   |           | 
|--------------------------------------------------------------------- |  | ------------------ | --------- | - | ---- | - | --------- | 
|                                                                      |  | Three Months Ended |          
|                                                                      |  | March 31,          |          
|                                                                      |  |                    |          
|                                                                      |  | 2005               |           |   | 2004 |  
|                                                                      |  |                    |           |   |      |  
|Net income (loss)                                                     |  | $                  | (348,000  | ) |      | $ | 1,341,000 | 
|                                                                      |  |                    |           |   |      |  
|Net income (loss) per share  basic and diluted                       |  | $                  | (0.08     | ) |      | $ | 0.29      | 
|                                                                      |  |                    |           |   |      |  
|Weighted average number of shares outstanding  basic
    and diluted |  |                    | 4,605,000 |   |      |   | 4,646,000 | 
|                                                                      |  |                    |           |   |      |  



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





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

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


12



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                  |  |                    |          |   |      |   |           |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ---- | - | --------- | -
|                                                                                                                  |  | Three Months Ended |         
|                                                                                                                  |  | March 31,          |         
|                                                                                                                  |  |                    |         
|                                                                                                                  |  | 2005               |          |   | 2004 |  
|                                                                                                                  |  |                    |          |   |      |  
|Reported net income (loss) income                                                                                 |  | $                  | (348,000 | ) |      | $ | 1,341,000 |  
|Add: Stock based employee compensation expense included in
    reported net income                                |  |                    | 32,000   |   |      |   |          |  
|Less: Total stock based employee compensation expense determined
    under fair value based method for all awards |  |                    | (49,000  | ) |      |   | (39,000   | )
|                                                                                                                  |  |                    |          |   |      |  
|Pro forma net income (loss)                                                                                       |  | $                  | (365,000 | ) |      | $ | 1,302,000 |  
|                                                                                                                  |  |                    |          |   |      |  
|Reported net income (loss) per share  basic and
    diluted                                                      |  | $                  | (0.08    | ) |      | $ | 0.29      |  
|                                                                                                                  |  |                    |          |   |      |  
|Pro forma net income (loss) per share  basic and
    diluted                                                     |  | $                  | (0.08    | ) |      | $ | 0.28      |  
|                                                                                                                  |  |                    |          |   |      |  





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





| |                  
| | -----------------
| | Reclassifications





|   |                        
|-- | -----------------------
|3. | Real Estate Investments





| |                        
| | -----------------------
| | Consolidated Properties



|                                  |  |           |            |   |              |   |            |  
|--------------------------------- |  | --------- | ---------- | - | ------------ | - | ---------- | -
|                                  |  | March 31, |            |   | December 31, |  
|                                  |  | 2005      |            |   | 2004         |  
|                                  |  |           |            |   |              |  
|Buildings and tenant improvements |  | $         | 18,439,000 |   |              | $ | 18,437,000 |  
|Land                              |  |           | 6,317,000  |   |              |   | 6,317,000  |  
|                                  |  |           |            |   |              |  
|                                  |  |           | 24,756,000 |   |              |   | 24,754,000 |  
|Less: accumulated depreciation    |  |           | (1,046,000 | ) |              |   | (880,000   | )
|                                  |  |           |            |   |              |  
|Operating properties, net         |  | $         | 23,710,000 |   |              | $ | 23,874,000 |  
|                                  |  |           |            |   |              |  

13



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





|                                    |  |          |                 |            |       |  |           |      |  |              |            |  |  |   |            | 
|----------------------------------- |  | -------- | --------------- | ---------- | ----- |  | --------- | ---- |  | ------------ | ---------- |  |  | - | ---------- | 
|                                    |  |          |                 | Percentage |       |  | March 31, |      |  | December 31, |           
|Property                            |  | Location |                 |            | Owned |  |           | 2005 |  |              | 2004       | 
|                                    |  |          |                 |            |       |  |           |      |  |              |            | 
|City Center West A Building  TIC |  |          | Las Vegas, NV   |            |       |  | 89.1      | %    |  | $            | 7,957,000  |  |  | $ | 8,004,000  | 
|Congress Center  LLC               |  |          | Chicago, IL     |            |       |  | 10.3      | %    |  |              | 3,805,000  |  |  |   | 3,875,000  | 
|Pacific Corporate Park  LLC        |  |          | Lake Forest, CA |            |       |  | 22.8      | %    |  |              | 1,928,000  |  |  |   | 1,830,000  | 
|Titan Building & Plaza  TIC        |  |          | San Antonio, TX |            |       |  | 48.5      | %    |  |              | 2,007,000  |  |  |   | 2,027,000  | 
|Reno Trademark Building  TIC       |  |          | Reno, NV        |            |       |  | 40.0      | %    |  |              | 1,156,000  |  |  |   | 1,154,000  | 
|Oakey Building  LLC                |  |          | Las Vegas, NV   |            |       |  | 9.8       | %    |  |              | 561,000    |  |  |   | 585,000    | 
|Enclave Parkway  LLC               |  |          | Houston, TX     |            |       |  | 3.3       | %    |  |              | 454,000    |  |  |   | 452,000    | 
|County Center Drive  TIC           |  |          | Temecula, CA    |            |       |  | 16.0      | %    |  |              | 411,000    |  |  |   | 432,000    | 
|Emerald Plaza  LLC                 |  |          | San Diego, CA   |            |       |  | 2.7       | %    |  |              | 866,000    |  |  |   | 913,000    | 
|                                    |  |          |                 |            |       |  |           |      |  |              |            | 
|                                    |  |          |                 |            |       |  |           |      |  | $            | 19,145,000 |  |  | $ | 19,272,000 | 
|                                    |  |          |                 |            |       |  |           |      |  |              |            | 



