##### 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 June 30, 2005                                                
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

Commission File Number 0-49782


T REIT, Inc.


(Exact name of registrant as specified in its charter)


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

N/A


(Former name)


þ o


o þ












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INDEX


|                                   |  |                                                                                                                                                                                         |    |      |    | 
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                   |  |                                                                                                                                                                                         |    | Page |   
|                                   |  |                                                                                                                                                                                         |    |      |   
|PART I  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements                                                                                                                                                                    |    |      | 2  | 
|                                   |  | Condensed Consolidated Statement of Net
    Assets as of June 30, 2005 (Liquidation Basis 
    unaudited)                                                                              |    |      | 3  | 
|                                   |  | Condensed Consolidated Balance Sheet as of
    December 31, 2004 (Going Concern Basis 
    unaudited)                                                                                  |    |      | 4  | 
|                                   |  | Condensed Consolidated Statements of
    Operations and Comprehensive Income (Loss) For the Three and Six
    Months Ended June 30, 2005 and 2004 (Going Concern
    Basis  unaudited) |    |      | 5  | 
|                                   |  | Condensed Consolidated Statement of
    Shareholders Equity For the Six Months Ended June 30,
    2005 (Going Concern Basis  unaudited)                                               |    |      | 6  | 
|                                   |  | Condensed Consolidated Statements of Cash
    Flows For the Six Months Ended June 30, 2005, and 2004
    (Going Concern Basis  unaudited)                                              |    |      | 7  | 
|                                   |  | Notes to Condensed Consolidated Financial
    Statements (unaudited)                                                                                                                    |    |      | 8  | 
|Item 2.                            |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                                                                               |    |      | 27 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosure
    About Market Risks                                                                                                                          |    |      | 42 | 
|Item 4.                            |  | Controls and Procedures                                                                                                                                                                 |    |      | 42 | 
|                                  
|PART II  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                                                                                                       |    |      | 44 | 
|Item 2.                            |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                                                                         |    |      | 45 | 
|Item 3.                            |  | Defaults Upon Senior Securities                                                                                                                                                         |    |      | 45 | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                                                                                                                 |    |      | 45 | 
|Item 5.                            |  | Other Information                                                                                                                                                                       |    |      | 45 | 
|Item 6.                            |  | Exhibits                                                                                                                                                                                |    |      | 45 | 
|Signatures                         |  |                                                                                                                                                                                         | 46 |     
|EXHIBIT 31.1                      
|EXHIBIT 31.2                      
|EXHIBIT 32.1                      
|EXHIBIT 32.2                      



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##### Table of Contents



T REIT, INC.


FORWARD-LOOKING STATEMENTS





PART I  FINANCIAL INFORMATION







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



2



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##### Table of Contents



T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS


As of June 30, 2005 (LIQUIDATION BASIS) (Unaudited)


|                                                                                  |                                           |          |            |            | 
|--------------------------------------------------------------------------------- | ----------------------------------------- | -------- | ---------- | ---------- | 
|                                                                                  |                                           | June 30, |           
|                                                                                  |                                           | 2005     |           
|                                                                                  |                                           |          |           
|ASSETS                                                                           
|Real estate investments:                                                          |                                           |          |            |           
|                                                                                  | Real estate held for sale                 |          | $          | 24,022,000 | 
|                                                                                  | Investments in unconsolidated real estate |          |            | 26,713,000 | 
|                                                                                  |                                           |          |           
|                                                                                  |                                           |          | 50,735,000 |           
|Cash and cash equivalents                                                         |                                           |          | 5,935,000  |           
|Restricted cash                                                                   |                                           |          | 1,066,000  |           
|Investment in marketable securities                                               |                                           |          | 1,783,000  |           
|Accounts receivable, net                                                          |                                           |          | 192,000    |           
|Accounts receivable from related parties                                          |                                           |          | 1,086,000  |           
|Notes receivable                                                                  |                                           |          | 2,768,000  |           
|Assets for estimated receipts in excess of estimated costs
    during liquidation |                                           |          | 1,956,000  |           
|                                                                                  |                                           |          |           
|Total assets                                                                      |                                           |          | 65,521,000 |           
|                                                                                 
|LIABILITIES                                                                      
|Mortgages payable secured by properties held for sale                             |                                           |          | 15,502,000 |           
|Accounts payable and accrued liabilities                                          |                                           |          | 1,368,000  |           
|Accounts payable due to related parties                                           |                                           |          | 3,000      |           
|Distributions payable                                                             |                                           |          | 329,000    |           
|Security deposits and prepaid rent                                                |                                           |          | 366,000    |           
|                                                                                  |                                           |          |           
|Total liabilities                                                                 |                                           |          | 17,568,000 |           
|                                                                                  |                                           |          |           
|Net assets in liquidation                                                         |                                           | $        | 47,953,000 |           
|                                                                                  |                                           |          |           



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T REIT, INC.





CONDENSED CONSOLIDATED BALANCE SHEET


(Going Concern Basis)


December 31, 2004 (Unaudited)


|                                                                                                                           |                                           |              |            |            | 
|-------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------ | ---------- | ---------- | 
|                                                                                                                           |                                           | December 31, |           
|                                                                                                                           |                                           | 2004         |           
|                                                                                                                           |                                           |              |           
|ASSETS                                                                                                                    
|Real estate investments:                                                                                                   |                                           |              |            |           
|                                                                                                                           | Properties held for sale, net             |              | $          | 23,874,000 | 
|                                                                                                                           | Investments in unconsolidated real estate |              |            | 19,272,000 | 
|                                                                                                                           |                                           |              |           
|                                                                                                                           |                                           |              | 43,146,000 |           
|Cash and cash equivalents                                                                                                  |                                           |              | 7,229,000  |           
|Restricted cash                                                                                                            |                                           |              | 1,691,000  |           
|Investment in marketable securities                                                                                        |                                           |              | 491,000    |           
|Accounts receivable, net                                                                                                   |                                           |              | 125,000    |           
|Accounts receivable from related parties                                                                                   |                                           |              | 514,000    |           
|Other assets  properties held for sale, net                                                                               |                                           |              | 3,822,000  |           
|Other assets                                                                                                               |                                           |              | 236,000    |           
|Notes receivable                                                                                                           |                                           |              | 3,299,000  |           
|                                                                                                                           |                                           |              |           
|Total assets                                                                                                               |                                           | $            | 60,553,000 |           
|                                                                                                                           |                                           |              |           
|                                                                                                                          
|LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS
    EQUITY                                                              
|Mortgages payable secured by properties held for sale                                                                      |                                           | $            | 19,285,000 |           
|Accounts payable and accrued liabilities                                                                                   |                                           |              | 1,904,000  |           
|Accounts payable due to related parties                                                                                    |                                           |              | 49,000     |           
|Distributions payable                                                                                                      |                                           |              | 327,000    |           
|Security deposits and prepaid rent                                                                                         |                                           |              | 253,000    |           
|                                                                                                                           |                                           |              |           
|                                                                                                                           |                                           |              | 21,818,000 |           
|Minority interests  property held for sale                                                                                |                                           |              | 1,916,000  |           
|Commitments and contingencies (Note 13)                                                                                    |                                           |              |            |           
|Shareholders equity:                                                                                                      |                                           |              |            |           
|Common stock, $0.01 par value; 10,000,000 shares
    authorized; 4,720,000 shares issued; 4,609,000 shares
    outstanding |                                           |              | 47,000     |           
|Additional paid-in capital                                                                                                 |                                           |              | 41,533,000 |           
|Treasury stock, 107,000 shares                                                                                             |                                           |              | (979,000   | )         
|Distributions in excess of earnings                                                                                        |                                           |              | (3,792,000 | )         
|Accumulated other comprehensive income                                                                                     |                                           |              | 10,000     |           
|                                                                                                                           |                                           |              |           
|Total shareholders equity                                                                                                 |                                           |              | 36,819,000 |           
|                                                                                                                           |                                           |              |           
|Total liabilities, minority interests and shareholders
    equity                                                         |                                           | $            | 60,553,000 |           
|                                                                                                                           |                                           |              |           



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


AND COMPREHENSIVE INCOME (LOSS)


(Going Concern Basis)


