##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|           |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 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: 0-50261





G REIT, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Maryland                                                           |  | 52-2362509                              
|(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)





Securities registered pursuant to Section 12(b) of the
Act:


|                     |  |                                          
|-------------------- |  | -----------------------------------------
|Title of Each Class: |  | Name of Each Exchange on Which Registered
|                     |  |                                          
|None                 |  | None                                     

Securities registered pursuant to Section 12(g) of the
Act:


Title of Class:





Common Stock


þ o


o




o þ












---










G REIT, INC.


(A Maryland Corporation)


TABLE OF CONTENTS


|              |  |                                                                                                                      |  |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|              |  |                                                                                                                      |  | Page |   
|              |  |                                                                                                                      |  |      |   
|PART I       
|Item 1.       |  | Business                                                                                                             |  |      | 1  | 
|Item 2.       |  | Properties                                                                                                           |  |      | 8  | 
|Item 3.       |  | Legal Proceedings                                                                                                    |  |      | 16 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 16 | 
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 16 | 
|Item 6.       |  | Selected Financial Data                                                                                              |  |      | 19 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 20 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 49 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 50 | 
|Item 9.       |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |  |      | 50 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |  |      | 51 | 
|Item 9B.      |  | Other Information                                                                                                    |  |      | 52 | 
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 52 | 
|Item 11.      |  | Executive Compensation                                                                                               |  |      | 59 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 60 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 61 | 
|Item 14.      |  | Principal Accounting Fees and Services                                                                               |  |      | 63 | 
|PART IV      
|Item 15.      |  | Exhibits, Financial Statement Schedules                                                                              |  |      | 64 | 
|SIGNATURES    |  |                                                                                                                      |  |      | 98 | 
|EXHIBIT 10.48
|EXHIBIT 10.49
|EXHIBIT 10.50
|EXHIBIT 10.51
|EXHIBIT 14.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



i



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##### Table of Contents






PART I


FORWARD  LOOKING STATEMENTS







|        |         
|------- | --------
|Item 1. | Business

Significant events occurring since November 15, 2004
(the filing date of the Form 10-Q for the third quarter of
2004) include:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On February 8, 2005, our board of directors approved the
    listing for sale of the 525 B Street,
    San Diego, CA, and Congress Center, Chicago, IL
    properties of which we own 100% and 30%, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | On February 10, 2005, a special committee, or the Special
    Committee, of our board of directors engaged Robert A.
    Stanger & Co., Inc., or Stanger, to advise us regarding
    strategic alternatives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | On March 8, 2005, our board of directors appointed
    Glenn L. Carpenter to serve as an independent director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In connection with our initial and second public offerings of
    common stock conducted through best efforts offerings from
    July 22, 2002 through April 30, 2004, we disclosed the
    prior performance of all public and non-public investment
    programs sponsored by Triple Net Properties, LLC, our
    Advisor. We now have determined that there were certain errors
    in those prior performance tables. In particular, the financial
    information in the tables was stated to be presented on a GAAP
    basis. Generally the tables for the public programs were not
    presented on a GAAP basis and the tables for the non-public
    programs were prepared and presented on a tax or cash accounting
    basis. Moreover, a number of the prior performance data figures
    were themselves erroneous, even as presented on a tax or cash
    basis. In particular, certain programs sponsored by our Advisor
    have invested either along side or in other programs sponsored
    by our Advisor. The nature and results of these investments were
    not fully and accurately disclosed in the tables. In general,
    the resulting effect is an overstatement of our Advisors
    program and aggregate portfolio operating results.



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As we have previously disclosed, our board of directors is
    considering a variety of potential strategic initiatives. When
    that process is completed, we intend to announce how we will
    address the errors in the prior performance tables described
    above.

Our Company












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Public Offering of Equity Securities; Use of Proceeds






2004 Year Highlights






| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we sold 26,293,000 shares of our common stock resulting in
    net proceeds to us after selling costs of $236,109,000; and                                            
|
| |  | we acquired 12 consolidated office properties totaling
    3,798,000 square feet of gross leaseable area, or GLA, for
    an aggregate purchase price of $536,755,000.

Current Investment Objectives and Policies




| |                  
| | -----------------
| | Business Strategy





| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | invest in income producing real property generally through
    equity investments in a manner which permits us to continue to
    qualify as a REIT for federal income tax purposes;

2



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| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | generate cash available for distribution to our stockholders;             
|
| |  | preserve and protect our stockholders capital; and                       
|
| |  | realize capital appreciation upon the ultimate sale of our
    properties.



Acquisition Strategies






| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | U.S. federal government departments and agencies;                        
|
| |  | state, local and other government departments and agencies;              
|
| |  | quasi-governmental agencies;                                             
|
| |  | government contractors and service providers;                            
|
| |  | governmental licensees; and                                              
|
| |  | health care, medical insurance, grant research and similar
    companies.







3



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##### Table of Contents







Acquisition Standards






| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | geographic location and type;                                                                                             
|
| |  | construction quality and condition;                                                                                       
|
| |  | potential for capital appreciation;                                                                                       
|
| |  | ability of tenants to pay scheduled rent;                                                                                 
|
| |  | lease terms and rent roll, including the potential for rent
    increases;                                                
|
| |  | potential for economic growth in the tax and regulatory
    environment of the community in which the property is located;
|
| |  | potential for expanding the physical layout of the property;                                                              
|
| |  | occupancy and demand by tenants for properties of a similar type
    in the same geographic vicinity;                     
|
| |  | prospects for liquidity through sale, financing or refinancing
    of the property;                                       
|
| |  | competition from existing properties and the potential for the
    construction of new properties in the area; and        
|
| |  | treatment under applicable federal, state and local tax and
    other laws and regulations.                               









| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in general economic or local conditions;                                                                                                 
|
| |  | changes in supply of or demand for similar competing properties
    in an area;                                                                  
|
| |  | changes in interest rates and availability of permanent mortgage
    funds which may render the sale of a property difficult or
    unattractive;
|
| |  | changes in tax, real estate, environmental and zoning laws;                                                                                      

4



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| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | periods of high interest rates and tight money supply which may
    make the sale of properties more difficult;
|
| |  | tenant turnover; and                                                                                           
|
| |  | general overbuilding or excess supply in the market area.                                                      

Disposition Strategies






| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | the ability to sell the property at a price we believe would
    provide an attractive return to our stockholders;
|
| |  | our ability to recycle capital into core markets consistent with
    our business strategy;                       
|
| |  | our desire to exit markets that are not core markets;                                                             
|
| |  | whether the property is strategically located;                                                                    
|
| |  | tenant composition and lease rollover for the property;                                                           
|
| |  | general economic conditions and outlook, including job growth in
    the local market; and                        
|
| |  | the general quality of the asset.                                                                                 

Operating Strategies






| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | aggressively leasing available space through targeted marketing
    augmented, where possible, by our Advisors local asset and
    property management offices;                
|
| |  | re-positioning properties to include, for example, shifting from
    single to multi-tenant use in order to maximize desirability and
    utility for prospective tenants;      
|
| |  | controlling operating expenses by centralization of asset and
    property management, leasing, marketing, financing, accounting,
    renovation and data processing activities;
|
| |  | emphasizing regular maintenance and periodic renovation to meet
    the needs of tenants and to maximize long-term returns; and                                                 
|
| |  | financing acquisitions and refinancing properties when favorable
    terms are available to increase cash flow.                                                                 

Financing Policies




5



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Tax Status




Distribution Policy




Competition






6



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##### Table of Contents





Government Regulations




Costs of Compliance with the Americans with Disabilities
Act.


Costs of Government Environmental Regulation and Private
Litigation.


Use of Hazardous Substances by Some of Our Tenants.


Other Federal, State and Local Regulations.


Significant Tenants




7



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##### Table of Contents







| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | General Services Administration (EPA) at Hawthorne Plaza,
    at 7.2%;                 
|
| |  | Federal Deposit Insurance Corp. at Pacific Place, at 4.2%;                             
|
| |  | City of San Diego at 600 B St. San Diego, at
    3.6%;                                 
|
| |  | Jacobs Engineering at One Financial Plaza, at 3.1%;                                    
|
| |  | General Services Administration (IRS) at North Pointe Corporate
    Center, at 2.5%;   
|
| |  | Golden Eagle Insurance Co. at 525 B St., at 2.4%;                                      
|
| |  | General Services Administration at Public Ledger Building, at
    2.4%;                
|
| |  | Radian International at AmberOaks Corporate Center, at 2.3%;                           
|
| |  | Elsevier, Inc. at 525 B St., at 2.1%; and                                              
|
| |  | General Services Administration (U.S. Bankruptcy Court) at
    824 Market St., at 1.9%.





Employees




Financial Information About Industry Segments









|        |           
|------- | ----------
|Item 2. | Properties



8



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|                                |  |                   |                    |     |         |  |           |     |  |   |       |        |      |          |       |      |          |        |          |           |  |           |            |  |       |     |      |   |  |  |       |   |  |   |       | 
|------------------------------- |  | ----------------- | ------------------ | --- | ------- |  | --------- | --- |  | - | ----- | ------ | ---- | -------- | ----- | ---- | -------- | ------ | -------- | --------- |  | --------- | ---------- |  | ----- | --- | ---- | - |  |  | ----- | - |  | - | ----- | 
|                                |  |                   |                    |     |         |  |           |     |  |   |       |        |      |          |       |      |          | Annual |         
|                                |  |                   |                    |     |         |  |           |     |  |   |       | Annual |      |          |       |      | Physical |        |          | Rent Per  | 
|                                |  |                   |                    | GLA |         |  | % of      |     |  | % |       |        | Date |          |       | Rent |          |        | % Total  |           |  | Occupancy |            |  | Sq Ft |    
|Property                        |  | Property Location |                    |     | (Sq Ft) |  |           | GLA |  |   | Owned |        |      | Acquired |       |      | (1)      |        |          | of Annual |  |           | (2)        |  |       | (3) |     
|                                |  |                   |                    |     |         |  |           |     |  |   |       |        |      |          |       |      |          |        |          |           |  |           |            |  |       |     |     
|5508 West Hwy. 290 Building     |  |                   | Austin, TX         |     |         |  | 74,000    |     |  |   | 1.2   | %      |      |          | 100.0 | %    |          |        | 09/13/02 |           |  | $         | 921,000    |  |       |     | 0.9  | % |  |  | 77.4  | % |  | $ | 16.06 | 
|Two Corporate Plaza             |  |                   | Clear Lake, TX     |     |         |  | 161,000   |     |  |   | 2.7   |        |      |          | 100.0 |      |          |        | 11/27/02 |           |  |           | 2,525,000  |  |       |     | 2.6  |   |  |  | 91.9  |   |  |   | 17.03 | 
|Atrium Building                 |  |                   | Lincoln, NE        |     |         |  | 167,000   |     |  |   | 2.8   |        |      |          | 100.0 |      |          |        | 01/31/03 |           |  |           | 1,389,000  |  |       |     | 1.4  |   |  |  | 80.2  |   |  |   | 10.37 | 
|Department of Children & Family |  |                   |                    |     |         |  |           |     |  |   |       |        |      |          |       |      |          |        |          |           |  |           |            |  |       |     |      |   |  |  |       |   |  |   |       | 
|Campus                          |  |                   | Plantation, FL     |     |         |  | 124,000   |     |  |   | 2.1   |        |      |          | 100.0 |      |          |        | 04/25/03 |           |  |           | 1,980,000  |  |       |     | 2.0  |   |  |  | 87.0  |   |  |   | 18.35 | 
|Gemini Plaza                    |  |                   | Houston, TX        |     |         |  | 159,000   |     |  |   | 2.7   |        |      |          | 100.0 |      |          |        | 05/02/03 |           |  |           | 1,467,000  |  |       |     | 1.5  |   |  |  | 100.0 |   |  |   | 9.25  | 
|Bay View Plaza                  |  |                   | Alameda, CA        |     |         |  | 61,000    |     |  |   | 1.0   |        |      |          | 97.7  |      |          |        | 07/31/03 |           |  |           | 1,256,000  |  |       |     | 1.3  |   |  |  | 93.0  |   |  |   | 21.96 | 
|North Pointe Corporate Center   |  |                   | Sacramento, CA     |     |         |  | 133,000   |     |  |   | 2.2   |        |      |          | 100.0 |      |          |        | 08/11/03 |           |  |           | 2,907,000  |  |       |     | 2.9  |   |  |  | 82.6  |   |  |   | 26.44 | 
|824 Market St.                  |  |                   | Wilmington, DE     |     |         |  | 202,000   |     |  |   | 3.4   |        |      |          | 100.0 |      |          |        | 10/10/03 |           |  |           | 3,957,000  |  |       |     | 4.0  |   |  |  | 89.0  |   |  |   | 22.05 | 
|Sutter Square Galleria          |  |                   | Sacramento, CA     |     |         |  | 61,000    |     |  |   | 1.0   |        |      |          | 100.0 |      |          |        | 10/28/03 |           |  |           | 1,153,000  |  |       |     | 1.2  |   |  |  | 96.0  |   |  |   | 19.65 | 
|One World Trade Center          |  |                   | Long Beach, CA     |     |         |  | 573,000   |     |  |   | 9.6   |        |      |          | 100.0 |      |          |        | 12/05/03 |           |  |           | 10,899,000 |  |       |     | 11.0 |   |  |  | 85.4  |   |  |   | 22.25 | 
|Centerpoint Corporate Park      |  |                   | Kent, WA           |     |         |  | 436,000   |     |  |   | 7.3   |        |      |          | 100.0 |      |          |        | 12/30/03 |           |  |           | 4,803,000  |  |       |     | 4.9  |   |  |  | 72.6  |   |  |   | 15.19 | 
|AmberOaks Corporate Center      |  |                   | Austin, TX         |     |         |  | 282,000   |     |  |   | 4.7   |        |      |          | 100.0 |      |          |        | 01/20/04 |           |  |           | 2,703,000  |  |       |     | 2.7  |   |  |  | 76.2  |   |  |   | 12.58 | 
|Public Ledger Building          |  |                   | Philadelphia, PA   |     |         |  | 472,000   |     |  |   | 7.9   |        |      |          | 100.0 |      |          |        | 02/13/04 |           |  |           | 6,741,000  |  |       |     | 6.8  |   |  |  | 83.0  |   |  |   | 17.22 | 
|Madrona Buildings               |  |                   | Torrance, CA       |     |         |  | 211,000   |     |  |   | 3.5   |        |      |          | 100.0 |      |          |        | 03/31/04 |           |  |           | 4,639,000  |  |       |     | 4.7  |   |  |  | 94.7  |   |  |   | 23.17 | 
|Brunswig Square                 |  |                   | Los Angeles, CA    |     |         |  | 136,000   |     |  |   | 2.3   |        |      |          | 100.0 |      |          |        | 04/05/04 |           |  |           | 2,647,000  |  |       |     | 2.7  |   |  |  | 90.3  |   |  |   | 21.57 | 
|North Belt Corporate Center     |  |                   | Houston, TX        |     |         |  | 156,000   |     |  |   | 2.6   |        |      |          | 100.0 |      |          |        | 04/08/04 |           |  |           | 2,132,000  |  |       |     | 2.2  |   |  |  | 81.6  |   |  |   | 16.78 | 
|Hawthorne Plaza                 |  |                   | San Francisco, CA  |     |         |  | 419,000   |     |  |   | 7.0   |        |      |          | 100.0 |      |          |        | 04/20/04 |           |  |           | 11,197,000 |  |       |     | 11.3 |   |  |  | 91.9  |   |  |   | 29.08 | 
|Pacific Place                   |  |                   | Dallas, TX         |     |         |  | 324,000   |     |  |   | 5.4   |        |      |          | 100.0 |      |          |        | 05/26/04 |           |  |           | 4,214,000  |  |       |     | 4.3  |   |  |  | 99.7  |   |  |   | 13.03 | 
|525 B Street                    |  |                   | San Diego, CA      |     |         |  | 424,000   |     |  |   | 7.1   |        |      |          | 100.0 |      |          |        | 06/14/04 |           |  |           | 9,819,000  |  |       |     | 9.9  |   |  |  | 97.6  |   |  |   | 23.75 | 
|600 B Street                    |  |                   | San Diego, CA      |     |         |  | 339,000   |     |  |   | 5.7   |        |      |          | 100.0 |      |          |        | 06/14/04 |           |  |           | 7,422,000  |  |       |     | 7.5  |   |  |  | 99.3  |   |  |   | 22.06 | 
|Western Place I & II            |  |                   | Fort Worth, TX     |     |         |  | 429,000   |     |  |   | 7.2   |        |      |          | 78.5  |      |          |        | 07/23/04 |           |  |           | 5,938,000  |  |       |     | 6.0  |   |  |  | 80.4  |   |  |   | 17.22 | 
|One Financial Plaza             |  |                   | St. Louis, MO      |     |         |  | 434,000   |     |  |   | 7.3   |        |      |          | 77.6  |      |          |        | 08/06/04 |           |  |           | 6,575,000  |  |       |     | 6.6  |   |  |  | 93.5  |   |  |   | 16.20 | 
|Pax River Office                |  |                   | Lexington Park, MD |     |         |  | 172,000   |     |  |   | 2.9   |        |      |          | 100.0 |      |          |        | 08/06/04 |           |  |           | 1,591,000  |  |       |     | 1.6  |   |  |  | 69.2  |   |  |   | 13.37 | 
|                                |  |                   |                    |     |         |  |           |     |  |   |       |        |      |          |       |      |          |        |          |           |  |           |            |  |       |     |     
|Totals                          |  |                   |                    |     |         |  | 5,949,000 |     |  |   |       |        |      |          |       |      |          |        |          |           |  | $         | 98,875,000 |  |       |     |      |   |  |  | 87.5  | % |  | $ | 19.01 | 
|                                |  |                   |                    |     |         |  |           |     |  |   |       |        |      |          |       |      |          |        |          |           |  |           |            |  |       |     |     






|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | Annualized rental income based on contractual base rent from
    leases in force at December 31, 2004.      
|   
|(2) | As of December 31, 2004, approximately 87.5% of the total
    GLA in our consolidated properties was leased.
|   
|(3) | Average annual rent per square foot at December 31, 2004.                                                   





| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we believe all of our properties are adequately covered by
    insurance and are suitable for their intended purposes;                                                                                                                  
|
| |  | we have no plans for any material renovations, improvements or
    development of our properties, except in accordance with planned
    budgets;                                                                                        
|
| |  | our properties are located in markets where we are subject to
    competition in attracting new tenants and retaining current
    tenants; and                                                                                          
|
| |  | depreciation is provided on a straight-line basis over the
    estimated useful lives of the buildings, ranging primarily from
    15 to 39 years and over the shorter of the lease term or
    useful lives of the tenant improvements.