|                               |  |           |             |  |              |   |             | 
|------------------------------ |  | --------- | ----------- |  | ------------ | - | ----------- | 
|                               |  | As of     |             |  | As of        |  
|                               |  | March 31, |             |  | December 31, |  
|                               |  | 2005      |             |  | 2004         |  
|                               |  |           |             |  |              |  
|Assets (primarily real estate) |  | $         | 350,179,000 |  |              | $ | 349,582,000 | 
|                               |  |           |             |  |              |  
|Mortgages notes payable        |  | $         | 218,906,000 |  |              | $ | 224,547,000 | 
|Other liabilities              |  |           | 10,974,000  |  |              |   | 10,179,000  | 
|Equity                         |  |           | 120,299,000 |  |              |   | 114,856,000 | 
|                               |  |           |             |  |              |  
|Total liabilities and equity   |  | $         | 350,179,000 |  |              | $ | 349,582,000 | 
|                               |  |           |             |  |              |  
|Our share of equity            |  | $         | 19,145,000  |  |              | $ | 19,272,000  | 
|                               |  |           |             |  |              |  

|                          |  |                    |            |  |      |   |           | 
|------------------------- |  | ------------------ | ---------- |  | ---- | - | --------- | 
|                          |  | Three Months Ended |           
|                          |  | March 31,          |           
|                          |  |                    |           
|                          |  | 2005               |            |  | 2004 |  
|                          |  |                    |            |  |      |  
|Revenues                  |  | $                  | 11,385,000 |  |      | $ | 8,159,000 | 
|Rental and other expenses |  |                    | 10,814,000 |  |      |   | 6,721,000 | 
|                          |  |                    |            |  |      |  
|Net income                |  | $                  | 571,000    |  |      | $ | 1,438,000 | 
|                          |  |                    |            |  |      |  
|Our equity in earnings    |  | $                  | 380,000    |  |      | $ | 265,000   | 
|                          |  |                    |            |  |      |  

14



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|   |                             
|-- | ----------------------------
|4. | Marketable Equity Securities



|                  |                   |            |   |                  |       |  |   |           |  |  |            |         |  |  |   |           | 
|----------------- | ----------------- | ---------- | - | ---------------- | ----- |  | - | --------- |  |  | ---------- | ------- |  |  | - | --------- | 
|                  |                   |            |   | Gross Unrealized |       |  |  
|                  |                   | Historical |   |                  |       |  |   | Estimated | 
|                  |                   | Cost       |   |                  | Gains |  |   | Losses    |  |  | Fair Value |        
|                  |                   |            |   |                  |       |  |   |           |  |  |            |        
|March 31, 2005    |                   |            |   |                  |       |  |   |           |  |  |            |         |  |  |   |          
|                  | Equity securities |            | $ | 3,362,000        |       |  | $ | 36,000    |  |  | $          | 100,000 |  |  | $ | 3,298,000 | 
|                  |                   |            |   |                  |       |  |   |           |  |  |            |        
|December 31, 2004 |                   |            |   |                  |       |  |   |           |  |  |            |         |  |  |   |          
|                  | Equity securities |            | $ | 481,000          |       |  | $ | 10,000    |  |  | $          |        |  |  | $ | 491,000   | 
|                  |                   |            |   |                  |       |  |   |           |  |  |            |        





|   |             
|-- | ------------
|5. | Other Assets



|                                                                                                                                                                                                                                    |  |           |           |  |              |   |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | --------- |  | ------------ | - | --------- | 
|                                                                                                                                                                                                                                    |  | March 31, |           |  | December 31, |  
|                                                                                                                                                                                                                                    |  | 2005      |           |  | 2004         |  
|                                                                                                                                                                                                                                    |  |           |           |  |              |  
|In-place leases and tenant relationships, net of accumulated
    amortization of $1,752,000 and $1,279,000 at March 31, 2005
    and December 31, 2004, respectively (with a weighed-average
    life ranging from 33 to 75 months) |  | $         | 2,329,000 |  |              | $ | 2,802,000 | 
|Above market leases, net of accumulated amortization of $488,000
    and $393,000 at March 31, 2005 and December 31, 2004,
    respectively (with a weighted-average life of 33 months)                                             |  |           | 516,000   |  |              |   | 611,000   | 
|Deferred rent receivable                                                                                                                                                                                                            |  |           | 140,000   |  |              |   | 147,000   | 
|Lease commissions, net of accumulated amortization of $1,500 and
    $500 at March 31, 2005 and December 31, 2004,
    respectively                                                                                                 |  |           | 23,000    |  |              |   | 20,000    | 
|Loan fees, net of accumulated amortization of $161,000 and
    $133,000 at March 31, 2005 and December 31, 2004,
    respectively                                                                                                   |  |           | 214,000   |  |              |   | 242,000   | 
|Prepaid expenses                                                                                                                                                                                                                    |  |           | 123,000   |  |              |   | 236,000   | 
|Other assets                                                                                                                                                                                                                        |  |           |          |  |              |   |          | 
|                                                                                                                                                                                                                                    |  |           |           |  |              |  
|Total other assets                                                                                                                                                                                                                  |  | $         | 3,345,000 |  |              | $ | 4,058,000 | 
|                                                                                                                                                                                                                                    |  |           |           |  |              |  

