##### 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,
    2003                                             
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 0-49782



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T REIT, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Virginia                                                           |  | 52-2140299                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

1551 N. Tustin Avenue,
Suite 200

Santa Ana, California 92705


(Address of principal executive
offices)


(877) 888-7348

(Registrants telephone number, including
area code)




---

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   

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

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     þ

The aggregate
market value of common stock held by non-affiliates of the
registrant was approximately $46,723,590 as of June 30,
2003 (based on the price for which each share was sold).

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

As of April 9,
2004, there were 4,646,085 shares of common stock of
T REIT, Inc. outstanding.



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T REIT, INC.

(A VIRGINIA CORPORATION)


TABLE OF CONTENTS

|             |  |                                                                                           |    |      |    | 
|------------ |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                                                           |    | Page
|             |  |                                                                                           |    |     
|PART I      
|Item 1.      |  | Business                                                                                  |    |      | 1  | 
|Item 2.      |  | Properties                                                                                |    |      | 5  | 
|Item 3.      |  | Legal Proceedings                                                                         |    |      | 6  | 
|Item 4.      |  | Submission of Matters to a
    Vote of Security Holders                                   |    |      | 7  | 
|PART II     
|Item 5.      |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |    |      | 7  | 
|Item 6.      |  | Selected Financial Data                                                                   |    |      | 8  | 
|Item 7.      |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |    |      | 9  | 
|Item 7A.     |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |    |      | 19 | 
|Item 8.      |  | Consolidated Financial
    Statements and Supplementary Data                              |    |      | 20 | 
|Item 9.      |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |    |      | 48 | 
|Item 9A.     |  | Controls and Procedures                                                                   |    |      | 49 | 
|PART III    
|Item 10.     |  | Directors and Executive
    Officers of the Registrant                                    |    |      | 49 | 
|Item 11.     |  | Executive Compensation                                                                    |    |      | 52 | 
|Item 12.     |  | Security Ownership of
    Certain Beneficial Owners and Management                        |    |      | 53 | 
|Item 13.     |  | Certain Relationships and
    Related Transactions                                        |    |      | 53 | 
|Item 14.     |  | Principal Accounting Fees
    and Services                                                |    |      | 54 | 
|PART IV     
|Item 15.     |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                      |    |      | 55 | 
|SIGNATURES   |  |                                                                                           | 58 |     
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



i



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##### Table of Contents






PART I






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

Description of Business

T REIT, Inc. (the Company) was
formed as a Virginia corporation in December 1998 and has
qualified and elected to be taxed as a real estate investment
trust, or REIT, for federal income tax purposes. The Company was
organized to acquire, manage and invest in a diversified
portfolio of real estate composed of office, industrial, retail
and service properties located primarily in the following focus
states: Alaska, Florida, Iowa, Michigan, Minnesota, Nevada,
North Carolina, South Carolina, South Dakota, Tennessee, Texas,
Virginia, Washington, Wisconsin and Wyoming.

The Company conducts business and owns properties
through its operating partnership, T REIT, L.P., which was
formed as a Virginia limited partnership in December 1998. The
Company is the sole general partner of its operating partnership
and has control over the affairs of its operating partnership.

The Companys day to day operations are
managed by Triple Net Properties, LLC (the Advisor),
under an advisory agreement (the Advisory
Agreement). The Advisor engages affiliated entities,
including Triple Net Properties Realty, Inc.
(Realty), a real estate brokerage and management
company, to provide various services for the properties. The
Advisor and its affiliated property manager were formed in 1998
to serve as an asset and property manager for real estate
investment trusts, syndicated real estate limited partnerships,
limited liability companies and similar real estate entities.

The Companys principal executive offices
are located at 1551 N. Tustin Avenue, Suite 200,
Santa Ana, California 92705 and its telephone number is
(877) 888-7348.

Developments During 2003

During 2003:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Company invested approximately $9,000,000 to
    purchase a retail center and $5,500,000 to purchase interests in
    two unconsolidated properties;
|
| |  | the Company sold three retail properties for a
    total gross sales price of approximately $39,000,000; and                                            
|
| |  | the Company continued to pay monthly
    distributions to our shareholders at an annual rate of 8.25%
    (based on a $10.00 per share purchase price). 

