##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended
    September 30, 2003                                       
|  
|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)


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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

As of November 12, 2003, there were
4,663,824 shares of common stock of T REIT, Inc.
outstanding.



---






---

TABLE OF CONTENTS



|                                |                                                                                               |  |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION
|                                | Item 1. Financial Statements                                                                 
|                                | CONSOLIDATED BALANCE SHEETS                                                                  
|                                | CONSOLIDATED STATEMENTS OF OPERATIONS                                                        
|                                | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY                                               
|                                | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                | Item 4. Controls and Procedures                                                              
|PART II -- OTHER INFORMATION   
|                                | Item 1. Legal Proceedings                                                                    
|                                | Item 2. Changes in 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 and Reports on Form 8-K                                                     
|SIGNATURES                     
|EXHIBIT INDEX                  
|EXHIBIT 31.1                   
|EXHIBIT 31.2                   
|EXHIBIT 32.1                   
|EXHIBIT 32.2                   



---



##### Table of Contents



T REIT, INC.

FORM 10-Q

For the Quarterly Period Ended
September 30, 2003


INDEX

|                             |  |                                                                                                                                        |    |      |    | 
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                             |  |                                                                                                                                        |    | Page
|                             |  |                                                                                                                                        |    |     
|PART I FINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements                                                                                                                   |    |      | 2  | 
|                             |  | Consolidated Balance Sheets as of
    September 30, 2003 (Unaudited) and December 31, 2002                                             |    |      | 3  | 
|                             |  | Consolidated Statements of Operations for the
    three-month and nine-month periods ended September 30, 2003
    and 2002 (Unaudited) |    |      | 4  | 
|                             |  | Consolidated Statement of Shareholders
    Equity for the nine month period ended September 30, 2003
    (Unaudited)                  |    |      | 5  | 
|                             |  | Consolidated Statements of Cash Flows for the
    nine-month periods ended September 30, 2003 and 2002
    (Unaudited)                 |    |      | 6  | 
|                             |  | Notes to Consolidated Financial Statements                                                                                             |    |      | 7  | 
|Item 2.                      |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                              |    |      | 19 | 
|Item 3.                      |  | Quantitative and Qualitative Disclosure About
    Market Risks                                                                         |    |      | 27 | 
|Item 4.                      |  | Controls and Procedures                                                                                                                |    |      | 27 | 
|PART II OTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                                                                      |    |      | 28 | 
|Item 2.                      |  | Changes in Securities and Use of Proceeds                                                                                              |    |      | 28 | 
|Item 3.                      |  | Defaults Upon Senior Securities                                                                                                        |    |      | 28 | 
|Item 4.                      |  | Submission of Matters to a Vote of Security
    Holders                                                                                |    |      | 28 | 
|Item 5.                      |  | Other Information                                                                                                                      |    |      | 28 | 
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                                                       |    |      | 28 | 
|Signatures                   |  |                                                                                                                                        | 31 |     

1



---



##### Table of Contents






PART I  FINANCIAL
INFORMATION




Item 1.     Financial
Statements

The accompanying September 30, 2003 and 2002
interim financial statements of the Company required to be filed
with this Form 10-Q Quarterly Report were prepared by
management without audit and commence on the following page,
together with the related Notes. In the opinion of management,
these interim financial statements present fairly the financial
condition, results of operations and cash flows of the Company,
but should be read in conjunction with the consolidated
financial statements of the Company for the year ended
December 31, 2002 included in our Annual Report on
Form 10-K previously filed with the Securities and Exchange
Commission (SEC).

2



---



##### Table of Contents



T REIT, INC.






CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------- | ---------- | ------------ | - | - | ---------- | ---------- | -
|                                                                                                                                                                                            |                                           | September 30, |            | December 31,
|                                                                                                                                                                                            |                                           | 2003          |            | 2002        
|                                                                                                                                                                                            |                                           |               |            |             
|                                                                                                                                                                                            |                                           | (Unaudited)   |            |             
|ASSETS                                                                                                                                                                                     
|Real estate investments:                                                                                                                                                                    |                                           |               |            |              |   |   |            |           
|                                                                                                                                                                                            | Operating properties                      |               | $          | 15,841,153   |   |   | $          | 37,374,780 |  
|                                                                                                                                                                                            | Property held for sale, net               |               |            |             |   |   |            | 3,917,239  |  
|                                                                                                                                                                                            | Investments in unconsolidated real estate |               |            | 19,335,698   |   |   |            | 14,499,831 |  
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|                                                                                                                                                                                            |                                           |               | 35,176,851 |              |   |   | 55,791,850 |           
|                                                                                                                                                                                            | Less accumulated depreciation             |               |            | (339,695     | ) |   |            | (1,111,856 | )
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|                                                                                                                                                                                            |                                           |               | 34,837,156 |              |   |   | 54,679,994 |           
|Cash and cash equivalents                                                                                                                                                                   |                                           |               | 12,699,046 |              |   |   | 6,129,468  |           
|Accounts receivable, net                                                                                                                                                                    |                                           |               | 97,036     |              |   |   | 242,587    |           
|Accounts receivable from related parties                                                                                                                                                    |                                           |               | 499,617    |              |   |   | 593,670    |           
|Real estate deposits                                                                                                                                                                        |                                           |               | 98,165     |              |   |   | 3,918,743  |           
|Other assets, net                                                                                                                                                                           |                                           |               | 966,195    |              |   |   | 1,617,263  |           
|Note receivable                                                                                                                                                                             |                                           |               | 581,995    |              |   |   | 587,178    |           
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|Total assets                                                                                                                                                                                |                                           | $             | 49,779,210 |              |   | $ | 67,768,903 |           
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                                                   
|                                                                                                                                                                                           
|Accounts payable and accrued liabilities                                                                                                                                                    |                                           | $             | 718,547    |              |   | $ | 997,870    |           
|Distributions payable                                                                                                                                                                       |                                           |               | 318,211    |              |   |   | 321,252    |           
|Security deposits and prepaid rent                                                                                                                                                          |                                           |               | 50,991     |              |   |   | 144,018    |           
|Notes payable                                                                                                                                                                               |                                           |               | 9,290,409  |              |   |   | 25,221,036 |           
|Notes payable secured by property held for sale                                                                                                                                             |                                           |               |           |              |   |   | 2,869,089  |           
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|                                                                                                                                                                                            |                                           |               | 10,378,158 |              |   |   | 29,553,265 |           
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|Commitments and contingencies                                                                                                                                                               |                                           |               |            |              |   |   |            |           
|Shareholders equity:                                                                                                                                                                       |                                           |               |            |              |   |   |            |           
|Common stock, $.01 par value; 10,000,000 shares
    authorized; 4,720,176 shares issued, 4,663,824 outstanding at
    September 30, 2003 and 4,696,300 outstanding at
    December 31, 2002 |                                           |               | 47,202     |              |   |   | 47,202     |           
|Additional paid-in capital                                                                                                                                                                  |                                           |               | 41,265,443 |              |   |   | 41,265,443 |           
|Treasury stock, 56,352 and 23,876 shares at
    September 30, 2003 and December 31, 2002, respectively                                                                                      |                                           |               | (514,541   | )            |   |   | (220,653   | )         
|Distributions in excess of earnings                                                                                                                                                         |                                           |               | (1,397,052 | )            |   |   | (2,876,354 | )         
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|Total shareholders equity                                                                                                                                                                  |                                           |               | 39,401,052 |              |   |   | 38,215,638 |           
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           
|Total liabilities and shareholders equity                                                                                                                                                  |                                           | $             | 49,779,210 |              |   | $ | 67,768,903 |           
|                                                                                                                                                                                            |                                           |               |            |              |   |   |            |           

The accompanying notes are an integral part of
these consolidated financial statements.

3



---



##### Table of Contents



T REIT, INC.






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |         |           | 
|------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | ----------------- | --------- | ------------------ | --------- | ---- | --------- | ------- | --------- | - | --------- | ------- | --------- | - | ------- | ------- | --------- | 
|                                                                                     |                                                                  |                   |           |                   
|                                                                                     |                                                                  | Nine Months Ended |           | Three Months Ended
|                                                                                     |                                                                  | September 30,     |           | September 30,     
|                                                                                     |                                                                  |                   |           |                   
|                                                                                     |                                                                  | 2003              |           | 2002               |           | 2003 |           | 2002   
|                                                                                     |                                                                  |                   |           |                    |           |      |           |        
|                                                                                     |                                                                  |                  
|                                                                                     |                                                                  | (Unaudited)      
|Revenues                                                                             |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     | Rental income                                                    |                   | $         | 1,676,491          |           |      | $         | 239,604 |           |   | $         | 547,704 |           |   | $       | 239,604 |          
|                                                                                     | Interest income                                                  |                   |           | 76,582             |           |      |           | 254,635 |           |   |           | 11,351  |           |   |         | 66,188  |          
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     |                                                                  |                   | 1,753,073 |                    |           |      | 494,239   |         |           |   | 559,055   |         |           |   | 305,792 |        
|Expenses                                                                             |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     | Rental expenses                                                  |                   |           | 779,530            |           |      |           | 53,759  |           |   |           | 379,170 |           |   |         | 53,759  |          
|                                                                                     | General and administrative                                       |                   |           | 592,139            |           |      |           | 443,451 |           |   |           | 219,656 |           |   |         | 62,102  |          
|                                                                                     | Depreciation and amortization                                    |                   |           | 289,802            |           |      |           | 37,815  |           |   |           | 115,045 |           |   |         | 37,815  |          
|                                                                                     | Interest (including amortization of deferred
    financing fees) |                   |           | 325,620            |           |      |           | 65,774  |           |   |           | 110,417 |           |   |         | 65,774  |          
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     |                                                                  |                   | 1,987,091 |                    |           |      | 600,799   |         |           |   | 824,288   |         |           |   | 219,450 |        
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|Income (loss) before equity in earnings of
    unconsolidated real estate            |                                                                  |                   | (234,018  | )                  |           |      | (106,561  | )       |           |   | (265,233  | )       |           |   | 86,342  |        
|Equity in earnings of unconsolidated real estate                                     |                                                                  |                   | 1,231,182 |                    |           |      | 601,725   |         |           |   | 267,125   |         |           |   | 191,442 |        
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|Income from continuing operations before gain on
    sale of real estate investments |                                                                  |                   | 997,164   |                    |           |      | 495,164   |         |           |   | 1,892     |         |           |   | 277,784 |        
|Gain on sale of real estate investments                                              |                                                                  |                   | 2,837,167 |                    |           |      | 144,415   |         |           |   | 2,813,550 |         |           |   | 144,415 |        
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|Income from continuing operations                                                    |                                                                  |                   | 3,834,331 |                    |           |      | 639,579   |         |           |   | 2,815,442 |         |           |   | 422,199 |        
|Income (loss) from discontinued
    operations  property held for sale, net         |                                                                  |                   | 531,347   |                    |           |      | 683,003   |         |           |   | (118,809  | )       |           |   | 138,018 |        
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|Net income (loss)                                                                    |                                                                  | $                 | 4,365,678 |                    |           | $    | 1,322,582 |         |           | $ | 2,696,633 |         |           | $ | 560,217 |        
|                                                                                     |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|Net income (loss) per common share:                                                  |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     | Continuing operations                                            |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |         |          
|                                                                                     |                                                                  | Basic             |           | $                  | 0.82      |      |           | $       | 0.17      |   |           | $       | 0.60      |   |         | $       | 0.09      | 
|                                                                                     |                                                                  | Diluted           |           | $                  | 0.81      |      |           | $       | 0.16      |   |           | $       | 0.58      |   |         | $       | 0.09      | 
|                                                                                     | Discontinued operations                                          |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |         |          
|                                                                                     |                                                                  | Basic             |           | $                  | 0.11      |      |           | $       | 0.17      |   |           | $       | (0.03     | ) |         | $       | 0.03      | 
|                                                                                     |                                                                  | Diluted           |           | $                  | 0.11      |      |           | $       | 0.17      |   |           | $       | (0.02     | ) |         | $       | 0.03      | 
|Total net income (loss) per common share                                             |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     |                                                                  | Basic             |           | $                  | 0.93      |      |           | $       | 0.34      |   |           | $       | 0.57      |   |         | $       | 0.12      | 
|                                                                                     |                                                                  | Diluted           |           | $                  | 0.92      |      |           | $       | 0.33      |   |           | $       | 0.56      |   |         | $       | 0.12      | 
|                                                                                    
|Dividends declared per share                                                         |                                                                  | $                 | 0.62      |                    |           | $    | 0.50      |         |           | $ | 0.20      |         |           | $ | 0.20    |        
|Weighted average common shares outstanding                                           |                                                                  |                   |           |                    |           |      |           |         |           |   |           |         |           |   |         |        
|                                                                                     |                                                                  | Basic             |           |                    | 4,684,833 |      |           |         | 3,811,363 |   |           |         | 4,673,847 |   |         |         | 4,700,743 | 
|                                                                                     |                                                                  | Diluted           |           |                    | 4,743,460 |      |           |         | 4,032,641 |   |           |         | 4,828,824 |   |         |         | 4,949,521 | 

The accompanying notes are an integral part of
these consolidated financial statements.