15



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                 
|-- | ----------------
|6. | Notes Receivable









|   |               
|-- | --------------
|7. | Line of Credit





|   |                                      
|-- | -------------------------------------
|8. | Mortgage Loans Payable and Other Debt



|                                                                                                                                                                                                                                                                                                                                                                                                       |  |           |            |  |              |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------- | ---------- |  | ------------ | - | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                       |  | March 31, |            |  | 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%. At March 31,
    2005 and December 31, 2004 the interest rate was 5.25%.
    Matures in January 1, 2008. Equal principal and interest
    payments are payable monthly until repayment in full                    |  | $         | 4,268,000  |  |              | $ | 4,285,000  | 
|Note payable to 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
    March 31, 2005 and December 31, 2004 was 6.75% and
    5.75% per annum, respectively |  |           | 15,000,000 |  |              |   | 15,000,000 | 
|                                                                                                                                                                                                                                                                                                                                                                                                       |  |           |            |  |              |  
|                                                                                                                                                                                                                                                                                                                                                                                                       |  |           | 19,268,000 |  |              |   | 19,285,000 | 
|Other debt                                                                                                                                                                                                                                                                                                                                                                                             |  |           | 1,565,000  |  |              |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                       |  |           |            |  |              |  
|Total mortgage loans payable and other debt                                                                                                                                                                                                                                                                                                                                                            |  | $         | 20,833,000 |  |              | $ | 19,285,000 | 
|                                                                                                                                                                                                                                                                                                                                                                                                       |  |           |            |  |              |  

16



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|   |                     
|-- | --------------------
|9. | Shareholders Equity



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







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





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

17



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                |      |         |             |                  |                  |         |                  |             |         |  |         |                  |      |             |         |  |         |  |  |   |      | 
|--------------- | ---- | ------- | ----------- | ---------------- | ---------------- | ------- | ---------------- | ----------- | ------- |  | ------- | ---------------- | ---- | ----------- | ------- |  | ------- |  |  | - | ---- | 
|                |      |         |             | Weighted Average |                  |         | Weighted Average |             |         |  |         | Weighted Average |     
|                |      |         |             | Remaining        |                  |         | Exercise Price  |             |         |  |         | Exercise Price  |     
|                |      | Options |             |                  | Contractual Life |         |                  | Outstanding |         |  | Options |                  |      | Exercisable |        
|Exercise Prices |      |         | Outstanding |                  |                  | (Years) |                  |             | Options |  |         | Exercisable      |      |             | Options | 
|                |      |         |             |                  |                  |         |                  |             |         |  |         |                  |      |             |         | 
|$               | 9.05 |         |             |                  | 425,000          |         |                  |             | 8.8     |  |         | $                | 9.05 |             |         |  | 155,000 |  |  | $ | 9.05 | 



|    |                           
|--- | --------------------------
|10. | Related Party Transactions



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











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





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



18



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                             
| | --------------------------------------------
| | Real Estate Commissions and Disposition Fees





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





| |                                           
| | ------------------------------------------
| | Unconsolidated debt due to related parties





| |           
| | ----------
| | Cunningham



|                        |          |           |   |         |                |  |   |               |         |  |  |    |   | 
|----------------------- | -------- | --------- | - | ------- | -------------- |  | - | ------------- | ------- |  |  | -- | - | 
|                        |          | Amount of |   |         | T REIT, Inc.s |  |   | Interest Rate |        
|Property/Issue Date     |          | Loan      |   |         | Portion        |  |   | (per annum)   |        
|                        |          |           |   |         |                |  |   |               |        
|Pacific Corporate Park: |          |           |   |         |                |  |   |               |         |  |  |   
|                        | 12/06/04 |           | $ | 80,000  |                |  | $ | 18,000        |         |  |  | 8  | %
|                        | 02/03/05 |           |   | 130,000 |                |  |   | 30,000        |         |  |  | 8  | %
|                        | 02/11/05 |           |   | 263,000 |                |  |   | 60,000        |         |  |  | 8  | %
|                        | 03/18/05 |           |   | 20,000  |                |  |   | 5,000         |         |  |  | 8  | %
|                        | 03/21/05 |           |   | 731,000 |                |  |   | 167,000       |         |  |  | 8  | %
|Emerald Plaza:          |          |           |   |         |                |  |   |               |         |  |  |   
|                        | 02/07/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8  | %
|                        | 03/04/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8  | %
|County Center Drive:    |          |           |   |         |                |  |   |               |         |  |  |   
|                        | 02/07/05 |           |   | 2,000   |                |  |   |              |         |  |  | 12 | %
|                        |          |           |   |         |                |  |   |               |        
|                        |          | Total     |   | $       | 1,690,000      |  |   | $             | 292,000 |  |  |    |   | 
|                        |          |           |   |         |                |  |   |               |        