Investment Objectives &
Policies

General

The Companys primary investment objective
is to obtain current income from investments in real estate. The
Company intends to:



| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | invest in income producing real property
    generally through equity investments in a manner which permits
    it to continue to qualify as a REIT for federal income tax
    purposes;
|
| |  | generate cash available for distribution to its
    shareholders;                                                                                                                       
|
| |  | preserve and protect shareholder capital; and                                                                                                                                           
|
| |  | realize capital appreciation upon the ultimate
    sale of its properties.                                                                                                              

To the extent feasible, the Company will strive
to invest in a diversified portfolio of properties, in terms of
geography, type of property and types of tenants, that will
satisfy its investment objectives. However, the Company cannot
assure you that it will attain these objectives or that
shareholder capital will not decrease.





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##### Table of Contents



Acquisition Strategies

The Company primarily acquires, through wholly
owned subsidiaries of its operating partnership, fee simple and
undivided tenant in common interests in office, industrial,
retail and service properties. The Company seeks to acquire
properties leased by creditworthy tenants under net leases. The
Company may acquire properties through a joint venture or the
acquisition of substantially all of the interests of an entity
which in turn owns the real property. In connection with the
purchase of undivided tenant in common interests in real
properties, the Company may purchase tenant in common interests
in properties where the other tenants in common are
participating in tax-free exchanges arranged by the Advisor.
Such transactions will earn the Advisor or its affiliates
commissions on the tax-free exchanges, and may impact the extent
to which the Company participates in such acquisitions. The
Company may also enter into sale and leaseback transactions,
under which it will purchase a property from an entity and lease
the property back to such entity under a net lease.

The Company primarily acquires properties with
cash and mortgage or other debt, but may acquire some properties
free and clear of permanent mortgage indebtedness by paying the
entire purchase price for such property in cash or in units of
limited partnership interest in its operating partnership. With
properties purchased on an all-cash basis, the Company may later
incur mortgage indebtedness by obtaining loans secured by
selected properties, if favorable financing terms are available.
The proceeds from such loans would be used to acquire additional
properties and increase its cash flow. Although not required by
the Companys Articles of Incorporation or Bylaws, the
Company does not intend to incur indebtedness in excess of 70%
of the aggregate fair market value of all its properties, as
determined at the end of each calendar year. In addition, the
Company does not intend to incur secured indebtedness on a
specific property in excess of approximately 80% of such
propertys fair market value

A majority of properties acquired will be at
least 75% leased on the acquisition date. Management expects
that most of the Companys leases will be net
leases with terms of 10 to 15 years, but generally not less
than 5 years, usually providing for a base minimum annual
rent with periodic increases. Net leases typically
require that tenants pay all or a majority of the operating
expenses, including real estate taxes, special assessments,
utilities, insurance and building repairs related to the
property, in addition to lease payments.

In acquiring a property, the Company may enter
into arrangements with the seller of a property in support of
minimum cash flow requirements from the property, obtain an
option on a property or commit to purchase a property subject to
completion of remodeling or construction.

To assist the Company, the Advisor and its
affiliates may purchase properties in their own name, assume
loans in connection with the purchase of properties and
temporarily hold title to such properties for the purpose of
facilitating the acquisition of such property, borrowing money
or obtaining financing, completing construction of the property
or for any other purpose related to its business. The Company
may also acquire properties from entities advised by the
Advisor. Such acquisitions must be approved by a majority of the
Companys Directors, including a majority of the
independent Directors.