4



---



##### Table of Contents



T REIT, INC.






CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY


For the Nine Months Ended September 30,
2003


|                     |                    |             |         |           |  |            |   |          |  |               |   |            |  |  |          |          |   |  |            |            |   |  |            |            | 
|-------------------- | ------------------ | ----------- | ------- | --------- |  | ---------- | - | -------- |  | ------------- | - | ---------- |  |  | -------- | -------- | - |  | ---------- | ---------- | - |  | ---------- | ---------- | 
|                     |                    |             |         | Common    |  | Additional |   |          |  | Distributions |   |           
|                     |                    | Number of   |         | Stock     |  | Paid-in    |   | Treasury |  | in Excess of  |   |           
|                     |                    | Shares      |         | Par Value |  | Capital    |   | Stock    |  | Earnings      |   | Total     
|                     |                    |             |         |           |  |            |   |          |  |               |   |           
|                     |                    |            
|                     |                    | (Unaudited)
|BALANCE             |                    |             |         |           |  |            |   |          |  |               |   |            |  |  |          |          |   |  |            |            |   |  |            |           
|                     | December 31, 2002  |             |         | 4,696,300 |  |            | $ | 47,202   |  |               | $ | 41,265,443 |  |  | $        | (220,653 | ) |  | $          | (2,876,354 | ) |  | $          | 38,215,638 | 
|Dividends            |                    |             |        |           |  |            |  |          |  |               |  |            |  |  |         |          |   |  | (2,886,376 | )          |   |  | (2,886,376 | )         
|Repurchase of Shares |                    |             | (32,476 | )         |  |            |  |          |  |               |  |            |  |  | (293,888 | )        |   |  |           |            |   |  | (293,888   | )         
|Net income           |                    |             |        |           |  |            |  |          |  |               |  |            |  |  |         |          |   |  | 4,365,678  |            |   |  | 4,365,678  |           
|                     |                    |             |         |           |  |            |   |          |  |               |   |            |  |  |          |          |   |  |            |            |   |  |            |           
|BALANCE             |                    |             |         |           |  |            |   |          |  |               |   |            |  |  |          |          |   |  |            |            |   |  |            |           
|                     | September 30, 2003 |             |         | 4,663,824 |  |            | $ | 47,202   |  |               | $ | 41,265,443 |  |  | $        | (514,541 | ) |  | $          | (1,397,052 | ) |  | $          | 39,401,052 | 
|                     |                    |             |         |           |  |            |   |          |  |               |   |            |  |  |          |          |   |  |            |            |   |  |            |           

The accompanying notes are an integral part of
these consolidated financial statements.

5



---



##### Table of Contents



T REIT, INC.




CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |   |             |             |  
|------------------------------------------------------------------------------------ | ------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------- | ------------------ | ----------- | ----------- | --------- | - | ----------- | ----------- | -
|                                                                                     |                                             | Nine Months                                                         |                                                         | Nine Months       
|                                                                                     |                                             | Ended                                                               |                                                         | Ended             
|                                                                                     |                                             | September 30, 2003                                                  |                                                         | September 30, 2002
|                                                                                     |                                             |                                                                     |                                                         |                   
|                                                                                     |                                             |                                                                    
|                                                                                     |                                             | (Unaudited)                                                        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                 |                                             |                                                                     |                                                         |                    |             |             |           |  
|Net income                                                                           |                                             | $                                                                   | 4,365,678                                               |                    |             | $           | 1,322,582 |  
|Adjustments to reconcile net income to net cash
    provided by operating activities |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             | Equity in earnings of unconsolidated real estate                    |                                                         |                    | (1,231,182  | )           |           |   | (601,725    | )          
|                                                                                     |                                             | Gain on sale of real estate investments                             |                                                         |                    | (2,837,167  | )           |           |   | (172,983    | )          
|                                                                                     |                                             | Depreciation  continuing operations                                |                                                         |                    | 289,802     |             |           |   | 37,815      |            
|                                                                                     |                                             | Depreciation  discontinued operations                              |                                                         |                    | 102,176     |             |           |   | 514,142     |            
|                                                                                     | Change in operating assets and liabilities: |                                                                     |                                                         |                   |             |             |           |  |            
|                                                                                     |                                             | Accounts receivable                                                 |                                                         |                    | 145,551     |             |           |   | (401,827    | )          
|                                                                                     |                                             | Accounts receivable from related parties                            |                                                         |                    | 94,053      |             |           |   | 423,230     |            
|                                                                                     |                                             | Other assets                                                        |                                                         |                    | 543,536     |             |           |   | (424,607    | )          
|                                                                                     |                                             | Accounts payable and accrued liabilities                            |                                                         |                    | (279,323    | )           |           |   | 464,005     |            
|                                                                                     |                                             | Security deposits and prepaid rent                                  |                                                         |                    | (93,027     | )           |           |   | (13,945     | )          
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             |                                                                     | Net cash provided by operating activities               |                    |             | 1,100,097   |           |   |             | 1,146,687   |  
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                 |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             | Purchase of real estate operating properties                        |                                                         |                    | (8,884,312  | )           |           |   | (6,884,785  | )          
|                                                                                     |                                             | Investments in unconsolidated real estate, net of
    distributions |                                                         |                    | (3,604,685  | )           |           |   | (12,591,402 | )          
|                                                                                     |                                             | Real estate property improvements                                   |                                                         |                    | (155,861    | )           |           |   | (58,780     | )          
|                                                                                     |                                             | Proceeds from disposition of property held for
    sale             |                                                         |                    | 36,164,068  |             |           |   | 1,621,732   |            
|                                                                                     |                                             | Collections of notes receivable                                     |                                                         |                    | 5,183       |             |           |   | 5,388       |            
|                                                                                     |                                             | Collections of notes receivable from related
    parties            |                                                         |                    |            |             |           |   | 1,787,579   |            
|                                                                                     |                                             | Real estate deposits applied to purchases                           |                                                         |                    | 3,820,578   |             |           |   | 400,500     |            
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             |                                                                     | Net cash used in investing activities                   |                    |             | 27,344,971  |           |   |             | (15,719,768 | )
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                 |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             | Issuance of common shares                                           |                                                         |                    |            |             |           |   | 19,489,232  |            
|                                                                                     |                                             | Borrowings under notes payable                                      |                                                         |                    | 5,000,000   |             |           |   | 456,237     |            
|                                                                                     |                                             | Principal payments on notes payable                                 |                                                         |                    | (23,799,716 | )           |           |   | (1,434,649  | )          
|                                                                                     |                                             | Repurchase of shares                                                |                                                         |                    | (293,888    | )           |           |   |            |            
|                                                                                     |                                             | Distributions paid                                                  |                                                         |                    | (2,889,416  | )           |           |   | (2,345,869  | )          
|                                                                                     |                                             | Payment of deferred financing costs                                 |                                                         |                    | 107,530     |             |           |   | 128,078     |            
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             |                                                                     | Net cash (used in) provided by financing
    activities |                    |             | (21,875,490 | )         |   |             | 16,293,029  |  
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                            |                                             |                                                                     | 6,569,578                                               |                    |             |             | 1,719,948 |  
|CASH AND CASH EQUIVALENTS  beginning
    of period                                  |                                             |                                                                     | 6,129,468                                               |                    |             |             | 3,647,159 |  
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|CASH AND CASH EQUIVALENTS  end of
    period                                        |                                             |                                                                     | 12,699,046                                              |                    |             |             | 5,367,107 |  
|                                                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                    |                                             |                                                                     |                                                         |                    |             |             |           |  
|Cash paid during the period for:                                                     |                                             |                                                                     |                                                         |                    |             |             |           |  
|                                                                                     |                                             | Interest                                                            |                                                         | $                  | 1,556,175   |             |           | $ | 1,383,184   |            
|                                                                                     |                                             | Income taxes                                                        |                                                         | $                  | 30,224      |             |           | $ | 1,730       |            

The accompanying notes are an integral part of
these consolidated financial statements.

6



---



##### Table of Contents



T REIT, INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

September 30, 2003


(Unaudited)




|   |             
|-- | ------------
|1. | Organization

T REIT, Inc. (the Company) was formed
in December 1998 in the Commonwealth of Virginia and operates as
a real estate investment trust (REIT) under the
Internal Revenue Code of 1986, as amended. The Company is in the
business of acquiring existing office, industrial, retail and
service properties located in several states. As of
September 30, 2003, the Company owned real estate
investments consisting of two properties, five tenant in common
interests and two membership interests in limited liability
companies (see Note 3).

Pursuant to a registration statement on
Form S-11 (the Registration Statement) under
the Securities Act of 1933, as amended, the Company offered for
sale to the public up to 10,000,000 shares of its common
stock (the Offering) at an Offering price of
$10.00 per share and up to 700,000 shares under the
Companys Dividend Reinvestment Plan (the
DRIP). The Registration Statement was declared
effective on February 22, 2000. By May 31, 2002, when
the Offering and the DRIP were terminated, the Company had sold
4,720,176 shares of common stock, including 22,100 sold to
the Advisor and 69,676 shares sold under the DRIP.
Aggregate gross proceeds before Offering costs and selling
commissions were approximately $46,395,000. Through
September 30, 2003, the Company repurchased 56,352 shares
pursuant to its Share Repurchase Plan (See Note 9). As of
September 30, 2003, there were 4,663,824 common shares
outstanding.

The Company owns all of its interests in
properties through its majority-owned subsidiary, T REIT,
L.P., a Virginia limited partnership (the Operating
Partnership), and conducts substantially all of its
operations through the Operating Partnership. As of
September 30, 2003, the Company was the sole general
partner of the Operating Partnership and owned substantially all
of the equity interests therein, except for 100 incentive
non-voting ownership units issued to the Companys Advisor.
The incentive units entitle the Advisor to receive certain
incentive distributions of operating cash flow after a minimum
8% return on invested capital has been paid to the
Companys shareholders (as defined in the Registration
Statement). In addition, the Advisor is entitled to incentive
distributions from net proceeds from the sale of properties
after the Companys shareholders have received
distributions equal to their invested capital, as defined, plus
an 8% return on such invested capital.

The Company is externally advised by Triple Net
Properties, LLC (the Advisor), which is primarily
responsible for managing the day-to-day operations and assets of
the Company. The Advisory Agreement between the Company and the
Advisor, as amended, was renewed by the Board of Directors on
June 28, 2003 for an additional one-year term effective
February 22, 2003 (See Note 10).



|   |                                                                                
|-- | -------------------------------------------------------------------------------
|2. | Interim Financial Statements and Summary of
    Significant Accounting Policies



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

The accompanying consolidated financial
statements include the accounts of the Company, T REIT,
L.P. and the wholly owned subsidiaries of T REIT, L.P. All
material intercompany transactions and account balances have
been eliminated in consolidation. All references to the Company
include the Operating Partnership and its subsidiaries.

