##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|   |  | For the quarterly period ended March 31,
    2004                                               
|  
|or
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                                 

Commission File Number 0-49782

T REIT, Inc.

(Exact name of registrant as specified in its
charter)


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

N/A

(Former name)


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

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

As of May 14, 2004, there were
4,642,553 shares of common stock of T REIT, Inc.
outstanding.



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T REIT, INC.

FORM 10-Q

For the Quarterly Period Ended March 31,
2004


INDEX

|                                 |  |                                                                                                                     |    |      |    | 
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                 |  |                                                                                                                     |    | Page
|                                 |  |                                                                                                                     |    |     
|PART I FINANCIAL
    INFORMATION
|Item 1.                          |  | Financial Statements                                                                                                |    |      | 2  | 
|                                 |  | Consolidated Balance Sheets
    as of March 31, 2004 (Unaudited) and December 31,
    2003                          |    |      | 3  | 
|                                 |  | Consolidated Statements of
    Operations for the three month periods ended March 31, 2004
    and 2003 (Unaudited) |    |      | 4  | 
|                                 |  | Consolidated Statement of
    Shareholders Equity for the three month period ended
    March 31, 2004 (Unaudited)  |    |      | 5  | 
|                                 |  | Consolidated Statements of
    Cash Flows for the three month periods ended March 31, 2004
    and 2003 (Unaudited) |    |      | 6  | 
|                                 |  | Notes to Consolidated
    Financial Statements                                                                      |    |      | 7  | 
|Item 2.                          |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                           |    |      | 20 | 
|Item 3.                          |  | Quantitative and Qualitative
    Disclosure About Market Risks                                                      |    |      | 27 | 
|Item 4.                          |  | Controls and Procedures                                                                                             |    |      | 27 | 
|                                
|PART II OTHER
    INFORMATION   
|Item 1.                          |  | Legal Proceedings                                                                                                   |    |      | 28 | 
|Item 2.                          |  | Changes in Securities and
    Use of Proceeds                                                                       |    |      | 28 | 
|Item 3.                          |  | Defaults Upon Senior
    Securities                                                                                 |    |      | 28 | 
|Item 4.                          |  | Submission of Matters to a
    Vote of Security Holders                                                             |    |      | 28 | 
|Item 5.                          |  | Other Information                                                                                                   |    |      | 28 | 
|Item 6.                          |  | Exhibits and Reports on
    Form 8-K                                                                                |    |      | 28 | 
|Signatures                       |  |                                                                                                                     | 32 |     
|EXHIBIT 31.1                    
|EXHIBIT 31.2                    
|EXHIBIT 32.1                    
|EXHIBIT 32.2                    



1



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PART I  FINANCIAL
INFORMATION






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

The accompanying March 31, 2004 and 2003
interim financial statements of the Company required to be filed
with this Form 10-Q Quarterly Report were prepared by
management without audit and commence on the following page,
together with the related Notes. In the opinion of management,
these interim financial statements present fairly the financial
condition, results of operations and cash flows of the Company,
but should be read in conjunction with the consolidated
financial statements of the Company for the year ended
December 31, 2003 included in our Annual Report on
Form 10-K previously filed with the Securities and Exchange
Commission.

2



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T REIT, INC.




CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                               |                                           |             |            |              |  |   |            |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ----------- | ---------- | ------------ |  | - | ---------- | ---------- | 
|                                                                                                                                                               |                                           | March 31,   |            | December 31,
|                                                                                                                                                               |                                           | 2004        |            | 2003        
|                                                                                                                                                               |                                           |             |            |             
|                                                                                                                                                               |                                           | (Unaudited) |            |             
|ASSETS                                                                                                                                                        
|Real estate investments:                                                                                                                                       |                                           |             |            |              |  |   |            |           
|                                                                                                                                                               | Operating properties, net                 |             | $          | 7,042,000    |  |   | $          | 15,747,000 | 
|                                                                                                                                                               | Investments in unconsolidated real estate |             |            | 25,607,000   |  |   |            | 19,331,000 | 
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|                                                                                                                                                               |                                           |             | 32,649,000 |              |  |   | 35,078,000 |           
|Cash and cash equivalents                                                                                                                                      |                                           |             | 858,000    |              |  |   | 12,189,000 |           
|Investment in marketable securities                                                                                                                            |                                           |             | 181,000    |              |  |   |           |           
|Accounts receivable, net                                                                                                                                       |                                           |             | 106,000    |              |  |   | 37,000     |           
|Accounts receivable from related parties                                                                                                                       |                                           |             | 480,000    |              |  |   | 538,000    |           
|Real estate deposits                                                                                                                                           |                                           |             | 126,000    |              |  |   | 11,000     |           
|Other assets, net                                                                                                                                              |                                           |             | 330,000    |              |  |   | 870,000    |           
|Note receivable                                                                                                                                                |                                           |             | 9,345,000  |              |  |   | 647,000    |           
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|Total assets                                                                                                                                                   |                                           | $           | 44,075,000 |              |  | $ | 49,370,000 |           
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                      
|Accounts payable and accrued liabilities                                                                                                                       |                                           | $           | 876,000    |              |  | $ | 1,635,000  |           
|Distributions payable                                                                                                                                          |                                           |             | 319,000    |              |  |   | 318,000    |           
|Security deposits and prepaid rent                                                                                                                             |                                           |             | 54,000     |              |  |   | 59,000     |           
|Notes payable                                                                                                                                                  |                                           |             | 4,332,000  |              |  |   | 9,250,000  |           
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|                                                                                                                                                               |                                           |             | 5,581,000  |              |  |   | 11,262,000 |           
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|Shareholders equity:                                                                                                                                          |                                           |             |            |              |  |   |            |           
|Common stock, $.01 par value;
    10,000,000 shares authorized; 4,720,000 shares issued,
    4,646,000 outstanding at March 31, 2004
    and December 31, 2003 |                                           |             | 47,000     |              |  |   | 47,000     |           
|Additional paid-in capital                                                                                                                                     |                                           |             | 41,265,000 |              |  |   | 41,265,000 |           
|Treasury stock, 74,000 shares at
    March 31, 2004 and December 31, 2003                                                                                      |                                           |             | (675,000   | )            |  |   | (675,000   | )         
|Distributions in excess of earnings                                                                                                                            |                                           |             | (2,143,000 | )            |  |   | (2,529,000 | )         
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|Total shareholders equity                                                                                                                                     |                                           |             | 38,494,000 |              |  |   | 38,108,000 |           
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           
|Total liabilities and shareholders equity                                                                                                                     |                                           | $           | 44,075,000 |              |  | $ | 49,370,000 |           
|                                                                                                                                                               |                                           |             |            |              |  |   |            |           

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

3



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T REIT, INC.




CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                      |                                                                  |                    |           |             |  |   |           |         | 
|--------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------ | --------- | ----------- |  | - | --------- | ------- | 
|                                                                      |                                                                  |                   
|                                                                      |                                                                  | Three Months Ended
|                                                                      |                                                                  | March 31,         
|                                                                      |                                                                  |                   
|                                                                      |                                                                  | 2004               |           | 2003       
|                                                                      |                                                                  |                    |           |            
|                                                                      |                                                                  |                    |           | As Restated
|                                                                      |                                                                  |                   
|                                                                      |                                                                  | (Unaudited)       
|Revenues                                                              |                                                                  |                    |           |             |  |   |           |        
|                                                                      | Rental income                                                    |                    | $         | 246,000     |  |   | $         | 234,000 | 
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|                                                                      |                                                                  |                    | 246,000   |             |  |   | 234,000   |        
|Expenses                                                              |                                                                  |                    |           |             |  |   |           |        
|                                                                      | Rental expenses                                                  |                    |           | 37,000      |  |   |           | 63,000  | 
|                                                                      | General and administrative                                       |                    |           | 91,000      |  |   |           | 112,000 | 
|                                                                      | Depreciation and amortization                                    |                    |           | 37,000      |  |   |           | 37,000  | 
|                                                                      | Interest (including amortization of deferred
    financing fees) |                    |           | 74,000      |  |   |           | 62,000  | 
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|                                                                      |                                                                  |                    | 239,000   |             |  |   | 274,000   |        
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|Income (loss) before other income and
    discontinued operations     |                                                                  |                    | 7,000     |             |  |   | (40,000   | )      
|Other income                                                          |                                                                  |                    |           |             |  |   |           |        
|                                                                      | Interest income                                                  |                    |           | 40,000      |  |   |           | 24,000  | 
|                                                                      | Dividend income                                                  |                    |           | 40,000      |  |   |           |        | 
|                                                                      | Gain on sale of marketable securities                            |                    |           | 47,000      |  |   |           |        | 
|                                                                      | Equity in earnings of unconsolidated real estate                 |                    |           | 280,000     |  |   |           | 558,000 | 
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|Income from continuing operations before
    discontinued operations  |                                                                  |                    | 414,000   |             |  |   | 542,000   |        
|Gain (loss) on sale of real estate investments                        |                                                                  |                    | 822,000   |             |  |   | (191,000  | )      
|Income from discontinued operations 
    property held for sale, net |                                                                  |                    | 105,000   |             |  |   | 221,000   |        
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|Net income                                                            |                                                                  | $                  | 1,341,000 |             |  | $ | 572,000   |        
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|Net income per common share:                                          |                                                                  |                    |           |             |  |   |           |        
|Basic and diluted:                                                    |                                                                  |                    |           |             |  |   |           |        
|                                                                      | Continuing operations                                            |                    | $         | 0.08        |  |   | $         | 0.11    | 
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|                                                                      | Discontinued operations                                          |                    | $         | 0.20        |  |   | $         | 0.01    | 
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|Total net income per common share                                     |                                                                  | $                  | 0.28      |             |  | $ | 0.12      |        
|                                                                      |                                                                  |                    |           |             |  |   |           |        
|Weighted average common shares
    outstanding  basic and diluted    |                                                                  |                    | 4,646,000 |             |  |   | 4,696,000 |        
|Dividends declared per share                                          |                                                                  | $                  | 0.21      |             |  | $ | 0.21      |        
|Distributions declared                                                |                                                                  | $                  | 955,000   |             |  | $ | 965,000   |        

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

4



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T REIT, INC.




CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY

For the Three Months Ended March 31,
2004


(Unaudited)


|                              |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|----------------------------- |  | --------- | --------- | --------- |  | ---------- | ------ | -------- |  | ------------- | ---------- | ----- |  | - | -------- | - |  | - | ---------- | - |  | - | ---------- | -
|                              |  |           |           | Common    |  | Additional |        |          |  | Distributions |            |      
|                              |  | Number of |           | Stock Par |  | Paid-In    |        | Treasury |  | in Excess of  |            |      
|                              |  | Shares    |           | Value     |  | Capital    |        | Stock    |  | Earnings      |            | Total
|                              |  |           |           |           |  |            |        |          |  |               |            |      
|BALANCE  January 1,
    2004 |  |           | 4,646,000 |           |  | $          | 47,000 |          |  | $             | 41,265,000 |       |  | $ | (675,000 | ) |  | $ | (2,529,000 | ) |  | $ | 38,108,000 |  
|Distributions                 |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | (955,000   | ) |  |   | (955,000   | )
|Net income                    |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | 1,341,000  |   |  |   | 1,341,000  |  
|                              |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|BALANCE  March 31,
    2004  |  |           | 4,646,000 |           |  | $          | 47,000 |          |  | $             | 41,265,000 |       |  | $ | (675,000 | ) |  | $ | (2,143,000 | ) |  | $ | 38,494,000 |  
|                              |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  

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

5



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T REIT, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                 |                                                           |                                                         |             |              |            |   |            |            |            |  
|-------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------------- | ----------- | ------------ | ---------- | - | ---------- | ---------- | ---------- | -
|                                                                                 |                                                           | Three Months                                            |             | Three Months
|                                                                                 |                                                           | Ended                                                   |             | Ended       
|                                                                                 |                                                           | March 31,                                               |             | March 31,   
|                                                                                 |                                                           | 2004                                                    |             | 2003        
|                                                                                 |                                                           |                                                         |             |             
|                                                                                 |                                                           |                                                        
|                                                                                 |                                                           | (Unaudited)                                            
|CASH FLOWS FROM OPERATING ACTIVITIES                                             |                                                           |                                                         |             |              |            |   |            |           
|Net income                                                                       |                                                           | $                                                       | 1,341,000   |              |            | $ | 572,000    |           
|Adjustments to reconcile net income to net cash
    used in operating activities |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Equity in earnings of unconsolidated real estate          |                                                         |             | (280,000     | )          |   |            | (558,000   | )         
|                                                                                 | Gain (loss) on sale of real estate investments            |                                                         |             | (822,000     | )          |   |            | 191,000    |           
|                                                                                 | Gain on sale of marketable securities                     |                                                         |             | (47,000      | )          |   |            |           |           
|                                                                                 | Depreciation  continuing operations                      |                                                         |             | 37,000       |            |   |            | 37,000     |           
|                                                                                 | Depreciation  discontinued operations                    |                                                         |             | 17,000       |            |   |            | 171,000    |           
|Change in operating assets and liabilities:                                      |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Accounts receivable, net                                  |                                                         |             | (69,000      | )          |   |            | 18,000     |           
|                                                                                 | Accounts receivable from related parties                  |                                                         |             | 58,000       |            |   |            | (79,000    | )         
|                                                                                 | Other assets, net                                         |                                                         |             | 354,000      |            |   |            | (327,000   | )         
|                                                                                 | Accounts payable and accrued liabilities                  |                                                         |             | (600,000     | )          |   |            | 3,000      |           
|                                                                                 | Security deposits and prepaid rent                        |                                                         |             | (6,000       | )          |   |            | (35,000    | )         
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 |                                                           | Net cash used in operating activities                   |             |              | (17,000    | ) |            |            | (7,000     | )
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Purchase of marketable securities                         |                                                         |             | (2,368,000   | )          |   |            |           |           
|                                                                                 | Purchase of real estate operating properties              |                                                         |             |             |            |   |            | (8,912,000 | )         
|                                                                                 | Purchase of land                                          |                                                         |             | (1,619,000   | )          |   |            |           |           
|                                                                                 | Purchase of investments in unconsolidated real
    estate |                                                         |             | (5,996,000   | )          |   |            | (5,025,000 | )         
|                                                                                 | Real estate property improvements                         |                                                         |             | (39,000      | )          |   |            |           |           
|                                                                                 | Proceeds from disposition of property                     |                                                         |             | 2,452,000    |            |   |            | 3,843,000  |           
|                                                                                 | Proceeds from sale of marketable securities               |                                                         |             | 2,235,000    |            |   |            |           |           
|                                                                                 | Collections of notes receivable                           |                                                         |             | 2,000        |            |   |            | 2,000      |           
|                                                                                 | Real estate deposits applied to purchases                 |                                                         |             | (115,000     | )          |   |            | 3,354,000  |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 |                                                           | Net cash used in investing activities                   |             |              | (5,448,000 | ) |            |            | (6,738,000 | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Borrowings under notes payable                            |                                                         |             |             |            |   |            | 5,000,000  |           
|                                                                                 | Principal payments on notes payable                       |                                                         |             | (4,918,000   | )          |   |            | (2,952,000 | )         
|                                                                                 | Borrowings on line of credit                              |                                                         |             | 500,000      |            |   |            |           |           
|                                                                                 | Repayments on line of credit                              |                                                         |             | (500,000     | )          |   |            |           |           
|                                                                                 | Distributions paid                                        |                                                         |             | (955,000     | )          |   |            | (964,000   | )         
|                                                                                 | Deferred financing costs                                  |                                                         |             | 7,000        |            |   |            | 123,000    |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 |                                                           | Net cash (used in) provided by financing
    activities |             |              | (5,866,000 | ) |            |            | 1,207,000  |  
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|NET DECREASE IN CASH AND CASH
    EQUIVALENTS                                    |                                                           |                                                         | (11,331,000 | )            |            |   | (5,538,000 | )         
|CASH AND CASH EQUIVALENTS 
    beginning of period                              |                                                           |                                                         | 12,189,000  |              |            |   | 6,129,000  |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|CASH AND CASH EQUIVALENTS  end of
    period                                    |                                                           | $                                                       | 858,000     |              |            | $ | 591,000    |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION:                            |                                                           |                                                         |             |              |            |   |            |           
|Cash paid during the period for:                                                 |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Interest                                                  |                                                         | $           | 199,000      |            |   | $          | 425,000    |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Income taxes                                              |                                                         | $           | 3,000        |            |   | $          | 13,000     |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           
|SUPPLEMENTAL DISCLOSURE OF NONCASH
    ACTIVITIES:                               |                                                           |                                                         |             |              |            |   |            |           
|                                                                                 | Note receivable due to sale of property                   |                                                         | $           | 8,700,000    |            |   | $          |           |           
|                                                                                 |                                                           |                                                         |             |              |            |   |            |           

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

6



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T REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2004


(Unaudited)




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

T REIT, Inc. (the Company) was formed
in December 1998 in the Commonwealth of Virginia and operates as
a real estate investment trust (REIT) under the
Internal Revenue Code of 1986, as amended (the
Code). The Company is in the business of acquiring
existing office, industrial, retail and service properties
located in several states. As of March 31, 2004, the
Company owned real estate investments consisting of one
consolidated property and interests in nine unconsolidated
properties. The Company acquires properties through its
operating partnership, T REIT, L.P., which is wholly owned by
the Company.

The Company is externally advised by an
affiliated company, Triple Net Properties, LLC (the
Advisor), which is primarily responsible for
managing the day-to-day operations and assets of the Company.
The Advisory Agreement dated February 22, 2000, between the
Company and the Advisor is for a one-year term, subject to
successive renewals. (See Note 11).



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

The summary of significant accounting policies
presented below is designed to assist in understanding the
Companys consolidated financial statements. Such financial
statements and accompanying notes are the representations of
Company management, who is responsible for their integrity and
objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America
(GAAP) in all material respects, and have been
consistently applied in preparing the accompanying consolidated
financial statements.



| |                            
| | ---------------------------
| | Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of the Company and T REIT,
L.P. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain 2003 amounts have been
reclassified to conform to the 2004 presentation. This report
should be read in conjunction with the Companys annual
report on Form 10-K for the year ended December 31,
2003.



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



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

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

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

In the event that the carrying amount of a
property exceeds the sum of the undiscounted cash flows
(excluding interest) that are expected to result from the use
and eventual disposition of the property, the Company would
recognize an impairment loss to the extent the carrying amount
exceeded the fair value of the property. The Company estimates
the fair value using available market information or other
industry valuation techniques such as present value calculations.

7



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Property acquisitions have been accounted for in
accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations. The fair value
of the real estate acquired is allocated to the acquired
tangible assets, consisting of land, building and tenant
improvements, and identified intangible assets and liabilities,
consisting of the value of above-market and below-market leases,
other value of in-place leases and value of tenant
relationships, if any, based in each case on their fair values.

The fair value of the tangible assets of an
acquired property (which includes land, building and tenant
improvements) is determined by valuing the property as if it
were vacant, and the as-if-vacant value is then
allocated to land, building and tenant improvements based on the
Companys determination of the relative fair values of
these assets. Factors considered in performing these analyses
include an estimate of carrying costs during the expected
lease-up periods considering current market conditions and
insurance and other operating expenses during the expected
lease-up periods based on current market demand. The Company
also estimates costs to execute similar leases including leasing
commissions, concessions, legal and other related costs.

In allocating the fair value of the identified
intangible assets and liabilities of an acquired property,
above-market and below-market in-place lease values are recorded
based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) our estimate of
fair market lease rates for the corresponding in-place leases,
measured over a period equal to the remaining non-cancellable
term of the lease. The capitalized above-market and below-market
lease values are amortized into rental income over the remaining
non-cancellable terms of the respective leases.



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

Property held for sale is carried at the lower of
cost or estimated fair value less cost to sell and such property
is no longer depreciated. The Company classifies operating
properties as property held for sale in the period in which all
of the following criteria are met:



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



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

Variable interest investments in real estate that
do not meet consolidation criteria are reflected in the
financial statements using the equity method of accounting.



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

Certificates of deposit and short-term
investments with remaining maturities of three months or less
when acquired are considered cash equivalents.

8



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                     
| | ------------------------------------
| | Investments in Marketable Securities

Marketable securities are carried at fair value
and consisted of an investment in a public REIT.



| |                                                                
| | ---------------------------------------------------------------
| | Allowance for Uncollectible Billed and
    Unbilled Receivables

Tenant receivables and unbilled deferred rent
receivables are carried net of the allowances for uncollectible
current tenant receivables and unbilled deferred rent.
Managements determination of the adequacy of these
allowances is based primarily upon evaluations of historical
loss experience, individual tenant receivables considering the
tenants financial condition, security deposits, letters of
credit, lease guarantees and current economic conditions and
other relevant factors.



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

Financial instruments that potentially subject
the Company to a concentration of credit risk are primarily cash
and accounts receivable from tenants. Cash is generally placed
in money market accounts and the amount of credit exposure to
any one party is limited. The Company has cash in financial
institutions which is insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per
institution. At March 31, 2004 and December 31, 2003,
the Company had cash accounts in excess of FDIC insured limits.
Concentration of credit risk with respect to accounts receivable
from tenants is limited. The Company performs credit evaluations
of prospective tenants, and security deposits are obtained.

As of March 31, 2004, the Company has
investments in five properties located in the State of Texas,
two properties located in the State of California, two
properties located in the State of Nevada and one property
located in the State of Illinois. Accordingly, there is a
geographic concentration of risk subject to fluctuations in the
economy of each of these States. No single tenant accounted for
a significant portion of the Companys rental income.



| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

The Company believes that the March 31, 2004
and December 31, 2003 interest rates associated with
mortgages payable approximate the market interest rates for
these types of debt instruments and as such, the carrying amount
of the mortgages payable approximate their fair value.