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



19



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | 2004 Notes Program





|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies



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

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






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





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



20



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |             |  |  |   |            | 
|----------------------------------- |  | ---------- | ---- | ------------- | -------------- | - | ------------ | ------------- |  | ------------- | ------------ |  | ------------ | ---------- | ----------- |  |  | - | ---------- | 
|                                    |  |            |      |               |                |   |              | Mortgage Debt |  |               |             
|                                    |  |            |      | Mortgage Debt |                |   | T REIT Incs |               |  | Balance as of |              |  | T REIT Incs |           
|                                    |  | Ownership  |      |               | Balance as of  |   |              | Portion of    |  |               | December 31, |  |              | Portion of |            
|Property                            |  | Percentage |      |               | March 31, 2005 |   |              | Debt          |  |               | 2004         |  |              | Debt       |            
|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |            
|Reno Trademark Building  TIC       |  |            | 40.0 | %             |                | $ | 4,489,000    |               |  | $             | 1,796,000    |  |              | $          | 4,504,000   |  |  | $ | 1,802,000  | 
|County Center Drive  TIC           |  |            | 16.0 | %             |                |   | 2,958,000    |               |  |               | 473,000      |  |              |            | 2,980,000   |  |  |   | 477,000    | 
|City Center West A Building  TIC |  |            | 89.1 | %             |                |   | 12,431,000   |               |  |               | 11,079,000   |  |              |            | 12,484,000  |  |  |   | 11,127,000 | 
|Titan Building & Plaza  TIC        |  |            | 48.5 | %             |                |   | 5,775,000    |               |  |               | 2,801,000    |  |              |            | 5,795,000   |  |  |   | 2,811,000  | 
|Pacific Corporate Park  LLC        |  |            | 22.8 | %             |                |   |             |               |  |               |             |  |              |            | 5,474,000   |  |  |   | 1,246,000  | 
|Congress Center  LLC               |  |            | 10.3 | %             |                |   | 97,500,000   |               |  |               | 9,962,000    |  |              |            | 97,500,000  |  |  |   | 9,962,000  | 
|Enclave Parkway  LLC               |  |            | 3.3  | %             |                |   | 23,253,000   |               |  |               | 757,000      |  |              |            | 23,310,000  |  |  |   | 759,000    | 
|Oakey Building  LLC                |  |            | 9.8  | %             |                |   | 4,000,000    |               |  |               | 390,000      |  |              |            | 4,000,000   |  |  |   | 390,000    | 
|Emerald Plaza  LLC                 |  |            | 2.7  | %             |                |   | 68,500,000   |               |  |               | 1,850,000    |  |              |            | 68,500,000  |  |  |   | 1,850,000  | 
|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |            
|Total                               |  |            |      |               |                | $ | 218,906,000  |               |  | $             | 29,108,000   |  |              | $          | 224,547,000 |  |  | $ | 30,424,000 | 
|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |            









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



21



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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





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



22



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                 
|--- | ------------------------------------------------
|12. | Discontinued Operations  Property Held for Sale

Accounting for the
Impairment or Disposal of Long-Lived Assets


|         |                                                              |                    |         |         |  
|-------- | ------------------------------------------------------------ | ------------------ | ------- | ------- | -
|         |                                                              | Three Months Ended |        
|         |                                                              | March 31,          |        
|         |                                                              | 2004               |        
|         |                                                              |                    |        
|Revenues |                                                              |                    |         |        
|         | Rental income                                                |                    | $       | 330,000 |  
|         | Interest income                                              |                    |         | 1,000   |  
|         |                                                              |                    |        
|         |                                                              |                    | 331,000 |        
|Expenses |                                                              |                    |         |        
|         | Rental expenses                                              |                    |         | 26,000  |  
|         | General and administrative                                   |                    |         | (12,000 | )
|         | Depreciation and amortization                                |                    |         | 77,000  |  
|         | Interest (including amortization of deferred financing fees) |                    |         | 135,000 |  
|         |                                                              |                    |        
|         |                                                              |                    | 226,000 |        
|         |                                                              |                    |        
|Net loss |                                                              | $                  | 105,000 |        
|         |                                                              |                    |        



|    |                  
|--- | -----------------
|13. | Subsequent Events







23



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















24



---



##### Table of Contents








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



Forward-Looking Statements




Overview and Background








25



---



##### Table of Contents







Business Strategy






Critical Accounting Policies




26



---



##### Table of Contents





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

Accounting for the Impairment
or Disposal of Long Lived Assets,






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





| |           
| | ----------
| | 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.                                      





| |                          
| | -------------------------
| | Purchase Price Allocation

Business
Combinations


27



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##### Table of Contents













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





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



Qualification as a REIT






28



---



##### Table of Contents



Investments in Unconsolidated Real Estate




|                                    |  |          |                 |            |       |           |            |                |           |            |                   |  |  |   |            | 
|----------------------------------- |  | -------- | --------------- | ---------- | ----- | --------- | ---------- | -------------- | --------- | ---------- | ----------------- |  |  | - | ---------- | 
|                                    |  |          |                 |            |       | Companys |            |                | Companys |           
|                                    |  |          |                 | Percentage |       |           | Investment |                |           | Investment |                  
|Property                            |  | Location |                 |            | Owned |           |            | March 31, 2005 |           |            | December 31, 2004 | 
|                                    |  |          |                 |            |       |           |            |                |           |            |                   | 
|City Center West A Building  TIC |  |          | Las Vegas, NV   |            |       |           | 89.1       | %              |           | $          | 7,957,000         |  |  | $ | 8,004,000  | 
|Congress Center  LLC               |  |          | Chicago, IL     |            |       |           | 10.3       | %              |           |            | 3,805,000         |  |  |   | 3,875,000  | 
|Pacific Corporate Park  LLC        |  |          | Lake Forest, CA |            |       |           | 22.8       | %              |           |            | 1,928,000         |  |  |   | 1,830,000  | 
|Titan Building & Plaza  TIC        |  |          | San Antonio, TX |            |       |           | 48.5       | %              |           |            | 2,007,000         |  |  |   | 2,027,000  | 
|Reno Trademark Building  TIC       |  |          | Reno, NV        |            |       |           | 40.0       | %              |           |            | 1,156,000         |  |  |   | 1,154,000  | 
|Oakey Building  LLC                |  |          | Las Vegas, NV   |            |       |           | 9.8        | %              |           |            | 561,000           |  |  |   | 585,000    | 
|Enclave Parkway  LLC               |  |          | Houston, TX     |            |       |           | 3.3        | %              |           |            | 454,000           |  |  |   | 452,000    | 
|County Center Drive  TIC           |  |          | Temecula, CA    |            |       |           | 16.0       | %              |           |            | 411,000           |  |  |   | 432,000    | 
|Emerald Plaza  LLC                 |  |          | San Diego, CA   |            |       |           | 2.7        | %              |           |            | 866,000           |  |  |   | 913,000    | 
|                                    |  |          |                 |            |       |           |            |                |           |            |                   | 
|                                    |  |          |                 |            |       |           |            |                |           | $          | 19,145,000        |  |  | $ | 19,272,000 | 
|                                    |  |          |                 |            |       |           |            |                |           |            |                   | 