The information furnished has been prepared in
accordance with accounting principles generally accepted in the
United States of America for interim financial reporting, the
instructions to Form 10-Q, and Rule 10-01 of
Regulation S-X. Accordingly, certain information and
disclosures have been condensed or omitted. In the opinion of
management, all adjustments considered necessary for the fair
presentation of the Companys financial position, results
of operations and cash flows have been included and are only of
a normal recurring nature. The results of operations for the
nine months ended September 30, 2003 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2003.

7



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

These financial statements should be read in
conjunction with the Companys audited December 31,
2002 consolidated financial statements included in
Form 10-K previously filed with the Securities and Exchange
Commission.



| |                        
| | -----------------------
| | Real Estate Investments



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

Operating properties are held for investment and
carried at cost less accumulated depreciation. Cost includes the
cost of land and completed buildings and related improvements.
Expenditures that increase the service life of properties are
capitalized; the cost of maintenance and repairs is charged to
expense as incurred.

Depreciation is generally provided on a
straight-line basis over the estimated useful lives of the
buildings and improvements, ranging primarily from 15 to
39 years. When depreciable property is retired or disposed
of, the related costs and accumulated depreciation are removed
from the accounts and any gain or loss reflected in operations.

Impairment losses are recorded on long-lived
assets used in operations when indicators of impairment are
present and the assets carrying amount is greater than the
sum of the future undiscounted cash flows estimated to be
generated by those assets. As of September 30, 2003, no
indicators of impairment existed and no impairment losses have
been recorded.

The Company follows the provisions of
EITF 97-11, Accounting for Internal Costs Related to
Real Estate Property Acquisitions. Accordingly, the
Company does not capitalize internal acquisition costs incurred
in conjunction with the identification and acquisition of
properties to be held for operations.



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

Property held for sale is carried at the lower of
cost or estimated fair value less cost to sell and such property
is no longer depreciated. The Company adopted the Financial
Accounting Standards Boards Statement of Financial
Accounting Standards (SFAS) 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, on January 1, 2002. SFAS 144 supersedes
SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. The
primary objectives of SFAS 144 are to develop one
accounting model based on the frame work established in
SFAS 121 for long-lived assets to be disposed of by sale
and to address significant implementation issues regarding
impairment of long-lived assets held for use. In accordance with
SFAS 144, the Company classifies operating properties as
property held for sale in the period in which all of the
following criteria are met:



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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                                  
|
| |  | actions required to complete the plan indicate
    that it is unlikely that significant changes to the plan will be
    made or that the plan will be withdrawn.

8



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The application of SFAS 144 resulted in:
(i) the presentation of the net operating results of
certain properties held for sale, less allocated interest
expense and depreciation, as income from discontinued operations
for all periods presented (See Note 3). Interest and
depreciation expense was allocated based on specific
identification. Implementation of SFAS 144 impacted income
statement classification only and had no effect on total results
of operations. As required, properties sold prior to
January 1, 2002 were presented as a component of continuing
operations.

As of September 30, 2003, there were no
properties classified as held for sale. As of December 31,
2002, one property was classified as held for sale.



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

Investments in unconsolidated real estate are
accounted for using the equity method of accounting. Disposition
of investments accounted for using the equity method are
classified within continuing operations in conformity with APB
No. 18.



| |                
| | ---------------
| | Financing Costs

Financing costs consist of loan fees and other
loan costs. Loan fees and other loan costs are amortized over
the term of the respective loan. Amortization of financing costs
is included in interest expense.



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

Real estate property is leased to tenants under
leases with terms exceeding one year. Revenues from these
leases, which are accounted for as operating leases, are
recognized on a straight-line basis over the related term. Cost
recoveries from tenants are included in rental income in the
period the related costs are accrued.



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

The Company operates as a real estate investment
trust for federal income tax purposes. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT
status, the Company is required to distribute annually as
dividends at least 90% of its REIT taxable income, as defined by
the Internal Revenue Code (the Code), to its
shareholders, among other requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be
subject to Federal income tax on its taxable income at regular
corporate tax rates. As of September 30, 2003, the Company
believes it was in compliance with all relevant REIT
requirements.



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

The Company reports earnings per share pursuant
to Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Basic earnings per share
attributable for all periods presented is computed by dividing
the net income by the weighted average number of common shares
outstanding during the period. Diluted earnings per share are
computed based on the weighted average number of common shares
and all potentially dilutive securities. As of
September 30, 2003, there were 165,000 potentially dilutive
securities, including 135,000 options granted to officers.



| |                                            
| | -------------------------------------------
| | Allowance for Uncollectible
    Receivables

When needed, the Company maintains an allowance
for estimated losses resulting from the inability of tenants to
make required payments, which results in a reduction of income.
Management determines the adequacy of this allowance by
continually evaluating individual tenant receivables considering
the tenants financial condition, security deposits,
letters of credit, lease guarantees and current economic
conditions.

9



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Management has established an allowance for
uncollectible accounts of $67,759 at September 30, 2003 to
reduce receivables to recoverable amounts.



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

The Company follows the disclosure only
provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148.
For employee compensatory stock options that will eventually
vest, compensation expense is recognized during the periods in
which the related employee services are rendered. Such expense
is generally measured by determining the excess, if any, of the
grant date estimated fair market value of the underlying stock
over the amount to be paid by the employee in conformity with
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
Compensatory stock options and similar equity instruments issued
to non-employees in exchange for goods or services are accounted
for based on the estimated fair market value of (1) the
goods or services received or (2) the equity instrument
issued, whichever is more reliably measurable. This accounting
policy is in conformity with SFAS 123.

Effective with the Offering, the Company
authorized and reserved a total of 100,000 shares of common
stock for issuance under the Independent Director Stock Option
Plan and 700,000 shares of common stock for issuance under the
Officer and Employee Stock Option Plan. Options granted under
these plans vest two years after the option grant date;
provided, however that such options are not exercisable until
the Plans have been approved by a majority of the Companys
shareholders. Each of the Plans was approved by shareholders at
the Annual Meeting of Shareholders held June 28, 2003.

As of September 30, 2003, options for a
total of 165,000 shares are outstanding under the Officer
and Employee Stock Option Plan and Independent Director Stock
Option Plan.

|                       |                   |           |   |                 |         |                  |   |      |      |  |   |      |      | 
|---------------------- | ----------------- | --------- | - | --------------- | ------- | ---------------- | - | ---- | ---- |  | - | ---- | ---- | 
|                       |                   | Number    |   | Range of        |         | Weighted Average
|Options Outstanding at |                   | of Shares |   | Exercise Prices |         | Exercise Price  
|                       |                   |           |   |                 |         |                 
|                       | December 31, 2002 |           |   |                |         |                  | $ |     |      |  | $ |     |     
|                       |                   | Granted   |   |                 | 165,000 |                  |   |      | 9.05 |  |   |      | 9.05 | 
|                       |                   | Exercised |   |                 |        |                  |   |      |     |  |   |      |     | 
|                       |                   | Cancelled |   |                 |        |                  |   |      |     |  |   |      |     | 
|                       |                   | Expired   |   |                 |        |                  |   |      |     |  |   |      |     | 
|Options outstanding at |                   |           |  |                 |         |                  |  |      |      |  |  |     
|                       |                   |           |   |                 |         |                  |   |      |      |  |   |     
|                       | September 30,2003 |           |   | 165,000         |         |                  | $ | 9.05 |      |  | $ | 9.05 |     
|                       |                   |           |   |                 |         |                  |   |      |      |  |   |     

A summary of outstanding options exercisable
under the Plans is presented in the schedule below.

|                |      |             |  |              |         |                     |  |             |     |                     |  |   |      |  |  |  |        |  |  |   |      | 
|--------------- | ---- | ----------- |  | ------------ | ------- | ------------------- |  | ----------- | --- | ------------------- |  | - | ---- |  |  |  | ------ |  |  | - | ---- | 
|                |      |             |  | Wtd Avg      |         |                     |  |             |     |                    
|                |      |             |  | Remaining    |         | Wtd Avg             |  |             |     | Wtd Avg            
|Range of        |      | Number      |  | Contractual  |         | Exercise Price     |  | Number      |     | Exercise Price    
|Exercise Prices |      | Outstanding |  | Life (Years) |         | Outstanding Options |  | Exercisable |     | Exercisable Options
|                |      |             |  |              |         |                     |  |             |     |                    
|$               | 9.05 |             |  |              | 165,000 |                     |  |             | 9.5 |                     |  | $ | 9.05 |  |  |  | 90,000 |  |  | $ | 9.05 | 

Pursuant to SFAS 148, the Company is required to
disclose the effects on net income and per share data as if the
Company had elected to use the fair value approach to account
for its stock-based compensation plans. Had the compensation
cost for all of the Companys option plans been determined
using the fair value

10



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

method, the compensation expense would have
decreased the Companys net income for the three-month and
nine-month periods ended September 30, 2003 as shown below.

|                                         |  |                    |           |                    |  |   |           | 
|---------------------------------------- |  | ------------------ | --------- | ------------------ |  | - | --------- | 
|                                         |  | Three Months       |           | Nine Months       
|                                         |  | Ended              |           | Ended             
|                                         |  | September 30, 2003 |           | September 30, 2003
|                                         |  |                    |           |                   
|Actual net income                        |  | $                  | 2,696,633 |                    |  | $ | 4,365,678 | 
|Pro forma compensation expense           |  |                    | 8,906     |                    |  |   | 131,219   | 
|                                         |  |                    |           |                    |  |   |           | 
|Pro forma net income                     |  | $                  | 2,687,727 |                    |  | $ | 4,234,459 | 
|                                         |  |                    |           |                    |  |   |           | 
|Actual net income per share  basic      |  | $                  | 0.58      |                    |  | $ | 0.93      | 
|Actual net income per share  diluted    |  | $                  | 0.56      |                    |  | $ | 0.92      | 
|Pro forma net income per share  basic   |  | $                  | 0.58      |                    |  | $ | 0.90      | 
|Pro forma net income per share  diluted |  | $                  | 0.56      |                    |  | $ | 0.89      | 

This pro forma amount was determined by
estimating the fair value of each option outstanding beginning
June 28, 2003 upon shareholder approval at approximately
$0.95 per option using the Black-Scholes option-pricing model.
Assumptions used in the calculation included a 7.50% dividend
yield, a 3.53% risk-free interest rate based on the 10-year
U.S. Treasury Bond, an expected life of 9.25 years,
and a 0% volatility rate. The pro forma expense primarily
reflects options that vested immediately upon shareholder
approval of the respective option plans.



| |                        
| | -----------------------
| | Qualification as a REIT

The Company elected to be taxed as a REIT in
2000. As of September 30, 2003, the Company believes it
meets the compliance tests required to maintain its REIT status.