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


|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |           |   |   |           |           |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------ | --------- | ------- | ---------------- | - | --------- | -------- | - | - | ---------- | --------- | - | - | --------- | --------- | -
|                                                                            |                                                               | Three Months Ended |           |         | Six Months Ended |  
|                                                                            |                                                               | June 30,           |           |         | June 30,         |  
|                                                                            |                                                               |                    |           |         |                  |  
|                                                                            |                                                               | 2005               |           |         | 2004             |   |           | 2005     |   |   | 2004       |          
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Expenses:                                                                   |                                                               |                    |           |         |                  |   |           |          |   |   |            |           |   |   |           |          
|                                                                            | General and administrative                                    |                    | $         | 459,000 |                  |   | $         | 256,000  |   |   | $          | 1,013,000 |   |   | $         | 346,000   |  
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Operating loss                                                              |                                                               |                    | (459,000  | )       |                  |   | (256,000  | )        |   |   | (1,013,000 | )         |   |   | (346,000  | )        
|Other income (expense):                                                     |                                                               |                    |           |         |                  |   |           |          |   |   |            |           |   |   |           |          
|                                                                            | Other Income                                                  |                    |           | 38,000  |                  |   |           |         |   |   |            | 52,000    |   |   |           |          |  
|                                                                            | Interest (including amortization of deferred financing costs) |                    |           | (36,000 | )                |   |           | (17,000  | ) |   |            | (44,000   | ) |   |           | (26,000   | )
|                                                                            | Interest and dividend income                                  |                    |           | 132,000 |                  |   |           | 160,000  |   |   |            | 233,000   |   |   |           | 240,000   |  
|                                                                            | Gain on sale of marketable securities                         |                    |           | 110,000 |                  |   |           | 2,000    |   |   |            | 126,000   |   |   |           | 50,000    |  
|                                                                            | Gain on sale of unconsolidated real estate investments        |                    |           | 191,000 |                  |   |           |         |   |   |            | 191,000   |   |   |           |          |  
|                                                                            | Equity in earnings of unconsolidated real estate              |                    |           | 407,000 |                  |   |           | 368,000  |   |   |            | 787,000   |   |   |           | 633,000   |  
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Income from continuing operations                                           |                                                               |                    | 383,000   |         |                  |   | 257,000   |          |   |   | 332,000    |           |   |   | 551,000   |          
|Discontinued operations:                                                    |                                                               |                    |           |         |                  |   |           |          |   |   |            |           |   |   |           |          
|                                                                            | Gain (loss) on sale on real estate                            |                    |           |        |                  |   |           | (9,000   | ) |   |            |          |   |   |           | 813,000   |  
|                                                                            | Income (loss) from discontinued operations                    |                    |           | 25,000  |                  |   |           | (282,000 | ) |   |            | (272,000  | ) |   |           | (57,000   | )
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Net income (loss)                                                           |                                                               | $                  | 408,000   |         |                  | $ | (34,000   | )        |   | $ | 60,000     |           |   | $ | 1,307,000 |          
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Other comprehensive income (loss):                                          |                                                               |                    |           |         |                  |   |           |          |   |   |            |           |   |   |           |          
|                                                                            | Net income (loss)                                             |                    | $         | 408,000 |                  |   | $         | (34,000  | ) |   | $          | 60,000    |   |   | $         | 1,307,000 |  
|                                                                            | Unrealized income (loss) on marketable securities             |                    |           | 50,000  |                  |   |           | (9,000   | ) |   |            | (24,000   | ) |   |           | (9,000    | )
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Comprehensive income (loss)                                                 |                                                               | $                  | 458,000   |         |                  | $ | (43,000   | )        |   | $ | 36,000     |           |   | $ | 1,298,000 |          
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Net income (loss) per common share:                                         |                                                               |                    |           |         |                  |   |           |          |   |   |            |           |   |   |           |          
|                                                                            | Continuing operations  basic and diluted                     |                    | $         | 0.08    |                  |   | $         | 0.05     |   |   | $          | 0.07      |   |   | $         | 0.12      |  
|                                                                            | Discontinued operations  basic and diluted                   |                    |           | 0.01    |                  |   |           | (0.06    | ) |   |            | (0.06     | ) |   |           | 0.16      |  
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Total net income (loss) per common share  basic and
    diluted            |                                                               | $                  | 0.09      |         |                  | $ | (0.01     | )        |   | $ | 0.01       |           |   | $ | 0.28      |          
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          
|Weighted average shares of common stock outstanding 
    basic and diluted |                                                               |                    | 4,605,000 |         |                  |   | 4,643,000 |          |   |   | 4,605,000  |           |   |   | 4,644,000 |          
|                                                                            |                                                               |                    |           |         |                  |   |           |          |   |   |            |          



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY


(Going Concern Basis)


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


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



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T REIT, INC.





CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


(Going Concern Basis)


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


|                                                                                     |                                                                                                                                           |                                                     |           |            |            |   |             |            |            |  
|------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | -
|                                                                                     |                                                                                                                                           | Six Months Ended                                    |          
|                                                                                     |                                                                                                                                           |                                                     |          
|                                                                                     |                                                                                                                                           | June 30,                                            |           |            | June 30,   |  
|                                                                                     |                                                                                                                                           | 2005                                                |           |            | 2004       |  
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                 |                                                                                                                                           |                                                     |           |            |            |   |             |           
|Net income                                                                           |                                                                                                                                           | $                                                   | 60,000    |            |            | $ | 1,307,000   |           
|Adjustments to reconcile net income to net cash provided by
    operating activities |                                                                                                                                           |                                                     |           |            |            |   |             |           
|                                                                                     | Distributions received from equity in earnings of unconsolidated
    real estate                                                          |                                                     |           | 706,000    |            |   |             | 234,000    |           
|                                                                                     | Gain on sale of real estate investments                                                                                                   |                                                     |           |           |            |   |             | (813,000   | )         
|                                                                                     | Gain on sale of investment in unconsolidated real estate                                                                                  |                                                     |           | (191,000   | )          |   |             |           |           
|                                                                                     | Gain on sale of marketable securities                                                                                                     |                                                     |           | (126,000   | )          |   |             | (50,000    | )         
|                                                                                     | Depreciation and amortization (including deferred financing
    costs and intangible assets)  continuing and
    discontinued operations |                                                     |           | 1,237,000  |            |   |             | 1,125,000  |           
|                                                                                     | Stock based compensation expense                                                                                                          |                                                     |           | 64,000     |            |   |             |           |           
|                                                                                     | Minority interests                                                                                                                        |                                                     |           | (124,000   | )          |   |             | (99,000    | )         
|Change in operating assets and liabilities:                                          |                                                                                                                                           |                                                     |           |            |            |   |             |           
|                                                                                     | Accounts receivable                                                                                                                       |                                                     |           | (83,000    | )          |   |             | (182,000   | )         
|                                                                                     | Accounts receivable/payable from/to related parties                                                                                       |                                                     |           | (617,000   | )          |   |             | 120,000    |           
|                                                                                     | Other assets                                                                                                                              |                                                     |           | 188,000    |            |   |             | 247,000    |           
|                                                                                     | Accounts payable and accrued liabilities                                                                                                  |                                                     |           | (440,000   | )          |   |             | (450,000   | )         
|                                                                                     | Security deposits and prepaid rent                                                                                                        |                                                     |           | 209,000    |            |   |             | 208,000    |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|                                                                                     |                                                                                                                                           | Net cash provided by operating activities           |           |            | 883,000    |   |             |            | 1,647,000  |  
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                 |                                                                                                                                           |                                                     |           |            |            |   |             |           
|                                                                                     | Purchase of marketable securities                                                                                                         |                                                     |           | (6,101,000 | )          |   |             | (4,229,000 | )         
|                                                                                     | Proceeds from sale of marketable securities                                                                                               |                                                     |           | 4,909,000  |            |   |             | 3,806,000  |           
|                                                                                     | Purchase of real estate operating properties                                                                                              |                                                     |           |           |            |   |             | (5,927,000 | )         
|                                                                                     | Proceeds from disposition of properties                                                                                                   |                                                     |           |           |            |   |             | 2,452,000  |           
|                                                                                     | Proceeds from sale of unconsolidated real estate                                                                                          |                                                     |           | 603,000    |            |   |             |           |           
|                                                                                     | Purchase of investments in unconsolidated real estate                                                                                     |                                                     |           |           |            |   |             | (125,000   | )         
|                                                                                     | Restricted cash                                                                                                                           |                                                     |           | 310,000    |            |   |             |           |           
|                                                                                     | Capital expenditures                                                                                                                      |                                                     |           | (3,000     | )          |   |             | (1,662,000 | )         
|                                                                                     | Collections of notes receivable                                                                                                           |                                                     |           | 531,000    |            |   |             | 7,000      |           
|                                                                                     | Real estate deposits applied to purchases                                                                                                 |                                                     |           |           |            |   |             | 11,000     |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|                                                                                     |                                                                                                                                           | Net cash provided by (used in) investing activities |           |            | 249,000    |   |             |            | (5,667,000 | )
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                 |                                                                                                                                           |                                                     |           |            |            |   |             |           
|                                                                                     | Principal payments on mortgages payable                                                                                                   |                                                     |           | (33,000    | )          |   |             | (4,935,000 | )         
|                                                                                     | Borrowings on line of credit                                                                                                              |                                                     |           |           |            |   |             | 710,000    |           
|                                                                                     | Repayment on line of credit                                                                                                               |                                                     |           |           |            |   |             | (500,000   | )         
|                                                                                     | Distributions paid                                                                                                                        |                                                     |           | (1,910,000 | )          |   |             | (1,908,000 | )         
|                                                                                     | Distributions to minority shareholders                                                                                                    |                                                     |           | (91,000    | )          |   |             | (78,000    | )         
|                                                                                     | Repurchase of shares                                                                                                                      |                                                     |           | (87,000    | )          |   |             | (32,000    | )         
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|                                                                                     |                                                                                                                                           | Net cash used in financing activities               |           |            | (2,121,000 | ) |             |            | (6,743,000 | )
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                            |                                                                                                                                           |                                                     | (989,000  | )          |            |   | (10,763,000 | )         
|CASH AND CASH EQUIVALENTS  beginning of period                                      |                                                                                                                                           |                                                     | 7,229,000 |            |            |   | 12,189,000  |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|CASH AND CASH EQUIVALENTS  end of period                                            |                                                                                                                                           | $                                                   | 6,240,000 |            |            | $ | 1,426,000   |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                    |                                                                                                                                           |                                                     |           |            |            |   |             |           
|Cash paid during the period for:                                                     |                                                                                                                                           |                                                     |           |            |            |   |             |           
|                                                                                     | Interest                                                                                                                                  |                                                     | $         | 638,000    |            |   | $           | 885,000    |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|                                                                                     | Income taxes                                                                                                                              |                                                     | $         | 3,000      |            |   | $           | 5,000      |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
    ACTIVITIES:           |                                                                                                                                           |                                                     |           |            |            |   |             |           
|                                                                                     | Note receivable due to sale of property                                                                                                   |                                                     | $         |           |            |   | $           | 8,700,000  |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  
|                                                                                     | Liabilities assumed in acquisitions                                                                                                       |                                                     | $         |           |            |   | $           | 18,311,000 |           
|                                                                                     |                                                                                                                                           |                                                     |           |            |            |  