The carrying amount of cash and cash equivalents,
restricted cash, accounts receivable, notes receivable and
accounts payable and accrued liabilities, approximate fair value
because of the relatively short maturity of these instruments.



| |                                 
| | --------------------------------
| | Derivative financial instruments

The Company is exposed to the effect of interest
rate changes in the normal course of business. The Company
mitigates these risks by following established risk management
policies and procedures which include the periodic use of
derivatives. The Companys primary strategy in entering
into derivative contracts is to minimize the volatility that
changes in interest rates could have on its future cash flows.
The Company employs derivative instruments that are designated
as cash flow hedges, including interest rate swaps and caps, to
effectively convert a portion of its variable-rate debt to
fixed-rate debt. The Company does not enter into derivative
instruments for speculative purposes.



| |                     
| | --------------------
| | Real Estate Deposits

Real estate deposits are paid on properties the
Company is evaluating for purchase. Real estate deposits are
capitalized when paid and may become nonrefundable under certain
circumstances. When

9



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

properties are acquired, the purchase price is
reduced by the amounts of deposits paid by the Company. At
March 31, 2004, all deposits will be applied to the
acquisition of properties in subsequent periods.



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

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



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

Rental income is recognized when earned under
contractual lease agreements on a straight-line basis over the
associated lease term. Deferred rent receivable is included in
other assets in the consolidated balance sheets. Tenant
reimbursement revenue, which is comprised of additional amounts
recoverable from tenants for common area maintenance expenses
and certain other recoverable expenses is recognized as revenue
in the period in which the related expenses are incurred.



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

The Company operates as a real estate investment
trust for federal income tax purposes. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT
status, the Company is required to distribute annually as
dividends at least 90% of its REIT taxable income, as defined by
the Internal Revenue Code, to its shareholders, among other
requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to Federal income tax
on its taxable income at regular corporate tax rates. Although
the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and
property and Federal income and excise taxes on its
undistributed income. The Company believes that it has met all
of the REIT distribution and technical requirements for the
three months ended March 31, 2004 and year ended
December 31, 2003 and was not subject to any federal income
taxes. Management intends to continue to adhere to these
requirements and maintain the Companys REIT status.



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

The Company reports earnings per share pursuant
to Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Basic earnings per share
attributable for all periods presented is computed by dividing
the earnings to common shareholders by the weighted average
number of common shares outstanding during the period.
Potentially dilutive securities consist of 101,000 warrants
at March 31, 2004 and December 31, 2003 and stock
options.



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

The preparation of the Companys financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of
the assets and liabilities as of March 31, 2004 and
December 31, 2003 and the revenues and expenses for each of
the periods. Actual results could differ from those estimates.



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

The Company follows the disclosure only
provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended by
SFAS No. 148. For employee compensatory stock options
that will eventually vest, compensation expense is recognized
during the periods in which the related employee services are
rendered. Such expense is generally measured by determining the
excess, if any, of the grant date estimated fair market value of
the underlying stock over

10



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the amount to be paid by the employee in
conformity with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
Compensatory stock options and similar equity instruments issued
to non-employees in exchange for goods or services are accounted
for based on the estimated fair market value of (1) the
goods or services received or (2) the equity instrument
issued, whichever is more reliably measurable. Pursuant to
SFAS 148, the Company is required to disclose the effects
on net income and per share data as if the Company had elected
to use the fair value approach to account for its stock-based
compensation plans.

|                                                       |  |                 |           |                 |  |   |         | 
|------------------------------------------------------ |  | --------------- | --------- | --------------- |  | - | ------- | 
|                                                       |  | Three Months    |           | Three Months   
|                                                       |  | Ended March 31, |           | Ended March 31,
|                                                       |  | 2004            |           | 2003           
|                                                       |  |                 |           |                
|Actual net income                                      |  | $               | 1,341,000 |                 |  | $ | 572,000 | 
|Pro forma compensation expense                         |  |                 | 170,000   |                 |  |   | 119,000 | 
|                                                       |  |                 |           |                 |  |   |         | 
|Pro forma net income                                   |  | $               | 1,171,000 |                 |  | $ | 453,000 | 
|                                                       |  |                 |           |                 |  |   |         | 
|Actual net income per share  basic and
    diluted    |  | $               | 0.28      |                 |  | $ | 0.12    | 
|                                                       |  |                 |           |                 |  |   |         | 
|Pro forma net income per share  basic
    and diluted |  | $               | 0.25      |                 |  | $ | 0.10    | 
|                                                       |  |                 |           |                 |  |   |         | 

This pro forma amount was determined by
estimating the fair value of each option beginning June 28,
2003, when shareholder approval of the option plans was
obtained, at $1.01 per option, using the Black-Scholes
option-pricing model, assuming an 8.25% dividend yield, a 3.83%
risk-free interest rate based on the 10-year U.S. Treasury
Bond, an expected life of 9.0 years, and a 0% volatility
rate.

The weighted average remaining contractual life
of all options outstanding at March 31, 2004, was
approximately 8.96 years.



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

The Company reports utilizes one segment to
report the results of its financial operations.



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

The Companys real estate investments are
comprised of (i) consolidated properties excluding property
held for sale and (ii) investments in unconsolidated real
estate.



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

The Companys consolidated properties
consist of the following:

|                                  |  |           |           |              |  |   |            |  
|--------------------------------- |  | --------- | --------- | ------------ |  | - | ---------- | -
|                                  |  | March 31, |           | December 31,
|                                  |  | 2004      |           | 2003        
|                                  |  |           |           |             
|Buildings and tenant improvements |  | $         | 5,796,000 |              |  | $ | 15,160,000 |  
|Land                              |  |           | 1,488,000 |              |  |   | 1,012,000  |  
|                                  |  |           |           |              |  |   |            |  
|                                  |  |           | 7,284,000 |              |  |   | 16,172,000 |  
|Less: accumulated depreciation    |  |           | (242,000  | )            |  |   | (425,000   | )
|                                  |  |           |           |              |  |   |            |  
|                                  |  | $         | 7,042,000 |              |  | $ | 15,747,000 |  
|                                  |  |           |           |              |  |   |            |  

11



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At March 31, 2004, the Company owned one
consolidated property:

University Heights Business Park,
San Antonio, Texas



| |             
| | ------------
| | Acquisitions



| |                                                 
| | ------------------------------------------------
| | Land  Gateway Mall 
    Bismarck, North Dakota

On February 27, 2004, the Company purchased
43 acres of land, including 36 acres of land situated
under Gateway Mall from another unaffiliated third party for a
purchase price including closing costs of $1,631,000. Prior to
the land acquisition, the property had been subject to a ground
lease.



| |             
| | ------------
| | Dispositions



| |                                          
| | -----------------------------------------
| | Gateway Mall  Bismarck, North
    Dakota

On March 18, 2004, the Company sold Gateway
Mall to an unaffiliated third party for a purchase price of
$11,600,000. The sale of Gateway Mall included the underlying
36 acres of land. Net sales proceeds included cash of
$2,452,000 and a note receivable in the amount of $8,700,000.
The note is secured by a pledge agreement, bears interest at
6% per annum and is due June 14, 2004. In connection
with the sale of Gateway Mall, the Company repaid a note payable
secured by the property with an outstanding balance of
$4,876,000. At closing, the Company paid a real estate
commission to Triple Net Properties, Realty, Inc.
(Realty), an affiliate of the Advisor, of $339,000,
or 2.9% of the selling price.



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

Investments in unconsolidated real estate consist
of the Companys investments in undivided tenant in common
interests and limited liability companies. The Company had the
following investments in unconsolidated real estate at
March 31, 2004:

|                               |  |                 |  |            |      |            |  |   |            | 
|------------------------------ |  | --------------- |  | ---------- | ---- | ---------- |  | - | ---------- | 
|                               |  |                 |  | Percentage |      | Companys 
|Property                       |  | Location        |  | Owned      |      | Investment
|                               |  |                 |  |            |      |           
|Reno Trademark Building        |  | Reno, NV        |  |            | 40.0 | %          |  | $ | 1,152,000  | 
|County Center Building         |  | Temecula, CA    |  |            | 16.0 | %          |  |   | 438,000    | 
|City Center West A Building  |  | Las Vegas, NV   |  |            | 89.1 | %          |  |   | 7,825,000  | 
|Pacific Corporate Park         |  | Lake Forest, CA |  |            | 22.8 | %          |  |   | 1,952,000  | 
|Congress Center                |  | Chicago, IL     |  |            | 10.2 | %          |  |   | 4,741,000  | 
|Titan Building and Titan Plaza |  | San Antonio, TX |  |            | 48.5 | %          |  |   | 1,827,000  | 
|Saddleback Financial Center    |  | San Antonio, TX |  |            | 25.0 | %          |  |   | 798,000    | 
|Enclave Parkway                |  | Houston, TX     |  |            | 3.3  | %          |  |   | 456,000    | 
|AmberOaks III                  |  | Austin, TX      |  |            | 75.0 | %          |  |   | 6,418,000  | 
|                               |  |                 |  |            |      |            |  |   |            | 
|                               |  |                 |  |            |      |            |  | $ | 25,607,000 | 
|                               |  |                 |  |            |      |            |  |   |            | 

12



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed combined historical financial
information of investments in unconsolidated real estate as of
March 31, 2004 is as follows:

|                               |  |           |             | 
|------------------------------ |  | --------- | ----------- | 
|                               |  | As of    
|                               |  | March 31,
|                               |  | 2004     
|                               |  |          
|Assets (primarily real estate) |  | $         | 270,457,000 | 
|                               |  |           |             | 
|Mortgages notes payable        |  |           | 174,481,000 | 
|Other liabilities              |  |           | 2,368,000   | 
|Equity                         |  |           | 93,608,000  | 
|                               |  |           |             | 
|Total liabilities and equity   |  | $         | 270,457,000 | 
|                               |  |           |             | 
|Companys share of equity      |  | $         | 25,607,000  | 
|                               |  |           |             | 
|Revenues                       |  | $         | 8,836,000   | 
|Expenses                       |  |           | 7,378,000   | 
|                               |  |           |             | 
|Net income                     |  | $         | 1,458,000   | 
|                               |  |           |             | 
|Companys equity in earnings   |  | $         | 280,000     | 
|                               |  |           |             | 



| |             
| | ------------
| | Acquisitions



| |                                 
| | --------------------------------
| | AmberOaks LP  Austin,
    Texas

On January 20, 2004, the Company, through it
wholly-owned subsidiary, TREIT  AmberOaks LP,
purchased a 75% undivided tenant-in-common interest in three
buildings at AmberOaks Corporate Center located in Austin, Texas
from an unaffiliated third party. Three unaffiliated entities
purchased the remaining 25% tenant-in-common interests in the
property. The total purchase price for AmberOaks was
$22,965,000. The Companys total investment was $6,462,000.
The purchase was financed by $15,000,000 in borrowings under a
secured mortgage with North Houston Bank. The mortgage requires
interest only payments through February 15, 2006 and,
thereafter, principal and interest payments through the maturity
date of January 20, 2007 at the Prime Rate plus 1.0%
subject to a floor of 5.5%. The seller paid a sales commission
to Realty of $585,000, or 2.3% of the purchase price. AmberOaks
is a three-building Class A office portfolio totaling
206,000 square feet that is part of an eight-building complex
built during 1999-2001. An affiliate of the Companys
advisor purchased the remaining five buildings.



|   |                                           
|-- | ------------------------------------------
|4. | Accounts Receivable from Related
    Party

At March 31, 2004 and December 31,
2003, the Advisor owed the Company $460,000 and $520,000 for
amounts due under an indemnification agreement (See
Note 12).