Acquisition Standards

Based on the Advisors prior real estate
experience, the Company believes its Advisor has the ability to
identify properties capable of meeting its investment
objectives. In evaluating potential acquisitions, the primary
factor considered is the propertys current and projected
cash flow. The Company also considers a number of other factors,
including a propertys:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | geographic location and type;                                             
|
| |  | construction quality and condition;                                       
|
| |  | potential for capital appreciation;                                       
|
| |  | lease terms and rent roll, including the
    potential for rent increases;

2



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##### Table of Contents





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

Operating Strategies

The Companys primary operating strategy is
to acquire suitable properties and to enhance the performance
and value of those properties through management strategies
designed to address the needs of current and prospective
tenants. Management strategies include:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | managing costs and seeking to minimize operating
    expenses by centralizing management, leasing, marketing,
    financing, accounting, renovation and data processing activities;
|
| |  | improving rental income and cash flow by
    aggressively marketing rentable space and raising rents when
    feasible;                                                            
|
| |  | emphasizing regular maintenance and periodic
    renovation to meet the needs of tenants and to maximize
    long-term returns;                                                    
|
| |  | re-positioning properties, for example, shifting
    from single to multi-tenant use in order to maximize
    desirability and utility for prospective tenants; and                
|
| |  | financing acquisitions and refinancing properties
    when favorable financing terms are available to increase its
    cash flow.                                                  

Tax Status

The Company qualified and elected to be taxed as
a REIT for federal income tax purposes under Sections 856
through 860 of the Internal Revenue Code (the Code).
As long as the Company qualifies for taxation as a REIT, it
generally will not be subject to federal income tax to the
extent it distributes at least 90% of its REIT taxable income to
the Companys shareholders. If the Company fails to qualify
as a REIT in any taxable year, it will be subject to federal
income tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Unless entitled
to relief under specific statutory provisions, the Company will
also be disqualified for taxation as a REIT for the four taxable
years following the year in which it loses its qualification.
Even if the Company qualifies as a REIT, it may be subject to
certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income.

Competition

In seeking new investment opportunities, the
Company competes with other real estate investors, including
pension funds, insurance companies, foreign investors, real
estate partnerships, other public and private real estate
investment trusts, private individuals and other domestic real
estate companies, many of which have greater financial and other
resources than the Company. With respect to properties presently
owned or to be owned by the Company, it competes with other
owners of like properties for tenants.

Government Regulations

Many laws and governmental regulations are
applicable to the Companys properties and changes in these
laws and regulations, or their interpretation by agencies and
the courts, occur frequently.

3



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##### Table of Contents



Costs of Compliance with the Americans with
Disabilities Act.Under the Americans
with Disabilities Act of 1990, or ADA, all public accommodations
must meet federal requirements for access and use by disabled
persons. Although the Company believes that it is in substantial
compliance with present requirements of the ADA, none of its
properties have been audited, nor have investigations of its
properties been conducted to determine compliance. The Company
may incur additional costs in connection with the ADA.
Additional federal, state and local laws also may require
modifications to the Companys properties or restrict the
Companys ability to renovate its properties. Management
cannot predict the cost of compliance with the ADA or other
legislation. If the Company incurs substantial costs to comply
with the ADA or any other legislation, its financial condition,
results of operations, cash flow and ability to satisfy its debt
service obligations and pay distributions could be adversely
affected.

Costs of Government Environmental Regulation
and Private Litigation.Environmental
laws and regulations hold the Company liable for the costs of
removal or remediation of certain hazardous or toxic substances
on its properties. These laws could impose liability without
regard to whether the Company is responsible for the presence or
release of the hazardous materials. Government investigations
and remediation actions may have substantial costs and the
presence of hazardous substances on a property could result in
personal injury or similar claims by private plaintiffs. Various
laws also impose liability on persons who arrange for the
disposal or treatment of hazardous or toxic substances for the
cost of removal or remediation of hazardous substances at the
disposal or treatment facility. These laws often impose
liability whether or not the person arranging for the disposal
ever owned or operated the disposal facility. As the owner and
operator of its properties, the Company may be deemed to have
arranged for the disposal or treatment of hazardous or toxic
substances.

Use of Hazardous Substances by Some of the
Companys Tenants.Some of the
Company tenants routinely handle hazardous substances and wastes
on our properties as part of their routine operations.
Environmental laws and regulations subject these tenants, and
potentially the Company, to liability resulting from such
activities. The Company requires its tenants, in their leases,
to comply with these environmental laws and regulations and to
indemnify it for any related liabilities. Management is unaware
of any material noncompliance, liability or claim relating to
hazardous or toxic substances or petroleum products in
connection with any of the Companys properties.