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

In June, 2002, the FASB approved for issuance
SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 is
effective for such activities initiated after December 31,
2002. Activities of this type include restructurings (such as
relocation of a business and fundamental reorganizations of a
business itself), which may give rise to costs such as contract
cancellation provisions, employee relocation and one-time
termination costs. SFAS No. 146 prohibits liability
recognition based solely on managements intent and
requires that liabilities be measured at estimated fair value.
The adoption of SFAS No. 146 did not have a material effect
on the Companys financial statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an
amendment of FASB Statement No. 123. The disclosure
requirements of Statement 123, Accounting for Stock-Based
Compensation, which apply to stock compensation plans of
all companies, are amended to require certain disclosures about
stock-based employee compensation plans in an entitys
accounting policy note. Those disclosures include a tabular
format of pro forma net income and, if applicable, earnings per
share under the fair value method if the intrinsic value method
is used in any period presented. Pro forma information in a
tabular format is also required in the notes to interim
financial information if the intrinsic value method is used in
any period presented. Before amendment by Statement 148,
Statement 123 required entities changing to the fair value
method of accounting for stock-based employee compensation to
account for the change in method prospectively. The Board
decided to provide a choice among three transition methods (the
prospective method originally required by Statement 123, the
modified prospective method and the retroactive restatement
method) for entities voluntarily adopting the fair value method
in periods beginning before December 16, 2003.
Statement 123s original prospective transition method
will not be available to entities changing to the fair value
method in fiscal years beginning after December 15, 2003.
The amendments to the disclosure and transition provisions of

11



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Statement 123 are effective for fiscal years
ending after December 15, 2002. The disclosure requirement
for interim financial information is effective for interim
periods beginning after December 15, 2002. The Company has
adopted the disclosure requirements of SFAS 148 in the
accompanying financial statements. The implementation of this
standard did not have a material effect upon the Companys
financial statements.

The FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of FASB Nos. 5,
57 and 107 and rescission of FASB Interpretation No. 34.
This Interpretation elaborates on the disclosures to be made by
a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. Implementation of these
provisions of the Interpretation is not expected to have a
material impact on the Companys consolidated financial
statements. The disclosure requirements of the Interpretation
are effective for financial statements of interim or annual
periods ended after December 15, 2002, and have been
adopted in the accompanying consolidated financial statements
and the additional disclosures required have been included.

The FASB issued Interpretation No. 46,
Consolidation of Variable Interest
Entities  an interpretation of Accounting
Research Bulletin (ARB) No. 51. This
Interpretation defines a variable interest entity and provides
that if a business enterprise has a controlling financial
interest in a variable interest entity, the assets, liabilities,
and results of the activities of the variable interest entity
should be included in consolidated financial statements with
those of the business enterprise. Furthermore, the Board
indicates that the voting interest approach of ARB No. 51
is not effective in identifying controlling financial interests
in entities that are not controllable through voting interest or
in which the equity investors do not bear the residual economic
risk. This Interpretation applies immediately to variable
interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The
Interpretation applies to public enterprises as of the beginning
of the applicable interim or annual period. The implementation
of this Interpretation did not have a material effect upon the
Companys financial statements.

In May 2003, the FASB issued Statement
No. 150 (SFAS 150), Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This statement establishes
standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments
with characteristics of both liabilities and equity. In
accordance with the standard, financial instruments that embody
obligations for the issuer are required to be classified as
liabilities. SFAS 150 is effective for all financial
instruments created or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption
of SFAS 150 is not expected to have a material effect on
the Companys consolidated financial condition or results
of operations.



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

Certain reclassifications have been made to the
prior year financial statements in order to conform to the
current year presentation.



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

The Companys real estate investments are
comprised of (i) wholly-owned properties including
operating properties and properties held for sale and
(ii) investments in unconsolidated real estate.

12



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                        
| | -----------------------
| | Wholly-Owned Properties



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

At September 30, 2003, the Companys
operating properties were as follows:

|                                    |  |      |           |               |  |       |            |   |  |  |            |  
|----------------------------------- |  | ---- | --------- | ------------- |  | ----- | ---------- | - |  |  | ---------- | -
|                                    |  |      |           | Buildings and |  |      
|                                    |  | Land |           | Improvements  |  | Total
|                                    |  |      |           |               |  |      
|University Heights, San Antonio, TX |  |      | 1,011,262 |               |  |       | 5,796,451  |   |  |  | 6,807,713  |  
|Gateway Mall, Bismarck, ND          |  |      |          |               |  |       | 9,033,440  |   |  |  | 9,033,440  |  
|                                    |  |      |           |               |  |       |            |   |  |  |            |  
|                                    |  |      | 1,011,262 |               |  |       | 14,829,891 |   |  |  | 15,841,153 |  
|Less: accumulated depreciation      |  |      |          |               |  |       | (339,695   | ) |  |  | (339,695   | )
|                                    |  |      |           |               |  |       |            |   |  |  |            |  
|                                    |  |      | 1,011,262 |               |  |       | 14,490,196 |   |  |  | 15,501,458 |  
|                                    |  |      |           |               |  |       |            |   |  |  |            |  

The Gateway Mall property is subject to a ground
lease expiring in 2028 with 10 five-year option periods
thereafter.



| |                         
| | ------------------------
| | Properties Held for Sale

On February 25, 2003, management of the
Company approved plans to sell two of its operating properties,
Thousand Oaks Shopping Center and Pahrump Valley Shopping
Center. These properties were sold in the third quarter of 2003,
as described below.

SFAS No. 144 requires the operating results
of any property with their own identifiable cash flows that is
held for sale to be removed from income from continuing
operations and reported as discontinued operations for the
current period and all prior periods presented. Summarized
operating information for the properties held for sale and sold
through the three and nine months ended September 30, 2003
and September 30, 2002 referred to above which are included
in discontinued operations follows:

|                                    |  |                   |           |                    |  |      |           |      |  |   |          |   |  |   |           | 
|----------------------------------- |  | ----------------- | --------- | ------------------ |  | ---- | --------- | ---- |  | - | -------- | - |  | - | --------- | 
|                                    |  |                   |           |                   
|                                    |  | Nine Months Ended |           | Three Months Ended
|                                    |  | September 30,     |           | September 30,     
|                                    |  |                   |           |                   
|                                    |  | 2003              |           | 2002               |  | 2003 |           | 2002
|                                    |  |                   |           |                    |  |      |           |     
|Revenues                            |  | $                 | 2,633,966 |                    |  | $    | 3,592,756 |      |  | $ | 530,532  |   |  | $ | 1,134,638 | 
|Income from discontinued operations |  | $                 | 531,347   |                    |  | $    | 683,003   |      |  | $ | (118,809 | ) |  | $ | 138,018   | 

On August 11, 2003, the Company sold the
Thousand Oaks Shopping Center in San Antonio, Texas to an
unaffiliated third party for a sales price of $15,880,000. At
closing, the Company paid a disposition fee to Triple Net
Properties Realty, Inc. (Realty), an affiliate of
the Companys advisor, of $158,800 or approximately 1.0% of
the selling price, and a commission to an unaffiliated broker of
$317,600, or approximately 2.0% of the selling price. The
Company intends to reinvest the proceeds from the sale in real
estate property that qualifies for like-kind exchange treatment
under Section 1031 of the Internal Revenue Code.

On September 25, 2003, the Company sold the
Pahrump Valley Junction Shopping Center in Pahrump, Nevada to an
unaffiliated third party for a sales price of $18,985,000. In
connection with the sale, the Company repaid a note payable
secured by Pahrump with an outstanding balance of approximately
$11,884,000 at the transaction date. At closing, the Company
deposited with escrow approximately $81,600 representing rent
for one year from one tenant that vacated Pahrump. The Company
will release $6,800 to buyer for each month the vacated
tenants lease is more than thirty days past due. The
Company paid a disposition fee to Realty of $175,000, or
approximately 1.0% of the sales price, and real estate
commissions to unaffiliated brokers of $629,700, or
approximately 3.0% of the sales price. The Company intends to
reinvest the proceeds from the sale in other properties or real
estate activities.

13



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Investments in unconsolidated real estate consist
of the Companys investments in undivided tenant in common
interests and limited liability companies. At September 30,
2003, the Company had the following investments in
unconsolidated real estate:

|                                        |  |          |                                |                      |  |   |            | 
|--------------------------------------- |  | -------- | ------------------------------ | -------------------- |  | - | ---------- | 
|Entity Name                             |  | Property |                                | Companys Investment
|                                        |  |          |                                |                     
|T REIT  Reno Trademark, LLC            |  |          | Trademark Building             |                      |  | $ | 1,160,666  | 
|NNN County Center  12, LLC             |  |          | County Center Building         |                      |  |   | 449,868    | 
|T REIT  City Center West A, LLC        |  |          | City Center West A Building  |                      |  |   | 7,971,097  | 
|NNN Pacific Corporate Park 1, LLC       |  |          | Pacific Corporate Park         |                      |  |   | 2,123,837  | 
|NNN Congress Center, LLC                |  |          | Congress Center                |                      |  |   | 4,960,514  | 
|T REIT  Titan Plaza,
    L.P.          |  |          | Titan Building and Titan Plaza |                      |  |   | 1,839,948  | 
|T REIT  Saddleback Financial,
    L.P. |  |          | Saddleback Financial           |                      |  |   | 829,768    | 
|                                        |  |          |                                |                      |  |   |            | 
|                                        |  |          |                                |                      |  | $ | 19,335,698 | 
|                                        |  |          |                                |                      |  |   |            | 

Unaudited condensed combined historical financial
information for the Companys investments in unconsolidated
real estate as of September 30, 2003 and for the three and
nine months ended September 30, 2003 and 2002 is as follows:

|                                 |  |                    |             | 
|-------------------------------- |  | ------------------ | ----------- | 
|                                 |  | As of             
|                                 |  | September 30, 2003
|                                 |  |                   
|Real estate operating properties |  | $                  | 199,480,481 | 
|Other assets                     |  |                    | 5,647,479   | 
|                                 |  |                    |             | 
|Total Assets                     |  | $                  | 205,127,960 | 
|                                 |  |                    |             | 
|Mortgages notes payable          |  | $                  | 136,392,108 | 
|Other liabilities                |  |                    | 603,938     | 
|Equity                           |  |                    | 68,131,914  | 
|                                 |  |                    |             | 
|                                 |  | $                  | 205,127,960 | 
|                                 |  |                    |             | 
|Companys share of equity        |  | $                  | 19,335,698  | 
|                                 |  |                    |             | 

|                             |  |                    |           |                    |  |                    |            |                    |  |   |           |  |  |   |           | 
|---------------------------- |  | ------------------ | --------- | ------------------ |  | ------------------ | ---------- | ------------------ |  | - | --------- |  |  | - | --------- | 
|                             |  | Three Months Ended |           | Nine Months Ended  |  | Three Months Ended |            | Nine Months Ended 
|                             |  | September 30, 2003 |           | September 30, 2003 |  | September 30, 2002 |            | September 30, 2002
|                             |  |                    |           |                    |  |                    |            |                   
|Revenues                     |  | $                  | 7,103,293 |                    |  | $                  | 18,249,493 |                    |  | $ | 1,749,868 |  |  | $ | 3,780,777 | 
|Rental and other expenses    |  |                    | 3,530,016 |                    |  |                    | 10,132,780 |                    |  |   | 1,070,844 |  |  |   | 1,770,223 | 
|Interest Expense             |  |                    | 1,375,325 |                    |  |                    | 3,961,829  |                    |  |   | 386,999   |  |  |   | 917,130   | 
|Companys equity in earnings |  |                    | 267,125   |                    |  |                    | 1,231,182  |                    |  |   | 191,442   |  |  |   | 601,725   | 

The Company is jointly and severally liable for
the entire amount of the debt in connection with the above
properties (See Note 11).



|   |                          
|-- | -------------------------
|4. | Cash and Cash Equivalents

At September 30, 2003, the Company had
$12,699,046 of cash and cash equivalents. Of that amount,
approximately $6,200,000 was being held by an accommodator for a
tax deferred exchange, leaving approximately $6,500,000
available for operations.