9



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G REIT, Inc. A summary of our organizational structure
and the properties we own and hold interests in as of
December 31, 2004 is as follows:





10



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Congress Center Ownership







11



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Bay View Plaza Ownership







Park Sahara Ownership







12



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Western Place I & II Ownership







One Financial Plaza Ownership







13



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Affiliated Companies







Lease Expiration Table




|                        |       |           |    |           |          |  |            |                 |  |             |          |     |             |                |            |            |  |  |      |     |  
|----------------------- | ----- | --------- | -- | --------- | -------- |  | ---------- | --------------- |  | ----------- | -------- | --- | ----------- | -------------- | ---------- | ---------- |  |  | ---- | --- | -
|                        |       |           |    |           |          |  |            |                 |  | % of Total  |         
|                        |       |           |    | Total Sq. |          |  | % of Total |                 |  | Annual Rent |          |     | Annual Rent |               
|                        |       | Number    |    |           | Ft. of   |  |            | GLA             |  |             | Under    |     |             | Represented by |           
|                        |       | of Leases |    |           | Expiring |  |            | Represented by  |  |             | Expiring |     |             | Expiring       |           
|Year Ending December 31 |       | Expiring  |    |           | Leases   |  |            | Expiring Leases |  |             | Leases   |     |             | Leases         |           
|                        |       |           |    |           |          |  |            |                 |  |             |          |     |             |                |           
|2005                    |       |           | 76 |           |          |  | 442,000    |                 |  |             | 8.8      | %   |             | $              | 9,925,000  |            |  |  | 10.2 | %  
|2006                    |       |           | 98 |           |          |  | 556,000    |                 |  |             | 11.1     |     |             |                | 9,537,000  |            |  |  | 9.8  |    
|2007                    |       |           | 89 |           |          |  | 884,000    |                 |  |             | 17.6     |     |             |                | 14,436,000 |            |  |  | 14.8 |    
|2008                    |       |           | 62 |           |          |  | 611,000    |                 |  |             | 12.2     |     |             |                | 12,070,000 |            |  |  | 12.4 |    
|2009                    |       |           | 86 |           |          |  | 694,000    |                 |  |             | 13.8     |     |             |                | 16,150,000 |            |  |  | 16.6 |    
|2010                    |       |           | 25 |           |          |  | 221,000    |                 |  |             | 4.4      |     |             |                | 4,789,000  |            |  |  | 4.9  |    
|2011                    |       |           | 27 |           |          |  | 622,000    |                 |  |             | 12.4     |     |             |                | 8,966,000  |            |  |  | 9.2  |    
|2012                    |       |           | 28 |           |          |  | 419,000    |                 |  |             | 8.3      |     |             |                | 8,712,000  |            |  |  | 9.0  |    
|2013                    |       |           | 18 |           |          |  | 426,000    |                 |  |             | 8.5      |     |             |                | 9,975,000  |            |  |  | 10.3 |    
|2014                    |       |           | 5  |           |          |  | 59,000     |                 |  |             | 1.2      |     |             |                | 447,000    |            |  |  | 0.5  |    
|Thereafter              |       |           | 2  |           |          |  | 87,000     |                 |  |             | 1.7      |     |             |                | 2,198,000  |            |  |  | 2.3  |    
|                        |       |           |    |           |          |  |            |                 |  |             |          |     |             |                |           
|                        | Total |           |    | 516       |          |  |            | 5,021,000       |  |             |          | 100 | %           |                | $          | 97,205,000 |  |  |      | 100 | %
|                        |       |           |    |           |          |  |            |                 |  |             |          |     |             |                |           

14



---



##### Table of Contents



Concentration of Tenants




|                               |  |          |                   |             |      |      |            |        |  |          |             |   |       |            |           |         |         |  |            |  |  |  |             | 
|------------------------------ |  | -------- | ----------------- | ----------- | ---- | ---- | ---------- | ------ |  | -------- | ----------- | - | ----- | ---------- | --------- | ------- | ------- |  | ---------- |  |  |  | ----------- | 
|                               |  |          |                   |             |      | % of |            |        |  |          |             |   |      
|                               |  |          |                   | Current     |      |      | Total      |        |  |          |             |   |       |           
|                               |  |          |                   | Annual Base |      |      | Rental     |        |  | Rentable |             |   | Lease |            |           | Renewal |        
|Lessee                         |  | Property |                   |             | Rent |      |            | Income |  |          | Square Feet |   |       | Expiration |           |         | Options | 
|                               |  |          |                   |             |      |      |            |        |  |          |             |   |       |            |           |         |         | 
|GSA (EPA)(*)                   |  |          | Hawthorne Plaza   |             |      | $    | 7,120,000  |        |  |          | 7.2         | % |       |            | 259,000   |         |         |  | 9/30/2009  |  |  |  | None        | 
|FDIC(*)                        |  |          | Pacific Place     |             |      |      | 4,174,000  |        |  |          | 4.2         |   |       |            | 321,000   |         |         |  | 11/30/2007 |  |  |  | None        | 
|City of San Diego(*)           |  |          | 600 B St.         |             |      |      | 3,539,000  |        |  |          | 3.6         |   |       |            | 168,000   |         |         |  | 5/31/2013  |  |  |  | Two 5  year | 
|Jacobs Engineering             |  |          | One Financial     |             |      |      | 3,031,000  |        |  |          | 3.1         |   |       |            | 54,000    |         |         |  | 9/30/2012  |  |  |  | One 5  year | 
|GSA (IRS)(*)                   |  |          | North Pointe      |             |      |      | 2,510,000  |        |  |          | 2.5         |   |       |            | 92,000    |         |         |  | 8/17/2007  |  |  |  | None        | 
|Golden Eagle Ins. Co.          |  |          | 525 B St.         |             |      |      | 2,343,000  |        |  |          | 2.4         |   |       |            | 122,000   |         |         |  | 8/31/2008  |  |  |  | Two 5  year | 
|GSA(*)                         |  |          | Public Ledger     |             |      |      | 2,422,000  |        |  |          | 2.4         |   |       |            | 129,000   |         |         |  | 4/23/2008  |  |  |  | None        | 
|Radian International           |  |          | AmberOaks         |             |      |      | 2,262,000  |        |  |          | 2.3         |   |       |            | 174,000   |         |         |  | 7/30/2011  |  |  |  | Two 5  year | 
|Elsevier, Inc.                 |  |          | 525 B St.         |             |      |      | 2,124,000  |        |  |          | 2.1         |   |       |            | 74,000    |         |         |  | 10/31/2009 |  |  |  | Two 5  year | 
|GSA (U.S. Bankruptcy Court)(*) |  |          | 824 Market Street |             |      |      | 1,910,000  |        |  |          | 1.9         |   |       |            | 69,000    |         |         |  | 08/05/2013 |  |  |  | None        | 
|                               |  |          |                   |             |      |      |            |        |  |          |             |   |       |            |           |         |         | 
|                               |  |          |                   |             |      | $    | 31,435,000 |        |  |          | 31.7        | % |       |            | 1,462,000 |         |         |  |            |  |  |  |             | 
|                               |  |          |                   |             |      |      |            |        |  |          |             |   |       |            |           |         |         | 






Geographic Diversification; Concentration Table




|             |       |            |   |    |             |             |           |             |         |             |             |       |   |             |            |            |  |  |      |       |  
|------------ | ----- | ---------- | - | -- | ----------- | ----------- | --------- | ----------- | ------- | ----------- | ----------- | ----- | - | ----------- | ---------- | ---------- |  |  | ---- | ----- | -
|             |       |            |   |    |             |             |           |             |         | Approximate |            
|             |       |            |   |    |             | Approximate |           |             | Current |             |             | % of  |  
|             |       | No. of     |   |    | Aggregate   |             |           | % of Square |         |             | Annual Base |       |   | Aggregate   |           
|State        |       | Properties |   |    | Square Feet |             |           | Feet        |         |             | Rent        |       |   | Annual Rent |           
|             |       |            |   |    |             |             |           |             |         |             |             |       |   |             |           
|California   |       |            | 9 |    |             |             | 2,357,000 |             |         |             | 39.7        | %     |   | $           | 51,939,000 |            |  |  | 52.5 |      
|Delaware     |       |            | 1 |    |             |             | 202,000   |             |         |             | 3.4         |       |   |             | 3,957,000  |            |  |  | 4.0  |      
|Florida      |       |            | 1 |    |             |             | 124,000   |             |         |             | 2.1         |       |   |             | 1,980,000  |            |  |  | 2.0  |      
|Maryland     |       |            | 1 |    |             |             | 172,000   |             |         |             | 2.9         |       |   |             | 1,591,000  |            |  |  | 1.6  |      
|Missouri     |       |            | 1 |    |             |             | 434,000   |             |         |             | 7.3         |       |   |             | 6,575,000  |            |  |  | 6.6  |      
|Nebraska     |       |            | 1 |    |             |             | 167,000   |             |         |             | 2.8         |       |   |             | 1,389,000  |            |  |  | 1.4  |      
|Pennsylvania |       |            | 1 |    |             |             | 472,000   |             |         |             | 7.9         |       |   |             | 6,741,000  |            |  |  | 6.9  |      
|Texas        |       |            | 7 |    |             |             | 1,585,000 |             |         |             | 26.6        |       |   |             | 19,900,000 |            |  |  | 20.1 |      
|Washington   |       |            | 1 |    |             |             | 436,000   |             |         |             | 7.3         |       |   |             | 4,803,000  |            |  |  | 4.9  |      
|             |       |            |   |    |             |             |           |             |         |             |             |       |   |             |           
|             | Total |            |   | 23 |             |             |           | 5,949,000   |         |             |             | 100.0 | % |             | $          | 98,875,000 |  |  |      | 100.0 | %
|             |       |            |   |    |             |             |           |             |         |             |             |       |   |             |           

Indebtedness




15



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##### Table of Contents










|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



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

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









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






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Market Information








Stockholders




Distributions




16



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##### Table of Contents









Equity Compensation Plan Information




|                                                           |  |                      |         |  |                      |   |              |                      |  |  |           | 
|---------------------------------------------------------- |  | -------------------- | ------- |  | -------------------- | - | ------------ | -------------------- |  |  | --------- | 
|                                                           |  | Number of Securities |         |  |                      |   |             
|                                                           |  | to be Issued Upon    |         |  | Weighted Average     |   |              |                     
|                                                           |  | Exercise of          |         |  | Exercise Price of    |   |              | Number of Securities | 
|                                                           |  | Outstanding Options, |         |  | Outstanding Options, |   |              | Remaining Available  | 
|Plan Category                                              |  | Warrants and Rights  |         |  | Warrants and Rights  |   |              | for Future Issuance  | 
|                                                           |  |                      |         |  |                      |   |              |                      | 
|Equity compensation plans approved by security holders(1)  |  |                      | 440,000 |  |                      | $ | 9.00 - $9.05 |                      |  |  | 6,060,000 | 
|Equity compensation plans not approved by security holders |  |                      |        |  |                      |   |              |                      |  |  |          | 
|                                                           |  |                      |         |  |                      |   |              |                      | 
|Total                                                      |  |                      | 440,000 |  |                      |   |              |                      |  |  | 6,060,000 | 
|                                                           |  |                      |         |  |                      |   |              |                      | 






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each of our independent director and officer/employee stock
    option plans was approved at our Annual Meeting of Shareholders
    held on June 28, 2003. Our 2004 incentive award plan was
    approved at our Annual Meeting of Shareholders held on
    June 29, 2004.

Use of Proceeds from Registered Securities






|  |  |  |            |   |  |                                                                
|- |  |  | ---------- | - |  | ---------------------------------------------------------------
|* |  |  | 19,994,000 |   |  | shares on a best efforts basis for $199,518,000                
|* |  |  | 587,000    |   |  | shares pursuant to the DRIP for $5,568,000                     
|* |  |  | (46,000    | ) |  | shares repurchased pursuant to the Repurchase Plan for $421,000



17



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##### Table of Contents





|                                      |  |        |            | 
|------------------------------------- |  | ------ | ---------- | 
|Type of Expense                       |  | Amount |           
|                                      |  |        |           
|Commissions                           |  | $      | 14,618,000 | 
|Finders fees                         |  |        |           | 
|Marketing and due diligence expenses  |  |        | 3,947,000  | 
|Other expenses to affiliates          |  |        | 1,630,000  | 
|Other expenses paid to non-affiliates |  |        | 749,000    | 
|                                      |  |        |           
|Total expenses                        |  | $      | 20,944,000 | 
|                                      |  |        |           





18



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



SELECTED FINANCIAL DATA


G REIT, INC.


(a Maryland corporation)


|                                                         |                   |              |              |            |      |   |              |           |  |   |             |         |  |   |     |    | 
|-------------------------------------------------------- | ----------------- | ------------ | ------------ | ---------- | ---- | - | ------------ | --------- |  | - | ----------- | ------- |  | - | --- | -- | 
|                                                         |                   | December 31, |             
|                                                         |                   |              |             
|Selected Financial Data(1)                               |                   | 2004         |              |            | 2003 |   |              | 2002      |  |   | 2001        |        
|                                                         |                   |              |              |            |      |   |              |           |  |   |             |        
|BALANCE SHEET DATA:                                      |                   |              |              |            |      |   |              |           |  |   |             |         |  |   |     |   
|Total assets                                             |                   | $            | 915,050,000  |            |      | $ | 345,399,000  |           |  | $ | 36,461,000  |         |  | $ | 100 |   
|Mortgage loans payable                                   |                   |              | 442,275,000  |            |      |   | 97,257,000   |           |  |   | 16,860,000  |         |  |   |    |   
|Credit facility                                          |                   |              | 58,369,000   |            |      |   | 81,534,000   |           |  |   |            |         |  |   |    |   
|Stockholders equity                                     |                   |              | 357,025,000  |            |      |   | 150,522,000  |           |  |   | 18,350,000  |         |  |   |    |   
|OPERATING DATA (BY YEAR):                                |                   |              |              |            |      |   |              |           |  |   |             |         |  |   |     |   
|Rental income                                            |                   | $            | 94,910,000   |            |      | $ | 12,427,000   |           |  | $ | 733,000     |         |  |   |    |   
|Rental expenses                                          |                   |              | 40,262,000   |            |      |   | 4,750,000    |           |  |   | 205,000     |         |  |   |    |   
|General and administrative expense                       |                   |              | 3,401,000    |            |      |   | 1,520,000    |           |  |   | 170,000     |         |  |   |    |   
|Interest expense                                         |                   |              | 18,951,000   |            |      |   | 2,648,000    |           |  |   | 248,000     |         |  |   |    |   
|Net income (loss)                                        |                   |              | (1,876,000   | )          |      |   | 78,000       |           |  |   | 26,000      |         |  |   |    |   
|Net income (loss) per common share, basic and diluted(2) |                   |              | (0.05        | )          |      |   | 0.01         |           |  |   | 0.06        |         |  |   |    |   
|Distributions declared                                   |                   |              | 28,042,000   |            |      |   | 6,211,000    |           |  |   | 280,000     |         |  |   |    |   
|Distributions per common share(2)                        |                   | $            | 0.75         |            |      | $ | 0.74         |           |  | $ | 0.69        |         |  |   |    |   
|Weighted average number of shares outstanding(2):        |                   |              |              |            |      |   |              |           |  |   |             |         |  |   |     |   
|                                                         | Basic and diluted |              |              | 37,336,000 |      |   |              | 8,243,000 |  |   |             | 405,000 |  |   |     | 10 | 
|OTHER DATA:                                              |                   |              |              |            |      |   |              |           |  |   |             |         |  |   |     |   
|Cash flows provided by (used in) operating activities    |                   | $            | 39,905,000   |            |      | $ | 7,878,000    |           |  | $ | (609,000    | )       |  |   |    |   
|Cash flows used in investing activities                  |                   |              | (563,218,000 | )          |      |   | (291,418,000 | )         |  |   | (26,101,000 | )       |  |   |    |   
|Cash flows provided by financing activities              |                   |              | 525,347,000  |            |      |   | 290,694,000  |           |  |   | 35,089,000  |         |  |   | 100 |   
|Funds from operations(2)(3)                              |                   | $            | 33,818,000   |            |      | $ | 5,019,000    |           |  | $ | 128,000     |         |  |   |    |   
|Number of consolidated properties                        |                   |              | 23           |            |      |   | 11           |           |  |   | 2           |         |  |   |    |   
|Rentable square feet                                     |                   |              | 5,972,000    |            |      |   | 2,146,000    |           |  |   | 235,000     |         |  |   |    |   
|Occupancy of portfolio                                   |                   |              | 88           | %          |      |   | 88           | %         |  |   | 96          | %       |  |   |    |   






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The above selected financial data should be read in conjunction
    with the historical consolidated financial statements and
    related notes appearing elsewhere in this report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | Net income (loss) and distributions per share are based upon the
    weighted average number of shares of common stock outstanding.
    Distributions by us of the current and accumulated earnings and
    profits for federal income tax purposes are taxable to our
    stockholders as ordinary income. Distributions in excess of
    these earnings and profits generally are treated as a
    non-taxable reduction of our stockholders basis in the
    shares of common stock to the extent thereof (a return of
    capital for tax purposes), and thereafter as taxable gain. These
    distributions in excess of earnings and profits will have the
    effect of deferring taxation of the distributions until the sale
    of the stockholders shares. For

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | the years ended December 31, 2004, 2003 and 2002, 51.64%,
    53.61% and 34.71%, respectively, represented a return of capital
    for tax purposes. In order to maintain our qualification as a
    REIT, we must make annual distributions to our stockholders of
    at least 90% of our REIT taxable income. REIT taxable income
    does not include net capital gains. Under certain circumstances,
    we may be required to make distributions in excess of cash
    available for distribution in order to meet the REIT
    distribution requirements. Distributions are determined by our
    board of directors and are dependent on a number of factors,
    including the amount of funds available for distribution, our
    financial condition, any decision by our board of directors to
    reinvest funds rather than to distribute funds, our capital
    expenditures, the annual distribution required to maintain REIT
    status under the Code and other factors our board of directors
    may deem relevant.                                                               
|   
|(3) | One of our objectives is to provide cash distributions to our
    stockholders from cash generated from operations. We believe
    that Funds From Operations, or FFO, is a useful supplemental
    measure of our operating performance. We compute FFO in
    accordance with the White Paper on FFO approved by the Board of
    Governors of the National Association of Real Estate Investment
    Trusts, or NAREIT. The White Paper defines FFO as net income or
    loss computed in accordance with generally accepted accounting
    principles, or GAAP, excluding extraordinary items, as defined
    by GAAP, and gains and losses from sales of depreciable
    operating property, plus real estate related depreciation and
    amortization (excluding amortization of deferred financing costs
    and depreciation of non-real estate assets), and after
    adjustment for unconsolidated partnerships and joint ventures.
    Other REITs may use different methodologies for calculating FFO
    and, accordingly, our FFO calculations may not be comparable to
    other REITs.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because FFO excludes depreciation and amortization, gains and
    losses from property dispositions and extraordinary items, it
    provides a performance measure that, when compared year over
    year, reflects the impact to operations from trends in occupancy
    rates, rental rates, operating costs, development activities,
    general and administrative expenses and interest costs,
    providing a perspective not immediately apparent from net
    income. In addition, we believe FFO provides useful information
    to the investment community about our financial performance when
    compared to other REITs since FFO is generally recognized as the
    industry standard for reporting the operations of REITs.
|
| | However, FFO should not be viewed as an alternative measure of
    our operating performance since it does not reflect either
    depreciation and amortization costs or the level of capital
    expenditures and leasing costs necessary to maintain the
    operating performance of our properties, which are significant
    economic costs and could materially impact our results of
    operations.                                                                                                                                                                                                                                                                                                                                 
|
| | Non-cash adjustments to arrive at FFO consisted of adjustments
    for, depreciation and amortization and net gain (loss) from the
    sale of a joint venture. For additional information, see
    Funds from Operations, which includes a
    reconciliation of our GAAP net income available to our
    stockholders to FFO for the years ended December 31, 2004
    and 2003.                                                                                                                                                                                                                                                                                                                                                        






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Forward-Looking Statements




20



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##### Table of Contents





Overview and Background








Business Strategy




21



---



##### Table of Contents



2004 Acquisitions






| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | AmberOaks Corporate Center  Austin, Texas 
    January 20, 2004  we own 100%              
|
| | Public Ledger Building  Philadelphia,
    Pennsylvania  February 13, 2004  we
    own 100%
|
| | Madrona Buildings  Torrance, California 
    March 31, 2004  we own 100%                  
|
| | Brunswig Square  Los Angeles, California 
    April 5, 2004  we own 100%                  
|
| | North Belt Corporate Center  Houston,
    Texas  April 8, 2004  we own 100%               
|
| | Hawthorne Plaza  San Francisco,
    California  April 20, 2004  we own
    100%           
|
| | Pacific Place  Dallas, Texas  May 26,
    2004  we own 100%                               
|
| | 525 B Street (Golden Eagle)  San Diego,
    California  June 14, 2004  we own 100%        
|
| | 600 B Street (Comerica)  San Diego,
    California  June 14, 2004  we own 100%            
|
| | Western Place I & II  Fort Worth,
    Texas  July 23, 2004  we own 78.5%                  
|
| | Pax River Office Park  Lexington Park,
    Maryland  August 6, 2004  we own 100%          
|
| | One Financial Plaza  St. Louis,
    Missouri  August 6, 2004  we own
    77.63%           



2003 Acquisitions






| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Atrium Building  Lincoln, Nebraska 
    January 31, 2003  we own 100%                               
|
| | Department of Children and Families Campus 
    Plantation, Florida  April 25, 2003 
    we own 100%
|
| | Gemini Plaza  Houston, Texas  May 2,
    2003  we own 100%                                          
|
| | Bay View Plaza  Alameda, California 
    July 31, 2003  we own 97.68%                               
|
| | North Pointe Corporate Center  Sacramento,
    California  August 11, 2003  we own
    100%         
|
| | 824 Market Street  Wilmington, Delaware 
    October 10, 2003  we own 100%                          
|
| | Sutter Square  Sacramento, California 
    October 28, 2003  we own 100%                            
|
| | One World Trade Center  Long Beach,
    California  December 5, 2003  we own
    100%               
|
| | Centerpoint Corporate Center  Kent,
    Washington  December 30, 2003  we own
    100%              

22



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##### Table of Contents





Critical Accounting Policies






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





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





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



23



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

Business
Combinations










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





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





24



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##### Table of Contents





Results of Operations






| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Comparison of the year ended December 31, 2004 to the
    year ended December 31, 2003

|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |             |   |  |           |          |   
|---------------------------------------------------------------------------- | ------------------------------------------------------------- | ----------------------- | ---------- | ----------- | ---- | - | ---------- | ---------- | - | - | ---------- | ----------- | - |  | --------- | -------- | --
|                                                                             |                                                               | Year Ended December 31, |           
|                                                                             |                                                               |                         |           
|                                                                             |                                                               |                         |            | Percent     |     
|                                                                             |                                                               | 2004                    |            |             | 2003 |   |            | Change     |   |   | Change     |            
|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |            
|Revenues:                                                                    |                                                               |                         |            |             |      |   |            |            |   |   |            |             |   |  |           |         
|                                                                             | Rental income                                                 |                         | $          | 94,910,000  |      |   | $          | 12,427,000 |   |   | $          | 82,483,000  |   |  |           | 663.74   | % 
|Expenses:                                                                    |                                                               |                         |            |             |      |   |            |            |   |   |            |             |   |  |           |         
|                                                                             | Rental expenses                                               |                         |            | 40,262,000  |      |   |            | 4,750,000  |   |   |            | 35,512,000  |   |  |           | 747.62   | % 
|                                                                             | General and administrative                                    |                         |            | 3,401,000   |      |   |            | 1,520,000  |   |   |            | 1,881,000   |   |  |           | 123.75   | % 
|                                                                             | Depreciation                                                  |                         |            | 21,801,000  |      |   |            | 3,351,000  |   |   |            | 18,450,000  |   |  |           | 550.58   | % 
|                                                                             | Amortization                                                  |                         |            | 13,032,000  |      |   |            | 405,000    |   |   |            | 12,627,000  |   |  |           | 3,117.78 | % 
|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |            
|                                                                             |                                                               |                         | 78,496,000 |             |      |   | 10,026,000 |            |   |   | 68,470,000 |             |   |  | 682.92    | %       
|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |            
|Income before other (expense) income, minority interest and
    income taxes |                                                               |                         | 16,414,000 |             |      |   | 2,401,000  |            |   |   | 14,013,000 |             |   |  | 583.63    | %       
|Other (expense) income:                                                      |                                                               |                         |            |             |      |   |            |            |   |   |            |             |   |  |           |         
|                                                                             | Interest (including amortization of deferred financing costs) |                         |            | (18,951,000 | )    |   |            | (2,648,000 | ) |   |            | (16,303,000 | ) |  |           | 615.67   | % 
|                                                                             | Interest and dividend income                                  |                         |            | 423,000     |      |   |            | 124,000    |   |   |            | 299,000     |   |  |           | 241.13   | % 
|                                                                             | Gain on sale of marketable securities and joint venture       |                         |            | 1,231,000   |      |   |            |           |   |   |            | 1,231,000   |   |  |           |         |   
|                                                                             | Equity in earnings (losses) of unconsolidated real estate     |                         |            | (604,000    | )    |   |            | 204,000    |   |   |            | (808,000    | ) |  |           | (396.08  | )%
|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |            
|Income (loss) before minority interest and income taxes                      |                                                               |                         | (1,487,000 | )           |      |   | 81,000     |            |   |   | (1,568,000 | )           |   |  | (1,935.80 | )%      
|Minority interests                                                           |                                                               |                         | (9,000     | )           |      |   | 3,000      |            |   |   | (12,000    | )           |   |  | (400      | )%      
|Income taxes                                                                 |                                                               |                         | 398,000    |             |      |   |           |            |   |   | 398,000    |             |   |  |          |         
|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |            
|Net income (loss)                                                            |                                                               | $                       | (1,876,000 | )           |      | $ | 78,000     |            |   | $ | (1,954,000 | )           |   |  | (2,505.13 | )%      
|                                                                             |                                                               |                         |            |             |      |   |            |            |   |   |            |            