Other Federal, State and Local
Regulations.The Companys
properties are subject to various federal, state and local
regulatory requirements, such as state and local fire and life
safety requirements. If the Company fails to comply with these
various requirements, it may incur governmental fines or private
damage awards. While management believes that its properties are
currently in material compliance with all of these regulatory
requirements, management does not know whether existing
requirements will change or whether future requirements will
require us to make significant unanticipated expenditures that
will adversely affect its ability to make distributions to the
Companys shareholders. Management believes, based in part
on engineering reports which are generally obtained at the time
the properties are acquired, that all of its properties comply
in all material respects with current regulations. However, if
the Company was required to make significant expenditures under
applicable regulations, its financial condition, results of
operations, cash flow and ability to satisfy its debt service
obligations and to pay distributions could be adversely affected.

Significant Tenants

As of December 31, 2003, none of the
Companys tenants accounted for 10% or more of the
aggregate annual rental income.

Employees

The Company has no employees and the
Companys executive officers are all employees of the
Companys Advisor. Substantially all work of the Company is
performed by employees of the Advisor and its affiliates.

4



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##### Table of Contents



Financial Information About Industry
Segments

The Company is in the business of owning,
managing, operating, leasing, acquiring, developing, investing
in and disposing of office, industrial and service properties.
The Company internally evaluates all properties as one industry
segment and accordingly does not report segment information.






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

Real Estate Investments

As of December 31, 2003, the Company owned
interests in 10 properties including two consolidated properties
and eight unconsolidated properties. The Companys
interests in the unconsolidated properties are held either as a
tenant in common in the property or as a member of a limited
liability company that owns a tenant in common interest in the
property. The consolidated properties have an aggregate GLA of
approximately 403,000 square feet. During the year ended
December 31, 2003, the Company purchased one consolidated
property and two interests in unconsolidated properties and it
sold three consolidated properties.

The following table presents certain additional
information about the Companys properties at
December 31, 2003:

|                              |  |                   |                  |         |  |       |         |          |  |          |       |         |  |              |          |              |  |   |             |  |  |   |           |  |  |  |       |   |  |   |       | 
|----------------------------- |  | ----------------- | ---------------- | ------- |  | ----- | ------- | -------- |  | -------- | ----- | ------- |  | ------------ | -------- | ------------ |  | - | ----------- |  |  | - | --------- |  |  |  | ----- | - |  | - | ----- | 
|                              |  |                   |                  |         |  |       |         |          |  | Total    |       |         |  |              |          |             
|Property                      |  |                   |                  | GLA     |  | %     |         | Date     |  | Purchase |       | Annual  |  | % Physical   |          | Annual Rent 
|Name                          |  | Property Location |                  | (Sq Ft) |  | Owned |         | Acquired |  | Price    |       | Rent(1) |  | Occupancy(2) |          | Per Sq Ft(3)
|                              |  |                   |                  |         |  |       |         |          |  |          |       |         |  |              |          |             
|Consolidated Properties       |  |                   |                  |         |  |       |         |          |  |          |       |         |  |              |          |              |  |   |             |  |  |   |           |  |  |  |       |   |  |   |       | 
|University Heights            |  |                   | San Antonio, TX  |         |  |       | 68,400  |          |  |          | 100.0 | %       |  |              | 08/22/02 |              |  | $ | 6,750,000   |  |  | $ | 745,500   |  |  |  | 95.8  | % |  | $ | 11.37 | 
|Gateway Mall                  |  |                   | Bismarck, ND     |         |  |       | 333,878 |          |  |          | 100.0 |         |  |              | 01/29/03 |              |  |   | 9,000,000   |  |  |   | 1,311,900 |  |  |  | 96.0  |   |  |   | 4.09  | 
|Unconsolidated Properties     |  |                   |                  |         |  |       |         |          |  |          |       |         |  |              |          |              |  |   |             |  |  |   |           |  |  |  |       |   |  |   |       | 
|Reno Trademark Building       |  |                   | Reno, NV         |         |  |       | 75,257  |          |  |          | 40.0  |         |  |              | 09/04/01 |              |  |   | 7,296,110   |  |  |   | 748,300   |  |  |  | 100.0 |   |  |   | 9.94  | 
|County Center Building        |  |                   | Temecula, CA     |         |  |       | 77,582  |          |  |          | 16.0  |         |  |              | 01/11/02 |              |  |   | 6,335,000   |  |  |   | 563,200   |  |  |  | 100.0 |   |  |   | 7.26  | 
|City Center West A Building |  |                   | Las Vegas, NV    |         |  |       | 105,964 |          |  |          | 89.1  |         |  |              | 03/15/02 |              |  |   | 21,670,000  |  |  |   | 2,682,100 |  |  |  | 94.9  |   |  |   | 26.68 | 
|Pacific Corporate Park        |  |                   | Lake Forest, CA  |         |  |       | 167,486 |          |  |          | 22.8  |         |  |              | 03/25/02 |              |  |   | 23,728,000  |  |  |   | 2,168,200 |  |  |  | 84.5  |   |  |   | 15.32 | 
|Titan Building & Titan Plaza  |  |                   | San Antonio, TX  |         |  |       | 131,527 |          |  |          | 48.5  |         |  |              | 04/17/02 |              |  |   | 9,167,000   |  |  |   | 1,761,600 |  |  |  | 100.0 |   |  |   | 13.39 | 
|Saddleback Financial Center   |  |                   | Laguna Hills, CA |         |  |       | 72,711  |          |  |          | 25.0  |         |  |              | 09/25/02 |              |  |   | 11,072,560  |  |  |   | 1,541,400 |  |  |  | 87.2  |   |  |   | 24.31 | 
|Congress Center               |  |                   | Chicago, IL      |         |  |       | 524,730 |          |  |          | 10.2  |         |  |              | 01/09/03 |              |  |   | 136,108,000 |  |  |   | 9,479,000 |  |  |  | 90.0  |   |  |   | 20.07 | 
|Enclave Parkway               |  |                   | Houston, TX      |         |  |       | 207,435 |          |  |          | 3.3   |         |  |              | 12/22/03 |              |  |   | 34,500,000  |  |  |   | 3,563,000 |  |  |  | 100.0 |   |  |   | 17.18 | 



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|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Annualized rental income based on contractual
    base rent from leases in force at December 31, 2003.
|   
|(2) | Physical occupancy at December 31, 2003.                                                              
|   
|(3) | Average effective annual rent per square foot at
    December 31, 2003.                               

The following information generally applies to
the Companys properties:



| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company believes all of the properties are
    adequately covered by insurance and are suitable for their
    intended purposes.                               
|
| |  | The Company has no plans for any material
    renovations, improvements or development of the properties.                                                          
|
| |  | The Companys properties are located in
    markets where it is subject to competition for attracting new
    and retaining current tenants.                       
|
| |  | Depreciation is provided on a straight-line basis
    over the estimated useful lives of the buildings and
    improvements, ranging primarily from 15 to 39 years.

5



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##### Table of Contents



Lease Expiration Table

The following schedule presents the sensitivity
of our annual base rent due to lease expirations for the next
ten years at the Companys consolidated properties as of
December 31, 2003, by number, percentage of total aggregate
GLA and annual base rent.