13



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Other assets as of March 31, 2004 and
December 31, 2003 consisted of the following:

|                                                                                                                               |                         |           |         |              |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------ | ----------------------- | --------- | ------- | ------------ |  | - | ------- | ------- | 
|                                                                                                                               |                         | March 31, |         | December 31,
|                                                                                                                               |                         | 2004      |         | 2003        
|                                                                                                                               |                         |           |         |             
|Loan impounds and reserves                                                                                                     |                         | $         | 174,000 |              |  | $ | 574,000 |        
|Deferred rent receivable                                                                                                       |                         |           | 61,000  |              |  |   | 75,000  |        
|Lease commissions, net of accumulated
    amortization of $9,000 at December 31, 2003                                          |                         |           |        |              |  |   | 75,000  |        
|Loan fees, net of accumulated amortization of
    $28,000 at March 31, 2004 and $48,000 at December 31,
    2003, respectively |                         |           | 87,000  |              |  |   | 145,000 |        
|Prepaid expenses                                                                                                               |                         |           | 7,000   |              |  |   |        |        
|Other assets                                                                                                                   |                         |           | 1,000   |              |  |   | 1,000   |        
|                                                                                                                               |                         |           |         |              |  |   |         |        
|                                                                                                                               | Total other assets, net |           | $       | 330,000      |  |   | $       | 870,000 | 
|                                                                                                                               |                         |           |         |              |  |   |         |        



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

The Company issued a note for $8,700,000 in
conjunction with the sale of Gateway Mall. The note is secured
by a pledge agreement, bears interest at 6% per annum and
is due June 14, 2004. The Company also holds an existing
note with a balance of $645,000 and $647,000 at March 31,
2004 and December 31, 2003, respectively. The note is
secured by a first deed of trust on a real estate property, with
interest at 8.5% per annum. All accrued, unpaid interest
and principal is due December 2006.



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

On September 3, 2003, the Company entered
into an agreement with Fleet National Bank for a line of credit
in the amount of $1,000,000 which bears interest at Fleets
prime rate plus fifty basis points (4.5% at March 31, 2004
and December 31, 2003). The credit facility matures on
September 2, 2004 and has two one-year extensions. The
credit facility is subject to a fee of 1% to be paid one-third
on each of the effective date, the first anniversary and the
second anniversary. As of March 31, 2004 and
December 31, 2003, respectively, the Company had no amounts
outstanding under the line of credit.



|   |              
|-- | -------------
|8. | Notes Payable

On March 18, 2004, the Company sold Gateway
Mall to an unaffiliated third party. Pursuant to the sale
agreement, the Company repaid a note payable secured by the
property with an outstanding balance of $4,876,000.



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



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

Effective May 24, 2001 the Company adopted
the Share Repurchase Plan (the Repurchase Plan),
which provides eligible shareholders with limited liquidity by
enabling them to request the repurchase of their common stock by
the Company subject to various limitations. Repurchases are made
at the sole discretion of the Board of Directors. To be eligible
to request a repurchase, a shareholder must offer for resale at
least 25% of the total number of his shares of common stock and
must have owned the shares for at least one year.

The price paid by the Company per repurchased
share of common stock varies in accordance with the terms of the
Repurchase Plan. Repurchases are effected by the Company on or
about the last day of each

14



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

calendar quarter. Funding for the Repurchase Plan
comes from the Companys operations. The Company did not
repurchase any shares during the three months ended
March 31, 2004 and repurchased 50,000 shares of common
stock for $455,000 during the year ended December 31, 2003.



| |         
| | --------
| | Warrants

The Company agreed to sell to NNN Capital Corp.,
the dealer manager of the Companys initial public offering
which is solely owned by Anthony Thompson, the Companys
Chief Executive Officer, one warrant to purchase one share of
common stock for every 40 shares of common stock sold by
the dealer manager in any state other than Arizona, Missouri,
Ohio, or Tennessee, up to a maximum of 250,000 warrants to
purchase an equivalent number of shares. The dealer manager paid
the Company $0.0008 for each warrant.

The holder of a warrant is entitled to purchase
one share of common stock from the Company at a price of
$12.00 per share at any time from February 22, 2001 to
February 22, 2005. A warrant may not be exercised unless
the shares to be issued upon the exercise of the warrant have
been registered or are exempt from registration in the state of
residence of the warrant owner. Warrants are not exercisable
until one year from the date of issuance. In addition, holders
of warrants may not exercise the warrants to the extent such
exercise would jeopardize the Companys status as a REIT
under the federal tax laws. Warrant holders may not vote on
Company matters and are not entitled to receive distributions.

The terms of the warrants (including the exercise
price, the number and type of securities issuable upon their
exercise, and the number of such warrants) may be adjusted
pro-rata in the event of stock dividends, subdivisions,
combinations and reclassification of shares or the issuance to
stockholders of securities entitling them to purchase shares or
securities convertible into shares. The terms of the warrants
also may be adjusted if the Company engages in a merger or
consolidation transaction or if all or substantially all of the
assets are sold. Warrants are not transferable or assignable
except by the dealer manager, the broker-dealers participating
in the offering or to individuals who are both officers and
directors or licensed representatives of such entities. Exercise
of the warrants is governed by the terms and conditions set
forth in the dealer manager agreement and in the warrant.

As of March 31, 2004 and December 31,
2003, there were 101,000 outstanding warrants held by soliciting
dealers that sold the Companys shares. No warrants had
been exercised to date. The Company applies the fair value
method of accounting for the warrants in accordance with
SFAS 123.



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

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

In February 2000, the Company adopted stock
option plans (the Plans) for (1) independent
and outside directors and (2) its officers and employees.
Shares of common stock issued upon the exercise of such options
will have certain transferability restrictions. The unregistered
public sale of restricted stock,

15



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

which is governed by Rule 144 of the
Securities Act of 1933, as amended, is prohibited during the
first year of ownership and limited as set forth in such rule
during the second year of ownership.

Stock options granted pursuant to the Plans will
expire ten years from the grant date and will be exercisable in
whole or in part upon the second anniversary of the grant date;
provided, however, that if the exercise of any stock option
would cause the aggregate of all Company stock owned by the
Advisor, affiliates of the Advisor and the Companys
officers and directors to exceed 10.0% of the total outstanding
shares of the Companys common stock, such exercise would
be delayed until the first date on which the exercise would not
cause such limit to be exceeded. The Company has authorized and
reserved a total of 100,000 shares and 700,000 shares
for issuance under the Director Plan and the Officer/ Employee
Plan, respectively. Options grants are subject to shareholder
approval of the Plans. Each of the Plans was approved by
shareholders at the Annual Meeting of Shareholders held
June 28, 2003.

As of March 31, 2004, options for a total of
485,000 shares are outstanding under the Officer and
Employee Stock Option Plan and Independent Director Stock Option
Plan.

|                    |         |           |         |          |  |          |      |      |  |   |      |      | 
|------------------- | ------- | --------- | ------- | -------- |  | -------- | ---- | ---- |  | - | ---- | ---- | 
|                    |         |           |         |          |  | Weighted
|                    |         |           |         | Range of |  | Average 
|                    |         | Number    |         | Exercise |  | Exercise
|Options Outstanding |         | of Shares |         | Prices   |  | Price   
|                    |         |           |         |          |  |         
|December 31, 2003   |         |           | 165,000 |          |  | $        | 9.05 |      |  | $ | 9.05 |     
|                    | Granted |           |         | 320,000  |  |          |      | 9.05 |  |   |      | 9.05 | 
|                    |         |           |         |          |  |          |      |      |  |   |      |     
|March 31, 2004      |         |           | 485,000 |          |  | $        | 9.05 |      |  | $ | 9.05 |     
|                    |         |           |         |          |  |          |      |      |  |   |      |     

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

|                |  |             |         |              |  |                  |      |             |  |                  |      |  |  |  |        |  |  |   |      | 
|--------------- |  | ----------- | ------- | ------------ |  | ---------------- | ---- | ----------- |  | ---------------- | ---- |  |  |  | ------ |  |  | - | ---- | 
|                |  |             |         | Wtd Avg      |  | Wtd Avg          |      |             |  | Wtd Avg         
|                |  |             |         | Remaining    |  | Exercise Price  |      |             |  | Exercise Price 
|Range of        |  | Number      |         | Contractual  |  | Outstanding      |      | Number      |  | Exercisable     
|Exercise Prices |  | Outstanding |         | Life (Years) |  | Options          |      | Exercisable |  | Options         
|                |  |             |         |              |  |                  |      |             |  |                 
|$9.05           |  |             | 485,000 |              |  |                  | 9.00 |             |  | $                | 9.05 |  |  |  | 90,000 |  |  | $ | 9.05 | 

The fair value of the options outstanding are
calculated using the Black-Scholes option-pricing model.
Assumptions used in the calculation included a 8.25% dividend
yield, a 3.83% risk-free interest rate based on the 10-year
U.S. Treasury Bond, an expected life of 9.0 years, and
a 0% volatility rate. The fair value at March 31, 2004 was
$1.01.

The weighted average remaining contractual life
of all options outstanding at March 31, 2004, was
approximately 8.96 years.



|    |                    
|--- | -------------------
|10. | Future Minimum Rent

The Company has operating leases with tenants
that expire at various dates through 2015 and are either subject
to scheduled fixed increases or adjustments based on the
Consumer Price Index. Generally, the leases grant tenants
renewal options. Leases also provide for additional rents based
on certain operating expenses.

A certain amount of the Companys rental
income is from tenants with leases which are subject to
contingent rent provisions. These contingent rents are subject
to the tenant achieving periodic revenues in excess of specified
levels. For the three months ended March 31, 2004 and 2003,
the amount of contingent rent earned by the Company was not
significant.

16



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                      
|--- | -----------------------------------------------------
|11. | Advisory Agreement and Related Party
    Transactions



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

The Advisory Agreement between the Company and
the Advisor, as amended, was renewed by the Board of Directors
on May 8, 2004 for an additional one-year term effective
February 22, 2004. The Company compensates the Advisor for
its services through a series of fees pursuant to the Advisory
Agreement. No amounts are currently due the Advisor under this
agreement. As described below, there were no amounts paid to the
Advisor for services provided during the three months ended
March 31, 2004 and 2003.

The Advisor bears the expenses incurred in
connection with supervising, monitoring and inspecting real
property or other assets owned by the Company (excluding
proposed acquisitions) or otherwise relating to its duties under
the Advisory Agreement. Such expenses include employing its
personnel, rent, telephone, equipment, and other administrative
expenses. The Company reimburses the Advisor for certain
expenses incurred, including those related to proposed
acquisitions and travel expenses. However, the Company will not
reimburse the Advisor for any operating expenses that, in any
four consecutive fiscal quarters, exceed the greater of 2% of
Average Invested Assets (as defined) or 25% of net income for
such year. If the Advisor receives an incentive distribution,
net income (for purposes of calculating operating expenses)
excludes any gain from the sale of assets. Any amount exceeding
the greater of 2% of Average Invested Assets or 25% of net
income paid to the Advisor during a fiscal quarter will be
repaid to the Company within 60 days after the end of the
fiscal year. The Company bears its own expenses for functions
not required to be performed by the Advisor under the Advisory
Agreement, which generally include capital raising and financing
activities, corporate governance matters, and other activities
not directly related to real estate properties and other assets.