14



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Other assets as of September 30, 2003 and
the year ended December 31, 2002 consisted of the following:

|                           |                    |               |         |              |  |   |         |           | 
|-------------------------- | ------------------ | ------------- | ------- | ------------ |  | - | ------- | --------- | 
|                           |                    | September 30, |         | December 31,
|                           |                    | 2003          |         | 2002        
|                           |                    |               |         |             
|Loan impounds and reserves |                    | $             | 648,250 |              |  | $ | 568,297 |          
|Deferred rent receivable   |                    |               | 58,551  |              |  |   | 436,622 |          
|Lease commissions  net    |                    |               | 75,227  |              |  |   | 117,372 |          
|Loan fees  net            |                    |               | 158,486 |              |  |   | 417,480 |          
|Prepaid expenses           |                    |               | 25,071  |              |  |   | 77,142  |          
|Other assets               |                    |               | 610     |              |  |   | 350     |          
|                           |                    |               |         |              |  |   |         |          
|                           | Total other assets |               | $       | 966,195      |  |   | $       | 1,617,263 | 
|                           |                    |               |         |              |  |   |         |          



|   |               
|-- | --------------
|6. | Line of Credit

On September 3, 2003, the Company entered
into an agreement with Fleet National Bank for a line of credit
in the amount of $1,000,000 which bears interest at Fleets
prime rate plus fifty basis points. The credit facility matures
on September 2, 2004 and has two one-year extensions. The
credit facility is subject to a fee of 1% to be paid one-third
on each of the effective date, the first anniversary and the
second anniversary. As of September 30, 2003, the Company
has not drawn against the line of credit.



|   |                
|-- | ---------------
|7. | Note Receivable

In November 2001, the Company advanced $595,000
to the buyer of the Christie Street Building. The note is
secured by a first deed of trust, with interest at 8.5% per
annum maturing in December 2006. Interest income earned in
connection with this note for the three and nine months ended
September 30, 2003 was approximately $12,400 and $37,300,
respectively.



|   |                                                       
|-- | ------------------------------------------------------
|8. | Accounts and Notes Receivable from Related
    Parties

Accounts receivable from related parties at
September 30, 2003 consist primarily of a $400,000
receivable from the Advisor for amounts due related to an
indemnification agreement associated with the sale of the
Christie Street Building in 2001.

The Company made no related party loans during
the three and nine months ended September 30, 2003 and had
no related party loans outstanding as of September 30, 2003
or December 31, 2002.



|   |                     
|-- | --------------------
|9. | Shareholders Equity

At the conclusion of its Offering in May 2002,
the Company had sold 4,720,176 shares of common stock at $10.00
per share, including 22,100 shares issued to the Advisor and
69,676 shares sold under the DRIP.

During the quarter ended September 30, 2003,
the Company repurchased 30,737 shares of its common stock for
$278,168 pursuant to its Share Repurchase Plan. Repurchases are
at the discretion of the Company. Through September 30,
2003, the Company had repurchased a total of 56,352 shares
pursuant to the Share Repurchase Plan. As of September 30,
2003, there were 4,663,824 shares outstanding.

15



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                      
|--- | -----------------------------------------------------
|10. | Advisory Agreement and Related Party
    Transactions



| |              
| | -------------
| | Advisory Fees

The Company is externally advised by Triple Net
Properties, LLC (the Advisor), which is primarily
responsible for managing the day-to-day operations and assets of
the Company. The Advisory Agreement between the Company and the
Advisor, as amended, was renewed by the Board of Directors on
June 28, 2003 for an additional one-year term effective
February 22, 2003. The Company compensates the Advisor for
its services through a series of fees pursuant to the Advisory
Agreement. No amounts are currently due the Advisor under this
agreement.



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

The Company pays Realty property management fees
equal to 5% of the gross income of each property managed by
Realty. All of the Companys properties are managed by
Realty. For the three and nine months ended September 30,
2003, the Company incurred approximately $55,000 and $198,000 in
property management fees, respectively.



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

The Advisor owns 100 non-voting incentive
performance units in T REIT, L.P., the Companys
Operating Partnership and is entitled to incentive distributions
of operating cash flow after the Companys shareholders
have received an 8.00% annual return on their invested capital.
No incentive distributions were made to the Advisor for the nine
months ended September 30, 2003.

The Company compensates the Advisor for its
services through a series of fees pursuant to the Advisory
Agreement. No amounts were incurred during the nine months ended
September 30, 2003 and no amounts are currently due the
Advisor under this agreement.

11.     Commitments
and Contingencies



| |                       
| | ----------------------
| | Master Lease Agreement

In connection with the sale of the Christie
Building in November 2001, the Company agreed as part of the
sale transaction, to guarantee the lease payment in the amount
$20,000 per month for a period of five years under a master
lease agreement. Under this agreement, the Company is obligated
to make lease payments to the lessor only in the event the
sub-lessee fails to make the lease payments. In addition, the
Company is also obligated to pay a pro rata share of lease
commissions and tenant improvements in the event the premises
are re-leased prior to November 13, 2006. Concurrent with
the issuance of the guarantee, the Advisor agreed to indemnify
the Company against any future losses under the master lease
agreement as evidenced by an indemnity agreement dated
November 13, 2001. The Christie Building is a single tenant
office building. The prior tenants lease expired on
August 31, 2002 and the tenant vacated the property in
October 2002. Accordingly, the Company has accrued $580,000
related to its obligations under the guaranty, of which $180,000
has been paid through September 30, 2003. The
Companys accrual assumes a new tenant will occupy the
property in the fourth quarter of 2003 and has been calculated
assuming a discount rate of 10% per annum. The Company has no
collateral, however it has recourse against the Advisor under
the indemnity agreement. Through September 2003, the Company has
been reimbursed by the Advisor $180,000 representing all amounts
paid under the guarantee and expects to be reimbursed by the
Advisor in connection with the indemnity agreement for the full
amount of its obligation.

16



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                            
| | ---------------------------
| | Contingent Loan Obligations

The Company has the following contingent loan
obligations at September 30, 2003, which it discloses under
FIN 45. None of these liabilities are carried on the
consolidated balance sheets as the Companys joint and
several obligation under these loans constitutes a guarantee of
entities under the common control of the Advisor and, as a
result, is exempted from recognition and measurement required by
FIN 45.

The Company is jointly and severally liable for
the entire $4,600,000 balance of a mortgage loan in connection
with the refinancing of the Trademark Building. The note is
secured by a deed of trust with a fixed interest rate of 6.35%,
amortized on a 30-year schedule, with a due date of
January 1, 2013. The Companys 40.0% proportionate
share of this debt was approximately $1,840,000.

In connection with the acquisition of the County
Center Building, the Companys wholly-owned subsidiary, NNN
County Center Drive  12, LLC, is jointly and
severally liable on a $3,210,000 mortgage loan on the property
payable to a bank. The loan terms include a variable rate of
4.125% over 6-month LIBOR, subject to an 8.00% floor rate, with
a 20-year amortization period due September 2011.

In connection with the acquisition of the City
Center West A Building, the Companys
wholly-owned subsidiary, T REIT  City Center
West A, LLC, is jointly and severally liable on a
$13,000,000 mortgage loan on the property payable to a bank. The
loan terms include a 6.5% fixed interest rate with a 27-year
amortization period due in five years.

In connection with the acquisition of the
membership interest in NNN Pacific Corporate Park, LLC, such
entity is jointly and severally liable on an approximately
$5,683,000 mortgage loan (originally $15,500,000 and reduced by
subsequent sales of buildings in the office park) on Pacific
Corporate Park from a financial institution. The loan terms
include a spread of 3.25% over LIBOR, with interest-only
payments for two years and two six-month extensions at the
borrowers election upon payment of a 0.25% fee upon each
extension. The initial interest rate was locked for 60 days
at a spread of 3.25% over 60-day LIBOR. After the initial 60-day
rate lock period, the borrowers locked $2,000,000 of the loan at
a spread of 3.25% over 30-day LIBOR and the balance of the loan
at a spread of 3.25% over 60-day LIBOR.

In connection with the acquisition of the Titan
Building and Titan Plaza, the Companys wholly-owned
subsidiary, T REIT  Titan Plaza, L.P., is
jointly and severally liable on a $6,000,000 mortgage loan
payable to a bank. The loan terms include a variable rate of
3.25% over 30-day LIBOR, subject to a 5.25% floor rate, with a
30-year amortization period due May 2004.

In connection with the acquisition of the
Saddleback Financial Center, the Companys wholly-owned
subsidiary, T REIT  Saddleback Financial L.P.,
is jointly and severally liable on a $7,650,000 mortgage loan
payable to a bank. The loan terms include a variable rate of
0.5% over the Wall Street Journal Prime Rate, subject to a 5.00%
floor rate, with a 30-year amortization period due September
2007.

In connection with the acquisition of Congress
Center, the Company, through its membership interest in NNN
Congress Center, LLC, is jointly and severally liable on a
$95,950,000 mortgage loan payable to a bank and any subsequent
increases in the total debt. The loan terms include an
$80,950,000, 36-month senior mortgage bridge loan and a
$15,000,000, 36-month mezzanine loan.

In the event of default on the above loans by
other property owners, the Company may be required to fully
repay a defaulted loan and accrued interest thereon. In such
event, the Company would have recourse against the other owners
and would then be able to proportionally increase its ownership
interest in the respective property.

17



---



##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The Companys other commitments and
contingencies include the usual obligations of a real estate
company in the normal course of business. In the opinion of
management, these matters are not expected to have a material
adverse effect on the Companys financial position and/or
results of operations.

Section 6.4 of Article 6 of the
Companys Articles of Incorporation prohibits the Company
from making any loans or advances to its Advisor, directors,
officers or any affiliated entities; however, during 2001 and
2000, the Company made such loans or advances to affiliates, all
of which have been collected in full prior to December 31,
2002. Management does not believe that these past violations of
the Articles of Incorporation will impact future operations of
the Company.

18



---



##### Table of Contents








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

Overview

The following discussion should be read in
conjunction with the consolidated financial statements and notes
thereto of the Company appearing elsewhere in this report. Such
financial statements have been prepared to reflect the
Companys financial position as of September 30, 2003
and December 31, 2002, together with the results of
operations and cash flows for the three-month and nine-month
periods ended September 30, 2003 and 2002.

Forward-Looking Statements

Historical results and trends are not necessarily
indicative of future operations. Managements statements
contained in this report that are not historical facts are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results may differ materially from those
included in the forward-looking statements. The Company intends
such forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is
including this statement for purposes of complying with such
provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and
expectations of management, are generally identifiable by use of
the words believe, expect,
intend, anticipate,
estimate, project,
prospects, or similar expressions. The
Companys ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and
future prospects of the Company include, but are not limited to:
changes in general economic conditions and in the real estate
market specifically (including those in the local economy of the
regions where the Companys properties are located),
legislative/ regulatory changes (including changes in Federal
and/or state laws governing the taxation of REITs), availability
of capital, interest rates, competition, supply and demand for
operating properties in the Companys current and proposed
market areas, and generally accepted accounting principles
applicable to REITs. These risks and uncertainties should be
considered in evaluating forward-looking statements, and undue
reliance should not be placed on any such statements. Further
information concerning the Company and its business, including
additional factors that could materially affect the
Companys financial results, is included herein and in the
Companys other filings with the Securities and Exchange
Commission. The Company does not intend to update any of the
forward-looking statements after the date this report is filed
to conform these statements to actual results, unless required
by law.

Public Offering of Equity Securities

On February 22, 2000, the Company commenced
its initial public offering of up to 10,000,000 shares of common
stock at $10.00 per share pursuant to a Registration Statement
on Form S-11 filed under the Securities Act of 1933, as
amended. The Company commenced its active operations on
September 26, 2000 when it completed its first property
acquisition. The Company terminated its initial public offering
on May 31, 2002 at which time gross proceeds of
approximately $46,395,000 had been received from the sale of
4,720,176 shares. Through December 31, 2002, the Company
had repurchased 23,876 shares pursuant to its Share Repurchase
Plan. For the three and nine months ended September 30,
2003, 30,737 and 32,476 additional shares were repurchased. As a
result, 4,663,824 shares were outstanding at September 30,
2003.