|                        |       |           |    |            |  |             |         |             |  |  |       |       |   |   |         |           | 
|----------------------- | ----- | --------- | -- | ---------- |  | ----------- | ------- | ----------- |  |  | ----- | ----- | - | - | ------- | --------- | 
|                        |       |           |    |            |  | % of        |         |            
|                        |       |           |    | Total      |  | Total GLA   |         | Annual Base
|                        |       | Number    |    | Sq. Ft. of |  | Represented |         | Rent Under 
|                        |       | of Leases |    | Expiring   |  | by Expiring |         | Expiring   
|Year Ending December 31 |       | Expiring  |    | Leases     |  | Leases      |         | Leases     
|                        |       |           |    |            |  |             |         |            
|2004                    |       |           | 14 |            |  |             | 28,483  |             |  |  | 7.08  | %     |   | $ | 159,332 |          
|2005                    |       |           | 5  |            |  |             | 16,531  |             |  |  | 4.11  | %     |   |   | 97,012  |          
|2006                    |       |           | 13 |            |  |             | 44,774  |             |  |  | 11.13 | %     |   |   | 471,974 |          
|2007                    |       |           | 5  |            |  |             | 14,897  |             |  |  | 3.70  | %     |   |   | 132,157 |          
|2008                    |       |           | 1  |            |  |             | 13,250  |             |  |  | 3.29  | %     |   |   | 129,850 |          
|2009                    |       |           | 1  |            |  |             | 104,975 |             |  |  | 26.10 | %     |   |   | 305,372 |          
|2010                    |       |           | 2  |            |  |             | 30,145  |             |  |  | 7.49  | %     |   |   | 45,430  |          
|2011                    |       |           | 1  |            |  |             | 42,901  |             |  |  | 10.66 | %     |   |   | 300,307 |          
|2012                    |       |           | 1  |            |  |             | 3,150   |             |  |  | 0.78  | %     |   |   | 13,300  |          
|2013                    |       |           | 1  |            |  |             | 18,000  |             |  |  | 4.47  | %     |   |   | 95,000  |          
|Thereafter              |       |           | 2  |            |  |             | 23,181  |             |  |  | 5.76  | %     |   |   | 298,663 |          
|                        |       |           |    |            |  |             |         |             |  |  |       |       |   |   |         |          
|                        | Total |           |    | 46         |  |             |         | 340,287     |  |  |       | 84.57 | % |   | $       | 2,048,397 | 
|                        |       |           |    |            |  |             |         |             |  |  |       |       |   |   |         |          

Indebtedness

At December 31, 2003, the Company had
secured mortgage loans outstanding on its consolidated
properties representing aggregate indebtedness of approximately
$9,250,000. See Note 8 to the financial statements included
with this report.






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

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

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

6



---



##### Table of Contents








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

No matters were submitted to a vote of security
holders during the fourth quarter of 2003.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Market Information

There is no established public trading market for
the Companys shares of common stock.

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

The price paid by the Company per repurchased
share of common stock is $9.05. Repurchases are effected by the
Company on or about the last day of each calendar quarter.
Funding for the Repurchase Plan comes from the proceeds received
by the Company from operating revenues.

Shareholders

As of April 9, 2004, there were 2,053
shareholders of record of the Company.

Distributions

The Company paid monthly distributions on its
common stock from August 1, 2000 through April 1, 2001
at an annual rate of $0.800 per share (8.00% based on a
$10.00 purchase price). Effective April 1, 2001, the Board
of Directors approved an increase in the annual distribution to
$0.825 per share (8.25% based on a $10.00 purchase price).
Monthly distributions were paid during 2003 at the
$0.825 per share annual rate.

The continued payment of distributions will
depend primarily on the Companys ability to generate
positive cash flow from operations. The Company cannot assure
you that it will continue to pay distributions at the current
rate or at all.

Equity Compensation Plan Information

The Companys equity compensation plan
information is as follows:

|                                                               |  |                              |         |                     |  |                      |      |  |  |  |         | 
|-------------------------------------------------------------- |  | ---------------------------- | ------- | ------------------- |  | -------------------- | ---- |  |  |  | ------- | 
|                                                               |  | Number of Securities         |         | Weighted Average    |  |                     
|                                                               |  | to be Issued Upon            |         | Exercise Price of   |  | Number of Securities
|                                                               |  | 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)  |  |                              | 165,000 |                     |  | $                    | 9.05 |  |  |  | 635,000 | 
|Equity compensation plans not approved by
    security holders |  |                              |        |                     |  |                      |      |  |  |  |        | 
|                                                               |  |                              |         |                     |  |                      |      |  |  |  |         | 
|Total                                                          |  |                              | 165,000 |                     |  |                      |      |  |  |  | 635,000 | 
|                                                               |  |                              |         |                     |  |                      |      |  |  |  |         | 



---



|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each of the Independent Director and
    Officer/Employee Stock Option Plans was approved at the
    Companys annual shareholders meeting held on June 28,
    2003.