7



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##### Table of Contents



T REIT, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2005 (unaudited)




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







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





8



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



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

Consolidation of Variable Interest Entities Accounting for the Impairment or Disposal of Long Lived
Assets.






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





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



9



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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



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





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



10



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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







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





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







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



11



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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

Accounting for Leases




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







|                                |  |              |           |               |             |  |      |          |  |                    |  |  |                 |  |  |  |            | 
|------------------------------- |  | ------------ | --------- | ------------- | ----------- |  | ---- | -------- |  | ------------------ |  |  | --------------- |  |  |  | ---------- | 
|                                |  |              |           | Percentage of |             |  |      |          |  |                    | 
|                                |  | 2005 Annual  |           |               | 2005 Annual |  |      |          |  | Square             |  |  | Lease           | 
|Tenant                          |  | Base Rent(*) |           |               | Base Rent   |  |      | Property |  | Footage            |  |  | Expiration Date | 
|                                |  |              |           |               |             |  |      |          |  |                    |  |  |                 | 
|Netsolve, Inc.                  |  | $            | 1,112,000 |               |             |  | 42.2 | %        |  | AmberOaks          |  |  | 78,000          |  |  |  | April 2007 | 
|Newell Rubbermaid               |  | $            | 493,000   |               |             |  | 18.7 | %        |  | AmberOaks          |  |  | 51,000          |  |  |  | April 2007 | 
|General Services Administration |  | $            | 327,000   |               |             |  | 12.4 | %        |  | University Heights |  |  | 21,000          |  |  |  | Nov. 2015  | 






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

12



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |  |              |           |               |             |  |      |          |  |           |  |  |                 |  |  |  |            | 
|------------------------------- |  | ------------ | --------- | ------------- | ----------- |  | ---- | -------- |  | --------- |  |  | --------------- |  |  |  | ---------- | 
|                                |  |              |           | Percentage of |             |  |      |          |  |           | 
|                                |  | 2004 Annual  |           |               | 2004 Annual |  |      |          |  | Square    |  |  | Lease           | 
|Tenant                          |  | Base Rent(*) |           |               | Base Rent   |  |      | Property |  | Footage   |  |  | Expiration Date | 
|                                |  |              |           |               |             |  |      |          |  |           |  |  |                 | 
|Netsolve, Inc.                  |  | $            | 1,073,000 |               |             |  | 31.2 | %        |  | AmberOaks |  |  | 78,000          |  |  |  | April 2007 | 
|ACS State Health Services, Inc. |  | $            | 588,000   |               |             |  | 17.1 | %        |  | AmberOaks |  |  | 44,000          |  |  |  | May 2005   | 
|Newell Rubbermaid               |  | $            | 493,000   |               |             |  | 14.4 | %        |  | AmberOaks |  |  | 51,000          |  |  |  | April 2007 | 






|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
|* | Annualized rental income based on contractual base rent set
    forth in leases in effect at June 30, 2004.



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





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

Reporting Comprehensive Income.




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

Earnings Per Share.


13



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                      |  |                    |           |  |                  |   |           |      |  |   |           |  |  |   |           | 
|--------------------------------------------------------------------- |  | ------------------ | --------- |  | ---------------- | - | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                                                                      |  | Three Months Ended |           |  | Six Months Ended |  
|                                                                      |  | June 30,           |           |  | June 30,         |  
|                                                                      |  |                    |           |  |                  |  
|                                                                      |  | 2005               |           |  | 2004             |   |           | 2005 |  |   | 2004      | 
|                                                                      |  |                    |           |  |                  |   |           |      |  |   |           | 
|Net income (loss)                                                     |  | $                  | 408,000   |  |                  | $ | (34,000   | )    |  | $ | 60,000    |  |  | $ | 1,307,000 | 
|                                                                      |  |                    |           |  |                  |   |           |      |  |   |           | 
|Net income (loss) per share  basic and diluted                       |  | $                  | 0.09      |  |                  | $ | (0.01     | )    |  | $ | 0.01      |  |  | $ | 0.28      | 
|                                                                      |  |                    |           |  |                  |   |           |      |  |   |           | 
|Weighted average number of shares outstanding  basic
    and diluted |  |                    | 4,605,000 |  |                  |   | 4,643,000 |      |  |   | 4,605,000 |  |  |   | 4,644,000 | 
|                                                                      |  |                    |           |  |                  |   |           |      |  |   |           | 



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





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

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


|                                                                                                                  |  |                    |         |   |                  |   |         |      |  |   |         |   |  |   |           |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ---------------- | - | ------- | ---- |  | - | ------- | - |  | - | --------- | -
|                                                                                                                  |  | Three Months Ended |         |   | Six Months Ended |  
|                                                                                                                  |  | June 30,           |         |   | June 30,         |  
|                                                                                                                  |  |                    |         |   |                  |  
|                                                                                                                  |  | 2005               |         |   | 2004             |   |         | 2005 |  |   | 2004    |  
|                                                                                                                  |  |                    |         |   |                  |   |         |      |  |   |         |  
|Reported net income (loss) income                                                                                 |  | $                  | 408,000 |   |                  | $ | (34,000 | )    |  | $ | 60,000  |   |  | $ | 1,307,000 |  
|Add: Stock based employee compensation expense included in
    reported net income                                |  |                    | 32,000  |   |                  |   |        |      |  |   | 64,000  |   |  |   |          |  
|Less: Total stock based employee compensation expense determined
    under fair value based method for all awards |  |                    | (33,000 | ) |                  |   | (42,000 | )    |  |   | (83,000 | ) |  |   | (65,000   | )
|                                                                                                                  |  |                    |         |   |                  |   |         |      |  |   |         |  
|Pro forma net income (loss)                                                                                       |  | $                  | 407,000 |   |                  | $ | (76,000 | )    |  | $ | 41,000  |   |  | $ | 1,242,000 |  
|                                                                                                                  |  |                    |         |   |                  |   |         |      |  |   |         |  
|Reported net income (loss) per share  basic and
    diluted                                                      |  | $                  | 0.09    |   |                  | $ | (0.01   | )    |  | $ | 0.01    |   |  | $ | 0.28      |  
|                                                                                                                  |  |                    |         |   |                  |   |         |      |  |   |         |  
|Pro forma net income (loss) per share  basic and
    diluted                                                     |  | $                  | 0.09    |   |                  | $ | (0.02   | )    |  | $ | 0.01    |   |  | $ | 0.27      |  
|                                                                                                                  |  |                    |         |   |                  |   |         |      |  |   |         |  