The Advisor may receive an annual Asset
Management Fee of up to 1.5% of the Average Invested Assets.
This fee will be paid or accrue quarterly, but will not be paid
until the Shareholders have received distributions equal to a
cumulative non-compounded rate of 8.25% per annum on their
investment in the Company. If the fee is not paid in any
quarter, it will accrue and be paid once the Shareholders have
received a cumulative 8.25% return. The Advisor is also entitled
to receive property management fees for management and leasing
services. Such fees may not exceed 5% of the gross revenue
earned by the Company on properties managed.



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

The Company pays Realty property management fees
equal to 5% of the gross income of each property managed by
Realty. All of the Companys properties are managed by
Realty. The Company incurred $20,000 and $88,000 in property
management fees for the three months ended March 31, 2004
and March 31, 2003, respectively.



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

The Advisor owns 100 non-voting incentive
performance units in T REIT, L.P., the Companys Operating
Partnership and is entitled to incentive distributions of
operating cash flow after the Companys shareholders have
received an 8.00% annual return on their invested capital. No
incentive distributions were made to the Advisor for the three
months ended March 31, 2004 and 2003.



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

As discussed in Note 3, the Company paid
Realty real estate sales commissions of $924,000 in connection
with the Companys real estate acquisitions and
dispositions during the three months ended March 31, 2004.

17



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies



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

On February 11, 2004, Clearview Properties
filed a petition in the District Court of the 270th Judicial
District, Harris County, Texas against Property Texas SC One
Corporation, Clarion Partners, LLC, Granite Partners I,
LLC, three unaffiliated entities, and the Advisor, Realty and
the Company. The complaint alleges that Property Texas breached
an Agreement of Sale and Purchase to sell Clearview certain real
property located in Houston, Texas. Only one of the
complaints eight separate counts alleges the involvement
of the Company, the Advisor and Realty. That count alleges that
the Company, the Advisor and Realty and/or the other defendants
wilfully and intentionally interfered with the contract between
Clearview and Property Texas and that such interference
proximately caused Clearviews injury and sufferance of
actual damages. The maximum exposure to the Company is
uncertain, as Clearview has failed to specifically allege a
monetary amount of loss as the result of our alleged
involvement. The Company believes that there is no substantive
merit to the claims made by Clearview with respect to the
Company, the Advisor or Realty and it intends to vigorously
defend the action. However, if Clearview were to prevail in this
action, it could have a material adverse effect upon the
Companys financial condition, results of operations and
cash flows.

Other than the above, to the Companys
knowledge there are no material pending legal proceedings, other
than routine litigation incidental to the business, to which the
Company is a party to or of which any of its properties is the
subject.



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

The Company follows the policy of monitoring its
properties for the presence of hazardous or toxic substances.
While there can be no assurance that a material environmental
liability does not exist, the Company is not currently aware of
any environmental liability with respect to the properties that
would have a material effect on the Companys financial
condition, results of operations and cash flows. Further, the
Company is not aware of any environmental liability or any
unasserted claim or assessment with respect to an environmental
liability that the Company believes would require additional
disclosure or the recording of a loss contingency.



| |      
| | -----
| | Lease

In connection with the sale of the Christie
Building in November 2001, the Company agreed as part of the
sale transaction, to guarantee the lease payment in the amount
$20,000 per month for a period of five years under a master
lease agreement. Under this agreement, the Company is obligated
to make lease payments to the lessor only in the event the
sub-lessee fails to make the lease payments. In addition, the
Company is also obligated to pay a pro rata share of lease
commissions and tenant improvements in the event the premises
are re-leased prior to November 13, 2006. Concurrent with
the issuance of the guaranty, the Advisor agreed to indemnify
the Company against any future losses under the master lease
agreement with the indemnification evidenced by an indemnity
agreement dated November 13, 2001. The Christie Building is
a single tenant office building where the current tenants
lease had expired on August 31, 2002. In October 2002, the
tenant vacated the property. Accordingly, the Company has
accrued $590,000 related to its obligations under the guaranty
at March 31, 2004. The Company has no collateral; however
it has recourse against the Advisor under the indemnity
agreement. The Company has been reimbursed by the Advisor for
all amounts paid under the guarantee and expects to be
reimbursed by the Advisor in connection with the indemnity
agreement for the full amount of its obligation.

18



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



|    |                                                     
|--- | ----------------------------------------------------
|13. | Discontinued Operations  Property
    Held for Sale

Property sold during the three months ended
March 31, 2004, consisted of Gateway Mall, as discussed in
Footnote 3. The results of their operations were
reclassified to discontinued operations for the three months
ended March 31, 2004 and 2003. Also included in
discontinued operations for the three months ended
March 31, 2003, were the following properties that were
sold during 2003, North Star, Thousand Oaks and Pahrump.



|    |            
|--- | -----------
|14. | Restatement

The 2003 amounts have been restated to reflect
the reclassification of discontinued operations and the loss on
sale of real estate due to the reallocation of the property
basis.



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



| |             
| | ------------
| | Acquisitions



| |                                       
| | --------------------------------------
| | Oakey Building  Las Vegas,
    Nevada

On April 2, 2004, through its wholly-owned
subsidiary, TREIT  NNN Oakey Building 2003, LLC,
the Company purchased a 9.761% interest in the Oakey Building in
Las Vegas, Nevada from an unaffiliated third party. The
total purchase price for the Oakey Building was $8,270,000. The
Companys total investment was $670,000. The purchase was
financed by $4,000,000 in borrowings under a secured mortgage
with Ivan Halaj and Vilma Halaj Inter Vivos Trust. The mortgage
requires principal and interest payments at a fixed interest
rate of 10% until the due date of April 1, 2005. The seller
of the property paid a sales commission to Realty of $237,000,
or 2.9% of the purchase price. The Oakey Building is a 104,000
square foot Class A office building located in
Las Vegas, Nevada.



| |           
| | ----------
| | Management

Effective April 22, 2004, Diana M. Laing
resigned her position as the Companys Chief Financial
Officer and the Board of Directors appointed Richard Hutton as
Interim Chief Financial Officer. Mr. Hutton has served as
the Chief Investment Officer of the Advisor since August 2003,
overseeing all financial operations of the Advisor, and
previously served as our interim Chief Financial Officer. From
April 1999 to August 2003, Mr. Hutton served as Senior Vice
President  Real Estate Acquisitions and Vice
President  Property Management for the Advisor. In
that position, Mr. Hutton oversaw the management of the
real estate portfolios and property management of the Advisor
and its affiliates. Mr. Hutton holds a BA in psychology
from Claremont McKenna College and has been licensed as a
Certified Public Accountant in California since 1984.

19



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##### Table of Contents








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

Forward-Looking Statements

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

Overview

The Company was organized in December 1998
to acquire and manage a diversified portfolio of real estate
composed of office, industrial, retail and service properties
located primarily in the following focus states: Alaska,
Florida, Iowa, Michigan, Minnesota, Nevada, North Carolina,
South Carolina, South Dakota, Tennessee, Texas, Virginia,
Washington, Wisconsin and Wyoming. The Company has been
operating and intends to continue operating as a REIT for
federal and state income tax purposes. Triple Net Properties,
LLC (the Advisor) has been retained to manage, for a
fee, the Companys day to day affairs, subject to the
supervision of the Companys Board of Directors.

As of March 31, 2004, the Company owned one
consolidated office/industrial property and interests in nine
unconsolidated properties, including seven office and two
office/industrial properties. Comparability between 2004 and
2003 is limited due to the number of acquisitions and
dispositions during these two years.

Acquisitions in the Three Months Ended
March 31, 2004



| |                                 
| | --------------------------------
| | AmberOaks LP  Austin,
    Texas

On January 20, 2004, the Company, through it
wholly-owned subsidiary, TREIT  AmberOaks LP,
purchased a 75% undivided tenant-in-common interest in three
buildings at AmberOaks Corporate Center located in Austin, Texas
from an unaffiliated third party. Three unaffiliated entities
purchased the remaining 25% tenant-in-common interests in the
property. The total purchase price for AmberOaks was
$22,965,000. The Companys total investment was $6,462,000.
The purchase was financed by $15,000,000 in borrowings under a
secured mortgage with North Houston Bank. The mortgage requires
interest only payments through February 15, 2006 and,
thereafter, principal and interest payments through the maturity
date of January 20, 2007 at the Prime Rate plus 1.0%
subject to a floor of 5.5%. The seller paid a sales commission
to Realty of $585,000, or 2.3% of the purchase price. AmberOaks
is a three-building Class A

20



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##### Table of Contents



office portfolio totaling 206,000 square feet
that is part of an eight-building complex built during
1999-2001. An affiliate of the Companys advisor purchased
the remaining five buildings.




| |                                                 
| | ------------------------------------------------
| | Land  Gateway Mall 
    Bismarck, North Dakota

On February 27, 2004, the Company purchased
43 acres of land, including 36 acres of land situated
under Gateway Mall from another unaffiliated third party for a
purchase price including closing costs of $1,631,000. Prior to
the land acquisition, the property had been subject to a ground
lease.

Dispositions in the Three Months Ended
March 31, 2004



| |                                          
| | -----------------------------------------
| | Gateway Mall  Bismarck, North
    Dakota

On March 18, 2004, the Company sold Gateway
Mall to an unaffiliated third party for a total consideration of
$11,600,000. The sale of Gateway Mall included the underlying
36 acres of land. Net sales proceeds included cash of
$2,452,000 and a note receivable in the amount of $8,700,000.
The note is secured by a pledge agreement, bears interest at
6% per annum and is due June 14, 2004. In connection
with the sale of Gateway Mall, the Company repaid a note payable
secured by the property with an outstanding balance of
$4,876,000. At closing, the Company paid a real estate
commission to Realty of $339,000, or 2.9% of the selling price.

Public Offering of Equity Securities

On February 22, 2000, the Company commenced
its initial public offering of up to 10,000,000 shares of
common stock at $10.00 per share pursuant to a Registration
Statement on Form S-11 filed under the Securities Act of
1933, as amended. The Company commenced its active operations on
September 26, 2000 when it completed its first property
acquisition. The Company terminated its initial public offering
on May 31, 2002 at which time gross proceeds of
approximately $46,395,000 had been received from the sale of
4,720,000 shares. Through March 31, 2004, the Company
had repurchased 24,000 shares pursuant to its Repurchase
Plan.

Critical Accounting Policies

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



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

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

21



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##### Table of Contents





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

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



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

In the event that the carrying amount of a
property exceeds the sum of the undiscounted cash flows
(excluding interest) that are expected to result from the use
and eventual disposition of the property, the Company would
recognize an impairment loss to the extent the carrying amount
exceeded the fair value of the property. The Company estimates
the fair value using available market information or other
industry valuation techniques such as present value calculations.



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

Property acquisitions since July 1, 2001,
have been accounted for in accordance with Statement of
Financial Accounting Standards No. 141, Business
Combinations. The fair value of the real estate acquired
is allocated to the acquired tangible assets, consisting of
land, building and tenant improvements, and identified
intangible assets and liabilities, consisting of the value of
above-market and below-market leases, other value of in-place
leases and value of tenant relationships, if any, based in each
case on their fair values.

The fair value of the tangible assets of an
acquired property (which includes land, building and tenant
improvements) is determined by valuing the property as if it
were vacant, and the as-if-vacant value is then
allocated to land, building and tenant improvements based on our
determination of the relative fair values of these assets.
Factors considered by Management in performing these analyses
include an estimate of carrying costs during the expected
lease-up periods considering current market conditions and
insurance and other operating expenses during the expected
lease-up periods based on current market demand. The Company
also estimates costs to execute similar leases including leasing
commissions, concessions, legal and other related costs.