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



Factors Which May Influence Results of Operations




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





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



29



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##### Table of Contents



Sarbanes-Oxley Act






Results of Operations






| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Comparison of the three months ended March 31, 2005
    to the three months ended March 31, 2004

|                                                                      |                                                               |                    |          |           |      |   |           |         |   |   |                |         |   |  |          |        |   
|--------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------ | -------- | --------- | ---- | - | --------- | ------- | - | - | -------------- | ------- | - |  | -------- | ------ | --
|                                                                      |                                                               | Three Months Ended |          |           |      |   |          
|                                                                      |                                                               | March 31,          |          |           |      |   |          
|                                                                      |                                                               |                    |          |           |      |   |          
|                                                                      |                                                               | 2005               |          |           | 2004 |   |           | Change  |   |   | Percent Change |        
|                                                                      |                                                               |                    |          |           |      |   |           |         |   |   |                |        
|Revenues:                                                             |                                                               |                    |          |           |      |   |           |         |   |   |                |         |   |  |          |       
|                                                                      | Rental income                                                 |                    | $        | 1,019,000 |      |   | $         | 748,000 |   |   | $              | 271,000 |   |  |          | 36.23  | % 
|Expenses:                                                             |                                                               |                    |          |           |      |   |           |         |   |   |                |         |   |  |          |       
|                                                                      | Rental expenses                                               |                    |          | 469,000   |      |   |           | 143,000 |   |   |                | 326,000 |   |  |          | 227.97 | % 
|                                                                      | General and administrative                                    |                    |          | 533,000   |      |   |           | 93,000  |   |   |                | 440,000 |   |  |          | 473.12 | % 
|                                                                      | Depreciation and amortization                                 |                    |          | 641,000   |      |   |           | 411,000 |   |   |                | 230,000 |   |  |          | 55.96  | % 
|                                                                      |                                                               |                    |          |           |      |   |           |         |   |   |                |        
|Income (loss) before other income and discontinued operations         |                                                               |                    | (624,000 | )         |      |   | 101,000   |         |   |   | (725,000       | )       |   |  | (717.82  | )%    
|Other income (expense):                                               |                                                               |                    |          |           |      |   |           |         |   |   |                |         |   |  |          |       
|                                                                      | Interest (including amortization of deferred financing costs) |                    |          | (336,000  | )    |   |           | (74,000 | ) |   |                | 262,000 |   |  |          | 354.05 | % 
|                                                                      | Interest and Dividend Income                                  |                    |          | 105,000   |      |   |           | 80,000  |   |   |                | 25,000  |   |  |          | 31.25  | % 
|                                                                      | Gain on sale of marketable securities                         |                    |          | 16,000    |      |   |           | 47,000  |   |   |                | (31,000 | ) |  |          | (65.96 | )%
|Minority interests                                                    |                                                               |                    | 111,000  |           |      |   | (5,000    | )       |   |   | 116,000        |         |   |  | (2320.00 | )%    
|                                                                      | Equity in earnings of unconsolidated real estate              |                    |          | 380,000   |      |   |           | 265,000 |   |   |                | 115,000 |   |  |          | 43.40  | % 
|                                                                      |                                                               |                    |          |           |      |   |           |         |   |   |                |        
|Income (loss) from continuing operations                              |                                                               |                    | (348,000 | )         |      |   | 414,000   |         |   |   | (762,000       | )       |   |  | (184.06  | )%    
|Gain on sale of real estate investments                               |                                                               |                    |         |           |      |   | 822,000   |         |   |   | (822,000       | )       |   |  | (100.00  | )%    
|Income from discontinued operations  property held
    for sale, net |                                                               |                    |         |           |      |   | 105,000   |         |   |   | (105,000       | )       |   |  | (100.00  | )%    
|                                                                      |                                                               |                    |          |           |      |   |           |         |   |   |                |        
|Net income (loss)                                                     |                                                               | $                  | (348,000 | )         |      | $ | 1,341,000 |         |   | $ | (1,689,000     | )       |   |  | (125.95  | )%    
|                                                                      |                                                               |                    |          |           |      |   |           |         |   |   |                |        