25



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26



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| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Comparison of the year ended December 31, 2003 to the
    year ended December 31, 2002

|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |            |   |  |          |          |  
|------------------------------------------------------------ | ------------------------------------------------------------- | ----------------------- | ---------- | ---------- | ---- | - | ------- | -------- | - | - | --------- | ---------- | - |  | -------- | -------- | -
|                                                             |                                                               | Year Ended December 31, |           
|                                                             |                                                               |                         |           
|                                                             |                                                               |                         |            | Percent    |     
|                                                             |                                                               | 2003                    |            |            | 2002 |   |         | Change   |   |   | Change    |           
|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |           
|Revenues:                                                    |                                                               |                         |            |            |      |   |         |          |   |   |           |            |   |  |          |         
|                                                             | Rental income                                                 |                         | $          | 12,427,000 |      |   | $       | 733,000  |   |   | $         | 11,694,000 |   |  |          | 1,595.36 | %
|Expenses:                                                    |                                                               |                         |            |            |      |   |         |          |   |   |           |            |   |  |          |         
|                                                             | Rental expenses                                               |                         |            | 4,750,000  |      |   |         | 205,000  |   |   |           | 4,545,000  |   |  |          | 2,217.07 | %
|                                                             | General and administrative                                    |                         |            | 1,520,000  |      |   |         | 170,000  |   |   |           | 1,350,000  |   |  |          | 794.12   | %
|                                                             | Depreciation                                                  |                         |            | 3,351,000  |      |   |         | 102,000  |   |   |           | 3,249,000  |   |  |          | 3,185.29 | %
|                                                             | Amortization                                                  |                         |            | 405,000    |      |   |         |         |   |   |           | 405,000    |   |  |          |         |  
|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |           
|                                                             |                                                               |                         | 10,026,000 |            |      |   | 477,000 |          |   |   | 9,549,000 |            |   |  | 2,001.89 | %       
|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |           
|Loss before other (expense) income and
    minority interest |                                                               |                         | 2,401,000  |            |      |   | 256,000 |          |   |   | 2,145,000 |            |   |  | 837.89   | %       
|Other (expense) income:                                      |                                                               |                         |            |            |      |   |         |          |   |   |           |            |   |  |          |         
|                                                             | Interest (including amortization of deferred financing costs) |                         |            | (2,648,000 | )    |   |         | (248,000 | ) |   |           | (2,400,000 | ) |  |          | 967.74   | %
|                                                             | Interest and dividend income                                  |                         |            | 124,000    |      |   |         | 18,000   |   |   |           | 106,000    |   |  |          | 588.89   | %
|                                                             | Equity in earnings of unconsolidated real estate              |                         |            | 204,000    |      |   |         |         |   |   |           | 204,000    |   |  |          |         |  
|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |           
|Income before minority interest                              |                                                               |                         | 81,000     |            |      |   | 26,000  |          |   |   | 55,000    |            |   |  | 211.54   | %       
|Minority interest                                            |                                                               |                         | 3,000      |            |      |   |        |          |   |   | 3,000     |            |   |  |         |         
|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |           
|Net income                                                   |                                                               | $                       | 78,000     |            |      | $ | 26,000  |          |   | $ | 52,000    |            |   |  | 200.00   | %       
|                                                             |                                                               |                         |            |            |      |   |         |          |   |   |           |           











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Liquidity and Capital Resources




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







| |                                                                        
| | -----------------------------------------------------------------------
| | Factors Which May Influence Future Sources of Capital and
    Liquidity



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Financing








|                             |                 |               |  |       |                  |  |  |       |  |  |      |       |  |  |  |      | 
|---------------------------- | --------------- | ------------- |  | ----- | ---------------- |  |  | ----- |  |  | ---- | ----- |  |  |  | ---- | 
|                             |                 | Percentage of |  |       | Weighted Average | 
|                             |                 | Total Debt    |  |       | Interest Rate    | 
|                             |                 |               |  |       |                  | 
|                             |                 | December 31,  |  |       | December 31,     | 
|                             |                 |               |  |       |                  | 
|                             |                 | 2004          |  |       | 2003             |  |  | 2004  |  |  | 2003 |      
|                             |                 |               |  |       |                  |  |  |       |  |  |      |      
|Mortgage and credit facility |                 |               |  |       |                  |  |  |       |  |  |      |       |  |  |  |     
|                             | Mortgage        |               |  | 88.3% |                  |  |  | 54.4% |  |  |      | 4.4%  |  |  |  | 3.6% | 
|                             | Credit facility |               |  | 11.7% |                  |  |  | 45.6% |  |  |      | 4.5%  |  |  |  | 3.9% | 
|Fixed rate and variable rate |                 |               |  |       |                  |  |  |       |  |  |      |       |  |  |  |     
|                             | Fixed rate      |               |  | 17.4% |                  |  |  | 7.9%  |  |  |      | 5.36% |  |  |  | 6.2% | 
|                             | Variable rate   |               |  | 82.6% |                  |  |  | 92.1% |  |  |      | 4.17% |  |  |  | 3.6% | 







|                |             |  |                |   |         |            |  |  |        |  |  |          |               |  |  |  |            | 
|--------------- | ----------- |  | -------------- | - | ------- | ---------- |  |  | ------ |  |  | -------- | ------------- |  |  |  | ---------- | 
|Notional Amount |             |  | Carrying Value |   |         | Instrument |  |  | Rate   |  |  | Maturity |              
|                |             |  |                |   |         |            |  |  |        |  |  |          |              
|$               | 26,400,000  |  |                | $ | 56,000  |            |  |  | Swap   |  |  |          | 2.03%         |  |  |  | 05/01/2005 | 
|                | 75,000,000  |  |                |   |        |            |  |  | Cap    |  |  |          | 5.75%         |  |  |  | 01/31/2006 | 
|                | 77,000,000  |  |                |   | 254,000 |            |  |  | Collar |  |  |          | 1.5% to 4.05% |  |  |  | 12/05/2006 | 
|                | 14,000,000  |  |                |   | 1,000   |            |  |  | Cap    |  |  |          | 5.00%         |  |  |  | 03/01/2006 | 
|                |             |  |                |   |         |            |  |  |        |  |  |          |              
|$               | 192,400,000 |  |                | $ | 311,000 |            |  |  |        |  |  |          |               |  |  |  |            | 
|                |             |  |                |   |         |            |  |  |        |  |  |          |              



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Other Liquidity Needs










|                  |  |              |            |  |      |  |        |      |  |   |           |  |  |  |        |   |  |   |         |  |  |  |        |  
|----------------- |  | ------------ | ---------- |  | ---- |  | ------ | ---- |  | - | --------- |  |  |  | ------ | - |  | - | ------- |  |  |  | ------ | -
|                  |  | December 31, |           
|                  |  |              |           
|                  |  | 2004         |            |  | 2003 |  |        | 2002 | 
|                  |  |              |            |  |      |  |        |      | 
|Ordinary income   |  | $            | 12,774,000 |  |      |  | 48.36  | %    |  | $ | 2,432,000 |  |  |  | 46.39  | % |  | $ | 111,000 |  |  |  | 65.29  | %
|Capital gain      |  |              |           |  |      |  |       |      |  |   |          |  |  |  |       |   |  |   |        |  |  |  |       |  
|Return of capital |  |              | 13,642,000 |  |      |  | 51.64  | %    |  |   | 2,810,000 |  |  |  | 53.61  | % |  |   | 59,000  |  |  |  | 34.71  | %
|                  |  |              |            |  |      |  |        |      |  |   |           |  |  |  |        |   |  |  
|                  |  | $            | 26,416,000 |  |      |  | 100.00 | %    |  | $ | 5,242,000 |  |  |  | 100.00 | % |  | $ | 170,000 |  |  |  | 100.00 | %
|                  |  |              |            |  |      |  |        |      |  |   |           |  |  |  |        |   |  |  



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Cash Flows




| |                                       
| | --------------------------------------
| | Years Ended December 31, 2004 and 2003











| |                                       
| | --------------------------------------
| | Years Ended December 31, 2003 and 2002













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

General










Public Offering of Equity Securities; Use of Proceeds




32



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##### Table of Contents











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









33



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##### Table of Contents





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





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













34



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| |          
| | ---------
| | Insurance



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



|                                          |  |                                                                                                                                
|----------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|Type of Insurance Coverage                |  | Loss Exposure/Deductible                                                                                                       
|                                          |  |                                                                                                                                
|Property damage and business interruption |  | $200 million annual aggregate loss limit, subject to a
    $10,000 per occurrence deductible                                   
|                                         
|Earthquake (all states)                   |  | $10 million annual aggregate loss sublimit subject to a 5%
    ($100,000 minimum) per occurrence deductible                    
|                                         
|Earthquake (California properties only)   |  | $90 million in excess of $10 million annual aggregate
    loss limit                                                           
|                                         
|Flood  named storm                       |  | $10 million annual aggregate loss sublimit subject to a 5%
    ($100,000 minimum) per occurrence deductible                    
|                                         
|Flood  100 year flood zone               |  | $10 million annual aggregate loss sublimit subject to a 5%
    ($1,000,000 minimum) per occurrence deductible                  
|                                         
|Flood  all other                         |  | $10 million annual aggregate loss sublimit subject to a 5%
    ($25,000 minimum/$100,000 maximum) per occurrence deductible    
|                                         
|Acts of terrorism                         |  | $100 million aggregate loss limit subject to a
    $10,000 per occurrence deductible                                           
|                                         
|General liability                         |  | $2 million annual aggregate limit of liability and a
    $1 million each occurrence limit of liability, including
    terrorism
|                                         
|Umbrella (excess liability)               |  | $100 million annual aggregate limit of liability, including
    terrorism                                                      

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Debt Service Requirements




|           |  |        |             | 
|---------- |  | ------ | ----------- | 
|Year       |  | Amount |            
|           |  |        |            
|2005       |  | $      | 63,605,000  | 
|2006       |  |        | 166,323,000 | 
|2007       |  |        | 37,115,000  | 
|2008       |  |        | 7,230,000   | 
|2009       |  |        | 158,129,000 | 
|Thereafter |  |        | 68,242,000  | 
|           |  |        |            
|           |  | $      | 500,644,000 | 
|           |  |        |            



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



|                                        |       |                        |            |            |             |   |             |             |  |   |              |             |  |       |            |            |  |   |             |             | 
|--------------------------------------- | ----- | ---------------------- | ---------- | ---------- | ----------- | - | ----------- | ----------- |  | - | ------------ | ----------- |  | ----- | ---------- | ---------- |  | - | ----------- | ----------- | 
|                                        |       | Payments Due by Period |           
|                                        |       |                        |           
|                                        |       | Less than              |            |            |             |   | More than   |             |  |  
|                                        |       | 1 Year                 |            |            | 1-3 Years   |   |             | 3-5 Years   |  |   | 5 Years      |             |  |      
|                                        |       | (2005)                 |            |            | (2006-2007) |   |             | (2008-2009) |  |   | (After 2009) |             |  | Total |           
|                                        |       |                        |            |            |             |   |             |             |  |   |              |             |  |       |           
|Principal payments  variable rate debt |       | $                      | 62,910,000 |            |             | $ | 191,315,000 |             |  | $ | 159,155,000  |             |  | $     |           |            |  | $ | 413,380,000 |            
|Principal payments  fixed rate debt    |       |                        | 695,000    |            |             |   | 12,123,000  |             |  |   | 6,204,000    |             |  |       | 68,242,000 |            |  |   | 87,264,000  |            
|Interest payments  variable rate debt  |       |                        | 12,671,000 |            |             |   | 17,799,000  |             |  |   | 9,891,000    |             |  |       |           |            |  |   | 40,361,000  |            
|Interest payments  fixed rate debt     |       |                        | 4,603,000  |            |             |   | 9,119,000   |             |  |   | 7,450,000    |             |  |       | 4,963,000  |            |  |   | 26,135,000  |            
|Ground lease obligations                |       |                        | 371,000    |            |             |   | 742,000     |             |  |   | 742,000      |             |  |       | 1,036,000  |            |  |   | 2,891,000   |            
|                                        |       |                        |            |            |             |   |             |             |  |   |              |             |  |       |           
|                                        | Total |                        | $          | 81,250,000 |             |   | $           | 231,098,000 |  |   | $            | 183,442,000 |  |       | $          | 74,241,000 |  |   | $           | 570,031,000 | 
|                                        |       |                        |            |            |             |   |             |             |  |   |              |             |  |       |           



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



36



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

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




Inflation




Funds from Operations










37



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|                                                                          |                                                               |                   |            |            |                   |   |           |           | 
|------------------------------------------------------------------------- | ------------------------------------------------------------- | ----------------- | ---------- | ---------- | ----------------- | - | --------- | --------- | 
|                                                                          |                                                               | Year Ended        |            |            | Year Ended        |  
|                                                                          |                                                               | December 31, 2004 |            |            | December 31, 2003 |  
|                                                                          |                                                               |                   |            |            |                   |  
|Net income (loss)                                                         |                                                               | $                 | (1,876,000 | )          |                   | $ | 78,000    |          
|Add:                                                                      |                                                               |                   |            |            |                   |   |           |          
|                                                                          | Depreciation and amortization  consolidated properties       |                   |            | 34,730,000 |                   |   |           | 3,718,000 | 
|                                                                          | Depreciation and amortization  unconsolidated
    properties |                   |            | 1,457,000  |                   |   |           | 1,223,000 | 
|Less:                                                                     |                                                               |                   |            |            |                   |   |           |          
|Gain on sale of joint venture (net of related income tax)                 |                                                               |                   | (493,000   | )          |                   |   |          |          
|                                                                          |                                                               |                   |            |            |                   |  
|Funds from operations                                                     |                                                               | $                 | 33,818,000 |            |                   | $ | 5,019,000 |          
|                                                                          |                                                               |                   |            |            |                   |  
|Weighted average common shares outstanding  basic and
    diluted        |                                                               |                   | 37,336,000 |            |                   |   | 8,243,000 |          
|                                                                          |                                                               |                   |            |            |                   |  
|Gain on the sale of investments included in net income (loss)
    and FFO |                                                               | $                 | 251,000    |            |                   | $ |          |          
|                                                                          |                                                               |                   |            |            |                   |  

Subsequent Events












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| |                                
| | -------------------------------
| | Potential Property Acquisitions





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | receipt of a satisfactory environmental survey and property
    appraisal for each property;                    
|
| |  | no material adverse change occurring in the properties, the
    tenants or in the local economic conditions; and
|
| |  | receipt of sufficient financing                                                                                 





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

Consolidation of Variable Interest Entities Consolidated Financial Statements








39



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Risk Factors




| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The pending SEC investigation of our Advisor could result
    in regulatory actions against us which could negatively impact
    our ability to pay distributions.

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




| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Erroneous disclosures in the prior performance tables in
    our public offerings could result in lawsuits or other actions
    against us which could have a material adverse effect upon our
    business and results of operations.





| |                                                         
| | --------------------------------------------------------
| | Distributions by us may include a return of
    capital.





| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Due to the risks involved in the ownership of real estate,
    there is no guarantee of any return on your investment and you
    may lose some or all of your investment.





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | changes in the general economic climate;                                                                        
|
| |  | changes in local conditions such as an oversupply of space or
    reduction in demand for real estate;          
|
| |  | changes in interest rates and the availability of
    financing; and                                            
|
| |  | changes in laws and governmental regulations, including those
    governing real estate usage, zoning and taxes.

40



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| |                                             
| | --------------------------------------------
| | Our properties face significant competition.





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Competition with entities that have greater financial
    resources may limit our investment opportunities.





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend upon our tenants to pay rent, and their
    inability to pay rent may substantially reduce our revenues and
    cash available for distribution to our stockholders.





| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | downturns in national, regional or local economic conditions
    where our properties are located, which generally will
    negatively impact the demand for office space and rental rates;                                                                                                                            
|
| |  | changes in local market conditions such as an oversupply of
    office properties, including space available by sublease, or a
    reduction in demand for office properties, making it more
    difficult for us to lease space at attractive rental rates or at
    all;                                             
|
| |  | competition from other available office properties, which could
    cause us to lose current or prospective tenants or cause us to
    reduce rental rates;                                                                                                                                                            
|
| |  | the ability to pay for adequate maintenance, insurance, utility,
    security and other operating costs, including real estate taxes
    and debt service payments, that are not necessarily reduced when
    circumstances such as market factors and competition cause a
    reduction in income from a property; and

41



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| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in federal, state or local regulations and controls
    affecting rents, prices of goods, interest rates, fuel and
    energy consumption.





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lack of diversification and illiquidity of real estate may
    make it difficult for us to sell underperforming properties or
    recover our investment in one or more properties.





| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lack of geographic diversity may expose us to regional
    economic downturns that could adversely impact our operations or
    our ability to recover our investment in one or more
    properties.





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Our properties depend upon the California economy and the
    demand for office space.



42



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| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Losses for which we either could not or did not obtain
    insurance will adversely affect our earnings and we may be
    unable to comply with insurance requirements contained in
    mortgage or other agreements due to high insurance costs.





| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our co-ownership arrangements with affiliated entities may
    not reflect solely our stockholders best interests and may
    subject these investments to increased risks.





| |   |                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the risk that the co-owner(s) in the investment might become
    bankrupt;                                                                                                                                                                           
|
| |  | the risk that the co-owner(s) may at any time have economic or
    business interests or goals which are inconsistent with our
    business interests or goals;                                                                                      
|
| |  | the risk that the co-owner(s) may be unable to make required
    payments on loans under which we are jointly and severally
    liable; or                                                                                                           
|
| |  | the risk that the co-owner(s) may be in a position to take
    action contrary to our instructions or requests or contrary to
    our policies or objectives, such as selling a property at a time
    when it would have adverse consequences to us.





| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There is currently no public market for our common stock.
    Therefore, it will likely be difficult for you to sell your
    shares and, if you are able to sell your shares, you will likely
    do so at a substantial discount from the price you paid.



43



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| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we cannot successfully negotiate an extension of our
    Advisory Agreement, we could lose the services of our Advisor,
    which may increase operating expenses, and delay or reduce our
    distributions.





| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Our success will be dependent on the performance of our
    Advisor as well as key employees of our Advisor.





| |                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our use of borrowings to partially fund acquisitions and
    improvements on properties could result in foreclosures and
    unexpected debt service expenses upon refinancing, both of which
    could have an adverse impact on our operations and cash flow,
    and restrictive covenants in our loan documents may restrict our
    operating or acquisition activities.







44



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| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The pending SEC investigation of our Advisor could result
    in defaults or alleged defaults under our loan documents or
    limit our ability to obtain debt financing in the future.





| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we purchase assets at a time when the commercial real
    estate market is experiencing substantial influxes of capital
    investment and competition for properties, the real estate we
    purchase may not appreciate or may decrease in value.





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because some of our principal tenants are the
    U.S. government and state agencies, our properties may have
    a higher risk of terrorist attack than similar properties leased
    to non-governmental tenants.





| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on the U.S. government for a significant
    portion of our revenues. Any failure by the U.S. government
    to perform its obligations or renew its leases upon expiration
    may harm our cash flow and ability to pay dividends.



45



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| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | An increase in the operating costs of our
    government-leased properties would harm our cash flow and
    ability to pay dividends.





| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increasing competition for the acquisition of
    government-leased properties may impede our ability to make
    future acquisitions or may increase the cost of these
    acquisitions.





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Since our cash flow is not assured, we may not pay
    distributions in the future.





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Our board of directors may alter our investment policies
    at any time without stockholder approval.





| |                                                                   
| | ------------------------------------------------------------------
| | Our past performance is not a predictor of our future
    results.





| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Certain provisions of Maryland law and our charter and
    bylaws could hinder, delay or prevent a change in
    control.



46



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Conflicts of Interest




| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | The conflicts of interest described below may mean we will
    not be managed solely in the best interests of our
    stockholders.





| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | limit the time and services that our Advisor devotes to us,
    because our Advisor will be providing similar services to T
    REIT, Inc., NNN 2002 Value Fund, LLC and NNN 2003 Value Fund,
    LLC and other real estate programs and properties;
|
| |  | impair our ability to compete for tenants in geographic areas
    where other properties are advised by our Advisor and its
    affiliates; and                                                                                                     
|
| |  | impair our ability to compete for the acquisition of properties
    with other real estate entities that are also advised by our
    Advisor and its affiliates.                                                                                    





| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The absence of arms length bargaining may mean that
    our agreements are not as favorable to our stockholders as these
    agreements otherwise would have been.