In allocating the fair value of the identified
intangible assets and liabilities of an acquired property,
above-market and below-market in-place lease values are recorded
based on the present value (using an interest rate which
reflects the risks associated with the leases acquired) of the
difference between (i) the contractual amounts to be paid
pursuant to the in-place leases and (ii) our estimate of
fair market lease rates for the corresponding in-place leases,
measured over a period equal to the remaining non-cancelable
term of the lease. The capitalized above-market and below-market
lease values are amortized into rental income over the remaining
non-cancelable terms of the respective leases.



| |                       
| | ----------------------
| | Property Held For Sale

Property held for sale is carried at the lower of
cost or estimated fair value less cost to sell and such property
is no longer depreciated.



| |                                             
| | --------------------------------------------
| | Investment In Unconsolidated Real
    Estate

The Company accounts for its investments in
unconsolidated real estate operating properties using the equity
method of accounting. Accordingly, the Company reports its net
equity in its proportionate share of the total investments in
unconsolidated real estate as Investment in unconsolidated
real estate on its Consolidated Balance Sheets. The
Company reports its proportionate share of the total earnings of
its investments in unconsolidated real estate as Equity in
the earnings of unconsolidated real estate on its
Consolidated Statements of Operations.

22



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##### Table of Contents





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

The Company has been organized and operated, and
intends to continue to operate, so as to qualify for taxation as
a REIT under the Internal Revenue Code. The Companys
qualification and taxation as a REIT depends on its ability to
meet, through actual annual operating results, asset
diversification, distribution levels and diversity of stock
ownership, numerous requirements established under highly
technical and complex Internal Revenue Code provisions subject
to interpretation.

If the Company failed to qualify as a REIT in any
taxable year, it would be subject to federal income tax,
including any applicable alternative minimum tax, on its taxable
income at regular corporate rates. Moreover, unless entitled to
relief under specific statutory provisions, the Company also
would be disqualified as a REIT for four taxable years following
the year during which qualification was lost.

Results of Operations

The Companys operating results are
primarily comprised of income derived from its portfolio of
properties. Because of the significant property acquisitions and
dispositions throughout the three months ended March 31,
2004 and the year ended December 31, 2003, the
comparability of financial data from period to period will be
limited.



| |                                                         
| | --------------------------------------------------------
| | Three Months Ended March 31, 2004 and
    March 31, 2003

Rental Income.Rental income increased by $12,000 or 5.1% to $246,000 for the
three months ended March 31, 2004 compared to rental income
of $234,000 for the three months March 31, 2003. This
increase was due to rent increases throughout 2003.

Interest Income.Interest income increased by $16,000 or 66.7% to $40,000 for the
three months ended March 31, 2004 compared to interest
income of $24,000 for the three months ended March 31,
2003. This increase was primarily due to the interest on the
Moffat note receivable due to the sale of Gateway Mall.

Dividend Income.Dividend income of $40,000 was due to the return on investments
in marketable securities.

Rental Expenses.Rental expenses decreased by $26,000 or 41.3% to $37,000 for the
three months ended March 31, 2004 compared to rental
expense of $63,000 for the three months ended March 31,
2003. This decrease was due to the difference in management fees
paid in the three months ended March 31, 2004.

General and Administrative
Expenses.General and administrative
expenses consist primarily of third party legal and accounting
fees and the cost of computerized information services and
related office expenses required to maintain the Companys
accounting and investor records. General and administrative
expenses decreased by $21,000 or 18.8% to $91,000 for the three
months ended March 31, 2004 compared to general and
administrative expense of $112,000 for the three months ended
March 31, 2003.

Interest Expense.Interest expense increased by $12,000, or 19.4% to $74,000 for
the three months ended March 31, 2004 compared with $62,000
for the three months ended March 31, 2003. The increase was
due to interest payments on draws on the line of credit.

Equity in Net Earnings of Unconsolidated Real
Estate.Equity in earnings of
unconsolidated real estate decreased by $278,000, or 49.8% to
$280,000 for the three months ended March 31, 2004 compared
with $558,000 for the three months ended March 31, 2003.
The majority of the decrease was due to finalization of purchase
price adjustments and related depreciation and amortization of
the assets for the acquisitions of unconsolidated real estate.

Income From Discontinued
Operations  Property Held For
Sale.Income from discontinued
operations represents the net operating results of one property
sold during the three months ended March 31, 2004 through
the date of sale, including interest expense and depreciation
related to this

23



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##### Table of Contents



property. Income from discontinued operations
decreased $116,000 or 52.5% to $105,000 for the three months
ended March 31, 2004 compared to $221,000 for the three
months ended March 31, 2003 primarily due to the results of
the various properties sold.


Gain (loss) on sale of real estate
investments.Gain on the sale of real
estate investments was $822,000 for the three months ended
March 31, 2004 and was due to the sale of Gateway Mall on
March 18, 2004. Loss on the sale of real estate investments
was $191,000 for the three months ended March 31, 2003 and
was due to the sale of North Star Shopping Center.

Net Income from continuing operations before
discontinued operations.Net income
from continuing operations before discontinued operations
decreased by $128,000, or 23.4% to $414,000 or $0.08 per
share basic and diluted for the three months ended
March 31, 2004 compared to net income before discontinued
operations $542,000 or $0.11 per share basic and diluted
for the three months ended March 31, 2003.

Net Income.Net
income was $1,341,000 or $0.28 per share basic and diluted
for the three months ended March 31, 2004 compared to
$572,000 or $0.12 per share basic and diluted for the three
months ended March 31, 2003. Dividends declared were
$955,000 or $.21 per share for the three months ended
March 31, 2004 compared to $965,000 or $0.21 per share
for the three months ended March 31, 2003.

Liquidity and Capital Resources



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

On September 3, 2003 the Company entered
into an agreement with Fleet National Bank for an unsecured line
of credit in the amount of $1,000,000 which bears interest at
Fleets prime rate plus fifty basis points. The credit
facility matures on September 2, 2004 and has two one-year
extensions. The credit facility is subject to a fee of 1% to be
paid one-third on each of the effective date, the first
anniversary and the second anniversary. As of March 31,
2004 and December 31, 2003, respectively, the Company had
no amounts outstanding under the line of credit.



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

There are no off-balance sheet transactions,
arrangements or obligations (including contingent obligations)
that have, or are reasonably likely to have a current or future
material effect on our financial condition, changes in the
financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.



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

Cash flows used in operating activities for the
three months ended March 31, 2004, was $17,000 compared
with cash flows used in operating activities of $7,000 for the
three months ended March 31, 2003. The decrease in cash
flows used in operating activities was substantially
attributable to the payment of semi-annual real estate taxes in
March 2004.

Cash flows used in investing activities for the
three months ended March 31, 2004, was $5,448,000 compared
with cash flows used in investing activities of $6,738,000 for
the three months ended March 31, 2003. The decrease in cash
flows used in investing activities was substantially
attributable to the purchase of $2,368,000 of marketable
securities in 2004, purchase of land for $1,619,000 in 2004,
purchase of investments in unconsolidated real estate of
$5,996,000 in 2004, offset in part by the sale of marketable
securities of $2,235,000 in 2004.

Cash flows used in financing activities for the
three months ended March 31, 2004 was $5,866,000 compared
with cash flows provided by financing activities of $1,207,000
for the three months ended March 31, 2003. The increase in
cash flows used in financing activities was substantially
attributable to the payment of debt of $4,918,000 for property
that was sold in 2004 and the issuance of new debt of $5,000,000
in 2003.

24



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##### Table of Contents





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

At March 31, 2004, the Company had
approximately $1,039,000 in cash and marketable securities. The
Company intends to acquire additional properties and will seek
to fund these acquisitions through utilization of the current
cash balances, debt financings and/or asset dispositions.

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

Distributions are determined by the
Companys Board of Directors and are dependent on a number
of factors, including the amount of funds available for
distribution, the Companys financial condition, any
decision by the Board of Directors to reinvest funds rather than
to distribute the funds, the Companys capital
expenditures, the annual distribution required to maintain REIT
status under the Internal Revenue Code of 1986, as amended, and
other factors the Board of Directors may deem relevant.

Subsequent Events



| |             
| | ------------
| | Acquisitions



| |                                       
| | --------------------------------------
| | Oakey Building  Las Vegas,
    Nevada

On April 2, 2004, through its wholly-owned
subsidiary, TREIT  NNN Oakey Building 2003, LLC,
the Company purchased a 9.761% interest in the Oakey Building in
Las Vegas, Nevada from an unaffiliated third party. The
total purchase price for the Oakey Building was $8,270,000. The
Companys total investment was $670,000. The purchase was
financed by $4,000,000 in borrowings under a secured mortgage
with Ivan Halaj and Vilma Halaj Inter Vivos Trust. The mortgage
requires principal and interest payments at a fixed interest
rate of 10% until the due date of April 1, 2005. The seller
of the property paid a sales commission to Realty of $237,000,
or 2.9% of the purchase price. The Oakey Building is a 104,000
square foot Class A office building located in Las Vegas,
Nevada.



| |           
| | ----------
| | Management

Effective April 22, 2004, Diana M. Laing
resigned her position as the Companys Chief Financial
Officer and the Board of Directors appointed Richard Hutton as
Interim Chief Financial Officer. Mr. Hutton has served as
the Chief Investment Officer of the Advisor since
August 2003, overseeing all financial operations of the
Advisor, and previously served as our interim Chief Financial
Officer. From April 1999 to August 2003,
Mr. Hutton served as Senior Vice President  Real
Estate Acquisitions and Vice President  Property
Management for the Advisor. In that position, Mr. Hutton
oversaw the management of the real estate portfolios and
property management of the Advisor and its affiliates.
Mr. Hutton holds a BA in psychology from Claremont McKenna
College and has been licensed as a Certified Public Accountant
in California since 1984.

Funds From Operations

The Company defines Funds from Operations
(FFO), a non-GAAP measure, consistent with the
definition of the National Association of Real Estate Investment
Trusts, or NAREIT, as net income available to common
shareholders, plus depreciation and amortization of assets
uniquely significant to the real estate industry, reduced by
gains and increased by losses on (1) sales of investment
property and (2) extraordinary items.

The Company considers FFO to be an appropriate
supplemental measure of a REITs operating performance as
it is based on a net income analysis of property portfolio
performance that excludes non-cash items such as depreciation.
The historical accounting convention used for real estate assets
requires

25



---



##### Table of Contents



straight-line depreciation of buildings and
improvements, which implies that the value of real estate assets
diminishes predictably over time. Since real estate values
historically rise and fall with market conditions, presentations
of operating results for a REIT, using historical accounting for
depreciation, could be less informative. The use of FFO is
recommended by the REIT industry as a supplemental performance
measure.


Presentation of this information is intended to
assist the reader in comparing the operating performance of
different REITs, although it should be noted that not all REITs
calculate FFO the same way, so comparisons with other REITs may
not be meaningful. Furthermore, FFO is not necessarily
indicative of cash flow available to fund cash needs and should
not be considered as an alternative to net income as an
indication of the Companys performance.