Management

Effective September 30, 2003, William C.
Daniel resigned his position as Chief Financial Officer of the
Company, and the Board of Directors appointed Richard Hutton as
interim Chief Financial Officer of the Company. Mr. Hutton
has served as the Chief Investment Officer of Triple Net
Properties, LLC, our advisor, since August 2003, overseeing all
financial operations of our advisor. From April 1999 to August
2003, Mr. Hutton served as Senior Vice
President  Real Estate Acquisitions and Vice
President Property Management for our advisor. In that position,
Mr. Hutton oversaw the management of the real estate
portfolios and property management staff of our advisor and its
affiliates. Mr. Hutton holds a BA in psychology

19



---



##### Table of Contents



from Claremont McKenna College and has been
licensed as a Certified Public Accountant in California since
1984.


Critical Accounting Policies

The preparation of these financial statements in
accordance with accounting principles generally accepted in the
United States of America requires us to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company believes that its
critical accounting policies are those that require significant
judgments and estimates such as those related to revenue
recognition and allowance for uncollectible receivables,
impairment of real estate assets, deferred assets, and
qualification as a REIT. These estimates are made and evaluated
on an on-going basis using information that is currently
available as well as various other assumptions believed to be
reasonable under the circumstances. Actual results could vary
from those estimates and those estimates could be different
under different assumptions or conditions.



| |                                                                    
| | -------------------------------------------------------------------
| | Revenue Recognition and Allowance for
    Uncollectible Receivables

Base rental income is recognized on a
straight-line basis over the terms of the respective lease
agreements. Differences between rental income recognized and
amounts contractually due under the lease agreements are
credited or charged, as applicable, to rent receivable. The
Company maintains, as necessary, an allowance for doubtful
accounts for estimated losses resulting from the inability of
tenants to make required payments which will result in a
reduction to income. Management determines the adequacy of this
allowance by continually evaluating individual tenant
receivables considering the tenants financial condition,
security deposits, letters of credit, lease guarantees and
current economic conditions.



| |                                     
| | ------------------------------------
| | Impairment of Real Estate
    Assets

The Company assesses the impairment of a real
estate asset when events or changes in circumstances indicate
that the net book value may not be recoverable. Indicators
management considers important which could trigger an impairment
review include the following:



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



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

Costs incurred for debt financing and property
leasing are capitalized as deferred assets. Deferred financing
costs include amounts paid to lenders and others to obtain
financing. Such costs are amortized over the term of the related
loan. Amortization of deferred financing costs is included in
interest expense in the Companys statements of operations.
Deferred leasing costs include leasing commissions that are
amortized using the straight-line method over the term of the
related lease. Deferred leasing costs are included in the basis
when a property is sold and therefore reduce the gain on sale.
Unamortized financing and leasing costs are charged to expense
in the event of debt prepayment or early termination of the
lease.



| |                        
| | -----------------------
| | Qualification as a REIT

The Company has made an election to be taxed as a
REIT in 2000. If the Company was to fail to qualify as a REIT,
it would be, among other things, required to provide for federal
income taxes on its income and reduce the level of distributions
made to its shareholders. Critical estimates include the
allocation of cost between personal and real property, and the
calculation of earnings and profits for tax purposes, among
others.

20



---



##### Table of Contents



Real Estate Investments

Through September 30, 2003, the Company,
through the Operating Partnership, had purchased interests in
15 real estate properties, including six operating
properties, seven undivided tenant in common interest properties
and limited liability membership interests in two properties.
Through September 30, 2003, the Company had sold four
operating properties and two undivided tenant in common interest
properties, including three properties in 2003.

The following table presents a summary of the
Companys wholly-owned properties and properties in which
it owned undivided tenant in common and limited liability
company membership interests as of September 30, 2003:

|                                              |  |          |                  |           |  |           |         |         |  |  |     |  |  |  |           | 
|--------------------------------------------- |  | -------- | ---------------- | --------- |  | --------- | ------- | ------- |  |  | --- |  |  |  | --------- | 
|                                              |  |          |                  | Company   |  |           |         | GLA(1) 
|Property Name                                 |  | Location |                  | Ownership |  | Reference |         | (Sq Ft)
|                                              |  |          |                  |           |  |           |         |        
|Operating Properties                          |  |          |                  |           |  |           |         |         |  |  |     |  |  |  |           | 
|University Heights                            |  |          | San Antonio, TX  |           |  |           | 100.00% |         |  |  |     |  |  |  | 68,400    | 
|Gateway Mall                                  |  |          | Bismarck, ND     |           |  |           | 100.00% |         |  |  |     |  |  |  | 333,210   | 
|Investments in Unconsolidated Real
    Estate |  |          |                  |           |  |           |         |         |  |  |     |  |  |  |           | 
|Trademark Building                            |  |          | Reno, NV         |           |  |           | 40.00%  |         |  |  | (2) |  |  |  | 75,257    | 
|County Center Drive                           |  |          | Temecula, CA     |           |  |           | 16.00%  |         |  |  | (2) |  |  |  | 77,582    | 
|City Center West A                          |  |          | Las Vegas, NV    |           |  |           | 89.13%  |         |  |  | (2) |  |  |  | 105,964   | 
|Pacific Corporate Park                        |  |          | Lake Forest, CA  |           |  |           | 22.76%  |         |  |  | (3) |  |  |  | 167,486   | 
|Titan Building & Plaza                        |  |          | San Antonio, TX  |           |  |           | 48.50%  |         |  |  | (2) |  |  |  | 131,527   | 
|Saddleback Financial                          |  |          | Laguna Hills, CA |           |  |           | 25.00%  |         |  |  | (2) |  |  |  | 72,711    | 
|Congress Center                               |  |          | Chicago, IL      |           |  |           | 10.26%  |         |  |  | (3) |  |  |  | 525,000   | 
|                                              |  |          |                  |           |  |           |         |         |  |  |     |  |  |  |           | 
|Total                                         |  |          |                  |           |  |           |         |         |  |  |     |  |  |  | 1,557,137 | 
|                                              |  |          |                  |           |  |           |         |         |  |  |     |  |  |  |           | 



---



|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|(1) | GLA unadjusted for the Companys percentage
    undivided tenant in common interest.
|   
|(2) | Undivided tenant in common interest.                                                
|   
|(3) | Limited liability company membership interest.                                      

Acquisitions During the Quarter Ended
September 30, 2003

There were no acquisitions during the quarter
ended September 30, 2003.

Discontinued Operations

On February 25, 2003, the Companys
Board of Directors approved managements plans to sell
Thousand Oaks Shopping Center and Pahrump Valley Shopping Center
and commenced active marketing of the properties. Current and
prior net operating income related to these properties is
classified as discontinued operations for all periods presented.
The sales of Thousand Oaks and Pahrump were completed on
August 11, 2003 and September 25, 2003, respectively.



| |                                                       
| | ------------------------------------------------------
| | Thousand Oaks Shopping Center 
    San Antonio, Texas

On August 11, 2003, the Company sold the
Thousand Oaks Shopping Center in San Antonio, Texas to an
unaffiliated third party for a sales price of $15,880,000. At
closing, the Company paid a disposition fee to Realty of
$158,800 or approximately 1.0% of the selling price, and a
commission to an unaffiliated broker of $317,600, or
approximately 2.0% of the selling price. The Company intends to
reinvest the proceeds from the sale in real estate property that
qualifies for like-kind exchange treatment under
Section 1031 of the Internal Revenue Code.

21



---



##### Table of Contents





| |                                                              
| | -------------------------------------------------------------
| | Pahrump Valley Junction Shopping
    Center  Pahrump, Nevada

On September 25, 2003, the Company sold the
Pahrump Valley Junction Shopping Center in Pahrump, Nevada to an
unaffiliated third party for a sales price of $18,985,000. In
connection with the sale, the Company repaid a note payable
secured by Pahrump with an outstanding balance of approximately
$11,884,000 at the transaction date. At closing, the Company
deposited with escrow approximately $81,600 representing rent
for one year from one tenant that vacated Pahrump. The Company
will release $6,800 to buyer for each month the vacated
tenants lease is more than thirty days past due. The
Company paid a disposition fee to Realty of $175,000, or
approximately 1.0% of the sales price, and real estate
commissions to unaffiliated brokers of $629,700, or
approximately 3.0% of the sales price. The Company intends to
reinvest the proceeds from the sale in other properties or real
estate activities.

Results of Operations

The comparability of the financial information
discussed below is limited by acquisitions and dispositions
completed during the periods presented. For information on the
Companys acquisitions and dispositions, see Note 3 to
the Consolidated Financial Statements accompanying this
Quarterly Report on Form 10-Q.

Comparability is also impacted due to the
presentation of Thousand Oaks Shopping Center and Pahrump Valley
Shopping Center for the nine months ended September 30,
2003, and these two properties together with Northstar Shopping
Center for the nine months ended September 30, 2002, as
discontinued operations.



| |                                                                 
| | ----------------------------------------------------------------
| | Three Months Ended September 30, 2003
    and September 30, 2002

The following discussion excludes the impact of
the reclassification of the previously mentioned shopping
centers as discontinued operations, except as noted.

Rental Income.Rental income consists of
straight-line monthly base rent and percentage rental income, if
applicable, due pursuant to tenant leases and property operating
expenses recovered from tenants. Rental income increased by
$308,100 to $547,704 for the three months ended
September 30, 2003 compared to $239,604 for the three
months ended September 30, 2002 due to a full
quarters rental income for University Heights and the
rental income on Gateway Mall. The Company expects rental income
to decrease in the fourth quarter due to the sale of the
Thousand Oaks and Pahrump properties.

Interest Income.Interest income consists of interest
earned from short-term money market investments and loans that
are held by the Company. Interest income decreased by $54,837 to
$11,351 for the three months ended September 30, 2003
compared to $66,188 for the three months ended
September 30, 2002. This decrease was due primarily to a
decrease in related party loans and available cash.

Rental Expenses.Rental expenses consist of the costs
of owning and maintaining the Companys properties
including primarily property management fees, real estate taxes,
insurance, maintenance to the exterior of the buildings and the
parking lots. These expenses increased by $325,411 to $379,170
for the three months ended September 30, 2003 compared to
$53,759 for the three months ended September 30, 2002. The
increase was primarily attributable to rental expense for a
complete quarter for University Heights and the rental expense
for Gateway Mall. The Company expects rental expenses to
decrease in the fourth quarter due to the sale of the Thousand
Oaks and Pahrump properties.

General and Administrative Expenses.General and administrative expenses
consist primarily of third party legal and accounting fees and
the cost of computerized information services and related office
expenses required to maintain the Companys accounting and
investor records. These expenses increased by $157,554 to
$219,656 for the three months ended September 30, 2003
compared to $62,102 for the three months ended
September 30, 2002. The increase in expenses was due
primarily to administrative costs related to the sale of
Thousand Oaks and Pahrump, including regulatory filings pursuant
to these transactions. Management anticipates higher legal and
accounting expenses in the future due to expanded audit and SEC
compliance requirements mandated by the Sarbanes-Oxley Act.

22



---



##### Table of Contents



Depreciation.Depreciation expense increased by
$77,230 to $115,045 for the three months ended
September 30, 2003 compared to $37,815 for the three months
ended September 30, 2002. The increase was attributable to
depreciation for a complete quarter on University Heights and
depreciation on Gateway Mall.

Interest Expense.Interest expense consists of mortgage
interest incurred on the Companys properties and the
amortization of deferred financing fees. Interest expense
increased by $44,643 to $110,417 for the three months ended
September 30, 2003 compared to $65,774 for the three months
ended September 30, 2002. The increase was due to interest
expense for a complete quarter on University Heights and
interest expense on Gateway Mall.

Equity in Net Earnings of Unconsolidated Real
Estate.The Companys equity in
earnings of unconsolidated real estate increased $75,683 to
$267,125 for the three months ended September 30, 2003
compared to $191,442 for the three months ended
September 30, 2002. The majority of the increase was due to
the acquisitions of a 25% interest in Saddleback Financial
Center and a 10.26% interest in Congress Center.