14



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





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





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





|                                                                                        |                                                                                     |   |            |            |  
|--------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ---------- | ---------- | -
|Assets:                                                                                 |                                                                                     |   |            |           
|                                                                                        | Estimated net inflows from consolidated and unconsolidated
    operating activities |   | $          | 3,808,000  |  
|Liabilities:                                                                            |                                                                                     |   |            |           
|                                                                                        | Liquidation costs                                                                   |   |            | (1,464,000 | )
|                                                                                        | Distributions                                                                       |   |            | (316,000   | )
|                                                                                        | Other                                                                               |   |            | (72,000    | )
|                                                                                        |                                                                                     |   |           
|                                                                                        |                                                                                     |   | (1,852,000 | )         
|                                                                                        |                                                                                     |   |           
|Total assets for estimated receipts in excess of estimated costs
    during liquidation |                                                                                     | $ | 1,956,000  |           
|                                                                                        |                                                                                     |   |           



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



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

15



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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



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



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

|                          |  |                    |            |  |                  |   |           |      |  |   |            |  |  |   |            | 
|------------------------- |  | ------------------ | ---------- |  | ---------------- | - | --------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                          |  | Three Months Ended |            |  | Six Months Ended |  
|                          |  | June 30,           |            |  | June 30,         |  
|                          |  |                    |            |  |                  |  
|                          |  | 2005               |            |  | 2004             |   |           | 2005 |  |   | 2004       | 
|                          |  |                    |            |  |                  |   |           |      |  |   |            | 
|Revenues                  |  | $                  | 10,995,000 |  |                  | $ | 8,959,000 |      |  | $ | 22,380,000 |  |  | $ | 17,118,000 | 
|Rental and other expenses |  |                    | 9,003,000  |  |                  |   | 7,566,000 |      |  |   | 19,817,000 |  |  |   | 14,287,000 | 
|                          |  |                    |            |  |                  |   |           |      |  |   |            | 
|Net income                |  | $                  | 1,992,000  |  |                  | $ | 1,393,000 |      |  | $ | 2,563,000  |  |  | $ | 2,831,000  | 
|                          |  |                    |            |  |                  |   |           |      |  |   |            | 
|Our equity in earnings    |  | $                  | 407,000    |  |                  | $ | 368,000   |      |  | $ | 787,000    |  |  | $ | 633,000    | 
|                          |  |                    |            |  |                  |   |           |      |  |   |            | 

16



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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







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



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





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





17



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





|    |                  
|--- | -----------------
|10. | Mortgages Payable



|                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |  |              |   |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---------- |  | ------------ | - | ---------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                      |  | June 30, |            |  | December 31, |  
|                                                                                                                                                                                                                                                                                                                                                                                                      |  | 2005     |            |  | 2004         |  
|                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |  |              |  
|Note payable to a mortgage company, secured by a deed of trust,
    rate per annum equal to an initial benchmark floor rate of 3%
    based on the 10-year Treasury note plus 2.25% and matures
    January 1, 2008. At June 30, 2005 and
    December 31, 2004 the interest rate was 5.25%. Equal
    principal and interest payments of $24,000 are payable monthly
    until repayment in full     |  | $        | 4,252,000  |  |              | $ | 4,285,000  | 
|Note payable to bank, secured by a first deed of trust, monthly
    interest only through February 15, 2006 and thereafter,
    principal and interest payments through the maturity date of
    January 20, 2007 at the prime rate plus 1.07, subject to a
    floor of 5.5% per annum. The interest rate at June 30,
    2005 and December 31, 2004 was 6.75% and 5.75% per
    annum, respectively |  |          | 11,250,000 |  |              |   | 15,000,000 | 
|                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |  |              |  
|Total mortgage loans payable                                                                                                                                                                                                                                                                                                                                                                          |  | $        | 15,502,000 |  |              | $ | 19,285,000 | 
|                                                                                                                                                                                                                                                                                                                                                                                                      |  |          |            |  |              |  





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



18



---



##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



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









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







|                                                |           |           |         |   |          |   |      |                  |  |   |      |   | 
|----------------------------------------------- | --------- | --------- | ------- | - | -------- | - | ---- | ---------------- |  | - | ---- | - | 
|                                                |           | Number of |         |   | Exercise |   |      | Weighted Average | 
|Options Outstanding at                          |           | Shares    |         |   | Price    |   |      | Exercise Price   | 
|                                                |           |           |         |   |          |   |      |                  | 
|December 31, 2004 (155,000 options exercisable) |           |           | 425,000 |   |          | $ | 9.05 |                  |  | $ | 9.05 |  
|                                                | Granted   |           |         |  |          |   |      |                 |  |   |      |  | 
|                                                | Cancelled |           |         |  |          |   |      |                 |  |   |      |  | 
|                                                |           |           |         |   |          |   |      |                  | 
|June 30, 2005 (165,000 options exercisable)     |           |           | 425,000 |   |          | $ | 9.05 |                  |  | $ | 9.05 |  
|                                                |           |           |         |   |          |   |      |                  | 

|                |  |             |         |                  |                  |  |                  |             |  |   |             |                  |  |             |         |  |  |   |      | 
|--------------- |  | ----------- | ------- | ---------------- | ---------------- |  | ---------------- | ----------- |  | - | ----------- | ---------------- |  | ----------- | ------- |  |  | - | ---- | 
|                |  |             |         | Weighted Average |                  |  | Weighted Average |             |  |   |             | Weighted Average | 
|                |  |             |         | Remaining        |                  |  | Exercise Price  |             |  |   |             | Exercise Price  | 
|                |  | Options     |         |                  | Contractual Life |  |                  | Outstanding |  |   | Options     |                  |  | Exercisable |        
|Exercise Prices |  | Outstanding |         |                  | (Years)          |  |                  | Options     |  |   | Exercisable |                  |  | Options     |        
|                |  |             |         |                  |                  |  |                  |             |  |   |             |                  |  |             |        
|$9.05           |  |             | 425,000 |                  |                  |  | 8.2              |             |  | $ | 9.05        |                  |  |             | 165,000 |  |  | $ | 9.05 | 



19



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



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











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





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



20



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





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





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



|                         |          |           |   |         |                |  |   |               |         |  |  |   |   | 
|------------------------ | -------- | --------- | - | ------- | -------------- |  | - | ------------- | ------- |  |  | - | - | 
|                         |          | Amount of |   |         | T REIT, Inc.s |  |   | Interest Rate |        
|Property/Issue Date      |          | Loan      |   |         | Portion        |  |   | (Per Annum)   |        
|                         |          |           |   |         |                |  |   |               |        
|Pacific Corporate Park:* |          |           |   |         |                |  |   |               |         |  |  |  
|                         | 12/06/04 |           | $ | 80,000  |                |  | $ | 18,000        |         |  |  | 8 | %
|                         | 02/03/05 |           |   | 130,000 |                |  |   | 30,000        |         |  |  | 8 |  
|                         | 02/11/05 |           |   | 263,000 |                |  |   | 60,000        |         |  |  | 8 |  
|                         | 03/18/05 |           |   | 20,000  |                |  |   | 5,000         |         |  |  | 8 |  
|                         | 03/21/05 |           |   | 731,000 |                |  |   | 167,000       |         |  |  | 8 |  
|                         | 04/08/05 |           |   | 80,000  |                |  |   | 18,000        |         |  |  | 8 |  
|Emerald Plaza:           |          |           |   |         |                |  |   |               |         |  |  |  
|                         | 02/07/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8 |  
|                         | 03/04/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8 |  
|                         | 04/06/05 |           |   | 279,000 |                |  |   | 8,000         |         |  |  | 8 |  
|County Center Drive:     |          |           |   |         |                |  |   |               |         |  |  |  
|                         | 02/07/05 |           |   | 2,000   |                |  |   |              |         |  |  | 8 |  
|                         |          |           |   |         |                |  |   |               |        
|                         |          | Total     |   | $       | 2,049,000      |  |   | $             | 318,000 |  |  |   |   | 
|                         |          |           |   |         |                |  |   |               |        






21



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





| |                            
| | ---------------------------
| | NNN 2004 Notes Program, LLC





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



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

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


Commitments and
Contingencies.