The Companys FFO reporting complies with
NAREITs policy described in the preceding paragraph.
Following is the calculation of FFO for the three months ended
March 31, 2004 and March 31, 2003:

|                                           |                                                                    |              |           |              |  |   |           |          |  
|------------------------------------------ | ------------------------------------------------------------------ | ------------ | --------- | ------------ |  | - | --------- | -------- | -
|                                           |                                                                    | Three Months |           | Three Months
|                                           |                                                                    | Ended        |           | Ended       
|                                           |                                                                    | March 31,    |           | March 31,   
|                                           |                                                                    | 2004         |           | 2003        
|                                           |                                                                    |              |           |             
|Net income                                 |                                                                    | $            | 1,341,000 |              |  | $ | 572,000   |         
|Add:                                       |                                                                    |              |           |              |  |   |           |         
|                                           | Depreciation  continuing operations                               |              |           | 37,000       |  |   |           | 37,000   |  
|                                           | Depreciation  discontinued operations                             |              |           | 17,000       |  |   |           | 171,000  |  
|                                           | Depreciation  unconsolidated real
    estate operating properties |              |           | 737,000      |  |   |           | 304,000  |  
|Less:                                      |                                                                    |              |           |              |  |   |           |         
|                                           | Gain/(Loss) on Sale of property                                    |              |           | 822,000      |  |   |           | (191,000 | )
|                                           |                                                                    |              |           |              |  |   |           |         
|Funds from operations                      |                                                                    | $            | 1,310,000 |              |  | $ | 1,275,000 |         
|                                           |                                                                    |              |           |              |  |   |           |         
|Weighted average common shares outstanding |                                                                    |              |           |              |  |   |           |         
|Basic and diluted                          |                                                                    |              | 4,646,000 |              |  |   | 4,696,000 |         

Inflation

We will be exposed to inflation risk as income
from long-term leases is expected to be the primary source of
our cash flows from operations. We expect that there will be
provisions in the majority of our tenant leases that would
protect us from the impact of inflation. These provisions
include rent steps, reimbursement billings for operating expense
pass-through charges, real estate tax and insurance
reimbursements on a per square foot allowance. However, due to
the long-term nature of the leases, the leases may not re-set
frequently enough to cover inflation.

Contractual Obligations

The following table provides information with
respect to the maturities, scheduled principal payments of fixed
rate debt and scheduled interest, payments of the fixed rate
debt at March 31, 2004. The table does not reflect
available extension options.

|                                     |       |                        |         |             |  |             |         |              |  |       |           |           |  |   |   |   |  |   |           |           | 
|------------------------------------ | ----- | ---------------------- | ------- | ----------- |  | ----------- | ------- | ------------ |  | ----- | --------- | --------- |  | - | - | - |  | - | --------- | --------- | 
|                                     |       |                       
|                                     |       | Payments Due by Period
|                                     |       |                       
|                                     |       | Less than 1            |         |             |  | More than 5 |         |             
|                                     |       | Year                   |         | 1-3 Years   |  | 3-5 Years   |         | Years        |  |      
|                                     |       | (2004)                 |         | (2005-2006) |  | (2007-2008) |         | (After 2008) |  | Total
|                                     |       |                        |         |             |  |             |         |              |  |      
|Principal payments  fixed rate debt |       | $                      | 46,000  |             |  | $           | 134,000 |              |  | $     | 4,152,000 |           |  | $ |  |   |  | $ | 4,332,000 |          
|Interest payments  fixed rate debt  |       |                        | 173,000 |             |  |             | 449,000 |              |  |       | 219,000   |           |  |   |  |   |  |   | 841,000   |          
|                                     |       |                        |         |             |  |             |         |              |  |       |           |           |  |   |   |   |  |   |           |          
|                                     | Total |                        | $       | 219,000     |  |             | $       | 583,000      |  |       | $         | 4,371,000 |  |   | $ |  |  |   | $         | 5,173,000 | 
|                                     |       |                        |         |             |  |             |         |              |  |       |           |           |  |   |   |   |  |   |           |          

26



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##### Table of Contents








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

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

The Companys interest rate risk is
monitored using a variety of techniques. The table below
presents the principal amounts and weighted average interest
rates by year of expected maturity to evaluate the expected cash
flows and sensitivity to interest rate changes.

|                                                  |  |                 |        |      |  |      |        |      |  |      |        |            |  |       |        |   |  |   |           |   |  |   |      |   |  |   |           |  
|------------------------------------------------- |  | --------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ | - |  | - | --------- | - |  | - | ---- | - |  | - | --------- | -
|                                                  |  | As of March 31, |        |      |  |      |        |      |  |      |        |            |  |      
|                                                  |  | 2004            |        | 2005 |  | 2006 |        | 2007 |  | 2008 |        | Thereafter |  | Total
|                                                  |  |                 |        |      |  |      |        |      |  |      |        |            |  |      
|Fixed rate debt                                   |  | $               | 46,000 |      |  | $    | 65,000 |      |  | $    | 69,000 |            |  | $     | 72,000 |   |  | $ | 4,080,000 |   |  | $ |     |   |  | $ | 4,332,000 |  
|Average interest rate on maturing fixed rate debt |  |                 | 5.25   | %    |  |      | 5.25   | %    |  |      | 5.25   | %          |  |       | 5.25   | % |  |   | 5.25      | % |  |   | 5.25 | % |  |   | 5.25      | %

The fair estimated value of the Companys
debt approximates its March 31, 2004 carrying amount.

Approximately $4,332,000 or 100% of the
Companys mortgages payable at March 31, 2004, have
fixed interest rates averaging 5.25%. An increase in interest
rates of 0.25% on the Companys variable rate mortgage
loans would not significantly impact earnings due to current
market interest rates being substantially below the floor
interest rates on these mortgage loans.






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

(a) Evaluation of disclosure controls and
procedures. The Company maintains disclosure controls and
procedures that are designed to ensure that information required
to be disclosed in its Exchange Act reports is recorded,
processed, summarized and reported within the time periods
specified in the Commissions rules and forms, and that
such information is accumulated and communicated to our
management, including our Chief Executive Officer and Interim
Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As of March 31, 2004, the end of the quarter
covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the
Companys management, including its Chief Executive Officer
and its Interim Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure
controls and procedures. Based on the foregoing, the
Companys Chief Executive Officer and Interim Chief
Financial Officer concluded that the Companys disclosure
controls and procedures were effective at the reasonable
assurance level.

(b) Changes in internal control over
financial reporting. There have been no significant changes
in the Companys internal control over financial reporting
that occurred subsequent to the date of their evaluation that
have materially affected or are reasonably likely to materially
affect the Companys internal control over financial
reporting.

27



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##### Table of Contents






PART II  OTHER
INFORMATION






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

On February 11, 2004, Clearview Properties
filed a petition in the District Court of the 270th Judicial
District, Harris County, Texas against Property Texas SC One
Corporation, Clarion Partners, LLC, Granite Partners I,
LLC, three unaffiliated entities, and the Advisor, Realty and
the Company. The complaint alleges that Property Texas breached
an Agreement of Sale and Purchase to sell Clearview certain real
property located in Houston, Texas. Only one of the
complaints eight separate counts alleges the involvement
of the Company, the Advisor and Realty. That count alleges that
the Company, the Advisor and Realty and/or the other defendants
wilfully and intentionally interfered with the contract between
Clearview and Property Texas and that such interference
proximately caused Clearviews injury and sufferance of
actual damages. The maximum exposure to the Company is
uncertain, as Clearview has failed to specifically allege a
monetary amount of loss as the result of our alleged
involvement. The Company believes that there is no substantive
merit to the claims made by Clearview with respect to the
Company, the Advisor or Realty and it intends to vigorously
defend the action. However, if Clearview were to prevail in this
action, it could have a material adverse effect upon the
Companys financial condition, results of operations and
cash flows.

Other than the above, to the Companys
knowledge there are no material pending legal proceedings, other
than routine litigation incidental to the business, to which the
Company is a party to or of which any of its properties is the
subject.






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

(a) None.

(b) None.

(c) None.

(d) N/A






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

None.






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

None.






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

None.






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

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

|     |     |             |  |                                                                                                                                                                                                                                                                                      
|---- | --- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |     |            
|No.  |     | Description
|     |     |            
|     | 3.1 |             |  | Articles of Incorporation of the Company
    (included as Exhibit 3.1 to the Companys Registration
    Statement on Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                           
|     | 3.2 |             |  | Form of Amended and Restated Articles of
    Incorporation of the Company (included as Exhibit 3.2 to
    Amendment No. 3 to the Companys Registration
    Statement on Form S-11 filed on November 22, 1999
    (File No. 333-77229) and incorporated herein by this
    reference)

28



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##### Table of Contents



|     |       |             |  |                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |       |            
|No.  |       | Description
|     |       |            
|     | 3.3   |             |  | Form of By-Laws of the Company (included as
    Exhibit 3.3 to the Companys Registration Statement on
    Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                                                        
|     | 3.4   |             |  | Form of Amended By-Laws of the Company (included
    as Exhibit 3.4 to Post-Effective Amendment No. 2 to
    the Companys Registration Statement on Form S-11
    filed on July 17, 2001 (File No. 333-77229) and
    incorporated herein by reference.)                                                                                                               
|     | 4.1   |             |  | Form of Share Certificate (included as
    Exhibit 4.1 to Amendment No. 4 to the Companys
    Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                                    
|     | 10.1  |             |  | Form of Agreement of Limited Partnership of T
    REIT, L.P. (included as Exhibit 10.1 to Amendment
    No. 2 to the Companys Registration Statement on
    Form S-11 filed on October 13, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                    
|     | 10.2  |             |  | Dividend Reinvestment Program (included as
    Exhibit C to the Companys Prospectus filed as part of
    the Companys Registration Statement on Form S-11 on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                   
|     | 10.3  |             |  | Independent Director Stock Option Plan (included
    as Exhibit 10.3 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                      
|     | 10.4  |             |  | Employee and Officer Stock Option Plan (included
    as Exhibit 10.4 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                      
|     | 10.5  |             |  | Advisory Agreement between the Company and the
    Advisor (included as Exhibit 10.5 to Amendment No. 2
    to the Companys Registration Statement on Form S-11
    filed on October 13, 1999 (File No. 333-77229) and
    incorporated herein by this reference)                                                                                                      
|     | 10.6  |             |  | Purchase and Sale Agreement, dated June 5,
    2000, by and between Robert C. Parker and Carolyn De
    La Fuente Parker and Triple Net Properties, LLC (included
    as Exhibit 10.1 to Form 10-Q filed by the Registrant
    with the SEC on November 14, 2000 and incorporated herein
    by this reference)                                                         
|     | 10.7  |             |  | Purchase and Sale Agreement, dated
    October 25, 2000, by and between CMF Capital Company LLC
    and T REIT, L.P. (included as Exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on November 13, 2000
    and incorporated herein by this reference)                                                                                                 
|     | 10.8  |             |  | Purchase and Sale Agreement, dated
    October 26, 2000, by and between CMF Capital Company LLC
    and T REIT L.P. (included as exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on December 20, 2000
    and incorporated herein by this reference)                                                                                                  
|     | 10.9  |             |  | Purchase and Sale Agreement, dated
    August 24, 2000, as amended, by and between Drummer Boy
    Holdings, LLC and Triple Net Properties, LLC (included as
    Exhibit 10.9 to Post Effective Amendment No. 2 to the
    Companys Registration Statement on Form S-11 filed on
    July 17, 2001 (File No. 333-772229) and incorporated
    herein by this reference)
|     | 10.10 |             |  | First Amendment to Advisory Agreement between the
    Company and the Advisor (included as Exhibit 10.10 to
    Post-Effective Amendment No. 1 to the Companys
    Registration Statement filed on Form S-11 on July 17,
    2001 (File No. 333-772229) and incorporated herein by this
    reference)                                                                 
|     | 10.11 |             |  | Purchase and Sale Agreement, dated April 16,
    2001, by and between Kilroy Realty, L.P. and Triple Net
    Properties LLC (included as Exhibit 10.11 to Post Effective
    Amendment No. 3 to the Companys Registration
    Statement on Form S-11 filed on October 19, 2001 (File
    No. 333-772229) and incorporated herein by reference)                         
|     | 10.12 |             |  | Purchase and Sale Agreement dated
    October 30, 2001, by and between Triple Net Properties, LLC
    and City Center West Development, LLC (included as
    Exhibit 10.1 to Form 8-K/ A filed by the Company on
    May 14, 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 the Company on
    May 14, 2003 and incorporated herein by reference)                                                                                       