30



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##### Table of Contents























Liquidity and Capital Resources




| |          
| | ---------
| | Liquidity



| |           
| | ----------
| | Cash Flows



31



---



##### Table of Contents













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





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







32



---



##### Table of Contents

















Capital Resources




| |        
| | -------
| | General



33



---



##### Table of Contents

















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







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





34



---



##### Table of Contents





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



|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |             |  |  |   |            | 
|----------------------------------- |  | ---------- | ---- | ------------- | -------------- | - | ------------ | ------------- |  | ------------- | ------------ |  | ------------ | ---------- | ----------- |  |  | - | ---------- | 
|                                    |  |            |      |               |                |   |              | Mortgage Debt |  |               |             
|                                    |  |            |      | Mortgage Debt |                |   | T REIT Incs |               |  | Balance as of |              |  | T REIT Incs |           
|                                    |  | Ownership  |      |               | Balance as of  |   |              | Portion of    |  |               | December 31, |  |              | Portion of |            
|Property                            |  | Percentage |      |               | March 31, 2005 |   |              | Debt          |  |               | 2004         |  |              | Debt       |            
|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |            
|Reno Trademark Building  TIC       |  |            | 40.0 | %             |                | $ | 4,489,000    |               |  | $             | 1,796,000    |  |              | $          | 4,504,000   |  |  | $ | 1,802,000  | 
|County Center Drive  TIC           |  |            | 16.0 | %             |                |   | 2,958,000    |               |  |               | 473,000      |  |              |            | 2,980,000   |  |  |   | 477,000    | 
|City Center West A Building  TIC |  |            | 89.1 | %             |                |   | 12,431,000   |               |  |               | 11,079,000   |  |              |            | 12,484,000  |  |  |   | 11,127,000 | 
|Titan Building & Plaza  TIC        |  |            | 48.5 | %             |                |   | 5,775,000    |               |  |               | 2,801,000    |  |              |            | 5,795,000   |  |  |   | 2,811,000  | 
|Pacific Corporate Park  LLC        |  |            | 22.8 | %             |                |   |             |               |  |               |             |  |              |            | 5,474,000   |  |  |   | 1,246,000  | 
|Congress Center  LLC               |  |            | 10.3 | %             |                |   | 97,500,000   |               |  |               | 9,962,000    |  |              |            | 97,500,000  |  |  |   | 9,962,000  | 
|Enclave Parkway  LLC               |  |            | 3.3  | %             |                |   | 23,253,000   |               |  |               | 757,000      |  |              |            | 23,310,000  |  |  |   | 759,000    | 
|Oakey Building  LLC                |  |            | 9.8  | %             |                |   | 4,000,000    |               |  |               | 390,000      |  |              |            | 4,000,000   |  |  |   | 390,000    | 
|Emerald Plaza  LLC                 |  |            | 2.7  | %             |                |   | 68,500,000   |               |  |               | 1,850,000    |  |              |            | 68,500,000  |  |  |   | 1,850,000  | 
|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |            
|Total                               |  |            |      |               |                | $ | 218,906,000  |               |  | $             | 29,108,000   |  |              | $          | 224,547,000 |  |  | $ | 30,424,000 | 
|                                    |  |            |      |               |                |   |              |               |  |               |              |  |              |            |            







| |                                           
| | ------------------------------------------
| | Unconsolidated debt due to related parties



35



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##### Table of Contents







| |           
| | ----------
| | Cunningham



|                        |          |           |   |         |                |  |   |               |         |  |  |    |   | 
|----------------------- | -------- | --------- | - | ------- | -------------- |  | - | ------------- | ------- |  |  | -- | - | 
|                        |          | Amount of |   |         | T REIT, Inc.s |  |   | Interest Rate |        
|Property/Issue Date     |          | Loan      |   |         | Portion        |  |   | (per annum)   |        
|                        |          |           |   |         |                |  |   |               |        
|Pacific Corporate Park: |          |           |   |         |                |  |   |               |         |  |  |   
|                        | 12/06/04 |           | $ | 80,000  |                |  | $ | 18,000        |         |  |  | 8  | %
|                        | 02/03/05 |           |   | 130,000 |                |  |   | 30,000        |         |  |  | 8  | %
|                        | 02/11/05 |           |   | 263,000 |                |  |   | 60,000        |         |  |  | 8  | %
|                        | 03/18/05 |           |   | 20,000  |                |  |   | 5,000         |         |  |  | 8  | %
|                        | 03/21/05 |           |   | 731,000 |                |  |   | 167,000       |         |  |  | 8  | %
|                       
|Emerald Plaza:          |          |           |   |         |                |  |   |               |         |  |  |   
|                        | 02/07/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8  | %
|                        | 03/04/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8  | %
|                       
|County Center Drive:    |          |           |   |         |                |  |   |               |         |  |  |   
|                        | 02/07/05 |           |   | 2,000   |                |  |   |              |         |  |  | 12 | %
|                        |          |           |   |         |                |  |   |               |        
|                        |          | Total     |   | $       | 1,690,000      |  |   | $             | 292,000 |  |  |    |   | 
|                        |          |           |   |         |                |  |   |               |        