Income From Discontinued
Operations  Property Held For Sale.Income from discontinued operations
represents the net operating results of two properties sold
during the three months ended September 30, 2003 through
the date of sale, including interest expense and depreciation
related to these properties. Income from discontinued operations
decreased $256,827 to ($118,809) for the three months ended
September 30, 2003 compared to $138,018 for the three
months ended September 30, 2002 primarily as a result of
the removal of the unamortized deferred rent receivable at the
date of sale.

Net Income.Net
income was $2,696,633 or $0.58 per share basic and $0.56 per
share diluted for the three months ended September 30, 2003
compared to net income of $560,217 or $0.12 per share basic and
$0.11 per share diluted for the three months ended
September 30, 2002. Dividends declared were $958,028 or
$.20 per share for the three months ended September 30,
2003 compared to $962,761 or $0.20 per share for the three
months ended September 30, 2002.



| |                                                                
| | ---------------------------------------------------------------
| | Nine Months Ended September 30, 2003
    and September 30, 2002

The following discussion excludes the impact of
the reclassification of the previously mentioned shopping
centers as discontinued operations, except as noted.

Rental Income.Rental income consists of
straight-line monthly base rent, percentage rental income, if
applicable, due pursuant to tenant leases and property operating
expenses recovered from tenants. Rental income increased by
$1,436,887 to $1,676,491 for the nine months ended
September 30, 2003 compared to $239,604 for the nine months
ended September 30, 2003 due to rental income for three
complete quarters for University Heights and the rental income
on Gateway Mall. The Company expects rental income to decrease
in the fourth quarter due to the sale of the Thousand Oaks and
Pahrump properties.

Interest Income.Interest income consists of interest
earned from short-term money market investments and loans that
are held by the Company. Interest income decreased by $178,053
to $76,582 for the nine months ended September 30, 2003
compared to $254,635 for the nine months ended
September 30, 2002. This decrease was due primarily to the
collection during 2002 of all loans made by the Company and a
decrease in related party loans and available cash.

Rental Expenses.Rental expenses consist of the costs
of owning and maintaining the Companys properties
including primarily property management fees, real estate taxes,
insurance, maintenance to the exterior of the buildings and the
parking lots. Rental expense increased by $725,771 to $779,530
for the nine months ended September 30, 2003 compared to
$53,759 for the nine months ended September 30, 2002. The
increase was primarily attributable to rental expense for three
complete quarters for University Heights and the rental expense
for Gateway Mall. The Company expects rental expenses to
decrease in the fourth quarter due to the sale of the Thousand
Oaks and Pahrump properties.

General and Administrative Expenses.General and administrative expenses
consist primarily of third party legal and accounting fees and
the cost of computerized information services and related office
expenses required to maintain the Companys accounting and
investor records. These expenses increased by $148,688 to

23



---



##### Table of Contents



$592,139 for the nine months ended
September 30, 2003 compared to $443,451 for the nine months
ended September 30, 2002. The increase is due to additional
accounting fees related to the sales of property, including
regulatory filings related to those transactions. Management
expects higher legal and accounting expenses in the future due
to expanded audit and SEC compliance requirements mandated by
the Sarbanes-Oxley Act.


Depreciation.Depreciation expense increased by
$251,987 to $289,802 for the nine months ended
September 30, 2003 compared to $37,815 for the nine months
ended September 30, 2002. The increase was attributable to
depreciation for three complete quarters for University Heights
and depreciation for Gateway Mall.

Interest Expense.Interest expense consists of mortgage
interest paid on the Companys properties and the
amortization of deferred financing fees. Interest expense
increased by $259,846 to $325,620 for the nine months ended
September 30, 2003 compared to $65,774 for the nine months
ended September 30, 2003. The increase was due to interest
expense for three complete quarters for University Heights and
interest expense for Gateway Mall properties.

Equity in Net Earnings of Unconsolidated Real
Estate.The Companys equity in
earnings of unconsolidated real estate increased $629,457 to
$1,231,182 for the nine months ended September 30, 2003
compared to $601,725 for the nine months ended
September 30, 2002. The majority of the increase was due to
the acquisition of a 10.26% interest in Congress Center.

Sales of Real Estate.During the nine months ended
September 30, 2003, the Company realized total net gain on
the sale of the Northstar, Thousand Oaks and Pahrump properties
of $2,837,167 compared to total net gain of $144,415 during the
nine months ended September 30, 2002 from the sale of the
Companys investments in unconsolidated real estate.

Income From Discontinued
Operations  Property Held For Sale.Income from discontinued operations
represents the net operating results of three properties sold
during the nine months ended September 30, 2003, including
interest expense and depreciation related to these properties.
Income from discontinued operations decreased by $151,656 to
$531,347 for the nine months ended September 30, 2003
compared to $683,003 for the nine months ended
September 30, 2002.

Net Income.Net
income was $4,365,678 or $0.93 per share basic and $0.92 per
share diluted for the nine months ended September 30, 2003
compared to a net income of $1,322,582 or $0.34 per share basic
and $0.50 per share diluted for the nine months ended
September 30, 2002. Dividends declared were $2,886,357 or
$0.62 per share for the nine months ended September 30,
2003 compared to $2,345,869 or $0.20 per share for the nine
months ended September 30, 2002.

Liquidity and Capital Resources



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

On September 3, 2003 the Company entered
into an agreement with Fleet National Bank for an unsecured line
of credit in the amount of $1,000,000 which bears interest at
Fleets prime rate plus fifty basis points. The credit
facility matures on September 2, 2004 and has two one-year
extensions. The credit facility is subject to a fee of 1% to be
paid one-third on each of the effective date, the first
anniversary and the second anniversary. As of September 30,
2003, the Company has not drawn against the line of credit.



| |                  
| | -----------------
| | Capital Resources

At September 30, 2003, the Company had
$12,699,046 of cash and cash equivalents as compared to
$6,129,468 of cash and cash equivalents at December 31,
2002 to meet its immediate short-term liquidity requirements.
Approximately $6,200,000 was being held by an accommodator for a
tax deferred exchange. Management expects that future short-term
liquidity requirements will be financed by net cash flow from
operations, existing working capital and the Fleet line of
credit. Operating cash flows are expected to decrease due to the
sale of the Thousand Oaks and Pahrump properties until such time
as the proceeds of such sales are

24



---



##### Table of Contents



reinvested in other properties. Cash and cash
equivalents increased since December 31, 2002 principally
as a result of the sale of real estate.


The Company anticipates that adequate cash will
be generated from operations to fund its operating and
administrative expenses, continuing debt service obligation and
the payment of dividends in the foreseeable future.

The Company operates as a real estate investment
trust for federal income tax purposes. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT
status, the Company is required to distribute annually as
dividends at least 90% of its REIT taxable income, as defined by
the Code, to its shareholders, among other requirements. The
Company expects to continue to use its cash flow from operating
activities to pay dividends to shareholders and to support the
operating activities of the Company. The Company maintains
amounts accumulated for the payment of dividends in
interest-bearing money market accounts.

Dividends paid for the nine months ended
September 30, 2003 were $2,886,357 compared to $2,345,869
for the nine months ended September 30, 2002. The Company
currently pays cash dividends monthly at an annual rate of
$0.825 per share. For the nine months ended September 30,
2003 no portion of dividends declared and paid represented a
return of capital for federal income tax purposes. Dividends are
determined by the Companys Board of Directors and are
dependent on a number of factors, including the amount of funds
available for distribution, the Companys financial
condition, any decision by the Board of Directors to reinvest
funds rather than to distribute the funds, the Companys
capital expenditures, the annual distribution required to
maintain REIT status under the Internal Revenue Code of 1986, as
amended, and other factors the Board of Directors may deem
relevant.



| |                                         
| | ----------------------------------------
| | Cash Flows From Operating
    Activities

Net cash provided by operating activities was
$1,100,197 for the nine months ended September 30, 2003
compared to net cash provided by operating activities of
$1,146,687 for the nine months ended September 30, 2002.
The decrease in cash provided by operating activities relative
to the prior period was primarily due to the removal of the
unamortized deferred rent receivable at the date of sale,
partially offset by increased rental income investment in
additional properties.

Management expects cash flows from operating
activities to decrease due to the sale of the Thousand Oaks and
Pahrump properties during the quarter ended September 30,
2003 partially offset by the acquisitions of Gateway Mall and
the limited liability company membership interest in Congress
Center completed during the nine months ended September 30,
2003 and the acquisition of additional properties and
investments in unconsolidated real estate during the remainder
of the year as the Company strategically redeploys its capital.
Management is currently considering other potential
opportunities to reinvest proceeds from real estate
dispositions. The decision to acquire one or more properties or
investments in unconsolidated real estate will generally depend
upon (i) receipt of a satisfactory environmental survey and
property appraisal, (ii) an absence of any material adverse
change relating to the property, its tenants, or local economic
conditions, and (iii) adequate financing. There is no
assurance that any of these conditions will be satisfied or, if
satisfied, that the Company will purchase any additional
properties or make any further investments in real estate.



| |                                            
| | -------------------------------------------
| | Cash Flows Used In Investing
    Activities

Net cash provided by investing activities
amounted to $27,344,971 for the nine months ended
September 30, 2003 compared to net cash used in investing
activities amounted to ($15,719,768) for the nine months ended
September 30, 2002. The amount of net cash provided by
investing activities was largely the result of the sale proceeds
before retirement of debt for Northstar, Thousand Oaks and
Pahrump. It is anticipated that the Company will reinvest all of
the net proceeds from the Thousand Oaks sale in real estate
property that qualifies for like-kind exchange treatment under
Section 1031 of the Internal Revenue Code; the Company
intends to reinvest the proceeds from the Pahrump sale in other
properties or real estate activities.

25



---



##### Table of Contents



At September 30, 2003, the Company does not
have any material planned capital expenditures resulting from
any known demand based on existing trends. However, management
may conclude that expenditures to improve properties are
necessary and/or desirable.



| |                                         
| | ----------------------------------------
| | Cash Flows From Financing
    Activities

Cash used in financing activities amounted to
$21,875,490 for the nine months ended September 30, 2003
compared to cash provided by financing activities of $16,293,029
for the nine months ended September 30, 2002. The primary
reason for the decline was the end of the Companys
Offering on May 31, 2002. During the nine months ended
September 30, 2003, the Company retired debt in the amount
of $23,799,716 from the sale of property offset by new debt of
$5,000,000 related to the acquisition of Gateway Mall.

The Company intends to acquire additional
properties and make additional investments in unconsolidated
real estate and may seek to fund these acquisitions through
proceeds received from a combination of subsequent equity
offerings, debt financings or asset dispositions.

Management believes that, to the extent, if any,
that the Company is not successful in generating cash flow from
operations sufficient to meet its cash flow requirements, the
Company can use its Fleet line of credit to finance any cash
flow deficits. Additionally, the Companys unrestricted
cash position of approximately $6,200,000 at September 30,
2003 (which excludes funds earmarked for property exchange)
could be used for its cash flow requirements.

Funds From Operations

Due to the unique operating characteristics of
certain real estate companies, the National Association of Real
Estate Investment Trusts (NAREIT), an industry trade
group, has promulgated a standard known as funds from operations
(FFO) which it believes more accurately reflects the
operating performance of a REIT. As defined by NAREIT, FFO
equals net income or loss determined in accordance with
accounting principles generally accepted in the United States
(GAAP) less extraordinary, unusual and non-recurring
items, excluding gains/losses from debt restructuring and sales
of property, plus depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures
in which the REIT holds an interest.

The Company computes FFO in accordance with the
April 2002 White Paper on Funds From
Operations, and National Policy Bulletin
published by NAREIT. The Company generally considers FFO to be a
relevant and meaningful supplemental measure of the performance
of an equity REIT because it is predicated on a cash flow
analysis, as contrasted with net income/loss determined on a
GAAP basis that gives effect to non-cash items such as
depreciation. However, FFO is not intended to be an alternative
to net income or loss as an indicator of the Companys
performance, nor to cash flow provided by/used in operating
activities (based on GAAP) as a measure of liquidity. In
addition, FFO is not necessarily indicative of cash available to
pay distributions or finance other operating requirements. Since
the aforementioned NAREIT publications only provide general
guidelines for computing FFO, the computation thereof may vary
from one REIT to another because capitalization and expense
accounting policies may differ from entity to entity.