Risks associated with being a REIT




| |                                                                                   
| | ----------------------------------------------------------------------------------
| | If we fail to qualify as a REIT, our stockholders could be
    adversely affected.





| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | that the gross income and investments of a REIT are largely real
    estate related, including mortgages secured by real estate;
|
| |  | that a REIT distributes substantially all its ordinary taxable
    income to its stockholders on a current basis; and           
|
| |  | that the REITs equity ownership is not overly concentrated.                                                                    



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| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to meet, or we may need to incur
    borrowings that would otherwise not be incurred to meet, REIT
    minimum distribution requirements.







| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | the amount of the cash available for distribution;                                                                           
|
| |  | the impact of such distribution on other partners of the
    operating partnership;                                          
|
| |  | the operating partnerships financial condition;                                                                             
|
| |  | the operating partnerships capital expenditure
    requirements and reserves therefore; and                                 
|
| |  | the annual distribution requirements contained in the Code
    necessary to qualify and maintain our qualification as a REIT.







| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because of our inability to retain earnings, we will rely
    on debt and equity financings for acquisitions. If we do not
    have sufficient capital resources from such financings, our
    growth may be limited.



48



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| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We may be harmed by changes in tax laws applicable to
    REITs, or the reduced 15% tax rate on certain corporate
    dividends.







| |                                                            
| | -----------------------------------------------------------
| | We may incur a 100% tax on any prohibited
    transactions.








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk





|                                       |  |                        |            |   |      |   |             |      |  |   |            |   |  |      |           |   |            |   |             |       |  |   |            |   |  |   |             |   |  |   |             | 
|-------------------------------------- |  | ---------------------- | ---------- | - | ---- | - | ----------- | ---- |  | - | ---------- | - |  | ---- | --------- | - | ---------- | - | ----------- | ----- |  | - | ---------- | - |  | - | ----------- | - |  | - | ----------- | 
|                                       |  | Expected Maturity Date |           
|                                       |  |                        |           
|                                       |  | 2005                   |            |   | 2006 |   |             | 2007 |  |   | 2008       |   |  | 2009 |           |   | Thereafter |   |             | Total |  |   | Fair Value |  
|                                       |  |                        |            |   |      |   |             |      |  |   |            |   |  |      |           |   |            |   |             |       |  |   |            |  
|Fixed rate debt                        |  | $                      | 695,000    |   |      | $ | 1,280,000   |      |  | $ | 10,843,000 |   |  | $    | 4,952,000 |   |            | $ | 1,252,000   |       |  | $ | 68,242,000 |   |  | $ | 87,264,000  |   |  | $ | 93,228,000  | 
|Average interest rate on maturing debt |  |                        | 5.46       | % |      |   | 5.37        | %    |  |   | 5.85       | % |  |      | 6.48      | % |            |   | 5.20        | %     |  |   | 5.20       | % |  |   | 5.36        | % |  |   |             | 
|Variable rate debt                     |  | $                      | 62,910,000 |   |      | $ | 165,043,000 |      |  | $ | 26,272,000 |   |  | $    | 2,278,000 |   |            | $ | 156,877,000 |       |  | $ |           |   |  | $ | 413,380,000 |   |  | $ | 424,077,000 | 
|Average interest rate on maturing debt |  |                        | 3.88       | % |      |   | 4.36        | %    |  |   | 4.56       | % |  |      | 3.66      | % |            |   | 4.02        | %     |  |   |           |   |  |   | 4.17        | % |  |   |             | 



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|                                       |  |                        |         |      |      |   |         |      |  |   |             |   |  |      |         |   |            |   |         |       |  |   |            |   |  |   |             |   |  |   |             | 
|-------------------------------------- |  | ---------------------- | ------- | ---- | ---- | - | ------- | ---- |  | - | ----------- | - |  | ---- | ------- | - | ---------- | - | ------- | ----- |  | - | ---------- | - |  | - | ----------- | - |  | - | ----------- | 
|                                       |  | Expected Maturity Date |        
|                                       |  |                        |        
|                                       |  |                        |         | Fair |     
|                                       |  | 2004                   |         |      | 2005 |   |         | 2006 |  |   | 2007        |   |  | 2008 |         |   | Thereafter |   |         | Total |  |   | Value      |  
|                                       |  |                        |         |      |      |   |         |      |  |   |             |   |  |      |         |   |            |   |         |       |  |   |            |  
|Fixed rate debt                        |  | $                      | 184,000 |      |      | $ | 198,000 |      |  | $ | 210,000     |   |  | $    | 222,000 |   |            | $ | 236,000 |       |  | $ | 13,007,000 |   |  | $ | 14,057,000  |   |  | $ | 15,886,000  | 
|Average interest rate on maturing debt |  |                        | 6.24    | %    |      |   | 6.24    | %    |  |   | 6.24        | % |  |      | 6.24    | % |            |   | 6.25    | %     |  |   | 6.19       | % |  |   | 6.20        | % |  |   |             | 
|Variable rate debt                     |  | $                      | 67,000  |      |      | $ | 70,000  |      |  | $ | 158,607,000 |   |  | $    | 77,000  |   |            | $ | 80,000  |       |  | $ | 5,833,000  |   |  | $ | 164,734,000 |   |  | $ | 169,248,000 | 
|Average interest rate on maturing debt |  |                        | 4.75    | %    |      |   | 4.75    | %    |  |   | 3.51        | % |  |      | 4.75    | % |            |   | 4.75    | %     |  |   | 4.75       | % |  |   | 3.56        | % |  |   |             | 








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure

Dismissal of Grant Thornton and Engagement of
Deloitte & Touche, LLP












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| |                                         
| | ----------------------------------------
| | Item 9A.     Controls and
    Procedures

(a) Evaluation of disclosure controls and procedures.












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(b) Changes in internal control over financial reporting.







|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



|                    |  |     |    |  |          |                                                                               |                |  |            | 
|------------------- |  | --- | -- |  | -------- | ----------------------------------------------------------------------------- | -------------- |  | ---------- | 
|Name                |  | Age |    |  | Position |                                                                               | Term of Office | 
|                    |  |     |    |  |          |                                                                               |                | 
|Anthony W. Thompson |  |     | 58 |  |          | Chairman of the Board of Directors, Chief Executive Officer and
    President |                |  | Since 2001 | 
|Gary T. Wescombe    |  |     | 62 |  |          | Director                                                                      |                |  | Since 2001 | 
|Edward A. Johnson   |  |     | 53 |  |          | Director                                                                      |                |  | Since 2001 | 
|D. Fleet Wallace    |  |     | 37 |  |          | Director                                                                      |                |  | Since 2002 | 
|W. Brand Inlow      |  |     | 51 |  |          | Director                                                                      |                |  | Since 2002 | 
|Glenn L. Carpenter  |  |     | 62 |  |          | Director                                                                      |                |  | Since 2005 | 
|Scott D. Peters     |  |     | 47 |  |          | Executive Vice President, Chief Financial Officer                             |                |  | Since 2004 | 
|Kelly J. Caskey     |  |     | 37 |  |          | Chief Accounting Officer                                                      |                |  | Since 2004 | 
|Talle A. Voorhies   |  |     | 57 |  |          | Vice President                                                                |                |  | Since 2001 | 
|Jack R. Maurer      |  |     | 60 |  |          | Executive Vice President                                                      |                |  | Since 2001 | 
|Andrea R. Biller    |  |     | 54 |  |          | Secretary                                                                     |                |  | Since 2004 | 



Anthony W. (Tony) Thompson


52



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Gary T. Wescombe


Edward A. Johnson


D. Fleet Wallace


53



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W. Brand Inlow


Glenn L. Carpenter


Scott D. Peters


Kelly J. Caskey


Talle A. Voorhies


54



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##### Table of Contents





Jack R. Maurer


Andrea R. Biller


Managers and Executive Officers




Anthony W. (Tony) Thompson


Scott D. Peters


Jack R. Maurer


Talle A. Voorhies


Louis J. Rogers


55



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Daniel R. Dan Baker, cum laude


Richard T. Hutton Jr.


Shannon Alter


Fiduciary Relationship of our Advisor to us








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Committees of the Board of Directors




| |                      
| | ---------------------
| | Acquisition Committee





| |                
| | ---------------
| | Audit Committee





| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | makes recommendations to our board of directors concerning the
    engagement of independent public accountants;                                                                                                                       
|
| |  | reviews the plans and results of the audit engagement with the
    independent public accountants;                                                                                                                                     
|
| |  | approves professional services provided by, and the independence
    of, the independent public accountants;                                                                                                                           
|
| |  | considers the range of audit and non-audit fees;                                                                                                                                                                                       
|
| |  | consults with the independent public accountants regarding the
    adequacy of the internal accounting controls; and                                                                                                                   
|
| |  | periodically meets with representatives of our disclosure
    committee on various subjects within the scope of the discloser
    committees charter (the disclosure committee is comprised
    of representatives of our management).



| |                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Gary T. Wescombe, who is an audit committee financial
    expert, will not be deemed expertfor any purpose
    including, without limitation, for purposes of section 11
    of the Securities Act as a result of being designated or
    identified as an audit committee financial expert.                                                                                        
|
| | (ii) The designation or identification of Mr. Wescombe
    as an audit committee financial expert does not impose on such
    person any duties, obligations or liability that are greater
    than the duties, obligations and liability imposed on such
    person as a member of the audit committee and board of directors
    in the absence of such designation or identification.
|
| | (iii) The designation or identification of
    Mr. Wescombe as an audit committee financial expert does
    not affect the duties, obligations or liability of any other
    member of the audit committee or board of directors.                                                                                                                                                       



| |                                 
| | --------------------------------
| | Executive Compensation Committee



57



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| |                      
| | ---------------------
| | Director Compensation





| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $1,000 per regular monthly board meeting, whether in person
    or by telephone;                                                                            
|
| |  | $500 per committee meeting, whether in person or by
    telephone, unless the committee meeting follows a regularly
    scheduled monthly board meeting; and
|
| |  | an additional $500 per committee meeting to the committee
    chairperson for each meeting attended in person or by telephone.                              



Special Committee




Independent Director Stock Option Plan




Officer and Employee Stock Option Plan




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2004 Incentive Award Plan






Section 16(a) Beneficial Ownership Reporting
Compliance











|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Compensation of Executive Officers




Option/SAR Grants in Last Fiscal Year




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Aggregated Option/ SAR Exercises and Fiscal Year-End Option/
SAR Value Table


|                    |  |             |     |  |             |     |                      |                           |                      |              |                           |  |  |   |                | 
|------------------- |  | ----------- | --- |  | ----------- | --- | -------------------- | ------------------------- | -------------------- | ------------ | ------------------------- |  |  | - | -------------- | 
|                    |  |             |     |  |             |     |                      | (e)                       |                     
|                    |  |             |     |  |             | (d) |                      |                           | Value of Unexercised |             
|                    |  | (b)         |     |  |             |     | Number of Securities |                           |                      | In-the-Money |                          
|                    |  | Shares      |     |  | (c)         |     |                      | Underlying Unexercised    |                      |              | Options/SARs              | 
|(a)                 |  | Acquired on |     |  | Value       |     |                      | Options/SARs at FY-End    |                      |              | at FY-End($)              | 
|Name                |  | Exercise($) |     |  | Realized($) |     |                      | Exercisable/Unexercisable |                      |              | Exercisable/Unexercisable | 
|                    |  |             |     |  |             |     |                      |                           |                      |              |                           | 
|Anthony W. Thompson |  |             | -0- |  |             |     | -0-                  |                           |                      |              | 45,000/50,000             |  |  | $ | 43,000/$50,000 | 

Compensation Committee Interlocks and Insider
Participation









|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

PRINCIPAL STOCKHOLDERS




|                                                                         |  |                       |         |     |            |  |   | 
|------------------------------------------------------------------------ |  | --------------------- | ------- | --- | ---------- |  | - | 
|                                                                         |  | Number of Shares of   |         |     |           
|                                                                         |  | Common Stock          |         |     | Percent of | 
|Name                                                                     |  | Beneficially Owned(1) |         |     | Class      | 
|                                                                         |  |                       |         |     |            | 
|Anthony W. Thompson, Chairman, Chief Executive Officer and
    President |  |                       | 74,313  | (2) |            |  | * | 
|Gary T. Wescombe, Director                                               |  |                       | 10,000  |     |            |  | * | 
|Edward A. Johnson, Director                                              |  |                       | 10,000  |     |            |  | * | 
|D. Fleet Wallace, Director                                               |  |                       | 10,000  |     |            |  | * | 
|W. Brand Inlow, Director                                                 |  |                       | 10,000  |     |            |  | * | 
|Glenn L. Carpenter, Director                                             |  |                       | -0-     |     |            |  | * | 
|                                                                         |  |                       |         |     |            | 
|All Named Executive Officers and Directors as a Group                    |  |                       | 114,313 |     |            |  | * | 
|                                                                         |  |                       |         |     |            | 






|  |                                                         
|- | --------------------------------------------------------
|* | Represents less than 1% of the outstanding common stock.



|    |                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts include shares issuable upon exercise of options
    granted to each individual under the independent director stock
    option plan or the officer and employee stock option plan, to
    the extent that such options are currently exercisable or will
    become exercisable within 60 days of March 31, 2005.
|   
|(2) | Includes 6,175 shares of our common stock owned by
    AWT Family LP, a limited partnership controlled by
    Mr. Thompson and 23,138 shares of our common stock
    owned by our Advisor, Triple Net Properties, LLC.
    Mr. Thompson is the chief executive officer and 36% owner
    of Triple Net Properties, LLC.         

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Equity Compensation Plan Information




|                                                           |  |                                   |         |                  |                      |   |            |                      |  |  |           | 
|---------------------------------------------------------- |  | --------------------------------- | ------- | ---------------- | -------------------- | - | ---------- | -------------------- |  |  | --------- | 
|                                                           |  |                                   |         | Weighted Average |                      |   |           
|                                                           |  | Number of Securities to be Issued |         |                  | Exercise Price of    |   |            | Number of Securities | 
|                                                           |  | Upon Exercise of Outstanding      |         |                  | Outstanding Options, |   |            | Remaining Available  | 
|Plan Category                                              |  | Options, Warrants and Rights      |         |                  | Warrants and Rights  |   |            | for Future Issuance  | 
|                                                           |  |                                   |         |                  |                      |   |            |                      | 
|Equity compensation plans approved by security holders(1)  |  |                                   | 440,000 |                  |                      | $ | 9.00-$9.05 |                      |  |  | 6,060,000 | 
|Equity compensation plans not approved by security holders |  |                                   |        |                  |                      |   |            |                      |  |  |          | 
|                                                           |  |                                   |         |                  |                      |   |            |                      | 
|Total                                                      |  |                                   | 440,000 |                  |                      |   |            |                      |  |  | 6,060,000 | 
|                                                           |  |                                   |         |                  |                      |   |            |                      | 






|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each of the independent director and officer/employee stock
    option grants was approved at our Annual Meeting of Shareholders
    held on June 28, 2003. Our 2004 incentive award plan was
    approved at our Annual Meeting of Shareholders held on
    June 29, 2004.




Item 13.Certain
Relationships and Related Transactions








| |                   
| | ------------------
| | Advisory agreement





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##### Table of Contents







| |                         
| | ------------------------
| | Dealer manager agreement





| |                        
| | -----------------------
| | Real estate commissions





| |                        
| | -----------------------
| | Property management fee





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





| |                                          
| | -----------------------------------------
| | Business relationships with legal counsel



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|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services





|                      |  |      |         |  |      |   |         | 
|--------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|Services              |  | 2004 |         |  | 2003 |  
|                      |  |      |         |  |      |  
|Audit Fees(1)         |  | $    | 698,000 |  |      | $ | 289,000 | 
|Audit-Related Fees(2) |  |      |        |  |      |   | 6,000   | 
|Tax Fees(3)           |  |      | 78,000  |  |      |   | 56,000  | 
|All Other Fees(4)     |  |      | 146,000 |  |      |   |        | 
|                      |  |      |         |  |      |  
|Total                 |  | $    | 956,000 |  |      | $ | 351,000 | 
|                      |  |      |         |  |      |  






|    |                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees billed in 2004 and 2003 consisted of the audit of our
    annual financial statements, acquisition audits, reviews of our
    quarterly financial statements, and statutory and regulatory
    audits, consents and other services related to filings with the
    SEC.
|   
|(2) | Audit-related fees billed in 2004 and 2003 consisted of
    financial accounting and reporting consultations.                                                                                                                                                                     
|   
|(3) | Tax services billed in 2004 and 2003 consisted of tax compliance
    and tax planning and advice.                                                                                                                                                                                 
|   
|(4) | There were no fees billed for other services in 2003.                                                                                                                                                                                                                             







| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | consultations and consents related to SEC filings and
    registration statements;
|
| |  | consultation of accounting matters; and                                           
|
| |  | tax planning and tax compliance for the U.S. income and other
    taxes.          



63



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PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                            |  |      |    | 
|----------------------------------------------------------- |  | ---- | -- | 
|                                                            |  | Page |   
|                                                            |  |      |   
|Report of Independent Registered Public
    Accounting Firm |  |      | 65 | 
|Consolidated Balance Sheets                                 |  |      | 67 | 
|Consolidated Statements of Operations                       |  |      | 68 | 
|Consolidated Statements of
    Stockholders Equity         |  |      | 69 | 
|Consolidated Statements of Cash Flows                       |  |      | 70 | 
|Notes to Consolidated Financial
    Statements              |  |      | 72 | 
|Schedules                                                   |  |      | 96 | 





|                                                        |  |      |    | 
|------------------------------------------------------- |  | ---- | -- | 
|                                                        |  | Page |   
|                                                        |  |      |   
|Valuation and Qualifying Accounts (Schedule II)         |  |      | 96 | 
|Real Estate and Accumulated Depreciation (Schedule III) |  |      | 96 | 







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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















65



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

















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G REIT, INC.





CONSOLIDATED BALANCE SHEETS


December 31, 2004 and 2003


|                                                                                                                                                                        |                                                       |              |             |             |      |   |             |             | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ------------ | ----------- | ----------- | ---- | - | ----------- | ----------- | 
|                                                                                                                                                                        |                                                       | December 31, |            
|                                                                                                                                                                        |                                                       |              |            
|                                                                                                                                                                        |                                                       | 2004         |             |             | 2003 |  
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|ASSETS                                                                                                                                                                 
|Real estate investments:                                                                                                                                                |                                                       |              |             |             |      |   |             |            
|                                                                                                                                                                        | Operating properties, net of accumulated depreciation |              | $           | 761,282,000 |      |   | $           | 298,606,000 | 
|                                                                                                                                                                        | Investments in unconsolidated real estate             |              |             | 11,880,000  |      |   |             | 14,157,000  | 
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|                                                                                                                                                                        |                                                       |              | 773,162,000 |             |      |   | 312,763,000 |            
|Cash and cash equivalents                                                                                                                                               |                                                       |              | 17,567,000  |             |      |   | 15,533,000  |            
|Investment in marketable securities                                                                                                                                     |                                                       |              | 2,161,000   |             |      |   |            |            
|Accounts receivable, net of allowance for doubtful accounts                                                                                                             |                                                       |              | 4,760,000   |             |      |   | 1,979,000   |            
|Accounts receivable from related parties                                                                                                                                |                                                       |              | 303,000     |             |      |   | 139,000     |            
|Restricted cash                                                                                                                                                         |                                                       |              | 17,868,000  |             |      |   | 2,111,000   |            
|Real estate deposits                                                                                                                                                    |                                                       |              |            |             |      |   | 2,600,000   |            
|Deferred financing costs, net                                                                                                                                           |                                                       |              | 7,233,000   |             |      |   | 4,076,000   |            
|Identified intangible assets, net of accumulated amortization of
    $13,475,000 and $599,000 at December 31, 2004 and 2003
    respectively                            |                                                       |              | 84,984,000  |             |      |   | 5,488,000   |            
|Other assets, net                                                                                                                                                       |                                                       |              | 7,012,000   |             |      |   | 710,000     |            
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|Total assets                                                                                                                                                            |                                                       | $            | 915,050,000 |             |      | $ | 345,399,000 |            
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|                                                                                                                                                                       
|LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS
    EQUITY                                                                                                           
|Liabilities:                                                                                                                                                            |                                                       |              |             |             |      |   |             |            
|Mortgage loans payable                                                                                                                                                  |                                                       | $            | 442,275,000 |             |      | $ | 97,257,000  |            
|Credit facility                                                                                                                                                         |                                                       |              | 58,369,000  |             |      |   | 81,534,000  |            
|Accounts payable and accrued liabilities                                                                                                                                |                                                       |              | 15,734,000  |             |      |   | 2,600,000   |            
|Accounts payable to related parties                                                                                                                                     |                                                       |              | 961,000     |             |      |   | 1,598,000   |            
|Security deposits and prepaid rent                                                                                                                                      |                                                       |              | 5,550,000   |             |      |   | 3,090,000   |            
|Identified intangible liabilities net of accumulated
    amortization of $5,839,000 and $472,000 at December 31,
    2004 and, 2003, respectively                       |                                                       |              | 25,563,000  |             |      |   | 7,499,000   |            
|Distributions payable                                                                                                                                                   |                                                       |              | 2,743,000   |             |      |   | 1,036,000   |            
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|Total liabilities                                                                                                                                                       |                                                       |              | 551,195,000 |             |      |   | 194,614,000 |            
|Minority interests                                                                                                                                                      |                                                       |              | 6,830,000   |             |      |   | 263,000     |            
|Commitments and contingencies (Note 14)
    Stockholders equity:                                                                                                       |                                                       |              |             |             |      |   |             |            
|Common stock, $.01 par value; 50,000,000 shares authorized;
    43,865,000 and 17,562,000 shares issued and outstanding at
    December 31, 2004 and 2003, respectively |                                                       |              | 439,000     |             |      |   | 176,000     |            
|Additional paid-in capital                                                                                                                                              |                                                       |              | 392,836,000 |             |      |   | 156,733,000 |            
|Distributions in excess of earnings                                                                                                                                     |                                                       |              | (36,305,000 | )           |      |   | (6,387,000  | )          
|Accumulated other comprehensive income                                                                                                                                  |                                                       |              | 55,000      |             |      |   |            |            
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|Total stockholders equity                                                                                                                                              |                                                       |              | 357,025,000 |             |      |   | 150,522,000 |            
|                                                                                                                                                                        |                                                       |              |             |             |      |  
|Total liabilities, minority interests and stockholders
    equity                                                                                                      |                                                       | $            | 915,050,000 |             |      | $ | 345,399,000 |            
|                                                                                                                                                                        |                                                       |              |             |             |      |  