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



22



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |             |  |  |   |            | 
|----------------------------------- |  | ---------- | ----- | ------------- | -------- | - | ------------ | ---------- | ------------- | ------------- | ------------ |  | ------------ | ---------- | ----------- |  |  | - | ---------- | 
|                                    |  |            |       | Mortgage Debt |          |   |              |            | Mortgage Debt |               |              | 
|                                    |  |            |       | Balance as of |          |   | T REIT Incs |            |               | Balance as of |              |  | T REIT Incs |           
|                                    |  | Ownership  |       |               | June 30, |   |              | Portion of |               |               | December 31, |  |              | Portion of |            
|Property                            |  | Percentage |       |               | 2005     |   |              | Debt       |               |               | 2004         |  |              | Debt       |            
|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |            
|Reno Trademark Building  TIC       |  |            | 40.0% |               |          | $ | 4,472,000    |            |               | $             | 1,789,000    |  |              | $          | 4,504,000   |  |  | $ | 1,802,000  | 
|City Center West A Building  TIC |  |            | 89.1% |               |          |   | 12,587,000   |            |               |               | 11,218,000   |  |              |            | 12,484,000  |  |  |   | 11,127,000 | 
|Titan Building & Plaza  TIC        |  |            | 48.5% |               |          |   | 5,755,000    |            |               |               | 2,791,000    |  |              |            | 5,795,000   |  |  |   | 2,811,000  | 
|Pacific Corporate Park  LLC        |  |            | 22.8% |               |          |   | 1,505,000    |            |               |               | 343,000      |  |              |            | 5,474,000   |  |  |   | 1,246,000  | 
|Congress Center  LLC               |  |            | 10.3% |               |          |   | 97,500,000   |            |               |               | 9,962,000    |  |              |            | 97,500,000  |  |  |   | 9,962,000  | 
|Enclave Parkway  LLC               |  |            | 3.3%  |               |          |   | 23,179,000   |            |               |               | 755,000      |  |              |            | 23,310,000  |  |  |   | 759,000    | 
|Oakey Building  LLC                |  |            | 9.8%  |               |          |   | 4,000,000    |            |               |               | 390,000      |  |              |            | 4,000,000   |  |  |   | 390,000    | 
|Emerald Plaza  LLC                 |  |            | 2.7%  |               |          |   | 68,500,000   |            |               |               | 1,850,000    |  |              |            | 68,500,000  |  |  |   | 1,850,000  | 
|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |            
|Total                               |  |            |       |               |          | $ | 217,498,000  |            |               | $             | 29,098,000   |  |              | $          | 221,567,000 |  |  | $ | 29,947,000 | 
|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |            





23



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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









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





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



24



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                  |                                                              |                    |           |           |                  |   |           |           |  |   |           |           |  |   |           |           | 
|----------------- | ------------------------------------------------------------ | ------------------ | --------- | --------- | ---------------- | - | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                  |                                                              | Three Months Ended |           |           | Six Months Ended |  
|                  |                                                              |                    |           |           |                  |  
|                  |                                                              | June 30,           |           |           | June 30,         |   |           | June 30,  |  |   | June 30,  |          
|                  |                                                              | 2005               |           |           | 2004             |   |           | 2005      |  |   | 2004      |          
|                  |                                                              |                    |           |           |                  |   |           |           |  |   |           |          
|Revenues          |                                                              |                    |           |           |                  |   |           |           |  |   |           |           |  |   |           |          
|                  | Rental income                                                |                    | $         | 1,237,000 |                  |   | $         | 1,378,000 |  |   | $         | 2,248,000 |  |   | $         | 2,454,000 | 
|                  | Interest income                                              |                    |           | 5,000     |                  |   |           |          |  |   |           | 9,000     |  |   |           | 1,000     | 
|                  |                                                              |                    |           |           |                  |   |           |           |  |   |           |          
|                  |                                                              |                    | 1,242,000 |           |                  |   | 1,378,000 |           |  |   | 2,257,000 |           |  |   | 2,455,000 |          
|Expenses          |                                                              |                    |           |           |                  |   |           |           |  |   |           |           |  |   |           |          
|                  | Rental expenses                                              |                    |           | 489,000   |                  |   |           | 682,000   |  |   |           | 943,000   |  |   |           | 842,000   | 
|                  | Depreciation and amortization                                |                    |           | 420,000   |                  |   |           | 689,000   |  |   |           | 1,035,000 |  |   |           | 1,135,000 | 
|                  | Interest (including amortization of deferred financing fees) |                    |           | 321,000   |                  |   |           | 392,000   |  |   |           | 675,000   |  |   |           | 582,000   | 
|Minority interest |                                                              |                    | (13,000   | )         |                  |   | (103,000  | )         |  |   | (124,000  | )         |  |   | (99,000   | )        
|                  |                                                              |                    |           |           |                  |   |           |           |  |   |           |          
|Net income (loss) |                                                              | $                  | 25,000    |           |                  | $ | (282,000  | )         |  | $ | (272,000  | )         |  | $ | (57,000   | )        
|                  |                                                              |                    |           |           |                  |   |           |           |  |   |           |          



|                                                                                                                                         |  |              |            | 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | 
|                                                                                                                                         |  | December 31, |           
|                                                                                                                                         |  | 2004         |           
|                                                                                                                                         |  |              |           
|Properties held for sale, net of accumulated depreciation of
    $880,000                                                                |  | $            | 23,874,000 | 
|Other assets  properties held for sale, net include
    identified intangible assets, net of accumulated amortization of
    $1,805,000 |  |              | 3,822,000  | 
|Total assets                                                                                                                             |  |              | 30,593,000 | 
|Mortgages payable and other debt secured by properties held for
    sale                                                                 |  |              | 19,285,000 | 
|Minority liability  property held for sale                                                                                              |  |              | 1,916,000  | 
|Total liabilities                                                                                                                        |  |              | 20,428,000 | 
|Total equity                                                                                                                             |  |              | 10,165,000 | 



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





25



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##### Table of Contents



T REIT, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






26



---



##### Table of Contents








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



Forward-Looking Statements




Overview and Background






27



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##### Table of Contents











Critical Accounting Policies






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



28



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##### Table of Contents







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





|                                                                                        |                                                                                 |   |            |            |  
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | - | ---------- | ---------- | -
|Assets:                                                                                 |                                                                                 |   |            |           
|                                                                                        | Estimated inflows from consolidated and unconsolidated operating
    activities |   | $          | 3,808,000  |  
|Liabilities:                                                                            |                                                                                 |   |            |           
|                                                                                        | Liquidation costs                                                               |   |            | (1,464,000 | )
|                                                                                        | Distributions                                                                   |   |            | (316,000   | )
|                                                                                        | Other                                                                           |   |            | (72,000    | )
|                                                                                        |                                                                                 |   |           
|                                                                                        |                                                                                 |   | (1,852,000 | )         
|                                                                                        |                                                                                 |   |           
|Total assets for estimated receipts in excess of estimated costs
    during liquidation |                                                                                 | $ | 1,956,000  |           
|                                                                                        |                                                                                 |   |           



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



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



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

Accounting for the Impairment or
Disposal of Long Lived Assets


29



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##### Table of Contents









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





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





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





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



Qualification as a REIT




30



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##### Table of Contents







Investments in Unconsolidated Real Estate




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



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





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##### Table of Contents



Factors Which May Influence Results of Operations




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





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





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



32



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##### Table of Contents



Results of Operations






| |                                                                        
| | -----------------------------------------------------------------------
| | Comparison of the three and six months ended June 30,
    2005 and 2004