As stated in its April 5, 2002 National
Policy Bulletin (the Bulletin), NAREIT believes that
since SFAS No. 144 does not change bottom-line net income,
it should not change bottom-line FFO. Thus, the
Bulletin states that relevant financial items from
income-producing properties whether currently in use, held for
sale, sold or otherwise transferred should be included in FFO
for both current and prior periods.

The Companys FFO reporting complies with
NAREITs policy described in the preceding paragraph.

As noted in Funds From Operations
above, management considers FFO to be one measure of the
performance of a REIT. FFO were $234,292 for the three months
ended September 30, 2003 compared to $963,422 for the three
months ended September 30, 2002. FFO were $2,679,347 for
the nine months ended

26



---



##### Table of Contents



September 30, 2003 compared to $2,133,195
for the nine months ended September 30, 2002. The
Companys FFO were calculated according to the table below:


|                      |                                                                    |                    |           |           |  |                   |         |         |  |   |           |           |  |   |           |         | 
|--------------------- | ------------------------------------------------------------------ | ------------------ | --------- | --------- |  | ----------------- | ------- | ------- |  | - | --------- | --------- |  | - | --------- | ------- | 
|                      |                                                                    | Three Months Ended |           |           |  | Nine Months Ended |         |        
|                      |                                                                    | September 30,      |           |           |  | September 30,     |         |        
|                      |                                                                    | 2003               |           | 2002      |  | 2003              |         | 2002   
|                      |                                                                    |                    |           |           |  |                   |         |        
|Net income            |                                                                    | $                  | 2,696,633 |           |  | $                 | 560,217 |         |  | $ | 4,365,678 |           |  | $ | 1,322,582 |        
|Add:                  |                                                                    |                    |           |           |  |                   |         |         |  |   |           |           |  |   |           |        
|                      | Depreciation  continuing operations                               |                    |           | 107,916   |  |                   |         | 173,523 |  |   |           | 284,191   |  |   |           | 173,523 | 
|                      | Depreciation  discontinued operations                             |                    |           |          |  |                   |         | 216,429 |  |   |           | 102,176   |  |   |           | 506,512 | 
|                      | Depreciation  unconsolidated real
    estate operating properties |                    |           | 243,293   |  |                   |         | 157,668 |  |   |           | 764,469   |  |   |           | 274,993 | 
|Less:                 |                                                                    |                    |           |           |  |                   |         |         |  |   |           |           |  |   |           |        
|                      | Gain/(Loss) on Sale of property                                    |                    |           | 2,813,550 |  |                   |         | 144,415 |  |   |           | 2,837,167 |  |   |           | 144,415 | 
|                      |                                                                    |                    |           |           |  |                   |         |         |  |   |           |           |  |   |           |        
|                      |                                                                    |                    |          |           |  |                   |        |         |  |   |          |           |  |   |          |        
|                      |                                                                    |                    |           |           |  |                   |         |         |  |   |           |           |  |   |           |        
|Funds from operations |                                                                    | $                  | 234,292   |           |  | $                 | 963,422 |         |  | $ | 2,679,347 |           |  | $ | 2,133,195 |        
|                      |                                                                    |                    |           |           |  |                   |         |         |  |   |           |           |  |   |           |        






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

The Company is exposed to interest rate changes
primarily as a result of its long-term debt used to maintain
liquidity, fund capital expenditures, and finance expansion of
the Companys operations and real estate portfolio. In
managing the Companys interest rate risk,
managements objectives are to limit the impact of interest
rate changes on operations and cash flows, and to lower its
overall borrowing costs. To achieve these objectives, the
Company borrows primarily at interest rates with the lowest
margins available and, in some cases, with the ability to
convert variable interest rates to fixed rates. In the future,
the Company may enter into derivative financial instruments such
as interest rate swaps, caps and treasury locks in order to
mitigate its interest rate risk on a given financial instrument.
The Company does not enter into derivative or interest rate
transactions for speculative purposes.

The table below presents the principal amounts
and weighted average interest rates of fixed and variable
interest rate debt by year of scheduled maturity to evaluate the
expected cash flows and sensitivity to interest rate changes.

|                                                         |  |                          |        |      |  |      |         |      |  |      |         |            |  |   |           |   |  |   |        |   |  |   |           |  
|-------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | - | --------- | - |  | - | ------ | - |  | - | --------- | -
|                                                         |  |                         
|                                                         |  | As of September 30, 2003
|                                                         |  |                         
|                                                         |  | 2003                     |        | 2004 |  | 2005 |         | 2006 |  | 2007 |         | Thereafter
|                                                         |  |                          |        |      |  |      |         |      |  |      |         |           
|Fixed rate debt                                          |  | $                        |       |      |  | $    |        |      |  | $    |        |            |  | $ |          |   |  | $ |       |   |  | $ |          |  
|Average interest rate on maturing fixed rate debt        |  |                          |       |      |  |      |        |      |  |      |        |            |  |   |          |   |  |   |       |   |  |   |          |  
|Variable rate debt                                       |  | $                        | 43,353 |      |  | $    | 179,904 |      |  | $    | 187,449 |            |  | $ | 4,690,226 |   |  | $ | 59,805 |   |  | $ | 4,130,351 |  
|Average interest rate on maturing variable rate
    debt |  |                          | 4.01   | %    |  |      | 4.03    | %    |  |      | 4.04    | %          |  |   | 3.57      | % |  |   | 5.25   | % |  |   | 5.25      | %

The estimated fair value of the Companys
variable-rate debt approximates its September 30, 2003
carrying amount. Variable-rate debt secured by the
Companys properties bears interest at
approximately 4.25% as of September 30, 2003.






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

As required by the Securities Exchange Act of
1934, as amended, we have evaluated with the participation of
our management, including our Chief Executive Officer and
Interim Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of September 30,
2003. In designing and evaluating our disclosure controls and
procedures, we and our management recognize that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and our management necessarily was required
to apply its judgment in evaluating and implementing possible
controls and procedures. Based upon that evaluation, our Chief
Executive Officer

27



---



##### Table of Contents



and Interim Chief Financial Officer have
concluded that they believe, that, as of September 30,
2003, our disclosure controls and procedures were reasonably
effective to ensure that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange
Commissions rules and forms. In compliance with the rules,
we intend to continue to review, document and/or expand our
disclosure controls and procedures, including enhancing their
effectiveness, and to ensure that our systems evolve with our
business. There were no changes in our internal control over
financial reporting that occurred during our most recent fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.







PART II  OTHER INFORMATION







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

None.






|        |                                              
|------- | ---------------------------------------------
|Item 2. | Changes in Securities and Use of
    Proceeds

(a) None.

(b) None.

(c) None.

(d) N/ A






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

None.






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

None.






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

None.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) The following documents are filed as
part of this report:

|         |      |             |  |                                                                                                                                                                                                                                                                                      
|-------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |      | Description
|         |      |            
|         | 3.1  |             |  | Articles of Incorporation of the Company
    (included as Exhibit 3.1 to the Companys 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 Amended and Restated Articles of
    Incorporation of the Company (included as Exhibit 3.2 to
    Amendment No. 3 to the Companys 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 By-Laws of the Company (included as
    Exhibit 3.3 to the Companys 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 Amended By-Laws of the Company (included
    as Exhibit 3.4 to Post-Effective Amendment No. 2 to
    the Companys 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 the Companys
    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 the Companys 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 the Companys Prospectus filed as part of
    the Companys Registration Statement on Form S-11 on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                

28



---



##### Table of Contents



|         |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |       | Description
|         |       |            
|         | 10.3  |             |  | Independent Director Stock Option Plan (included
    as Exhibit 10.3 to Amendment No. 4 to the
    Companys 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 the
    Companys 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 the Company and the
    Advisor (included as Exhibit 10.5 to Amendment No. 2
    to the Companys 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 the
    Companys 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 the
    Company and the Advisor (included as Exhibit 10.10 to
    Post-Effective Amendment No. 1 to the Companys
    Registration Statement filed on Form S-11 on July 17,
    2001 (File No. 333-772229) and incorporated herein by this
    reference)                                                                                                        
|         | 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 the Companys 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 the
    Company on May 14, 2002 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 the Company on May 14, 2002 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
    the Company 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 the Company 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 the Company 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 the Company on August 26, 2003
    and incorporated herein by reference).                                                                                      

29



---



##### Table of Contents



|         |       |             |  |                                                                                                                                                                                                                                                                                                                  
|-------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |       | Description
|         |       |            
|         | 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 the Company on October 9, 2003 and
    incorporated herein by reference).
|         | 31.1  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
|         | 31.2  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
|         | 32.1  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   
|         | 32.2  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                   

(b) The following 8-K Reports were filed
during the quarter ended September 30, 2003:



| |                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On August 26, 2003, the Company filed a
    Current Report on Form 8-K dated August 11, 2003 to
    report the sale of the Thousand Oaks Shopping Center in
    San Antonio, Texas and to file the required Item 7 pro
    forma financial statements.                                                                                                                                      
|
| | On September 23, 2003, the Company filed a
    Current Report on Form 8-K dated September 23, 2003 to
    report the resignation of William C. Daniel as Chief
    Financial Officer of the Company effective September 30,
    2003 and the appointment by the Board of Directors of Richard
    Hutton as Interim Chief Financial Officer of the Company
    effective September 30, 2003.

30



---



##### Table of Contents






SIGNATURES

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



| |  |             
| |  | ------------
| |  | T REIT, INC.

| |             
| | ------------
| | (Registrant)



| |     |                        
| | --- | -----------------------
| | By: | /s/ ANTHONY W. THOMPSON

| |                        
| | -----------------------
| |                        
| | Anthony W. Thompson    
| | Chief Executive Officer



| |     |                   
| | --- | ------------------
| | By: | /s/ RICHARD HUTTON

| |                                
| | -------------------------------
| |                                
| | Richard Hutton                 
| | Interim Chief Financial Officer

Date: November 14, 2003

31



---



##### Table of Contents






EXHIBIT INDEX

|         |       |             |  |                                                                                                                                                                                                                                                                                                                                                                         
|-------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |       | Description
|         |       |            
|         | 3.1   |             |  | Articles of Incorporation of the Company
    (included as Exhibit 3.1 to the Companys 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 Amended and Restated Articles of
    Incorporation of the Company (included as Exhibit 3.2 to
    Amendment No. 3 to the Companys 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 By-Laws of the Company (included as
    Exhibit 3.3 to the Companys 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 Amended By-Laws of the Company (included
    as Exhibit 3.4 to Post-Effective Amendment No. 2 to
    the Companys 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 the Companys
    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 the Companys 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 the Companys Prospectus filed as part of
    the Companys 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 the
    Companys 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 the
    Companys 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 the Company and the
    Advisor (included as Exhibit 10.5 to Amendment No. 2
    to the Companys 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 the
    Companys 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 the
    Company and the Advisor (included as Exhibit 10.10 to
    Post-Effective Amendment No. 1 to the Companys
    Registration Statement filed on Form S-11 on July 17,
    2001 (File No. 333-772229) and incorporated herein by this
    reference)                                                                 
|         | 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 the Companys Registration
    Statement on Form S-11 filed on October 19, 2001 (File
    No. 333-772229) and incorporated herein by reference)                         



---



##### Table of Contents



|         |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |       | Description
|         |       |            
|         | 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 the
    Company on May 14, 2002 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 the Company on May 14, 2002 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
    the Company 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 the Company 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 the Company 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 the Company 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 the Company on October 9, 2003 and
    incorporated herein by reference).                                                                                              
|         | 31.1  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                 
|         | 31.2  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                 
|         | 32.1  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                 
|         | 32.2  |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002