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G REIT, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
OPERATIONS


For the Years Ended December 31, 2004, 2003 and 2002


|                                                                             |                                                                           |                                          |            |             |            |   |            |            |        |   |         |          |        | 
|---------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ---------------------------------------- | ---------- | ----------- | ---------- | - | ---------- | ---------- | ------ | - | ------- | -------- | ------ | 
|                                                                             |                                                                           | Year Ended December 31,                  |           
|                                                                             |                                                                           |                                          |           
|                                                                             |                                                                           | 2004                                     |            |             | 2003       |   |            | 2002       |       
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Revenues                                                                     |                                                                           |                                          |            |             |            |   |            |            |        |   |         |         
|                                                                             | Rental                                                                    |                                          | $          | 94,910,000  |            |   | $          | 12,427,000 |        |   | $       | 733,000  |       
|Expenses                                                                     |                                                                           |                                          |            |             |            |   |            |            |        |   |         |         
|                                                                             | Rental                                                                    |                                          |            | 40,262,000  |            |   |            | 4,750,000  |        |   |         | 205,000  |       
|                                                                             | General and administrative                                                |                                          |            | 3,401,000   |            |   |            | 1,520,000  |        |   |         | 170,000  |       
|                                                                             | Depreciation                                                              |                                          |            | 21,801,000  |            |   |            | 3,351,000  |        |   |         | 102,000  |       
|                                                                             | Amortization                                                              |                                          |            | 13,032,000  |            |   |            | 405,000    |        |   |         |         |       
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|                                                                             |                                                                           |                                          | 78,496,000 |             |            |   | 10,026,000 |            |        |   | 477,000 |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Operating income                                                             |                                                                           |                                          | 16,414,000 |             |            |   | 2,401,000  |            |        |   | 256,000 |         
|Other (expense) income:                                                      |                                                                           |                                          |            |             |            |   |            |            |        |   |         |         
|                                                                             | Interest expense (including amortization of deferred financing
    costs) |                                          |            | (18,951,000 | )          |   |            | (2,648,000 | )      |   |         | (248,000 | )     
|                                                                             | Interest and dividend income                                              |                                          |            | 423,000     |            |   |            | 124,000    |        |   |         | 18,000   |       
|                                                                             | Gain on sale of marketable securities and joint venture                   |                                          |            | 1,231,000   |            |   |            |           |        |   |         |         |       
|                                                                             | Equity in earnings (losses) of unconsolidated real estate                 |                                          |            | (604,000    | )          |   |            | 204,000    |        |   |         |         |       
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Income (loss) before minority interest and income taxes                      |                                                                           |                                          | (1,487,000 | )           |            |   | 81,000     |            |        |   | 26,000  |         
|Minority interests                                                           |                                                                           |                                          | (9,000     | )           |            |   | 3,000      |            |        |   |        |         
|Income taxes                                                                 |                                                                           |                                          | 398,000    |             |            |   |           |            |        |   |        |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Net income (loss)                                                            |                                                                           | $                                        | (1,876,000 | )           |            | $ | 78,000     |            |        | $ | 26,000  |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Comprehensive income:                                                        |                                                                           |                                          |            |             |            |   |            |            |        |   |         |         
|                                                                             |                                                                           | Net income (loss)                        |            | $           | (1,876,000 | ) |            | $          | 78,000 |   |         | $        | 26,000 | 
|                                                                             |                                                                           | Unrealized gain on marketable securities |            |             | 55,000     |   |            |            |       |   |         |          |       | 
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Comprehensive income (loss)                                                  |                                                                           | $                                        | (1,821,000 | )           |            | $ | 78,000     |            |        | $ | 26,000  |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Earnings (loss) per share  basic and diluted                                |                                                                           | $                                        | (0.05      | )           |            | $ | 0.01       |            |        | $ | 0.06    |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Weighted average number of common shares outstanding 
    basic and diluted |                                                                           |                                          | 37,336,000 |             |            |   | 8,243,000  |            |        |   | 405,000 |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Distributions declared per share                                             |                                                                           | $                                        | 0.75       |             |            | $ | 0.74       |            |        | $ | 0.69    |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       
|Distributions declared                                                       |                                                                           | $                                        | 28,042,000 |             |            | $ | 6,211,000  |            |        | $ | 280,000 |         
|                                                                             |                                                                           |                                          |            |             |            |   |            |            |       



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G REIT, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


For the Years Ended December 31, 2004, 2003 and 2002


|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |   |        |  |  |   |             |  
|-------------------------------------------------------------- |  | ------------ | ---------- | ------ | --------- | - | ------- | --------------- | ---------------- | - | ----------- | ----------- |  | ------------- | ----------- | - | ----- | - | ------ |  |  | - | ----------- | -
|                                                               |  | Common Stock |            |        |           |   |         |                 |                 
|                                                               |  |              |            |        |           |   |         |                 |                 
|                                                               |  |              |            | Common |           |   |         |                 | Distributions in |   |             | Accumulated |  |               |            
|                                                               |  | Number of    |            |        | Stock Par |   |         | Additional      |                  |   | Excess of   |             |  | Comprehensive |             |   |      
|                                                               |  | Shares       |            |        | Value     |   |         | Paid-In Capital |                  |   | Earnings    |             |  | Income        |             |   | Total |  
|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |  
|BALANCE  December 31, 2001                                    |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               |            |   |       |   |       |  |  |   |            |  
|Issuance of common stock, net of offering costs of $2,936,000  |  |              | 2,158,000  |        |           | $ | 22,000  |                 |                  | $ | 18,583,000  |             |  |               |            |   |       |   |       |  |  | $ | 18,605,000  |  
|Distributions                                                  |  |              |           |        |           |   |        |                 |                  |   |            |             |  | $             | (280,000    | ) |       |   |       |  |  |   | (280,000    | )
|Net income                                                     |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               | 26,000      |   |       |   |       |  |  |   | 26,000      |  
|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |  
|BALANCE  December 31, 2002                                    |  |              | 2,158,000  |        |           |   | 22,000  |                 |                  |   | 18,583,000  |             |  |               | (254,000    | ) |       |   |       |  |  |   | 18,351,000  |  
|Issuance of common stock, net of offering costs of $15,311,000 |  |              | 15,404,000 |        |           |   | 154,000 |                 |                  |   | 138,150,000 |             |  |               |            |   |       |   |       |  |  |   | 138,304,000 |  
|Distributions                                                  |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               | (6,211,000  | ) |       |   |       |  |  |   | (6,211,000  | )
|Net income                                                     |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               | 78,000      |   |       |   |       |  |  |   | 78,000      |  
|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |  
|BALANCE  December 31, 2003                                    |  |              | 17,562,000 |        |           |   | 176,000 |                 |                  |   | 156,733,000 |             |  |               | (6,387,000  | ) |       |   |       |  |  |   | 150,522,000 |  
|Net loss                                                       |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               | (1,876,000  | ) |       |   |       |  |  |   | (1,876,000  | )
|Unrealized gain on marketable securities                       |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               |            |   |       | $ | 55,000 |  |  |   | 55,000      |  
|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |  
|Comprehensive loss                                             |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               |            |   |       |   |       |  |  |   | (1,821,000  | )
|Stock based compensation expense                               |  |              |            |        |           |   |         |                 |                  |   | 257,000     |             |  |               |             |   |       |   |        |  |  |   | 257,000     |  
|Issuance of common stock, net of offering costs of $26,050,000 |  |              | 26,303,000 |        |           |   | 263,000 |                 |                  |   | 235,846,000 |             |  |               |            |   |       |   |       |  |  |   | 236,109,000 |  
|Distributions                                                  |  |              |           |        |           |   |        |                 |                  |   |            |             |  |               | (28,042,000 | ) |       |   |       |  |  |   | (28,042,000 | )
|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |  
|BALANCE  December 31, 2004                                    |  |              | 43,865,000 |        |           | $ | 439,000 |                 |                  | $ | 392,836,000 |             |  | $             | (36,305,000 | ) |       | $ | 55,000 |  |  | $ | 357,025,000 |  
|                                                               |  |              |            |        |           |   |         |                 |                  |   |             |             |  |               |             |   |       |  



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G REIT, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Years Ended December 31, 2004, 2003 and 2002


|                                                                                                                                                                   |                                                                             |                                                     |            |              |              |   |           |              |              |   |         |             |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------------------- | ---------- | ------------ | ------------ | - | --------- | ------------ | ------------ | - | ------- | ----------- | ----------- | -
|                                                                                                                                                                   |                                                                             | Year Ended December 31,                             |           
|                                                                                                                                                                   |                                                                             |                                                     |           
|                                                                                                                                                                   |                                                                             | 2004                                                |            |              | 2003         |   |           | 2002         |             
|                                                                                                                                                                   |                                                                             |                                                     |            |              |              |   |           |              |             
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                                                               |                                                                             |                                                     |            |              |              |   |           |              |              |   |         |            
|Net (loss) income                                                                                                                                                  |                                                                             | $                                                   | (1,876,000 | )            |              | $ | 78,000    |              |              | $ | 26,000  |            
|Adjustments to reconcile net (loss) income to net cash
    provided by (used in) operating activities:
    Gain on sale of marketable securities and joint venture |                                                                             |                                                     | (1,231,000 | )            |              |   |          |              |              |   |        |            
|Depreciation and amortization (including deferred financing
    costs and above/below market leases and deferred rent)                                             |                                                                             |                                                     | 29,529,000 |              |              |   | 3,756,000 |              |              |   | 152,000 |            
|Swap collar interest                                                                                                                                               |                                                                             |                                                     | (347,000   | )            |              |   | 36,000    |              |              |   |         |            
|Stock compensation expense                                                                                                                                         |                                                                             |                                                     | 257,000    |              |              |   |          |              |              |   |        |            
|Distributions received in excess of equity in earnings from
    investments in unconsolidated real estate                                                          |                                                                             |                                                     | 2,256,000  |              |              |   | 610,000   |              |              |   |        |            
|Minority interest expense                                                                                                                                          |                                                                             |                                                     | (9,000     | )            |              |   | 3,000     |              |              |   |        |            
|Change in operating assets and liabilities:                                                                                                                        |                                                                             |                                                     |            |              |              |   |           |              |              |   |         |            
|                                                                                                                                                                   | Accounts receivable                                                         |                                                     |            | 1,543,000    |              |   |           | (1,804,000   | )            |   |         | (102,000    | )          
|                                                                                                                                                                   | Other assets                                                                |                                                     |            | (468,000     | )            |   |           | 1,186,000    |              |   |         | (1,827,000  | )          
|                                                                                                                                                                   | Accounts payable and accrued liabilities                                    |                                                     |            | 9,072,000    |              |   |           | 3,039,000    |              |   |         | 771,000     |            
|                                                                                                                                                                   | Security deposits and prepaid rent                                          |                                                     |            | 1,179,000    |              |   |           | 974,000      |              |   |         | 371,000     |            
|                                                                                                                                                                   |                                                                             |                                                     |            |              |              |   |           |              |             
|                                                                                                                                                                   |                                                                             | Net cash provided by (used in) operating activities |            |              | 39,905,000   |   |           |              | 7,878,000    |   |         |             | (609,000    | )
|                                                                                                                                                                   |                                                                             |                                                     |            |              |              |   |           |              |             
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                                                                               |                                                                             |                                                     |            |              |              |   |           |              |              |   |         |            
|                                                                                                                                                                   | Purchase of real estate operating properties                                |                                                     |            | (550,530,000 | )            |   |           | (272,299,000 | )            |   |         | (23,830,000 | )          
|                                                                                                                                                                   | Purchase of investments in unconsolidated real estate and joint
    venture |                                                     |            | (20,000,000  | )            |   |           | (14,767,000  | )            |   |         |            |            
|                                                                                                                                                                   | Capital expenditures                                                        |                                                     |            | (7,583,000   | )            |   |           | (217,000     | )            |   |         |            |            
|                                                                                                                                                                   | Purchase of marketable securities                                           |                                                     |            | (12,065,000  | )            |   |           |             |              |   |         |            |            
|                                                                                                                                                                   | Proceeds from sale of marketable securities                                 |                                                     |            | 10,210,000   |              |   |           |             |              |   |         |            |            
|                                                                                                                                                                   | Proceeds from sale of joint venture                                         |                                                     |            | 21,000,000   |              |   |           |              |              |   |         |             |            
|                                                                                                                                                                   | Restricted cash                                                             |                                                     |            | (4,250,000   | )            |   |           | (1,535,000   | )            |   |         |            |            
|                                                                                                                                                                   | Real estate deposits                                                        |                                                     |            |              |              |   |           | (2,600,000   | )            |   |         | (2,271,000  | )          
|                                                                                                                                                                   |                                                                             |                                                     |            |              |              |   |           |              |             
|                                                                                                                                                                   |                                                                             | Net cash used in investing activities               |            |              | (563,218,000 | ) |           |              | (291,418,000 | ) |         |             | (26,101,000 | )
|                                                                                                                                                                   |                                                                             |                                                     |            |              |              |   |           |              |             

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|                                                  |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |            |            | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------- | ---------- | ----------- | ----------- | - | ---------- | ----------- | ----------- | - | --------- | ---------- | ---------- | 
|                                                  |                                                                                          | Year Ended December 31,                   |           
|                                                  |                                                                                          |                                           |           
|                                                  |                                                                                          | 2004                                      |            |             | 2003        |   |            | 2002        |            
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|CASH FLOWS FROM FINANCING ACTIVITIES              |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |           
|                                                  | Proceeds from issuance of common stock, net                                              |                                           |            | 236,109,000 |             |   |            | 138,305,000 |             |   |           | 18,604,000 |           
|                                                  | Borrowings under line of credit                                                          |                                           |            | 34,929,000  |             |   |            | 101,534,000 |             |   |           |           |           
|                                                  | Repayments under line of credit                                                          |                                           |            | (58,094,000 | )           |   |            | (20,000,000 | )           |   |           |           |           
|                                                  | Principal repayments on notes payable                                                    |                                           |            | (14,590,000 | )           |   |            | (6,823,000  | )           |   |           |           |           
|                                                  | Borrowings under notes payable                                                           |                                           |            | 359,608,000 |             |   |            | 87,250,000  |             |   |           | 16,860,000 |           
|                                                  | Payment of deferred financing costs                                                      |                                           |            | (5,927,000  | )           |   |            | (4,213,000  | )           |   |           | (205,000   | )         
|                                                  | Minority interests contributions                                                         |                                           |            | 23,000      |             |   |            |            |             |   |           |           |           
|                                                  | Minority interests distributions                                                         |                                           |            | (376,000    | )           |   |            | (74,000     | )           |   |           |           |           
|                                                  | Distributions                                                                            |                                           |            | (26,335,000 | )           |   |            | (5,285,000  | )           |   |           | (170,000   | )         
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|                                                  |                                                                                          | Net cash provided by financing activities |            |             | 525,347,000 |   |            |             | 290,694,000 |   |           |            | 35,089,000 | 
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|NET INCREASE IN CASH AND CASH EQUIVALENTS         |                                                                                          |                                           | 2,034,000  |             |             |   | 7,154,000  |             |             |   | 8,379,000 |           
|CASH AND CASH EQUIVALENTS 
    beginning of year |                                                                                          |                                           | 15,533,000 |             |             |   | 8,379,000  |             |             |   |          |           
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|CASH AND CASH EQUIVALENTS 
    end of year       |                                                                                          | $                                         | 17,567,000 |             |             | $ | 15,533,000 |             |             | $ | 8,379,000 |           
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |           
|Cash paid during the year for:                    |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |           
|                                                  | Interest                                                                                 |                                           | $          | 14,212,000  |             |   | $          | 1,739,000   |             |   | $         | 109,000    |           
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|                                                  | Income taxes                                                                             |                                           | $          | 428,000     |             |   | $          |            |             |   | $         |           |           
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            
|NONCASH INVESTING AND FINANCING ACTIVITIES:       |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |           
|Investing Activities:                             |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |           
|                                                  | Assets acquired                                                                          |                                           | $          | 17,475,000  |             |   | $          | 846,000     |             |   | $         |           |           
|                                                  | Liabilities assumed                                                                      |                                           | $          | 4,498,000   |             |   | $          | 2,068,000   |             |   | $         |           |           
|                                                  | Increase (decrease) in intangible assets less intangible
    liabilities of acquisitions |                                           | $          | 70,157,000  |             |   | $          | (1,886,000  | )           |   | $         |           |           
|                                                  | Increase in investment in operating properties                                           |                                           | $          | 476,894,000 |             |   | $          | 278,011,000 |             |   | $         |           |           
|                                                  | Increase in investment in unconsolidated real estate                                     |                                           | $          |            |             |   | $          | 14,767,000  |             |   | $         |           |           
|                                                  | Real estate deposits applied to property acquisitions                                    |                                           | $          | 2,600,000   |             |   | $          | 2,271,000   |             |   |           |            |           
|                                                  | Mortgage loan assumed upon acquisition of property                                       |                                           | $          |            |             |   | $          | 4,024,000   |             |   | $         |           |           
|                                                  | Minority interest liability of acquisitions                                              |                                           | $          | 6,928,000   |             |   | $          | 333,000     |             |   | $         |           |           
|Financing Activities:                             |                                                                                          |                                           |            |             |             |   |            |             |             |   |           |           
|                                                  | Refinancing of property                                                                  |                                           | $          | 11,605,000  |             |   | $          | 6,695,000   |             |   | $         |           |           
|                                                  | Issuance of common stock for dividends reinvested                                        |                                           | $          | 3,129,000   |             |   | $          | 2,377,000   |             |   | $         | 62,000     |           
|                                                  |                                                                                          |                                           |            |             |             |   |            |             |            



71



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##### Table of Contents



G REIT, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 2004, 2003 and 2002


1.     Organization










2.     Summary of Significant
Accounting Policies




72



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





| |                
| | ---------------
| | Restricted Cash





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





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





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

Business Combinations,


73



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












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





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







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

Accounting for Impairment
or Disposal of Long-Lived Assets,


74



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



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





| |             
| | ------------
| | Other Assets





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





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





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



75



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







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

Disclosures About Fair Value of
Financial Instruments,






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



76



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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

Reporting Comprehensive Income




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





|                                                                      |  |                         |            |   |      |   |           |      |  |   |         | 
|--------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | --------- | ---- |  | - | ------- | 
|                                                                      |  | Year Ended December 31, |           
|                                                                      |  |                         |           
|                                                                      |  | 2004                    |            |   | 2003 |   |           | 2002 | 
|                                                                      |  |                         |            |   |      |   |           |      | 
|Net income (loss)                                                     |  | $                       | (1,876,000 | ) |      | $ | 78,000    |      |  | $ | 26,000  | 
|Net income (loss) per share  basic and diluted                       |  |                         | (0.05      | ) |      |   | 0.01      |      |  |   | 0.06    | 
|Weighted average number of shares outstanding  basic
    and diluted |  |                         | 37,336,000 |   |      |   | 8,243,000 |      |  |   | 405,000 | 



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





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

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


77



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                  |  |                         |            |   |      |   |         |      |  |   |        | 
|----------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ------- | ---- |  | - | ------ | 
|                                                                                                                  |  | Year Ended December 31, |           
|                                                                                                                  |  |                         |           
|                                                                                                                  |  | 2004                    |            |   | 2003 |   |         | 2002 | 
|                                                                                                                  |  |                         |            |   |      |   |         |      | 
|Reported net income (loss)                                                                                        |  | $                       | (1,876,000 | ) |      | $ | 78,000  |      |  | $ | 26,000 | 
|Add: Stock based employee compensation expense included in
    reported net income                                |  |                         | 257,000    |   |      |   |        |      |  |   |       | 
|Less: Total stock based employee compensation expense determined
    under fair value based method for all awards |  |                         | (196,000   | ) |      |   | (57,000 | )    |  |   |       | 
|                                                                                                                  |  |                         |            |   |      |   |         |      | 
|Pro forma net income (loss)                                                                                       |  | $                       | (1,815,000 | ) |      | $ | 21,000  |      |  | $ | 26,000 | 
|                                                                                                                  |  |                         |            |   |      |   |         |      | 
|Reported net income (loss) per share  basic and
    diluted                                                      |  | $                       | (0.05      | ) |      | $ | 0.01    |      |  | $ | 0.06   | 
|                                                                                                                  |  |                         |            |   |      |   |         |      | 
|Pro forma net income (loss) per share  basic and
    diluted                                                     |  | $                       | (0.05      | ) |      | $ | 0.00    |      |  | $ | 0.06   | 
|                                                                                                                  |  |                         |            |   |      |   |         |      | 







| |        
| | -------
| | Segment





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

Consolidation of Variable Interest Entities, Consolidated Financial Statements


78



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








3.     Real Estate Investments




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



|                                  |  |      |             |   |      |   |             |  
|--------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                  |  | 2004 |             |   | 2003 |  
|                                  |  |      |             |   |      |  
|Buildings and tenant improvements |  | $    | 659,692,000 |   |      | $ | 253,211,000 |  
|Land                              |  |      | 126,462,000 |   |      |   | 48,848,000  |  
|                                  |  |      |             |   |      |  
|                                  |  |      | 786,154,000 |   |      |   | 302,059,000 |  
|Less: accumulated depreciation    |  |      | (24,872,000 | ) |      |   | (3,453,000  | )
|                                  |  |      |             |   |      |  
|                                  |  | $    | 761,282,000 |   |      | $ | 298,606,000 |  
|                                  |  |      |             |   |      |  