|                                                              |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |         |  |   |            |         |  |  |         |        |  
|------------------------------------------------------------- | ------------------------------------------------ | --------------------------- | -------- | ------- | ------------------------- | - | -------- | ------- | ------- | - | -------- | ------- |  | ---- | --------- | ----- | ---- | - | ---------- | --------- |  | - | --------- | ------- |  | - | ---------- | ------- |  |  | ------- | ------ | -
|                                                              |                                                  | Three Months Ended June 30, |          |         | Six Months Ended June 30, |  
|                                                              |                                                  |                             |          |         |                           |  
|                                                              |                                                  |                             |          | Percent |                           |   |          |         | Percent |  
|                                                              |                                                  | 2005                        |          |         | 2004                      |   |          | Change  |         |   | Change   |         |  | 2005 |           |       | 2004 |   |            | Change    |  |   | Change    |        
|                                                              |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |        
|Expenses:                                                     |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |         |  |   |            |         |  |  |         |       
|                                                              | General and administrative                       |                             | $        | 459,000 |                           |   | $        | 256,000 |         |   | $        | 203,000 |  |      |           | 79.30 | %    |   | $          | 1,013,000 |  |   | $         | 346,000 |  |   | $          | 667,000 |  |  |         | 192.77 | %
|                                                              |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |        
|Operating loss                                                |                                                  |                             | (459,000 | )       |                           |   | (256,000 | )       |         |   | (203,000 | )       |  |      | (79.30    | )     |      |   | (1,013,000 | )         |  |   | (346,000  | )       |  |   | (667,000   | )       |  |  | (192.77 | )     
|Other income (expense):                                       |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |         |  |   |            |         |  |  |         |       
|Other income                                                  |                                                  |                             | 38,000   |         |                           |   |         |         |         |   | 38,000   |         |  |      |          |       |      |   | 52,000     |           |  |   |          |         |  |   | 52,000     |         |  |  |        |       
|Interest (including amortization of deferred financing costs) |                                                  |                             | (36,000  | )       |                           |   | (17,000  | )       |         |   | (19,000  | )       |  |      | (111.76   | )     |      |   | (44,000    | )         |  |   | (26,000   | )       |  |   | (18,000    | )       |  |  | 69.23   |       
|Interest and dividend income                                  |                                                  |                             | 132,000  |         |                           |   | 160,000  |         |         |   | (28,000  | )       |  |      | (17.50    | )     |      |   | 233,000    |           |  |   | 240,000   |         |  |   | (7,000     | )       |  |  | (2.92   | )     
|Gain on sale of marketable securities                         |                                                  |                             | 110,000  |         |                           |   | 2,000    |         |         |   | 108,000  |         |  |      | 5,400.00  |       |      |   | 126,000    |           |  |   | 50,000    |         |  |   | 76,000     |         |  |  | 152.00  |       
|Gain on sale of unconsolidated real estate investments        |                                                  |                             | 191,000  |         |                           |   |         |         |         |   | 191,000  |         |  |      |          |       |      |   | 191,000    |           |  |   |          |         |  |   | 191,000    |         |  |  |        |       
|                                                              | Equity in earnings of unconsolidated real estate |                             |          | 407,000 |                           |   |          | 368,000 |         |   |          | 39,000  |  |      |           | 10.60 |      |   |            | 787,000   |  |   |           | 633,000 |  |   |            | 154,000 |  |  |         | 24.33  |  
|                                                              |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |        
|Income from continuing operations                             |                                                  |                             | 383,000  |         |                           |   | 257,000  |         |         |   | 126,000  |         |  |      | 49.03     |       |      |   | 332,000    |           |  |   | 551,000   |         |  |   | (219,000   | )       |  |  | (39.75  | )     
|Discontinued operations:                                      |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |         |  |   |            |         |  |  |         |       
|Gain (loss) on sale of real estate dispositions               |                                                  |                             |         |         |                           |   | (9,000   | )       |         |   | 9,000    |         |  |      | (100.00   | )     |      |   |           |           |  |   | 813,000   |         |  |   | (813,000   | )       |  |  | (100.00 | )     
|Income (loss) from discontinued operations                    |                                                  |                             | 25,000   |         |                           |   | (282,000 | )       |         |   | 307,000  |         |  |      | (108.87   | )     |      |   | (272,000   | )         |  |   | (57,000   | )       |  |   | (215,000   | )       |  |  | (377.19 | )     
|                                                              |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |        
|Net income (loss)                                             |                                                  | $                           | 408,000  |         |                           | $ | (34,000  | )       |         | $ | 442,000  |         |  |      | (1,300.00 | )%    |      | $ | 60,000     |           |  | $ | 1,307,000 |         |  | $ | (1,247,000 | )       |  |  | (95.41  | )%    
|                                                              |                                                  |                             |          |         |                           |   |          |         |         |   |          |         |  |      |           |       |      |   |            |           |  |   |           |        









33



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##### Table of Contents













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





Liquidity and Capital Resources






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



34



---



##### Table of Contents











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











35



---



##### Table of Contents







Capital Resources




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







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







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



36



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##### Table of Contents





|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |             |  |  |   |            | 
|----------------------------------- |  | ---------- | ----- | ------------- | -------- | - | ------------ | ---------- | ------------- | ------------- | ------------ |  | ------------ | ---------- | ----------- |  |  | - | ---------- | 
|                                    |  |            |       | Mortgage Debt |          |   |              |            | Mortgage Debt |               |              | 
|                                    |  |            |       | Balance as of |          |   | T REIT Incs |            |               | Balance as of |              |  | T REIT Incs |           
|                                    |  | Ownership  |       |               | June 30, |   |              | Portion of |               |               | December 31, |  |              | Portion of |            
|Property                            |  | Percentage |       |               | 2005     |   |              | Debt       |               |               | 2004         |  |              | Debt       |            
|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |            
|Reno Trademark Building  TIC       |  |            | 40.0% |               |          | $ | 4,472,000    |            |               | $             | 1,789,000    |  |              | $          | 4,504,000   |  |  | $ | 1,802,000  | 
|City Center West A Building  TIC |  |            | 89.1% |               |          |   | 12,587,000   |            |               |               | 11,218,000   |  |              |            | 12,484,000  |  |  |   | 11,127,000 | 
|Titan Building & Plaza  TIC        |  |            | 48.5% |               |          |   | 5,755,000    |            |               |               | 2,791,000    |  |              |            | 5,795,000   |  |  |   | 2,811,000  | 
|Pacific Corporate Park  LLC        |  |            | 22.8% |               |          |   | 1,505,000    |            |               |               | 343,000      |  |              |            | 5,474,000   |  |  |   | 1,246,000  | 
|Congress Center  LLC               |  |            | 10.3% |               |          |   | 97,500,000   |            |               |               | 9,962,000    |  |              |            | 97,500,000  |  |  |   | 9,962,000  | 
|Enclave Parkway  LLC               |  |            | 3.3%  |               |          |   | 23,179,000   |            |               |               | 755,000      |  |              |            | 23,310,000  |  |  |   | 759,000    | 
|Oakey Building  LLC                |  |            | 9.8%  |               |          |   | 4,000,000    |            |               |               | 390,000      |  |              |            | 4,000,000   |  |  |   | 390,000    | 
|Emerald Plaza  LLC                 |  |            | 2.7%  |               |          |   | 68,500,000   |            |               |               | 1,850,000    |  |              |            | 68,500,000  |  |  |   | 1,850,000  | 
|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |            
|Total                               |  |            |       |               |          | $ | 217,498,000  |            |               | $             | 29,098,000   |  |              | $          | 221,567,000 |  |  | $ | 29,947,000 | 
|                                    |  |            |       |               |          |   |              |            |               |               |              |  |              |            |            







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



37



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##### Table of Contents





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



|                         |          |           |   |         |                |  |   |               |         |  |  |   |   | 
|------------------------ | -------- | --------- | - | ------- | -------------- |  | - | ------------- | ------- |  |  | - | - | 
|                         |          | Amount of |   |         | T REIT, Inc.s |  |   | Interest Rate |        
|Property/Issue Date      |          | Loan      |   |         | Portion        |  |   | (Per Annum)   |        
|                         |          |           |   |         |                |  |   |               |        
|Pacific Corporate Park*: |          |           |   |         |                |  |   |               |         |  |  |  
|                         | 12/06/04 |           | $ | 80,000  |                |  | $ | 18,000        |         |  |  | 8 | %
|                         | 02/03/05 |           |   | 130,000 |                |  |   | 30,000        |         |  |  | 8 |  
|                         | 02/11/05 |           |   | 263,000 |                |  |   | 60,000        |         |  |  | 8 |  
|                         | 03/18/05 |           |   | 20,000  |                |  |   | 5,000         |         |  |  | 8 |  
|                         | 03/21/05 |           |   | 731,000 |                |  |   | 167,000       |         |  |  | 8 |  
|                         | 04/08/05 |           |   | 80,000  |                |  |   | 18,000        |         |  |  | 8 |  
|Emerald Plaza:           |          |           |   |         |                |  |   |               |         |  |  |  
|                         | 02/07/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8 |  
|                         | 03/04/05 |           |   | 232,000 |                |  |   | 6,000         |         |  |  | 8 |  
|                         | 04/06/05 |           |   | 279,000 |                |  |   | 8,000         |         |  |  | 8 |  
|County Center Drive:     |          |           |   |         |                |  |   |               |         |  |  |  
|                         | 02/07/05 |           |   | 2,000   |                |  |   |              |         |  |  | 8 |  
|                         |          |           |   |         |                |  |   |               |        
|                         |          | Total     |   | $       | 2,049,000      |  |   | $             | 318,000 |  |  |   |   | 
|                         |          |           |   |         |                |  |   |               |        