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





| |                   
| | ------------------
| | 2004 Notes Program



REIT Requirements




36



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##### 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                                   |  | $         | 1,613,000 |  |             | $ | 141,000    |             |           | $ | 4,079,000    |  |       | $ |  |  |  | $ | 5,833,000  | 
|Interest payments  fixed rate debt                                    |  |           | 170,000   |  |             |   | 442,000    |             |           |   |             |  |       |   |  |  |  |   | 612,000    | 
|Principal payments  variable rate debt                                |  |           |          |  |             |   | 15,000,000 |             |           |   |             |  |       |   |  |  |  |   | 15,000,000 | 
|Interest payments  variable rate debt (rate as of
    March 31, 2005) |  |           | 749,000   |  |             |   | 905,000    |             |           |   |             |  |       |   |  |  |  |   | 1,654,000  | 
|                                                                       |  |           |           |  |             |   |            |             |           |   |              |  |       |   |  
|Total                                                                  |  | $         | 2,532,000 |  |             | $ | 16,488,000 |             |           | $ | 4,079,000    |  |       | $ |  |  |  | $ | 23,099,000 | 
|                                                                       |  |           |           |  |             |   |            |             |           |   |              |  |       |   |  



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



37



---



##### Table of Contents







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

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






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





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



Subsequent Events




38



---



##### Table of Contents



















Funds from Operations




39



---



##### Table of Contents













|                                                                   |                                                                                     |                    |           |         |                    |   |           |         | 
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------- | ------------------ | --------- | ------- | ------------------ | - | --------- | ------- | 
|                                                                   |                                                                                     | Three Months Ended |           |         | Three Months Ended |  
|                                                                   |                                                                                     | March 31,          |           |         | March 31,          |  
|                                                                   |                                                                                     | 2005               |           |         | 2004               |  
|                                                                   |                                                                                     |                    |           |         |                    |  
|Net income (loss)                                                  |                                                                                     | $                  | (348,000  | )       |                    | $ | 1,341,000 |        
|Add:                                                               |                                                                                     |                    |           |         |                    |   |           |        
|                                                                   | Depreciation and amortization  continuing operations                               |                    |           | 640,000 |                    |   |           | 375,000 | 
|                                                                   | Depreciation and amortization  discontinued operations                             |                    |           |        |                    |   |           | 17,000  | 
|                                                                   | Depreciation and amortization  unconsolidated real
    estate operating properties |                    |           | 316,000 |                    |   |           | 399,000 | 
|Less:                                                              |                                                                                     |                    |           |         |                    |   |           |        
|                                                                   | Gain/(loss) on sale of property                                                     |                    |           |        |                    |   |           | 822,000 | 
|                                                                   |                                                                                     |                    |           |         |                    |  
|Funds from operations                                              |                                                                                     | $                  | 608,000   |         |                    | $ | 1,310,000 |        
|                                                                   |                                                                                     |                    |           |         |                    |  
|Weighted average common shares outstanding  basic and
    diluted |                                                                                     |                    | 4,605,000 |         |                    |   | 4,646,000 |        
|                                                                   |                                                                                     |                    |           |         |                    |  
|Gain on sale of investments included in net income (loss) and FFO  |                                                                                     | $                  | 16,000    |         |                    | $ | 47,000    |        
|                                                                   |                                                                                     |                    |           |         |                    |  






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



40



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##### Table of Contents





|                                       |  |      |           |   |      |   |         |      |  |   |            |   |  |      |           |   |            |   |   |       |  |   |   |  |  |   |            |  
|-------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | ---------- | - |  | ---- | --------- | - | ---------- | - | - | ----- |  | - | - |  |  | - | ---------- | -
|                                       |  | 2005 |           |   | 2006 |   |         | 2007 |  |   | 2008       |   |  | 2009 |           |   | Thereafter |   |   | Total | 
|                                       |  |      |           |   |      |   |         |      |  |   |            |   |  |      |           |   |            |   |   |       | 
|Fixed rate debt                        |  | $    | 48,000    |   |      | $ | 69,000  |      |  | $ | 72,000     |   |  | $    | 4,079,000 |   |            | $ |  |       |  | $ |  |  |  | $ | 4,268,000  |  
|Average interest rate on maturing debt |  |      | 5.25      | % |      |   | 5.25    | %    |  |   | 5.25       | % |  |      | 5.25      | % |            |   |  |       |  |   |  |  |  |   | 5.25       | %
|Variable rate debt                     |  | $    | 1,565,000 |   |      | $ | 197,000 |      |  | $ | 14,803,000 |   |  | $    |          |   |            | $ |  |       |  | $ |  |  |  | $ | 16,565,000 |  
|Average interest rate on maturing debt |  |      | 6.50      | % |      |   | 6.75    | %    |  |   | 6.75       | % |  |      |          |   |            |   |  |       |  |   |  |  |  |   | 6.73       | %








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

Evaluation of disclosure controls and
procedures.






41



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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.






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



42



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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