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



|                           |  |          |                  |  |               |           |                   |            |          |           |        |             |  |                |            |  |      |            |            |              |  |  |         |  |  |   |           | 
|-------------------------- |  | -------- | ---------------- |  | ------------- | --------- | ----------------- | ---------- | -------- | --------- | ------ | ----------- |  | -------------- | ---------- |  | ---- | ---------- | ---------- | ------------ |  |  | ------- |  |  | - | --------- | 
|                           |  |          |                  |  |               |           |                   |            |          | Borrowing |        |             |  |                |           
|                           |  |          |                  |  |               | Ownership |                   |            | Purchase |           |        | Incurred at |  |                | Square     |  |      | Commission |           
|Property Description       |  | Location |                  |  | Purchase Date |           |                   | Percentage |          |           | Price  |             |  | Acquisition(1) |            |  | Feet |            |            | to Realty(2) | 
|                           |  |          |                  |  |               |           |                   |            |          |           |        |             |  |                |            |  |      |            |            |              | 
|AmberOaks Corporate Center |  |          | Austin, TX       |  |               |           | January 20, 2004  |            |          |           | 100.00 | %           |  | $              | 35,525,000 |  |      | $          | 14,250,000 |              |  |  | 282,000 |  |  | $ | 909,000   | 
|Public Ledger Building     |  |          | Philadelphia, PA |  |               |           | February 13, 2004 |            |          |           | 100.00 | %           |  |                | 33,950,000 |  |      |            | 25,000,000 |              |  |  | 472,000 |  |  |   | 965,000   | 
|Madrona Buildings          |  |          | Torrance, CA     |  |               |           | March 31, 2004    |            |          |           | 100.00 | %           |  |                | 45,900,000 |  |      |            | 28,458,000 |              |  |  | 211,000 |  |  |   | 1,350,000 | 
|Brunswig Square            |  |          | Los Angeles, CA  |  |               |           | April 5, 2004     |            |          |           | 100.00 | %           |  |                | 23,805,000 |  |      |            | 15,830,000 |              |  |  | 136,000 |  |  |   | 716,000   | 

79



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                            |        |          |                    |  |               |           |                |            |          |           |        |             |  |                |            |             |      |            |            |              |  |  |         |           |  |  |           |            | 
|--------------------------- | ------ | -------- | ------------------ |  | ------------- | --------- | -------------- | ---------- | -------- | --------- | ------ | ----------- |  | -------------- | ---------- | ----------- | ---- | ---------- | ---------- | ------------ |  |  | ------- | --------- |  |  | --------- | ---------- | 
|                            |        |          |                    |  |               |           |                |            |          | Borrowing |        |             |  |                |           
|                            |        |          |                    |  |               | Ownership |                |            | Purchase |           |        | Incurred at |  |                | Square     |             |      | Commission |           
|Property Description        |        | Location |                    |  | Purchase Date |           |                | Percentage |          |           | Price  |             |  | Acquisition(1) |            |             | Feet |            |            | to Realty(2) | 
|                            |        |          |                    |  |               |           |                |            |          |           |        |             |  |                |            |             |      |            |            |              | 
|North Belt Corporate Center |        |          | Houston, TX        |  |               |           | April 8, 2004  |            |          |           | 100.00 | %           |  |                | 12,675,000 |             |      |            |           |              |  |  | 156,000 |           |  |  | 400,000   |           
|Hawthorne Plaza             |        |          | San Francisco, CA  |  |               |           | April 20, 2004 |            |          |           | 100.00 | %           |  |                | 97,000,000 |             |      |            | 62,750,000 |              |  |  | 419,000 |           |  |  | 2,900,000 |           
|Pacific Place               |        |          | Dallas, TX         |  |               |           | May 26, 2004   |            |          |           | 100.00 | %           |  |                | 29,900,000 |             |      |            |           |              |  |  | 324,000 |           |  |  | 897,000   |           
|525 B Street  Golden Eagle |        |          | San Diego, CA      |  |               |           | June 14, 2004  |            |          |           | 100.00 | %           |  |                | 96,310,000 |             |      |            | 69,943,000 |              |  |  | 424,000 |           |  |  | 1,445,000 |           
|600 B Street  Comerica     |        |          | San Diego, CA      |  |               |           | June 14, 2004  |            |          |           | 100.00 | %           |  |                | 77,190,000 |             |      |            | 56,057,000 |              |  |  | 339,000 |           |  |  | 1,158,000 |           
|Western Place I & II        |        |          | Fort Worth, TX     |  |               |           | July 23, 2004  |            |          |           | 78.50  | %(3)        |  |                | 33,500,000 |             |      |            | 24,000,000 |              |  |  | 429,000 |           |  |  | 1,000,000 |           
|Pax River Office Park       |        |          | Lexington Park, MD |  |               |           | August 6, 2004 |            |          |           | 100.00 | %           |  |                | 14,000,000 |             |      |            |           |              |  |  | 172,000 |           |  |  | 420,000   |           
|One Financial Plaza         |        |          | St. Louis, MO      |  |               |           | August 6, 2004 |            |          |           | 77.63  | %(3)        |  |                | 37,000,000 |             |      |            | 30,750,000 |              |  |  | 434,000 |           |  |  | 1,155,000 |           
|                            |        |          |                    |  |               |           |                |            |          |           |        |             |  |                |            |             |      |            |            |              | 
|                            | Totals |          |                    |  |               |           |                |            |          |           |        |             |  |                | $          | 536,755,000 |      |            | $          | 327,038,000  |  |  |         | 3,798,000 |  |  | $         | 13,315,000 | 
|                            |        |          |                    |  |               |           |                |            |          |           |        |             |  |                |            |             |      |            |            |              | 






|    |                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the amount of the mortgage loan assumed by us upon
    the closing of the acquisition by us or newly placed on the
    property at closing.                                                                                                                                                           
|   
|(2) | Triple Net Properties Realty, Inc., or Realty, an affiliate of
    our Advisor, which was solely owned by Anthony W. Thompson, our
    chief executive officer, president and chairman of the board of
    directors, through December 31, 2004 (effective
    January 1, 2005, Mr. Thompson owns 88% of Realty).
|   
|(3) | Our tenant-in-common ownership interest.                                                                                                                                                                                                                                                                         



80



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |        |          |                |  |               |           |                   |            |          |           |        |             |  |                |             |             |      |            |            |             |  |  |         |           |  |   |           |           | 
|--------------------------------- | ------ | -------- | -------------- |  | ------------- | --------- | ----------------- | ---------- | -------- | --------- | ------ | ----------- |  | -------------- | ----------- | ----------- | ---- | ---------- | ---------- | ----------- |  |  | ------- | --------- |  | - | --------- | --------- | 
|                                  |        |          |                |  |               |           |                   |            |          | Borrowing |        |             |  |                |            
|                                  |        |          |                |  |               | Ownership |                   |            | Purchase |           |        | Incurred at |  |                | Square      |             |      | Commission |           
|Property Description              |        | Location |                |  | Purchase Date |           |                   | Percentage |          |           | Price  |             |  | Acquisition(1) |             |             | Feet |            |            | to Realty   | 
|                                  |        |          |                |  |               |           |                   |            |          |           |        |             |  |                |             |             |      |            |            |             | 
|Atrium Building                   |        |          | Lincoln, NB    |  |               |           | January 31, 2003  |            |          |           | 100.00 | %           |  | $              | 4,532,000   |             |      | $          | 2,200,000  |             |  |  | 167,000 |           |  | $ | 132,000   |          
|Department of Children and Family |        |          | Plantation, FL |  |               |           | April 25, 2003    |            |          |           | 100.00 | %           |  |                | 11,580,000  |             |      |            | 7,605,000  |             |  |  | 124,000 |           |  |   | 300,000   |          
|Gemini Plaza                      |        |          | Houston, TX    |  |               |           | May 2, 2003       |            |          |           | 100.00 | %           |  |                | 15,000,000  |             |      |            | 9,815,000  |             |  |  | 159,000 |           |  |   | 325,000   |          
|Bay View Plaza                    |        |          | Alameda, CA    |  |               |           | July 31, 2003     |            |          |           | 97.68  | %           |  |                | 11,655,000  |             |      |            |           |             |  |  | 61,000  |           |  |   | 380,000   |          
|North Pointe Corporate Center     |        |          | Sacramento, CA |  |               |           | August 11, 2003   |            |          |           | 100.00 | %           |  |                | 24,205,000  |             |      |            |           |             |  |  | 133,000 |           |  |   | 705,000   |          
|824 Market St.                    |        |          | Wilmington, DE |  |               |           | October 10, 2003  |            |          |           | 100.00 | %           |  |                | 31,900,000  |             |      |            |           |             |  |  | 202,000 |           |  |   | 970,000   |          
|Sutter Square Galleria            |        |          | Sacramento, CA |  |               |           | October 28, 2003  |            |          |           | 100.00 | %           |  |                | 8,240,000   |             |      |            | 4,024,000  |             |  |  | 61,000  |           |  |   | 240,000   |          
|One World Trade Center            |        |          | Long Beach, CA |  |               |           | December 5, 2003  |            |          |           | 100.00 | %           |  |                | 113,648,000 |             |      |            | 77,000,000 |             |  |  | 573,000 |           |  |   | 2,400,000 |          
|Centerpoint Corporate Park        |        |          | Kent, WA       |  |               |           | December 30, 2003 |            |          |           | 100.00 | %           |  |                | 54,220,000  |             |      |            | 25,029,000 |             |  |  | 436,000 |           |  |   | 1,627,000 |          
|                                  |        |          |                |  |               |           |                   |            |          |           |        |             |  |                |             |             |      |            |            |             | 
|                                  | Totals |          |                |  |               |           |                   |            |          |           |        |             |  |                | $           | 274,980,000 |      |            | $          | 125,673,000 |  |  |         | 1,916,000 |  |   | $         | 7,079,000 | 
|                                  |        |          |                |  |               |           |                   |            |          |           |        |             |  |                |             |             |      |            |            |             | 






|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the amount of the mortgage loan assumed by us upon
    the closing of the acquisition by us or newly placed on the
    property at closing.





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



|                                                            |  |            |        |  |            |   |            | 
|----------------------------------------------------------- |  | ---------- | ------ |  | ---------- | - | ---------- | 
|                                                            |  | Percentage |        |  | Companys  |  
|Property                                                    |  | Owned      |        |  | Investment |  
|                                                            |  |            |        |  |            |  
|Congress Center, Chicago, IL  Acquired
    January 9, 2003 |  |            | 30.00% |  |            | $ | 11,727,000 | 
|Park Sahara, Las Vegas, NV  Acquired March 18,
    2003    |  |            | 4.75%  |  |            |   | 153,000    | 
|                                                            |  |            |        |  |            |  
|                                                            |  |            |        |  |            | $ | 11,880,000 | 
|                                                            |  |            |        |  |            |  

81



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |  |              |             |  |              |   |             | 
|------------------------------ |  | ------------ | ----------- |  | ------------ | - | ----------- | 
|                               |  | December 31, |             |  | December 31, |  
|                               |  | 2004         |             |  | 2003         |  
|                               |  |              |             |  |              |  
|Assets (primarily real estate) |  | $            | 152,410,000 |  |              | $ | 152,608,000 | 
|                               |  |              |             |  |              |  
|Mortgages notes payable        |  |              | 105,606,000 |  |              |   | 105,276,000 | 
|Other liabilities              |  |              | 5,295,000   |  |              |   | 2,236,000   | 
|Equity                         |  |              | 41,509,000  |  |              |   | 45,096,000  | 
|                               |  |              |             |  |              |  
|Total liabilities and equity   |  | $            | 152,410,000 |  |              | $ | 152,608,000 | 
|                               |  |              |             |  |              |  
|Our share of equity            |  | $            | 11,880,000  |  |              | $ | 14,157,000  | 
|                               |  |              |             |  |              |  

|                              |  |                         |            |   |      |   |            | 
|----------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | 
|                              |  | Year Ended December 31, |           
|                              |  |                         |           
|                              |  | 2004                    |            |   | 2003 |  
|                              |  |                         |            |   |      |  
|Revenues                      |  | $                       | 19,104,000 |   |      | $ | 15,892,000 | 
|Rental and other expenses     |  |                         | 21,888,000 |   |      |   | 15,218,000 | 
|                              |  |                         |            |   |      |  
|Net income (loss)             |  | $                       | (2,784,000 | ) |      | $ | 674,000    | 
|                              |  |                         |            |   |      |  
|Our equity in earnings (loss) |  | $                       | (604,000   | ) |      | $ | 204,000    | 
|                              |  |                         |            |   |      |  

4.     Marketable Equity
Securities




|                  |                   |            |   |                  |       |  |   |           |  |  |            |   |  |  |   |           | 
|----------------- | ----------------- | ---------- | - | ---------------- | ----- |  | - | --------- |  |  | ---------- | - |  |  | - | --------- | 
|                  |                   |            |   | Gross unrealized |       |  |  
|                  |                   | Historical |   |                  |       |  |   | Estimated | 
|                  |                   | Cost       |   |                  | Gains |  |   | Losses    |  |  | Fair Value |  
|                  |                   |            |   |                  |       |  |   |           |  |  |            |  
|December 31, 2004 |                   |            |   |                  |       |  |   |           |  |  |            |   |  |  |   |          
|                  | Equity securities |            | $ | 2,106,000        |       |  | $ | 55,000    |  |  |            |  |  |  | $ | 2,161,000 | 
|                  |                   |            |   |                  |       |  |   |           |  |  |            |  



5.     Identified Intangible
Assets




|                                                                                                                                                                                                                                                                                        |  |              |            |  |      |   |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- |  | ---- | - | --------- | 
|                                                                                                                                                                                                                                                                                        |  | December 31, |           
|                                                                                                                                                                                                                                                                                        |  |              |           
|                                                                                                                                                                                                                                                                                        |  | 2004         |            |  | 2003 |  
|                                                                                                                                                                                                                                                                                        |  |              |            |  |      |  
|In place leases and tenant relationships, net of accumulated
    amortization of $11,904,000 and $371,000 at December 31,
    2004 and 2003, respectively (with a weighted average life of
    63 months and 125 months for in place leases and
    tenant relationships, respectively) |  | $            | 80,727,000 |  |      | $ | 4,451,000 | 
|Above market leases, net of accumulated amortization of
    $1,571,000 and $228,000 at December 31, 2004 and 2003,
    respectively (with a weighted average life of 74 months)                                                                                                         |  |              | 4,257,000  |  |      |   | 1,037,000 | 
|                                                                                                                                                                                                                                                                                        |  |              |            |  |      |  
|Total identified intangible assets                                                                                                                                                                                                                                                      |  | $            | 84,984,000 |  |      | $ | 5,488,000 | 
|                                                                                                                                                                                                                                                                                        |  |              |            |  |      |  

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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |  |   |            | 
|---- |  | - | ---------- | 
|2005 |  | $ | 15,100,000 | 
|2006 |  | $ | 13,282,000 | 
|2007 |  | $ | 12,064,000 | 
|2008 |  | $ | 10,141,000 | 
|2009 |  | $ | 8,552,000  | 

6.     Other Assets




|                                                                                                                                           |                    |              |           |           |      |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ------------------ | ------------ | --------- | --------- | ---- | - | ------- | ------- | 
|                                                                                                                                           |                    | December 31, |          
|                                                                                                                                           |                    |              |          
|                                                                                                                                           |                    | 2004         |           |           | 2003 |  
|                                                                                                                                           |                    |              |           |           |      |  
|Deferred rent receivable                                                                                                                   |                    | $            | 4,282,000 |           |      | $ | 264,000 |        
|Lease commissions, net of accumulated amortization of $113,000
    and $11,000 at December 31, 2004 and December 31, 2003
    respectively |                    |              | 1,780,000 |           |      |   | 111,000 |        
|Prepaid expenses and deposits                                                                                                              |                    |              | 920,000   |           |      |   | 335,000 |        
|Deferred tax asset                                                                                                                         |                    |              | 30,000    |           |      |   |        |        
|                                                                                                                                           |                    |              |           |           |      |  
|                                                                                                                                           | Total other assets |              | $         | 7,012,000 |      |   | $       | 710,000 | 
|                                                                                                                                           |                    |              |           |           |      |  

7.     Mortgage Loans Payable








|                         |  |   |            | 
|------------------------ |  | - | ---------- | 
| Atrium Building        |  | $ | 3,520,000  | 
| Gemini Plaza           |  |   | 10,300,000 | 
| 824 Market Street      |  |   | 18,750,000 | 
| Public Ledger Building |  |   | 25,000,000 | 
| Brunswig Square        |  |   | 15,830,000 | 
|                         |  |   |           
|                         |  | $ | 73,400,000 | 
|                         |  |   |           



83



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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|           |  |        |             | 
|---------- |  | ------ | ----------- | 
|Year       |  | Amount |            
|           |  |        |            
|2005       |  | $      | 63,605,000  | 
|2006       |  |        | 107,954,000 | 
|2007       |  |        | 37,115,000  | 
|2008       |  |        | 7,230,000   | 
|2009       |  |        | 158,129,000 | 
|Thereafter |  |        | 68,242,000  | 
|           |  |        |            
|           |  | $      | 442,275,000 | 
|           |  |        |            



Derivative
Instruments and Hedging Activities




|                |              |  |                |   |         |            |  |  |        |  |  |          |               |  |  |  |           | 
|--------------- | ------------ |  | -------------- | - | ------- | ---------- |  |  | ------ |  |  | -------- | ------------- |  |  |  | --------- | 
|Notional Amount |              |  | Carrying Value |   |         | Instrument |  |  | Rate   |  |  | Maturity |              
|                |              |  |                |   |         |            |  |  |        |  |  |          |              
|                | $ 26,400,000 |  |                | $ | 56,000  |            |  |  | Swap   |  |  |          | 2.03%         |  |  |  | 5/1/2005  | 
|                | 75,000,000   |  |                |   |        |            |  |  | Cap    |  |  |          | 5.75%         |  |  |  | 1/31/2006 | 
|                | 77,000,000   |  |                |   | 254,000 |            |  |  | Collar |  |  |          | 1.5% to 4.05% |  |  |  | 12/5/2006 | 
|                | 14,000,000   |  |                |   | 1,000   |            |  |  | Cap    |  |  |          | 5.00%         |  |  |  | 3/1/2006  | 
|                |              |  |                |   |         |            |  |  |        |  |  |          |              
|                | $192,400,000 |  |                | $ | 311,000 |            |  |  |        |  |  |          |               |  |  |  |           | 
|                |              |  |                |   |         |            |  |  |        |  |  |          |              



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


8.     Credit Facility










9.     Identified Intangible
Liabilities




|                                                                                                                                                                                |  |              |            |  |      |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- |  | ---- | - | --------- | 
|                                                                                                                                                                                |  | December 31, |           
|                                                                                                                                                                                |  |              |           
|                                                                                                                                                                                |  | 2004         |            |  | 2003 |  
|                                                                                                                                                                                |  |              |            |  |      |  
|Below market leases, net of accumulated amortization of
    $5,839,000 and $472,000 at December 31, 2004 and 2003,
    respectively (with a weighted average life of 65 months) |  | $            | 25,563,000 |  |      | $ | 7,499,000 | 
|                                                                                                                                                                                |  |              |            |  |      |  



|     |  |   |           | 
|---- |  | - | --------- | 
|2005 |  | $ | 5,960,000 | 
|2006 |  | $ | 5,242,000 | 
|2007 |  | $ | 4,892,000 | 
|2008 |  | $ | 3,059,000 | 
|2009 |  | $ | 1,598,000 | 

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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


10.     Minority Interests






| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Western Place I & II  21.5% owned by
    unaffiliated minority stockholders. 
|
| |  | One Financial Plaza  22.375% owned by unaffiliated
    minority stockholders.
|
| |  | Bay View Plaza  2.32% owned by unaffiliated minority
    stockholders.       