29



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##### Table of Contents



|     |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |       |            
|No.  |       | Description
|     |       |            
|     | 10.14 |             |  | Amended and Restated Real Estate Purchase and
    Sale Agreement dated as of July 24, 2002 by and between
    Transwestern Heights, L.P. as seller and Triple Net Properties,
    LLC, as assigned to T REIT  University Heights,
    LP, a Texas limited partnership (included as Exhibit 10.14
    to the Form 8-K filed by the Company on September 5,
    2002 and incorporated herein by reference).
|     | 10.15 |             |  | Purchase Agreement dated October 10, 2002
    between Congress Center, LLC and Triple Net Properties, LLC as
    assigned to NNN Congress Center, LLC, G REIT 
    Congress Center, LLC, and W REIT  Congress
    Center, LLC (included as Exhibit 10.14 to the Form 8-K
    filed by the Company on January 24, 2003 and incorporated
    herein by reference).                                        
|     | 10.16 |             |  | Operating Agreement of NNN Congress Center
    Member, LLC dated January 1, 2003 (included as
    Exhibit 10.15 to the Form 8-K filed by the Company on
    January 24, 2003 and incorporated herein by reference).                                                                                                                                                                                       
|     | 10.17 |             |  | Agreement for Purchase and Sale of Real Property
    and Escrow Instructions dated as of May 14, 2003 by and
    between T REIT  Thousand Oaks, LP and Weingarten
    Realty Investors (included as Exhibit 10.01 to the
    Form 8-K filed by the Company on August 26, 2003 and
    incorporated herein by reference).                                                                                 
|     | 10.18 |             |  | Agreement for Purchase and Sale of Real Property
    and Escrow Instructions dated as of May 15, 2003 by and
    between T REIT-Pahrump, LLC and Pacific Home Equities, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by
    the Company on October 9, 2003 and incorporated herein by
    reference).                                                                                         
|     | 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 the Company 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 the Company 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 the Company 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 the Company on
    March 29, 2004 and incorporated herein by reference).                                                            
|     | 31.1  |             |  | Certification of Chief Executive Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|     | 31.2  |             |  | Certification of Chief Financial Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|     | 32.1  |             |  | Certification of Chief Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                        
|     | 32.2  |             |  | Certification of Chief Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                        

(b) The following 8-K Reports were filed
during the quarter ended March 31, 2004:



| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 15, 2004, the Company filed a
    Current Report on Form 8-K dated January 1, 2004 to
    report the appointment of Diana M. Laing as the Companys
    Chief Executive Officer.
|
| | On February 4, 2004, the Company filed a
    Current Report on Form 8-K dated January 22, 2004 to
    report the acquisition of AmberOaks in Austin, Texas.                                

30



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| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On February 12, 2004, the Company filed a
    Current Report on Form 8-K dated February 8, 2004 to
    report the dismissal of Grant Thornton LLP as its independent
    certified public accountant the appointment of
    Deloitte & Touche, LLP as its independent certified
    public accountant.
|
| | On February 19, 2004, the Company filed a
    Current Report on Form 8-K/ A dated January 20, 2004
    to correct the date of acquisition of AmberOaks in Austin, Texas.                                                                                                                              
|
| | On March 29, 2004, the Company filed a
    Current Report on Form 8-K/ A dated January 20, 2004
    to report the required Item 7 financial statements with
    respect to the Companys acquisition of AmberOaks in
    Austin, Texas.                                                               
|
| | On March 29, 2004, the Company filed a
    Current Report on Form 8-K dated March 18, 2004 to
    report the disposition of Gateway Mall in Bismarck, North Dakota
    and to file the required Item 7 pro forma financial
    statements.                                                            

31



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##### Table of Contents






SIGNATURES

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



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



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

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



| |     |                           
| | --- | --------------------------
| | By: | /s/ RICHARD T. HUTTON, JR.

| |                                
| | -------------------------------
| |                                
| | Richard T. Hutton, Jr.         
| | Interim Chief Financial Officer

Date: May 17, 2004

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EXHIBIT INDEX

|     |       |             |  |                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |       |            
|No.  |       | Description
|     |       |            
|     | 3.1   |             |  | Articles of Incorporation of the Company
    (included as Exhibit 3.1 to the Companys Registration
    Statement on Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                                              
|     | 3.2   |             |  | Form of Amended and Restated Articles of
    Incorporation of the Company (included as Exhibit 3.2 to
    Amendment No. 3 to the Companys Registration
    Statement on Form S-11 filed on November 22, 1999
    (File No. 333-77229) and incorporated herein by this
    reference)                                                                                   
|     | 3.3   |             |  | Form of By-Laws of the Company (included as
    Exhibit 3.3 to the Companys Registration Statement on
    Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                                                        
|     | 3.4   |             |  | Form of Amended By-Laws of the Company (included
    as Exhibit 3.4 to Post-Effective Amendment No. 2 to
    the Companys Registration Statement on Form S-11
    filed on July 17, 2001 (File No. 333-77229) and
    incorporated herein by reference.)                                                                                                               
|     | 4.1   |             |  | Form of Share Certificate (included as
    Exhibit 4.1 to Amendment No. 4 to the Companys
    Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                                    
|     | 10.1  |             |  | Form of Agreement of Limited Partnership of T
    REIT, L.P. (included as Exhibit 10.1 to Amendment
    No. 2 to the Companys Registration Statement on
    Form S-11 filed on October 13, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                    
|     | 10.2  |             |  | Dividend Reinvestment Program (included as
    Exhibit C to the Companys Prospectus filed as part of
    the Companys Registration Statement on Form S-11 on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                   
|     | 10.3  |             |  | Independent Director Stock Option Plan (included
    as Exhibit 10.3 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                      
|     | 10.4  |             |  | Employee and Officer Stock Option Plan (included
    as Exhibit 10.4 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                      
|     | 10.5  |             |  | Advisory Agreement between the Company and the
    Advisor (included as Exhibit 10.5 to Amendment No. 2
    to the Companys Registration Statement on Form S-11
    filed on October 13, 1999 (File No. 333-77229) and
    incorporated herein by this reference)                                                                                                      
|     | 10.6  |             |  | Purchase and Sale Agreement, dated June 5,
    2000, by and between Robert C. Parker and Carolyn De
    La Fuente Parker and Triple Net Properties, LLC (included
    as Exhibit 10.1 to Form 10-Q filed by the Registrant
    with the SEC on November 14, 2000 and incorporated herein
    by this reference)                                                         
|     | 10.7  |             |  | Purchase and Sale Agreement, dated
    October 25, 2000, by and between CMF Capital Company LLC
    and T REIT, L.P. (included as Exhibit 10.1 to
    Form 8-K filed by the Registrant with the SEC on
    November 13, 2000 and incorporated herein by this reference)                                                                                                 
|     | 10.8  |             |  | Purchase and Sale Agreement, dated
    October 26, 2000, by and between CMF Capital Company LLC
    and T REIT L.P. (included as exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on December 20, 2000
    and incorporated herein by this reference)                                                                                                  
|     | 10.9  |             |  | Purchase and Sale Agreement, dated
    August 24, 2000, as amended, by and between Drummer Boy
    Holdings, LLC and Triple Net Properties, LLC (included as
    Exhibit 10.9 to Post Effective Amendment No. 2 to the
    Companys Registration Statement on Form S-11 filed on
    July 17, 2001 (File No. 333-772229) and incorporated
    herein by this reference)
|     | 10.10 |             |  | First Amendment to Advisory Agreement between the
    Company and the Advisor (included as Exhibit 10.10 to
    Post-Effective Amendment No. 1 to the Companys
    Registration Statement filed on Form S-11 on July 17,
    2001 (File No. 333-772229) and incorporated herein by this
    reference)                                                                 
|     | 10.11 |             |  | Purchase and Sale Agreement, dated April 16,
    2001, by and between Kilroy Realty, L.P. and Triple Net
    Properties LLC (included as Exhibit 10.11 to Post Effective
    Amendment No. 3 to the Companys Registration
    Statement on Form S-11 filed on October 19, 2001 (File
    No. 333-772229) and incorporated herein by reference)                         



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##### Table of Contents



|     |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |       |            
|No.  |       | Description
|     |       |            
|     | 10.12 |             |  | Purchase and Sale Agreement dated
    October 30, 2001, by and between Triple Net Properties, LLC
    and City Center West Development, LLC (included as
    Exhibit 10.1 to Form 8-K/ A filed by the Company on
    May 14, 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 the Company 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 the Company on September 5,
    2002 and incorporated herein by reference).
|     | 10.15 |             |  | Purchase Agreement dated October 10, 2002
    between Congress Center, LLC and Triple Net Properties, LLC as
    assigned to NNN Congress Center, LLC, G REIT 
    Congress Center, LLC, and W REIT  Congress
    Center, LLC (included as Exhibit 10.14 to the Form 8-K
    filed by the Company on January 24, 2003 and incorporated
    herein by reference).                                        
|     | 10.16 |             |  | Operating Agreement of NNN Congress Center
    Member, LLC dated January 1, 2003 (included as
    Exhibit 10.15 to the Form 8-K filed by the Company on
    January 24, 2003 and incorporated herein by reference).                                                                                                                                                                                       
|     | 10.17 |             |  | Agreement for Purchase and Sale of Real Property
    and Escrow Instructions dated as of May 14, 2003 by and
    between T REIT  Thousand Oaks, LP and Weingarten
    Realty Investors (included as Exhibit 10.01 to the
    Form 8-K filed by the Company on August 26, 2003 and
    incorporated herein by reference).                                                                                 
|     | 10.18 |             |  | Agreement for Purchase and Sale of Real Property
    and Escrow Instructions dated as of May 15, 2003 by and
    between T REIT-Pahrump, LLC and Pacific Home Equities, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by
    the Company on October 9, 2003 and incorporated herein by
    reference).                                                                                         
|     | 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 the Company 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 the Company 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 the Company 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 the Company on
    March 29, 2004 and incorporated herein by reference).                                                            
|     | 31.1  |             |  | Certification of Chief Executive Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|     | 31.2  |             |  | Certification of Chief Financial Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                  
|     | 32.1  |             |  | Certification of Chief Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                        
|     | 32.2  |             |  | Certification of Chief Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.