43



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##### Table of Contents






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



44



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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  |  | Form of Agreement of Limited Partnership of T REIT, L.P.
    (included as Exhibit 10.1 to Amendment No. 2 to our
    Registration Statement on Form S-11 filed on
    October 13, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                
|
| | 10 | .2  |  | Dividend Reinvestment Program (included as Exhibit C to our
    Prospectus filed as part of our Registration Statement on
    Form S-11 on April 28, 1999 (File No. 333-77229)
    and incorporated herein by this reference)                                                                                                                             
|
| | 10 | .3  |  | Independent Director Stock Option Plan (included as
    Exhibit 10.3 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 | .4  |  | Employee and Officer Stock Option Plan (included as
    Exhibit 10.4 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 | .5  |  | Advisory Agreement between us and our Advisor (included as
    Exhibit 10.5 to Amendment No. 2 to our Registration
    Statement on Form S-11 filed on October 13, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                               
|
| | 10 | .6  |  | Purchase and Sale Agreement, dated June 5, 2000, by and
    between Robert C. Parker and Carolyn De La Fuente Parker
    and Triple Net Properties, LLC (included as Exhibit 10.1 to
    Form 10-Q filed by the Registrant with the SEC on
    November 14, 2000 and incorporated herein by this reference)                                               
|
| | 10 | .7  |  | Purchase and Sale Agreement, dated October 25, 2000, by and
    between CMF Capital Company LLC and T REIT, L.P. (included as
    Exhibit 10.1 to Form 8-K filed by the Registrant with the
    SEC on November 13, 2000 and incorporated herein by this
    reference)                                                                                   
|
| | 10 | .8  |  | Purchase and Sale Agreement, dated October 26, 2000, by and
    between CMF Capital Company LLC and T REIT L.P. (included as
    exhibit 10.1 to Form 8-K filed by the Registrant with the
    SEC on December 20, 2000 and incorporated herein by this
    reference)                                                                                    
|
| | 10 | .9  |  | Purchase and Sale Agreement, dated August 24, 2000, as
    amended, by and between Drummer Boy Holdings, LLC and Triple Net
    Properties, LLC (included as Exhibit 10.9 to Post Effective
    Amendment No. 2 to our Registration Statement on Form S-11
    filed on July 17, 2001 (File No. 333-772229) and
    incorporated herein by this reference)
|
| | 10 | .10 |  | First Amendment to Advisory Agreement between us and our Advisor
    (included as Exhibit 10.10 to Post-Effective Amendment
    No. 1 to our companys Registration Statement filed on
    Form S-11 on July 17, 2001 (File No. 333-772229)
    and incorporated herein by this reference).                                                               



---



##### Table of Contents



| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10 | .11 |  | Purchase and Sale Agreement, dated April 16, 2001, by and
    between Kilroy Realty, L.P. and Triple Net Properties LLC
    (included as Exhibit 10.11 to Post Effective Amendment
    No. 3 to our Registration Statement on Form S-11 filed
    on October 19, 2001 (File No. 333-772229) and
    incorporated herein by reference).                                                           
|
| | 10 | .12 |  | Purchase and Sale Agreement dated October 30, 2001, by and
    between Triple Net Properties, LLC and City Center West
    Development, LLC (included as Exhibit 10.1 to Form 8-K/A
    filed by us on May 14, 2003 and incorporated herein by
    reference).                                                                                                                                   
|
| | 10 | .13 |  | Purchase and Sale Agreement dated November 9, 2001, by and
    between Triple Net Properties, LLC and United States Fidelity
    and Guaranty Company (included as Exhibit 10.1 to Form
    8-K/A filed by us on May 14, 2003 and incorporated herein
    by reference).                                                                                                                         
|
| | 10 | .14 |  | Amended and Restated Real Estate Purchase and Sale Agreement
    dated as of July 24, 2002 by and between Transwestern
    Heights, L.P. as seller and Triple Net Properties, LLC, as
    assigned to T REIT  University Heights, LP, a
    Texas limited partnership (included as Exhibit 10.14 to the
    Form 8-K filed by us on September 5, 2002 and incorporated
    herein by reference).
|
| | 10 | .15 |  | Purchase Agreement dated October 10, 2002 between Congress
    Center, LLC and Triple Net Properties, LLC as assigned to NNN
    Congress Center, LLC, G REIT  Congress Center, LLC,
    and W REIT  Congress Center, LLC (included as
    Exhibit 10.14 to the Form 8-K filed by us on
    January 24, 2003 and incorporated herein by reference).                                            
|
| | 10 | .16 |  | Operating Agreement of NNN Congress Center Member, LLC dated
    January 1, 2003 (included as Exhibit 10.15 to the Form
    8-K filed by us on January 24, 2003 and incorporated herein
    by reference).                                                                                                                                                                                       
|
| | 10 | .17 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of May 14, 2003 by and between T
    REIT  Thousand Oaks, LP and Weingarten Realty
    Investors (included as Exhibit 10.01 to the Form 8-K filed
    by us on August 26, 2003 and incorporated herein by
    reference).                                                                                 
|
| | 10 | .18 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of May 15, 2003 by and between T
    REIT  Pahrump, LLC and Pacific Home Equities, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by us on
    October 9, 2003 and incorporated herein by reference).                                                                                           
|
| | 10 | .19 |  | Purchase and Sale Agreement dated as of October 17, 2003 by
    and between Austin Jack, L.L.C. and Triple Net Properties, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by us on
    February 4, 2004 and incorporated herein by reference).                                                                                                                                         
|
| | 10 | .20 |  | First Amendment and Restatement of Purchase and Sale Agreement
    dated as of December 8, 2003 by and between Austin Jack,
    L.L.C. and Triple Net Properties, LLC (included as
    Exhibit 10.02 to the Form 8-K filed by us on
    February 4, 2004 and incorporated herein by reference).                                                                                                  
|
| | 10 | .21 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of March 15, 2004 by and between T
    REIT  Gateway Mall ND Fee, LLC and VP Investments,
    L.L.C. (included as Exhibit 10.01 to the Form 8-K filed by
    us on March 29, 2004 and incorporated herein by reference).                                                                                  
|
| | 10 | .22 |  | First Amendment to Agreement for Purchase and Sale of Real
    Property and Escrow Instructions dated as of March 9, 2004
    by and between T REIT  Gateway Mall ND Fee, LLC and
    VP Investments, L.L.C. (included as Exhibit 10.02 to the
    Form 8-K filed by us on March 29, 2004 and incorporated
    herein by reference).                                                            
|
| | 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.