11.     Stockholders Equity




| |             
| | ------------
| | Common Stock











| |                              
| | -----------------------------
| | Dividend Reinvestment Program





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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | Share Repurchase Plan







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

Independent Director Stock Option Plan




Officer and Employee Stock Option Plan




2004 Incentive Award Plan




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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                               |  |           |         |          |          |   |            |                |  |   |       |  
|---------------------------------------------- |  | --------- | ------- | -------- | -------- | - | ---------- | -------------- |  | - | ----- | -
|                                               |  |           |         | Range of |          |   | Weighted   |               
|                                               |  | Number    |         |          | Exercise |   |            | Average        | 
|Options Outstanding at                         |  | of Shares |         |          | Prices   |   |            | Exercise Price | 
|                                               |  |           |         |          |          |   |            |                | 
|December 31, 2002 (no options exercisable)     |  |           | 110,000 |          |          | $ | 9.05       |                |  | $ | 9.05  |  
|Granted (weighted average fair value of $1.09) |  |           | 20,000  |          |          |   | 9.05       |                |  |   | 9.05  |  
|Cancelled                                      |  |           | (25,000 | )        |          |   | 9.05       |                |  |   | 9.05  |  
|                                               |  |           |         |          |          |   |            |                | 
|December 31, 2003 (no options exercisable)     |  |           | 105,000 |          |          |   | 9.05       |                |  |   | 9.05  |  
|Granted (weighted average fair value of $1.13) |  |           | 365,000 |          |          |   | 9.00       |                |  |   | 9.00  |  
|Cancelled                                      |  |           | (50,000 | )        |          |   | (9.00      | )              |  |   | (9.00 | )
|                                               |  |           |         |          |          |   |            |                | 
|December 31, 2004 (85,000 options exercisable) |  |           | 420,000 |          |          | $ | 9.00-$9.05 |                |  | $ | 9.00  |  
|                                               |  |           |         |          |          |   |            |                | 



|                |             |  |             |             |         |         |          |  |         |  |  |             |            |  |         |  |        |  |  |   |            | 
|--------------- | ----------- |  | ----------- | ----------- | ------- | ------- | -------- |  | ------- |  |  | ----------- | ---------- |  | ------- |  | ------ |  |  | - | ---------- | 
|                |             |  |             | Contractual |         |         | Exercise |  |         |  |  | Exercise    |           
|Range of        |             |  | Number      |             |         | Life    |          |  | Price  |  |  | Number      |            |  | Price  | 
|Exercise Prices |             |  | Outstanding |             |         | (Years) |          |  | Options |  |  | Exercisable |            |  | Options | 
|                |             |  |             |             |         |         |          |  |         |  |  |             |            |  |         | 
|                | $9.00-$9.05 |  |             |             | 420,000 |         |          |  | 9.08    |  |  | $           | 9.00-$9.05 |  |         |  | 85,000 |  |  | $ | 9.00-$9.05 | 



12.     Future Minimum Rent




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



88



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|            |       |   |            |             | 
|----------- | ----- | - | ---------- | ----------- | 
|Year Ending |       |  
|            |       |  
|2005        |       | $ | 93,459,000 |            
|2006        |       |   | 87,453,000 |            
|2007        |       |   | 78,290,000 |            
|2008        |       |   | 62,667,000 |            
|2009        |       |   | 51,691,000 |            
|Thereafter  |       |   | 99,462,000 |            
|            |       |   |           
|            | Total |   | $          | 473,022,000 | 
|            |       |   |           



13.     Related Party
Transactions




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



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





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





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





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



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Offering Expenses



| |                    
| | -------------------
| | Selling Commissions





| |                                                       
| | ------------------------------------------------------
| | Marketing and Due Diligence Expense Reimbursement Fees





| |                                   
| | ----------------------------------
| | Organization and Offering Expenses





| |              
| | -------------
| | Joint Venture



14.     Commitments and
Contingencies




| |                 
| | ----------------
| | Operating leases



90



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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|            |       |   |           |           | 
|----------- | ----- | - | --------- | --------- | 
|Year Ending |       |  
|            |       |  
|2005        |       | $ | 371,000   |          
|2006        |       |   | 371,000   |          
|2007        |       |   | 371,000   |          
|2008        |       |   | 371,000   |          
|2009        |       |   | 371,000   |          
|Thereafter  |       |   | 1,036,000 |          
|            |       |   |          
|            | Total |   | $         | 2,891,000 | 
|            |       |   |          



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

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






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



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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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





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





| |                                
| | -------------------------------
| | Potential Property Acquisitions





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | receipt of a satisfactory Phase I environmental assessment and
    property appraisal for each property;        
|
| |  | no material adverse change occurring in the properties, the
    tenants or in the local economic conditions; and
|
| |  | receipt of sufficient financing.                                                                                





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





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





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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












15.     Tax Treatment of
Distributions




|                  |  |      |            |  |      |  |        |      |  |   |           |  |  |  |        |   |  |   |         |  |  |  |        |  
|----------------- |  | ---- | ---------- |  | ---- |  | ------ | ---- |  | - | --------- |  |  |  | ------ | - |  | - | ------- |  |  |  | ------ | -
|                  |  | 2004 |            |  | 2003 |  |        | 2002 | 
|                  |  |      |            |  |      |  |        |      | 
|Ordinary income   |  | $    | 12,774,000 |  |      |  | 48.36  | %    |  | $ | 2,432,000 |  |  |  | 46.39  | % |  | $ | 111,000 |  |  |  | 65.29  | %
|Capital gain      |  |      |           |  |      |  | 0.00   | %    |  |   |          |  |  |  | 0.00   | % |  |   |        |  |  |  | 0.00   | %
|Return of capital |  |      | 13,642,000 |  |      |  | 51.64  | %    |  |   | 2,810,000 |  |  |  | 53.61  | % |  |   | 59,000  |  |  |  | 34.71  | %
|                  |  |      |            |  |      |  |        |      |  |   |           |  |  |  |        |   |  |  
|                  |  | $    | 26,416,000 |  |      |  | 100.00 | %    |  | $ | 5,242,000 |  |  |  | 100.00 | % |  | $ | 170,000 |  |  |  | 100.00 | %
|                  |  |      |            |  |      |  |        |      |  |   |           |  |  |  |        |   |  |  

93



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G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


16.     Selected Quarterly Data
(unaudited)




|                                                                  |  |                |            |   |               |   |            |          |  |   |            |  |  |   |            | 
|----------------------------------------------------------------- |  | -------------- | ---------- | - | ------------- | - | ---------- | -------- |  | - | ---------- |  |  | - | ---------- | 
|                                                                  |  | Quarters Ended |           
|                                                                  |  |                |           
|                                                                  |  | December 31,   |            |   | September 30, |   |            | June 30, |  |   | March 31,  | 
|                                                                  |  | 2004           |            |   | 2004          |   |            | 2004     |  |   | 2004       | 
|                                                                  |  |                |            |   |               |   |            |          |  |   |            | 
|Revenues                                                          |  | $              | 32,828,000 |   |               | $ | 29,271,000 |          |  | $ | 20,302,000 |  |  | $ | 12,509,000 | 
|Expenses                                                          |  |                | 33,476,000 |   |               |   | 31,590,000 |          |  |   | 20,275,000 |  |  |   | 12,504,000 | 
|                                                                  |  |                |            |   |               |   |            |          |  |   |            | 
|Income (loss) before other (expense) income and minority interest |  |                | (648,000   | ) |               |   | (2,319,000 | )        |  |   | 27,000     |  |  |   | 5,000      | 
|Other (expense) income                                            |  |                | (92,000    | ) |               |   | 1,394,000  |          |  |   | 326,000    |  |  |   | 26,000     | 
|Equity in earnings (loss) of unconsolidated real estate           |  |                | (349,000   | ) |               |   | (356,000   | )        |  |   | 97,000     |  |  |   | 4,000      | 
|                                                                  |  |                |            |   |               |   |            |          |  |   |            | 
|Income (loss) before minority interest                            |  |                | (1,089,000 | ) |               |   | (1,281,000 | )        |  |   | 450,000    |  |  |   | 35,000     | 
|Minority interest                                                 |  |                | (52,000    | ) |               |   | 37,000     |          |  |   | 4,000      |  |  |   | 2,000      | 
|                                                                  |  |                |            |   |               |   |            |          |  |   |            | 
|Net income (loss)                                                 |  | $              | (1,037,000 | ) |               | $ | (1,318,000 | )        |  | $ | 446,000    |  |  | $ | 33,000     | 
|                                                                  |  |                |            |   |               |   |            |          |  |   |            | 
|Earnings (loss) per share  basic and diluted                     |  | $              | (0.02      | ) |               | $ | (0.03      | )        |  | $ | 0.01       |  |  | $ | 0.00       | 
|                                                                  |  |                |            |   |               |   |            |          |  |   |            | 

|                                                                  |  |                |           |   |               |   |           |          |  |   |           |   |  |   |           |  
|----------------------------------------------------------------- |  | -------------- | --------- | - | ------------- | - | --------- | -------- |  | - | --------- | - |  | - | --------- | -
|                                                                  |  | Quarters Ended |          
|                                                                  |  |                |          
|                                                                  |  | December 31,   |           |   | September 30, |   |           | June 30, |  |   | March 31, |  
|                                                                  |  | 2003           |           |   | 2003          |   |           | 2003     |  |   | 2003      |  
|                                                                  |  |                |           |   |               |   |           |          |  |   |           |  
|Revenues                                                          |  | $              | 5,473,000 |   |               | $ | 3,332,000 |          |  | $ | 2,088,000 |   |  | $ | 1,534,000 |  
|Expenses                                                          |  |                | 5,521,000 |   |               |   | 3,487,000 |          |  |   | 2,158,000 |   |  |   | 1,508,000 |  
|                                                                  |  |                |           |   |               |   |           |          |  |   |           |  
|Income (loss) before other (expense) income and minority interest |  |                | (48,000   | ) |               |   | (155,000  | )        |  |   | (70,000   | ) |  |   | 26,000    |  
|Other (expense) income                                            |  |                | 47,000    |   |               |   | 53,000    |          |  |   | 12,000    |   |  |   | 12,000    |  
|Equity in earnings (loss) of unconsolidated real estate           |  |                | 174,000   |   |               |   | 156,000   |          |  |   | (79,000   | ) |  |   | (47,000   | )
|                                                                  |  |                |           |   |               |   |           |          |  |   |           |  
|Income (loss) before minority interest                            |  |                | 173,000   |   |               |   | 54,000    |          |  |   | (137,000  | ) |  |   | (9,000    | )
|Minority interest                                                 |  |                | (1,000    | ) |               |   | 4,000     |          |  |   |          |   |  |   |          |  
|                                                                  |  |                |           |   |               |   |           |          |  |   |           |  
|Net income (loss)                                                 |  | $              | 174,000   |   |               |   | 50,000    |          |  |   | (137,000  | ) |  |   | (9,000    | )
|                                                                  |  |                |           |   |               |   |           |          |  |   |           |  
|Earnings (loss) per share  basic and diluted                     |  | $              | 0.01      |   |               | $ | 0.01      |          |  | $ | (0.02     | ) |  | $ | (0.00     | )
|                                                                  |  |                |           |   |               |   |           |          |  |   |           |  

17.     Business Combinations




94



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##### Table of Contents



G REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








18.     Subsequent Events






95



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G REIT, INC.





SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS


|                                                                   |  |              |         |  |            |            |         |               |  |   |            |   |  |   |         | 
|------------------------------------------------------------------ |  | ------------ | ------- |  | ---------- | ---------- | ------- | ------------- |  | - | ---------- | - |  | - | ------- | 
|                                                                   |  |              |         |  |            | Deductions |         |               | 
|                                                                   |  | Balance at   |         |  | Charged to |            |         | (Write-off of |  |   | Balance at |  
|                                                                   |  | Beginning of |         |  | Costs and  |            |         | uncollectible |  |   | end of     |  
|                                                                   |  | Period       |         |  | Expenses   |            |         | account)      |  |   | Period     |  
|                                                                   |  |              |         |  |            |            |         |               |  |   |            |  
|Allowance for Doubtful Accounts                                    |  |              |         |  |            |            |         |               |  |   |            |   |  |   |         | 
|Year Ended December 31, 2004  Allowance for
    doubtful accounts |  | $            | 150,000 |  |            | $          | 212,000 |               |  | $ | (41,000    | ) |  | $ | 321,000 | 
|Year Ended December 31, 2003  Allowance for
    doubtful accounts |  | $            |        |  |            | $          | 150,000 |               |  | $ |           |   |  | $ | 150,000 | 
|Year Ended December 31, 2002  Allowance for
    doubtful accounts |  | $            |        |  |            | $          |        |               |  | $ |           |   |  | $ |        | 

G REIT, INC.


SCHEDULE III  REAL ESTATE AND ACCUMULATED
DEPRECIATION


|                       |  |                          |             |               |                                                  |   |             |              |               |   |             |  |  |              |             |  |       |   |             |              |  |   |             |  |  |   |             |   |  |  |      | 
|---------------------- |  | ------------------------ | ----------- | ------------- | ------------------------------------------------ | - | ----------- | ------------ | ------------- | - | ----------- |  |  | ------------ | ----------- |  | ----- | - | ----------- | ------------ |  | - | ----------- |  |  | - | ----------- | - |  |  | ---- | 
|                       |  | Initial Costs to Company |             |               | Gross Amount at Which Carried at Close of Period |  
|                       |  |                          |             |               |                                                  |  
|                       |  |                          |             | Buildings and |                                                  |   |             |              | Buildings and |   |             |  |  | Accumulated  |             |  | Date  |  
|                       |  | Encumbrance              |             |               | Land                                             |   |             | Improvements |               |   | Land        |  |  | Improvements |             |  | Total |   |             | Depreciation |  |   | Constructed | 
|                       |  |                          |             |               |                                                  |   |             |              |               |   |             |  |  |              |             |  |       |   |             |              |  |   |             | 
|5508 Highway 290       |  | $                        | 6,695,000   |               |                                                  | $ | 1,153,000   |              |               | $ | 8,790,000   |  |  | $            | 1,153,000   |  |       | $ | 8,883,000   |              |  | $ | 10,036,000  |  |  | $ | (1,009,000  | ) |  |  | 2001 | 
|Two Corporate Plaza    |  |                          | 10,160,000  |               |                                                  |   | 1,748,000   |              |               |   | 12,388,000  |  |  |              | 1,748,000   |  |       |   | 12,627,000  |              |  |   | 14,375,000  |  |  |   | (1,503,000  | ) |  |  | 1989 | 
|Atrium Building        |  |                          | 2,990,000   |               |                                                  |   | 419,000     |              |               |   | 3,907,000   |  |  |              | 419,000     |  |       |   | 4,214,000   |              |  |   | 4,633,000   |  |  |   | (571,000    | ) |  |  | 1917 | 
|Dept. of Children      |  |                          | 7,605,000   |               |                                                  |   | 2,655,000   |              |               |   | 8,357,000   |  |  |              | 2,655,000   |  |       |   | 8,246,000   |              |  |   | 10,901,000  |  |  |   | (722,000    | ) |  |  | 1973 | 
|Gemini                 |  |                          | 9,815,000   |               |                                                  |   | 1,220,000   |              |               |   | 13,314,000  |  |  |              | 1,220,000   |  |       |   | 13,315,000  |              |  |   | 14,535,000  |  |  |   | (1,148,000  | ) |  |  | 1983 | 
|Bay View Plaza         |  |                          | 6,200,000   |               |                                                  |   | 1,879,000   |              |               |   | 9,044,000   |  |  |              | 1,879,000   |  |       |   | 9,053,000   |              |  |   | 10,932,000  |  |  |   | (508,000    | ) |  |  | 2001 | 
|North Pointe           |  |                          | 15,600,000  |               |                                                  |   | 1,979,000   |              |               |   | 22,224,000  |  |  |              | 1,979,000   |  |       |   | 22,240,000  |              |  |   | 24,219,000  |  |  |   | (884,000    | ) |  |  | 1988 | 
|824 Market             |  |                          | 13,800,000  |               |                                                  |   | 6,406,000   |              |               |   | 26,832,000  |  |  |              | 6,406,000   |  |       |   | 28,828,000  |              |  |   | 35,234,000  |  |  |   | (1,394,000  | ) |  |  | 1984 | 
|Sutter Square          |  |                          | 4,024,000   |               |                                                  |   |             |              |               |   | 8,414,000   |  |  |              |             |  |       |   | 8,450,000   |              |  |   | 8,450,000   |  |  |   | (457,000    | ) |  |  | 1987 | 
|One World Trade Center |  |                          | 77,000,000  |               |                                                  |   | 22,851,000  |              |               |   | 92,211,000  |  |  |              | 22,851,000  |  |       |   | 92,906,000  |              |  |   | 115,757,000 |  |  |   | (6,033,000  | ) |  |  | 1989 | 
|Centerpointe           |  |                          | 25,029,000  |               |                                                  |   | 8,537,000   |              |               |   | 47,551,000  |  |  |              | 8,537,000   |  |       |   | 47,928,000  |              |  |   | 56,465,000  |  |  |   | (2,186,000  | ) |  |  | 1986 | 
|AmberOaks              |  |                          | 14,250,000  |               |                                                  |   | 7,138,000   |              |               |   | 21,302,000  |  |  |              | 7,138,000   |  |       |   | 21,301,000  |              |  |   | 28,439,000  |  |  |   | (858,000    | ) |  |  | 1985 | 
|Public Ledger          |  |                          | 25,000,000  |               |                                                  |   | 10,271,000  |              |               |   | 19,854,000  |  |  |              | 10,271,000  |  |       |   | 20,224,000  |              |  |   | 30,495,000  |  |  |   | (885,000    | ) |  |  | 1927 | 
|Madrona Buildings      |  |                          | 28,458,000  |               |                                                  |   | 12,581,000  |              |               |   | 28,047,000  |  |  |              | 12,581,000  |  |       |   | 28,976,000  |              |  |   | 41,557,000  |  |  |   | (850,000    | ) |  |  | 1990 | 
|Brunswig Square        |  |                          | 15,830,000  |               |                                                  |   | 8,803,000   |              |               |   | 12,362,000  |  |  |              | 8,803,000   |  |       |   | 12,363,000  |              |  |   | 21,166,000  |  |  |   | (291,000    | ) |  |  | 1931 | 
|North Belt Corporate   |  |                          |             |               |                                                  |   | 692,000     |              |               |   | 9,167,000   |  |  |              | 692,000     |  |       |   | 10,214,000  |              |  |   | 10,906,000  |  |  |   | (278,000    | ) |  |  | 1982 | 
|Hawthorne Plaza        |  |                          | 62,750,000  |               |                                                  |   | 15,828,000  |              |               |   | 66,392,000  |  |  |              | 15,828,000  |  |       |   | 66,437,000  |              |  |   | 82,265,000  |  |  |   | (1,420,000  | ) |  |  | 1910 | 
|Pacific Place          |  |                          |             |               |                                                  |   | 1,230,000   |              |               |   | 24,646,000  |  |  |              | 1,230,000   |  |       |   | 25,833,000  |              |  |   | 27,063,000  |  |  |   | (472,000    | ) |  |  | 1982 | 
|525 B St.              |  |                          | 69,940,000  |               |                                                  |   | 9,824,000   |              |               |   | 87,390,000  |  |  |              | 9,824,000   |  |       |   | 87,423,000  |              |  |   | 97,247,000  |  |  |   | (1,408,000  | ) |  |  | 1969 | 
|600 B St.              |  |                          | 56,060,000  |               |                                                  |   | 4,216,000   |              |               |   | 60,550,000  |  |  |              | 4,216,000   |  |       |   | 60,572,000  |              |  |   | 64,788,000  |  |  |   | (1,028,000  | ) |  |  | 1974 | 
|Pax River              |  |                          |             |               |                                                  |   | 1,661,000   |              |               |   | 12,163,000  |  |  |              | 1,661,000   |  |       |   | 12,163,000  |              |  |   | 13,824,000  |  |  |   | (141,000    | ) |  |  | 1983 | 
|Western Place I & II   |  |                          | 24,000,000  |               |                                                  |   | 2,397,000   |              |               |   | 27,652,000  |  |  |              | 2,397,000   |  |       |   | 27,992,000  |              |  |   | 30,389,000  |  |  |   | (407,000    | ) |  |  | 1980 | 
|One Financial Plaza    |  |                          | 30,750,000  |               |                                                  |   | 2,973,000   |              |               |   | 29,504,000  |  |  |              | 2,973,000   |  |       |   | 29,505,000  |              |  |   | 32,478,000  |  |  |   | (419,000    | ) |  |  | 1985 | 
|                       |  |                          |             |               |                                                  |   |             |              |               |   |             |  |  |              |             |  |       |   |             |              |  |   |             | 
|Total                  |  | $                        | 505,956,000 |               |                                                  | $ | 126,461,000 |              |               | $ | 652,061,000 |  |  | $            | 126,461,000 |  |       | $ | 659,693,000 |              |  | $ | 786,154,000 |  |  | $ | (24,872,000 | ) |  |  |      | 
|                       |  |                          |             |               |                                                  |   |             |              |               |   |             |  |  |              |             |  |       |   |             |              |  |   |             | 

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|                               |  |          |      |                              |                     |  |          | 
|------------------------------ |  | -------- | ---- | ---------------------------- | ------------------- |  | -------- | 
|                               |  |          |      | Maximum Life on              |                    
|                               |  |          |      | Which Depreciation in Latest |                    
|                               |  | Date     |      |                              | Income Statement is | 
|Description                    |  | Acquired |      |                              | Computed            | 
|                               |  |          |      |                              |                     | 
|5508 Highway 290 West Building |  |          | 2002 |                              |                     |  | 39 years | 
|Two Corporate Plaza            |  |          | 2002 |                              |                     |  | 39 years | 
|Atrium Building                |  |          | 2003 |                              |                     |  | 39 years | 
|Dept. of Children              |  |          | 2003 |                              |                     |  | 39 years | 
|Gemini                         |  |          | 2003 |                              |                     |  | 39 years | 
|Bay View Plaza                 |  |          | 2003 |                              |                     |  | 39 years | 
|North Pointe                   |  |          | 2003 |                              |                     |  | 39 years | 
|824 Market                     |  |          | 2003 |                              |                     |  | 39 years | 
|Sutter Square                  |  |          | 2003 |                              |                     |  | 39 years | 
|One World Trade Center         |  |          | 2003 |                              |                     |  | 39 years | 
|Centerpointe                   |  |          | 2003 |                              |                     |  | 39 years | 
|AmberOaks                      |  |          | 2004 |                              |                     |  | 39 years | 
|Public Ledger                  |  |          | 2004 |                              |                     |  | 39 years | 
|Madrona Buildings              |  |          | 2004 |                              |                     |  | 39 years | 
|Brunswig Square                |  |          | 2004 |                              |                     |  | 39 years | 
|North Belt Corporate           |  |          | 2004 |                              |                     |  | 39 years | 
|Hawthorne Plaza                |  |          | 2004 |                              |                     |  | 39 years | 
|Pacific Place                  |  |          | 2004 |                              |                     |  | 39 years | 
|525 B St.                      |  |          | 2004 |                              |                     |  | 39 years | 
|600 B St.                      |  |          | 2004 |                              |                     |  | 39 years | 
|Pax River                      |  |          | 2004 |                              |                     |  | 39 years | 
|Western Place I & II           |  |          | 2004 |                              |                     |  | 39 years | 
|One Financial Plaza            |  |          | 2004 |                              |                     |  | 39 years | 



|                             |  |      |             |  
|---------------------------- |  | ---- | ----------- | -
|                             |  | 2004 |            
|                             |  |      |            
|Balance at December 31, 2003 |  | $    | 302,059,000 |  
|Acquisitions                 |  |      | 476,642,000 |  
|Capital expenditures         |  |      | 7,835,000   |  
|Disposals                    |  |      | (382,000    | )
|                             |  |      |            
|Balance at December 31, 2004 |  | $    | 786,154,000 |  
|                             |  |      |            



|                             |  |      |            |  
|---------------------------- |  | ---- | ---------- | -
|                             |  | 2004 |           
|                             |  |      |           
|Balance at December 31, 2003 |  | $    | 3,453,000  |  
|Additions                    |  |      | 21,801,000 |  
|Disposals                    |  |      | (382,000   | )
|                             |  |      |           
|Balance at December 31, 2004 |  | $    | 24,872,000 |  
|                             |  |      |           