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





| |                            
| | ---------------------------
| | NNN 2004 Notes Program, LLC





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



38



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##### Table of Contents





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



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



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



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



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



|                                                                      |  |           |         |  |             |   |            |             |           |   |              |  |       |   |   |  |  |   |            | 
|--------------------------------------------------------------------- |  | --------- | ------- |  | ----------- | - | ---------- | ----------- | --------- | - | ------------ |  | ----- | - | - |  |  | - | ---------- | 
|                                                                      |  | Less Than |         |  |             |   |            |             | More Than |   |             
|                                                                      |  | 1 Year    |         |  | 1-3 Years   |   |            | 4-5 Years   |           |   | 5 Years      |  |      
|                                                                      |  | (2005)    |         |  | (2006-2007) |   |            | (2008-2009) |           |   | (After 2009) |  | Total |  
|                                                                      |  |           |         |  |             |   |            |             |           |   |              |  |       |  
|Principal payments  fixed rate debt                                  |  | $         | 33,000  |  |             | $ | 141,000    |             |           | $ | 4,078,000    |  |       | $ |  |  |  | $ | 4,252,000  | 
|Interest payments  fixed rate debt                                   |  |           | 113,000 |  |             |   | 442,000    |             |           |   | 18,000       |  |       |   |  |  |  |   | 573,000    | 
|Principal payments  variable rate debt                               |  |           |        |  |             |   | 11,250,000 |             |           |   |             |  |       |   |  |  |  |   | 11,250,000 | 
|Interest payments  variable rate debt (rate as of
    June 30, 2005) |  |           | 544,000 |  |             |   | 856,000    |             |           |   |             |  |       |   |  |  |  |   | 1,400,000  | 
|                                                                      |  |           |         |  |             |   |            |             |           |   |              |  |       |   |  
|Total                                                                 |  | $         | 690,000 |  |             | $ | 12,689,000 |             |           | $ | 4,096,000    |  |       | $ |  |  |  | $ | 17,475,000 | 
|                                                                      |  |           |         |  |             |   |            |             |           |   |              |  |       |   |  



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



39



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##### Table of Contents







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

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


Commitments and
Contingencies.




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





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



Subsequent Events






40



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##### Table of Contents







Funds from Operations












|                                                                   |                                                                                     |                           |           |           |      |   |           |          |  
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------- | ------------------------- | --------- | --------- | ---- | - | --------- | -------- | -
|                                                                   |                                                                                     | Six Months Ended June 30, |          
|                                                                   |                                                                                     |                           |          
|                                                                   |                                                                                     | 2005                      |           |           | 2004 |  
|                                                                   |                                                                                     |                           |           |           |      |  
|Net income                                                         |                                                                                     | $                         | 60,000    |           |      | $ | 1,307,000 |         
|Add:                                                               |                                                                                     |                           |           |           |      |   |           |         
|                                                                   | Depreciation and amortization  discontinued operations                             |                           |           | 1,026,000 |      |   |           | 706,000  |  
|                                                                   | Depreciation and amortization  unconsolidated real
    estate operating properties |                           |           | 430,000   |      |   |           | 463,000  |  
|Less:                                                              |                                                                                     |                           |           |           |      |   |           |         
|                                                                   | Gain/(loss) on sale of property                                                     |                           |           |          |      |   |           | (813,000 | )
|                                                                   |                                                                                     |                           |           |           |      |  
|Funds from operations                                              |                                                                                     | $                         | 1,516,000 |           |      | $ | 1,663,000 |         
|                                                                   |                                                                                     |                           |           |           |      |  
|Weighted average common shares outstanding  basic and
    diluted |                                                                                     |                           | 4,605,000 |           |      |   | 4,644,000 |         
|                                                                   |                                                                                     |                           |           |           |      |  
|Gain on sale of investments included in net income and FFO         |                                                                                     | $                         | 317,000   |           |      | $ | 50,000    |         
|                                                                   |                                                                                     |                           |           |           |      |  

41



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##### Table of Contents








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





|                                       |  |      |        |   |      |   |         |      |  |   |            |   |  |      |           |   |            |   |   |       |  |   |   |  |  |   |            |  
|-------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ---------- | - |  | ---- | --------- | - | ---------- | - | - | ----- |  | - | - |  |  | - | ---------- | -
|                                       |  | 2005 |        |   | 2006 |   |         | 2007 |  |   | 2008       |   |  | 2009 |           |   | Thereafter |   |   | Total | 
|                                       |  |      |        |   |      |   |         |      |  |   |            |   |  |      |           |   |            |   |   |       | 
|Fixed rate debt                        |  | $    | 33,000 |   |      | $ | 69,000  |      |  | $ | 72,000     |   |  | $    | 4,078,000 |   |            | $ |  |       |  | $ |  |  |  | $ | 4,252,000  |  
|Average interest rate on maturing debt |  |      | 5.25   | % |      |   | 5.25    | %    |  |   | 5.25       | % |  |      | 5.25      | % |            |   |  |       |  |   |  |  |  |   | 5.25       | %
|Variable rate debt                     |  |      |       |   |      | $ | 126,000 |      |  | $ | 11,124,000 |   |  | $    |          |   |            | $ |  |       |  | $ |  |  |  | $ | 11,250,000 |  
|Average interest rate on maturing debt |  |      | 7.25   | % |      |   | 7.25    | %    |  |   | 7.25       | % |  |      |          |   |            |   |  |       |  |   |  |  |  |   | 7.25       | %








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

Evaluation of disclosure controls and
procedures.






42



---



##### Table of Contents

















Changes in internal control over financial
reporting.


43



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##### Table of Contents








PART II  OTHER INFORMATION







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



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

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


Commitments and
Contingencies.




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





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



44



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##### Table of Contents














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








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








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



|                                                                                                         |  |     |           |  |         |  |        |         |  |  |          |  |  |  |   | 
|-------------------------------------------------------------------------------------------------------- |  | --- | --------- |  | ------- |  | ------ | ------- |  |  | -------- |  |  |  | - | 
|                                                                                                         |  | For |           |  | Against |  |        | Abstain |  |  | Withheld | 
|                                                                                                         |  |     |           |  |         |  |        |         |  |  |          | 
|Approval of the sale of all of our assets                                                                |  |     | 2,680,562 |  |         |  | 53,785 |         |  |  | 65,328   |  |  |  |  | 
|Approval of our dissolution                                                                              |  |     | 2,679,662 |  |         |  | 53,785 |         |  |  | 66,228   |  |  |  |  | 
|Anthony W. Thompson  election as director                                                               |  |     | 2,750,544 |  |         |  | 49,131 |         |  |  |         |  |  |  |  | 
|W. Brand Inlow  election as director                                                                    |  |     | 2,753,344 |  |         |  | 46,331 |         |  |  |         |  |  |  |  | 
|D. Fleet Wallace  election as director                                                                  |  |     | 2,752,844 |  |         |  | 46,831 |         |  |  |         |  |  |  |  | 
|Ratification of Deloitte and Touch LLP as our independent
    registered public accounting firm for 2005 |  |     | 2,708,968 |  |         |  | 18,790 |         |  |  | 71,916   |  |  |  |  | 
|Adjourn the meeting for more votes                                                                       |  |     | 2,672,426 |  |         |  | 52,594 |         |  |  | 74,654   |  |  |  |  | 






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








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



45



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##### Table of Contents






SIGNATURES






| |             
| | ------------
| | T REIT, Inc.
| | (Registrant)



| |     |                   
| | --- | ------------------
| | By: | /s/ Jack R. Maurer

| |                        
| | -----------------------
| |                        
| | Jack R. Maurer         
| | Chief Executive Officer



| |     |                    
| | --- | -------------------
| | By: | /s/ Scott D. Peters

| |                        
| | -----------------------
| |                        
| | Scott D. Peters        
| | Chief Financial Officer



| |     |                    
| | --- | -------------------
| | By: | /s/ Kelly J. Caskey

| |                         
| | ------------------------
| |                         
| | Kelly J. Caskey         
| | Chief Accounting Officer