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SIGNATURES






| |             
| | ------------
| | G Reit, Inc.



| |     |                        
| | --- | -----------------------
| | By: | /s/ Anthony W. Thompson

| |                                       
| | --------------------------------------
| |                                       
| | Anthony W. Thompson                   
| | Chief Executive Officer, President and
| | Chairman of the Board of Directors    
|
| | Date: March 31, 2005                  



|                                               |  |                                                     |  |                |  | 
|---------------------------------------------- |  | --------------------------------------------------- |  | -------------- |  | 
|Name                                           |  | Title                                               |  | Date          
|                                               |  |                                                     |  |               
|                                              
|/s/ Anthony W. ThompsonAnthony
    W. Thompson |  | Chief Executive Officer,
    President and Director |  | March 31, 2005
|                                              
|/s/ Scott D. PetersScott
    D. Peters         |  | Chief Financial Officer                             |  | March 31, 2005
|                                              
|/s/ Kelly J. CaskeyKelly
    J. Caskey         |  | Chief Accounting Officer                            |  | March 31, 2005
|                                              
|/s/ Gary T. WescombeGary
    T. Wescombe       |  | Director                                            |  | March 31, 2005
|                                              
|/s/ Glenn L. CarpenterGlenn
    L. Carpenter   |  | Director                                            |  | March 31, 2005
|                                              
|/s/ Edward A. JohnsonEdward
    A. Johnson     |  | Director                                            |  | March 31, 2005
|                                              
|/s/ D. Fleet WallaceD.
    Fleet Wallace       |  | Director                                            |  | March 31, 2005
|                                              
|/s/ W. Brand InlowW.
    Brand Inlow           |  | Director                                            |  | March 31, 2005

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For the Years Ended December 31, 2004, 2003 and 2002


EXHIBIT INDEX






|        |    |    |         |                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | -- | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |    |        
|Number  |    |    | Exhibit
|        |    |    |        
|        | 1  | .1 |         | Form of Dealer Manager Agreement between G REIT, Inc.
    and NNN Capital Corp. (included as Exhibit 1.1 to Amendment
    No. 2 to our Registration Statement on Form S-11 filed
    on January 23, 2004 (File No. 333-109640) and
    incorporated herein by reference).                                                                                           
|       
|        | 1  | .2 |         | Form of Participating Broker-Dealer Agreement (included as
    Exhibit 1.2 to Amendment No. 2 to our Registration
    Statement on Form S-11 filed on January 23, 2004 (File
    No. 333-109640) and incorporated herein by reference).                                                                                                                             
|       
|        | 3  | .1 |         | Third Amended and Restated Articles of Incorporation of the
    Registrant (included as Exhibit 3.6 to Amendment No. 3
    to our Registration Statement on Form S-11 filed on July 7,
    2002 (File No. 333-76498) and incorporated herein by
    reference).                                                                                                     
|       
|        | 3  | .2 |         | Amended and Restated Bylaws of the Registrant (included as
    Exhibit 3.4 to Amendment No. 1 to our Registration
    Statement on Form S-11 filed on April 29, 2002 (File
    No. 333-76498) and incorporated herein by reference).                                                                                                                                
|       
|        | 4  | .1 |         | Form of our Common Stock Certificate (included as
    Exhibit 4.1 to our Registration Statement on Form S-11
    filed on January 9, 2002 (File No. 333-76498) and
    incorporated herein by reference).                                                                                                                                                           
|       
|        | 10 | .1 |         | Form of Agreement of Limited Partnership of G REIT,
    L.P. (included as Exhibit 10.1 to our Registration
    Statement on Form S-11 filed on January 9, 2002 (File
    No. 333-76498) and incorporated herein by reference).                                                                                                                                      
|       
|        | 10 | .2 |         | Amended and Restated Dividend Reinvestment Plan (included as
    Exhibit C to our Prospectus, a part of Amendment No. 2
    to our Registration Statement on Form S-11 filed on
    January 23, 2004 (File No. 333-109640) and
    incorporated herein by reference).                                                                                               
|       
|        | 10 | .3 |         | Amended and Restated Stock Repurchase Plan (included as
    Exhibit D to our Prospectus, a part of Amendment No. 2
    to our Registration Statement on Form S-11 filed on
    January 23, 2004 (File No. 333-109640) and
    incorporated herein by reference).                                                                                                    
|       
|        | 10 | .4 |         | Independent Director Stock Option Plan (included as
    Exhibit 10.4 to Amendment No. 1 to our Registration
    Statement on Form S-11 filed on April 29, 2002 (File
    No. 333-76498) and incorporated herein by reference).                                                                                                                                      
|       
|        | 10 | .5 |         | Officer and Employee Stock Option Plan (included as
    Exhibit 10.5 to Amendment No. 1 to our Registration
    Statement on Form S-11 filed on April 29, 2002 (File
    No. 333-76498) and incorporated herein by reference).                                                                                                                                      
|       
|        | 10 | .6 |         | Advisory Agreement between G REIT, Inc. and Triple Net
    Properties, LLC (included as Exhibit 10.6 to our
    Registration Statement on Form S-11 filed on
    January 9, 2002 (File No. 333-76498) and incorporated
    herein by reference).                                                                                                                    
|       
|        | 10 | .7 |         | Amended and Restated Real Estate Purchase and Sale Agreement
    dated June 19, 2002 by and between MFPB 290 West, Ltd. And
    Triple Net Properties, LLC, as assigned to
    G REIT  55 Highway 290 West, LP (included as
    Exhibit 10.8 to the Current Report on Form 8-K filed
    on January 24, 2003 and incorporated herein by reference).                
|       
|        | 10 | .8 |         | First Amendment to Advisory Agreement between G REIT, Inc.
    and Triple Net Properties, LLC (included as Exhibit 10.8 to
    Post Effective Amendment No. 1 to our Registration
    Statement on Form S-11 filed on December 18, 2002 (File
    No. 333-76498) and incorporated herein by reference).                                                             
|       
|        | 10 | .9 |         | Agreement of Sale and Purchase dated as of August 14, 2002 by
    and between ASP Two Corporate Plaza, P.P. and Triple Net
    Properties, LLC, as amended and reinstated, and as assigned to
    G REIT  Two Corporate Plaza (included as
    Exhibit 10.9 to the Current Report on Form 8-K filed
    on December 13, 2002 and incorporated herein by reference).

99



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|        |    |     |         |                                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | --- | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |        
|Number  |    |     | Exhibit
|        |    |     |        
|        | 10 | .10 |         | Purchase Agreement dated October 10, 2002 between Congress
    Center, LLC and Triple Net Properties, LLC, as assigned to NNN
    Congress Center, LLC, GREIT  Congress Center, LLC and
    WREIT  Congress Center, LLC (included as
    Exhibit 10.10 to the Current Report on Form 8-K filed
    on January 24, 2003 and incorporated herein by reference).              
|       
|        | 10 | .11 |         | Agreement of Sale and Purchase dated September 9, 2002 between
    1200 N Street, Ltd. And Triple Net Properties, LLC, as assigned
    to GREIT  Atrium Building LLC (included as
    Exhibit 10.12 to Post Effective Amendment No. 2 to our
    Registration Statement on Form S-11 filed on March 13, 2003
    (File No. 333-76498) and incorporated herein by reference).
|       
|        | 10 | .12 |         | Agreement of Sale and Purchase dated August 16, 2002 by and
    between Park Sahara Office Center, Ltd., LLC and Triple Net
    Properties, LLC, as partially assigned to
    G REIT  Park Sahara, LLC (included as
    Exhibit 10.1 to the Current Report on Form 8-K filed
    on March 28, 2003 and incorporated herein by reference).                                   
|       
|        | 10 | .13 |         | Form of Escrow Agreement with PriVest Bank dated
    March   , 2003 (included as Exhibit 10.13 to
    Post Effective Amendment No. 2 to our Registration
    Statement on Form S-11 filed on March 13, 2003 (File
    No. 333-76498) and incorporated herein by reference).                                                                                                  
|       
|        | 10 | .14 |         | Agreement of Purchase and Sale dated as of April 22, 2003
    by and between Procacci Financial Group, Ltd. F/K/A Procacci
    Real Estate Management Co. Ltd. and GREIT  DCF
    Campus, LLC (included as Exhibit 10.1 to the Current Report
    on Form 8-K filed on May 5, 2003 and incorporated herein by
    reference).                                               
|       
|        | 10 | .15 |         | Agreement of Purchase and Sale effective as of January 10,
    2003 by and between CCI-1150 Gemini, Ltd. and Triple Net
    Properties, LLC (included as Exhibit 10.2 to the Current
    Report on Form 8-K filed on May 5, 2003 and incorporated
    herein by reference).                                                                                                  
|       
|        | 10 | .16 |         | Agreement of Purchase and Sale and Joint Escrow Instructions
    dated as of May 6, 2003 between LNR Harbor Bay, LLC and Triple
    Net Properties, LLC (included as Exhibit 10.1 to the
    Current Report on Form 8-K filed on August 12, 2003 and
    incorporated herein by reference).                                                                                  
|       
|        | 10 | .17 |         | Real Property Purchase and Sale Agreement and Escrow
    Instructions dated as of July 2, 2003 by and between Government
    Property Fund IV, LLC and Triple Net Properties, LLC (included
    as Exhibit 10.2 to the Current Report on Form 8-K
    filed on August 12, 2003 and incorporated herein by reference).                                                        
|       
|        | 10 | .18 |         | Real Property Purchase and Sale Agreement and Escrow
    Instructions dated as of July 2, 2003 by and between Government
    Property Fund IV, LLC and Triple Net Properties, LLC (included
    as Exhibit 10.02 to the Form 8-K filed by us on August
    12, 2003 and incorporated herein by reference).                                                                   
|       
|        | 10 | .19 |         | First Amendment to Contract of Sale dated as of September 26,
    2003 by and between Savannah Teachers Properties, Inc. and
    Triple Net Properties, LLC (included as Exhibit 10.01 to
    the Form 8-K filed by us on October 24, 2003 and
    incorporated herein by reference).                                                                                        
|       
|        | 10 | .20 |         | Agreement of Purchase and Sale of Real Property and Escrow
    Instructions dated July 16, 2003 by and between RPD Properties
    II, LLC and Triple Net Properties, LLC (included as
    Exhibit 10.01 to the Form 8-K filed by us on October
    31, 2003 and incorporated herein by reference).                                                                           
|       
|        | 10 | .21 |         | Purchase and Sale Agreement and Joint Escrow Instructions dated
    as of October 22, 2003 by and between LBWTC Real Estate
    Partners, LLC and Triple Net Properties, LLC (included as
    Exhibit 10.01 to the Form 8-K filed by us on
    December 12, 2003 and incorporated herein by reference).                                                                      
|       
|        | 10 | .22 |         | Purchase and Sale Agreement and Joint Escrow Instructions dated
    as of September 26, 2003 by and between Intrarock 1, LLC and
    Triple Net Properties, LLC (included as Exhibit 10.01 to
    the Form 8-K filed by us on January 9, 2004 and
    incorporated herein by reference).                                                                                     
|       
|        | 10 | .23 |         | Purchase and Sale Agreement dated as of October 17, 2003 by and
    between Austin Jack, L.L.C. and Triple Net Properties, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by us
    on February 4, 2004 and incorporated herein by reference).                                                                                                                     
|       
|        | 10 | .24 |         | First Amendment and Reinstatement of Purchase and Sale Agreement
    dated as of December 8, 2003 by and between Austin Jack,
    L.L.C. and Triple Net Properties, LLC (included as
    Exhibit 10.02 to the Form 8-K filed by us on
    February 4, 2004 and incorporated herein by reference).                                                                            

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|        |    |     |         |                                                                                                                                                                                                                                                                                                                                    
|------- | -- | --- | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |        
|Number  |    |     | Exhibit
|        |    |     |        
|        | 10 | .25 |         | Purchase and Sale Agreement dated as of December , 2003 by
    and between Consortium Two  Public Ledger, L.P. and
    Triple Net Properties, LLC (included as Exhibit 10.01 to
    the Form 8-K filed by us on February 24, 2004 and
    incorporated herein by reference).                                                      
|       
|        | 10 | .26 |         | Letter Agreement (First Amendment) to Purchase and Sale
    Agreement dated as of January 8, 2004 (included as
    Exhibit 10.02 to the Form 8-K filed by us on
    February 24, 2004 and incorporated herein by reference).                                                                                                       
|       
|        | 10 | .27 |         | Letter Agreement (Second Amendment) to Purchase and Sale
    Agreement dated as of January 12, 2004 (included as
    Exhibit 10.03 to the Form 8-K filed by us on
    February 24, 2004 and incorporated herein by reference).                                                                                                     
|       
|        | 10 | .28 |         | Third Amendment to Purchase and Sale Agreement dated as of
    February 4, 2004 by and between Consortium Two 
    Public Ledger, L.P. and GREIT  Public Ledger, LLC
    (included as Exhibit 10.04 to the Form 8-K filed by us
    on February 24, 2004 and incorporated herein by reference).                                  
|       
|        | 10 | .29 |         | Fourth Amendment to Purchase and Sale Agreement dated as of
    February 11, 2004 by and between Consortium Two 
    Public Ledger, L.P. and GREIT  Public Ledger, LLC
    (included as Exhibit 10.05 to the Form 8-K filed by us
    on February 24, 2004 and incorporated herein by reference).                                
|       
|        | 10 | .30 |         | Agreement for the Purchase and Sale of Property dated as of
    March 8, 2004 by and between 20770 Madrona, LLC and Triple
    Net Properties, LLC (included as Exhibit 10.01 to the
    Form 8-K filed by us on April 4, 2004 and incorporated
    herein by reference).                                                          
|       
|        | 10 | .31 |         | Agreement for Purchase and Sale of Real Property and Escrow
    Instructions dated as of February 11, 2004 by and between
    Laeroc Partners, Inc., Laeroc Brunswig 2000 and Triple Net
    Properties, LLC (included as Exhibit 10.01 to the
    Form 8-K filed by us on April 4, 2004 and incorporated
    herein by reference).
|       
|        | 10 | .32 |         | Agreement of Purchase dated as of January 21, 2004 by and
    between 2350 North Belt, L.P. and Triple Net Properties, LLC
    (included as Exhibit 10.01 to the Form 8-K filed by us
    on April 4, 2004 and incorporated herein by reference).                                                                                  
|       
|        | 10 | .33 |         | First Amendment to Agreement of Purchase dated as of
    February 19, 2004 by and between 2350 North Belt, L.P. and
    Triple Net Properties, LLC (included as Exhibit 10.01 to
    the Form 8-K filed by us on April 4, 2004 and
    incorporated herein by reference).                                                          
|       
|        | 10 | .34 |         | Purchase and Sale Agreement and Joint Escrow Agreement dated as
    of March 12, 2004 by and between ITW Mortgage Investments
    II, Inc. and Triple Net Properties, LLC (included as
    Exhibit 10.01 to the Form 8-K filed by us on
    April 4, 2004 and incorporated herein by reference).                                   
|       
|        | 10 | .35 |         | Agreement of Purchase dated as of January 21, 2004 by and
    between 2350 North Belt, L.P. and Triple Net Properties, LLC
    (included as Exhibit 10.03 to Current Report on
    Form 8-K filed by us on April 8, 2004 and incorporated
    herein by reference).                                                                
|       
|        | 10 | .36 |         | First Amendment to Agreement of Purchase dated as of
    February 19, 2004 by and between 2350 North Belt, L.P. and
    Triple Net Properties, LLC (included as Exhibit 10.04 to
    Current Report on Form 8-K filed by us on April 8,
    2004 and incorporated herein by reference).                                            
|       
|        | 10 | .37 |         | Purchase and Sale Agreement and Joint Escrow Agreement dated as
    of March 12, 2004 by and between ITW Mortgage Investments
    II, Inc. and Triple Net Properties, LLC (included as
    Exhibit 10.05 to Current Report on Form 8-K filed by
    us on April 8, 2004 and incorporated herein by reference).                     
|       
|        | 10 | .38 |         | Contract of Sale dated as of March 1, 2004 by and between
    1910 PP Limited Partnership and Triple Net Properties, LLC
    (included as Exhibit 10.01 to Current Report on
    Form 8-K filed by us on June 3, 2004 and incorporated
    herein by reference).                                                                   
|       
|        | 10 | .39 |         | First Amendment and Reinstatement to Contract of Sale dated as
    of May 18, 2004 by and between 1910 PP Limited Partnership and
    Triple Net Properties, LLC (included as Exhibit 10.02 to
    Current Report on Form 8-K filed by us on June 3, 2004 and
    incorporated herein by reference).                               
|       
|        | 10 | .40 |         | Agreement For the Purchase and Sale of Property dated as of
    April 27, 2004 by and between 400 West Broadway, LLC and
    Triple Net Properties, LLC (included as Exhibit 10.01 to
    Current Report on Form 8-K filed by us on June 21, 2004 and
    incorporated herein by reference).                                       

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##### Table of Contents



|        |    |     |         |                                                                                                                                                                                                                                                                                                                                                             
|------- | -- | --- | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |        
|Number  |    |     | Exhibit
|        |    |     |        
|        | 10 | .41 |         | 2004 Incentive Award Plan (included as Appendix A to the
    Definitive Proxy filed by us on May 27, 2004 and incorporated
    herein by reference).                                                                                                                                                                                                        
|       
|        | 10 | .42 |         | Agreement for the Purchase and Sale of Real Property and Escrow
    Instructions dated as of February 27, 2004 by and between
    Western Place Skyrise, Ltd. and Triple Net Properties, LLC
    (included as Exhibit 10.01 to Current Report on
    Form 8-K filed by us on August 4, 2004 and incorporated
    herein by reference).                      
|       
|        | 10 | .43 |         | First Amendment to Agreement for Purchase and Sale of Real
    Property and Escrow Instructions dated March 29, 2004 by
    and between Western Place Skyrise, Ltd. and Triple Net
    Properties, LLC (included as Exhibit 10.02 to Current
    Report on Form 8-K filed by us on August 4, 2004 and
    incorporated herein by reference).                
|       
|        | 10 | .44 |         | Reinstatement and Second Amendment to Agreement for Purchase and
    Sale of Real Property and Escrow Instructions dated May 4, 2004
    by and between Western Place Skyrise, Ltd. and Triple Net
    Properties, LLC (included as Exhibit 10.03 to Current
    Report on Form 8-K filed by us on August 4, 2004 and
    incorporated herein by reference).
|       
|        | 10 | .45 |         | Third Amendment to Agreement for Purchase and Sale of Real
    Property and Escrow Instructions dated July 8, 2004 by and
    between Western Place Skyrise, Ltd. and Triple Net Properties,
    LLC (included as Exhibit 10.04 to Current Report on
    Form 8-K filed by us on August 4, 2004 and incorporated
    herein by reference).                  
|       
|        | 10 | .46 |         | Purchase and Sale Agreement dated as of June 17, 2004 by and
    between EBS Building, L.L.C. and Triple Net Properties, LLC
    (included as Exhibit 10.01 to Current Report on
    Form 8-K filed by us on August 19, 2004 and incorporated
    herein by reference).                                                                                     
|       
|        | 10 | .47 |         | First Amendment to Purchase and Sale Agreement dated as of June
    25, 2004 by and between EBS Building, L.L.C. and Triple Net
    Properties, LLC (included as Exhibit 10.02 to Current
    Report on Form 8-K filed by us on August 19, 2004 and
    incorporated herein by reference).                                                                  
|       
|        | 10 | .48 |         | Credit Agreement among G REIT, L.P., the Lenders and
    LaSalle Bank National Association dated as of January 31,
    2003.                                                                                                                                                                                                                                
|       
|        | 10 | .49 |         | First Amendment to Credit Agreement among G REIT, L.P., the
    Lenders and LaSalle Bank National Association dated as of
    April   , 2003.                                                                                                                                                                                                               
|       
|        | 10 | .50 |         | Amended and Restated Credit Agreement among G REIT, L.P.,
    the Lenders and LaSalle Bank National Association dated as of
    July 17, 2003.                                                                                                                                                                                                              
|       
|        | 10 | .51 |         | First, Second, Third, Fourth, Fifth and Sixth Amendment to the
    Amended and Restated Credit Agreement among G REIT, L.P.,
    the Lenders and LaSalle Bank National Association dated as of
    August 11, 2003, September 19, 2003, November 7,
    2003, December 19, 2003, March   , 2004 and
    August 27, 2004, respectively.                      
|       
|        | 14 | .1  |         | G REIT Code of Business Conduct and Ethics dated May 14,
    2004                                                                                                                                                                                                                                                                                           
|       
|        | 23 | .1  |         | Consent of Deloitte & Touche, LLP                                                                                                                                                                                                                                                                                                                           
|       
|        | 31 | .1  |         | Certification of Chief Executive Officer, pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                    
|       
|        | 31 | .2  |         | Certification of Interim 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 Interim Chief Financial Officer, pursuant to 18
    U.S.C. Section 1350, as created by Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                  

102