46



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##### Table of Contents






EXHIBIT INDEX






| |    |     |  |                                                                                                                                                                                                                                                                                                                                                           
| | -- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1  |  | Our Articles of Incorporation (included as Exhibit 3.1 to
    our Registration Statement on Form S-11 filed on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                                                     
|
| | 3  | .2  |  | Form of our Amended and Restated Articles of Incorporation
    (included as Exhibit 3.2 to Amendment No. 3 to our
    Registration Statement on Form S-11 filed on
    November 22, 1999 (File No. 333-77229) and
    incorporated herein by this reference)                                                                                              
|
| | 3  | .3  |  | Form of our By-Laws (included as Exhibit 3.3 to our
    Registration Statement on Form S-11 filed on April 28,
    1999 (File No. 333-77229) and incorporated herein by this
    reference)                                                                                                                                                               
|
| | 3  | .4  |  | Form of our Amended By-Laws (included as Exhibit 3.4 to
    Post-Effective Amendment No. 2 to our Registration
    Statement on Form S-11 filed on July 17, 2001 (File
    No. 333-77229) and incorporated herein by reference.)                                                                                                                          
|
| | 4  | .1  |  | Form of Share Certificate (included as Exhibit 4.1 to
    Amendment No. 4 to our Registration Statement on
    Form S-11 filed on February 3, 2000 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                                    
|
| | 10 | .1  |  | Form of Agreement of Limited Partnership of T REIT, L.P.
    (included as Exhibit 10.1 to Amendment No. 2 to our
    Registration Statement on Form S-11 filed on
    October 13, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                
|
| | 10 | .2  |  | Dividend Reinvestment Program (included as Exhibit C to our
    Prospectus filed as part of our Registration Statement on
    Form S-11 on April 28, 1999 (File No. 333-77229)
    and incorporated herein by this reference)                                                                                                                             
|
| | 10 | .3  |  | Independent Director Stock Option Plan (included as
    Exhibit 10.3 to Amendment No. 4 to our Registration
    Statement on Form S-11 filed on February 3, 2000 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                      
|
| | 10 | .4  |  | Employee and Officer Stock Option Plan (included as
    Exhibit 10.4 to Amendment No. 4 to our Registration
    Statement on Form S-11 filed on February 3, 2000 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                      
|
| | 10 | .5  |  | Advisory Agreement between us and our Advisor (included as
    Exhibit 10.5 to Amendment No. 2 to our Registration
    Statement on Form S-11 filed on October 13, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                               
|
| | 10 | .6  |  | Purchase and Sale Agreement, dated June 5, 2000, by and
    between Robert C. Parker and Carolyn De La Fuente Parker
    and Triple Net Properties, LLC (included as Exhibit 10.1 to
    Form 10-Q filed by the Registrant with the SEC on
    November 14, 2000 and incorporated herein by this reference)                                               
|
| | 10 | .7  |  | Purchase and Sale Agreement, dated October 25, 2000, by and
    between CMF Capital Company LLC and T REIT, L.P. (included as
    Exhibit 10.1 to Form 8-K filed by the Registrant with
    the SEC on November 13, 2000 and incorporated herein by
    this reference)                                                                                   
|
| | 10 | .8  |  | Purchase and Sale Agreement, dated October 26, 2000, by and
    between CMF Capital Company LLC and T REIT L.P. (included as
    exhibit 10.1 to Form 8-K filed by the Registrant with
    the SEC on December 20, 2000 and incorporated herein by
    this reference)                                                                                    
|
| | 10 | .9  |  | Purchase and Sale Agreement, dated August 24, 2000, as
    amended, by and between Drummer Boy Holdings, LLC and Triple Net
    Properties, LLC (included as Exhibit 10.9 to Post Effective
    Amendment No. 2 to our Registration Statement on
    Form S-11 filed on July 17, 2001 (File
    No. 333-772229) and incorporated herein by this reference)
|
| | 10 | .10 |  | First Amendment to Advisory Agreement between us and our Advisor
    (included as Exhibit 10.10 to Post-Effective Amendment
    No. 1 to our companys Registration Statement filed on
    Form S-11 on July 17, 2001 (File No. 333-772229)
    and incorporated herein by this reference).                                                               
|
| | 10 | .11 |  | Purchase and Sale Agreement, dated April 16, 2001, by and
    between Kilroy Realty, L.P. and Triple Net Properties LLC
    (included as Exhibit 10.11 to Post Effective Amendment
    No. 3 to our Registration Statement on Form S-11 filed
    on October 19, 2001 (File No. 333-772229) and
    incorporated herein by reference).                    



---



##### Table of Contents



| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10 | .12 |  | Purchase and Sale Agreement dated October 30, 2001, by and
    between Triple Net Properties, LLC and City Center West
    Development, LLC (included as Exhibit 10.1 to
    Form 8-K/ A filed by us on May 14, 2003 and
    incorporated herein by reference).                                                                                                                                               
|
| | 10 | .13 |  | Purchase and Sale Agreement dated November 9, 2001, by and
    between Triple Net Properties, LLC and United States Fidelity
    and Guaranty Company (included as Exhibit 10.1 to
    Form 8-K/ A filed by us on May 14, 2003 and
    incorporated herein by reference).                                                                                                                                     
|
| | 10 | .14 |  | Amended and Restated Real Estate Purchase and Sale Agreement
    dated as of July 24, 2002 by and between Transwestern
    Heights, L.P. as seller and Triple Net Properties, LLC, as
    assigned to T REIT  University Heights, LP, a
    Texas limited partnership (included as Exhibit 10.14 to the
    Form 8-K filed by us on September 5, 2002 and
    incorporated herein by reference).             
|
| | 10 | .15 |  | Purchase Agreement dated October 10, 2002 between Congress
    Center, LLC and Triple Net Properties, LLC as assigned to NNN
    Congress Center, LLC, G REIT  Congress Center, LLC,
    and W REIT  Congress Center, LLC (included as
    Exhibit 10.14 to the Form 8-K filed by us on
    January 24, 2003 and incorporated herein by reference).                                                         
|
| | 10 | .16 |  | Operating Agreement of NNN Congress Center Member, LLC dated
    January 1, 2003 (included as Exhibit 10.15 to the
    Form 8-K filed by us on January 24, 2003 and
    incorporated herein by reference).                                                                                                                                                                                                    
|
| | 10 | .17 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of May 14, 2003 by and between T
    REIT  Thousand Oaks, LP and Weingarten Realty
    Investors (included as Exhibit 10.01 to the Form 8-K
    filed by us on August 26, 2003 and incorporated herein by
    reference).                                                                                              
|
| | 10 | .18 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of May 15, 2003 by and between T
    REIT  Pahrump, LLC and Pacific Home Equities, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by us
    on October 9, 2003 and incorporated herein by reference).                                                                                                        
|
| | 10 | .19 |  | Purchase and Sale Agreement dated as of October 17, 2003 by
    and between Austin Jack, L.L.C. and Triple Net Properties, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by us
    on February 4, 2004 and incorporated herein by reference).                                                                                                                                                      
|
| | 10 | .20 |  | First Amendment and Restatement of Purchase and Sale Agreement
    dated as of December 8, 2003 by and between Austin Jack,
    L.L.C. and Triple Net Properties, LLC (included as
    Exhibit 10.02 to the Form  8-K filed by us on
    February 4, 2004 and incorporated herein by reference).                                                                                                              
|
| | 10 | .21 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of March 15, 2004 by and between T
    REIT  Gateway Mall ND Fee, LLC and VP Investments,
    L.L.C. (included as Exhibit 10.01 to the Form 8-K
    filed by us on March 29, 2004 and incorporated herein by
    reference).                                                                                           
|
| | 10 | .22 |  | First Amendment to Agreement for Purchase and Sale of Real
    Property and Escrow Instructions dated as of March 9, 2004
    by and between T REIT  Gateway Mall ND Fee, LLC and
    VP Investments, L.L.C. (included as Exhibit 10.02 to the
    Form 8-K filed by us on March 29, 2004 and
    incorporated herein by reference).                                                                         
|
| | 10 | .23 |  | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated July 15, 2005 by and between TREIT-City
    Center West A, LLC, NNN City Center West A1, LLC, NNN City
    Center West A3, LLC and NNN City Center West A4, LLC and
    Pacifica Real Estate Group, LLC (included as Exhibit 99 to
    the Form 8-K filed by us on July 20, 2005 and
    incorporated herein by reference).
|
| | 31 | .1  |  | Certification of Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                      
|
| | 31 | .2  |  | Certification of Chief Financial Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                      
|
| | 32 | .1  |  | Certification of Chief Executive Officer, pursuant to
    18 U.S.C. Section 1350, as created by Section 906
    of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                            
|
| | 32 | .2  |  | Certification of Chief Financial Officer, pursuant to
    18 U.S.C. Section 1350, as created by Section 906
    of the Sarbanes-Oxley Act of 2002.