7



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##### Table of Contents








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

SELECTED FINANCIAL DATA

T REIT, INC.


|                           |  |                    |            |      |  |      |            |  |  |   |            | 
|-------------------------- |  | ------------------ | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                           |  |                   
|                           |  | As of December 31,
|                           |  |                   
|Selected Financial Data(1) |  | 2003               |            | 2002 |  | 2001
|                           |  |                    |            |      |  |     
|BALANCE SHEET DATA:        |  |                    |            |      |  |      |            |  |  |   |            | 
|Total Assets               |  | $                  | 49,369,932 |      |  | $    | 67,768,903 |  |  | $ | 45,441,357 | 
|Mortgage loans payable     |  |                    | 9,250,278  |      |  |      | 28,090,125 |  |  |   | 24,737,461 | 
|Shareholders equity       |  |                    | 38,107,802 |      |  |      | 38,215,638 |  |  |   | 19,765,423 | 

|                                                                            |                                            |                          |             |      |  |      |             |      |  |   |            |       |  
|--------------------------------------------------------------------------- | ------------------------------------------ | ------------------------ | ----------- | ---- |  | ---- | ----------- | ---- |  | - | ---------- | ----- | -
|                                                                            |                                            |                         
|                                                                            |                                            | Years Ended December 31,
|                                                                            |                                            |                         
|                                                                            |                                            | 2003                     |             | 2002 |  | 2001
|                                                                            |                                            |                          |             |      |  |     
|OPERATING DATA:                                                             |                                            |                          |             |      |  |      |             |      |  |   |            |      
|Total revenues                                                              |                                            | $                        | 2,645,303   |      |  | $    | 586,814     |      |  | $ | 197,044    |      
|Income (loss) from continuing operations before
    discontinued operations |                                            |                          | 1,012,352   |      |  |      | 1,037,937   |      |  |   | (312,155   | )    
|Net income (loss)                                                           |                                            |                          | 4,189,268   |      |  |      | 2,293,758   |      |  |   | (463,632   | )    
|Net income (loss) per common share, basic and
    diluted(2):               |                                            |                          |             |      |  |      |             |      |  |   |            |      
|                                                                            | Income (loss) from continuing operations   |                          | $           | 0.22 |  |      | $           | 0.26 |  |   | $          | (0.22 | )
|                                                                            | Income (loss) from discontinued operations |                          |             | 0.68 |  |      |             | 0.31 |  |   |            | (0.11 | )
|                                                                            | Net income (loss)                          |                          |             | 0.90 |  |      |             | 0.57 |  |   |            | (0.33 | )
|OTHER DATA:                                                                 |                                            |                          |             |      |  |      |             |      |  |   |            |      
|Cash flows provided by (used in) operating
    activities                   |                                            | $                        | 2,326,966   |      |  | $    | 2,289,548   |      |  | $ | (1,241,850 | )    
|Cash flows provided by (used in) investing
    activities                   |                                            |                          | 26,752,355  |      |  |      | (19,278,632 | )    |  |   | (7,491,774 | )    
|Cash flows provided by (used in) financing
    activities                   |                                            |                          | (23,019,465 | )    |  |      | 19,471,393  |      |  |   | 12,132,706 |      
|Distributions declared                                                      |                                            |                          | 3,842,601   |      |  |      | 3,310,870   |      |  |   | 1,145,621  |      
|Funds from operations(2)(3)                                                 |                                            |                          | 3,222,408   |      |  |      | 2,826,049   |      |  |   | 307,943    |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The selected financial data should be read in
    conjunction with the consolidated financial statements and
    related notes appearing elsewhere in this report. Certain
    amounts in the prior years have been reclassified as
    discontinued operations related to properties disposed of in
    2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | Net income (loss) and distributions per share are
    based upon the weighted average number of common shares
    outstanding. Distributions by the Company of its current and
    accumulated earnings and profits for federal income tax purposes
    are taxable to shareholders as ordinary income. Distributions in
    excess of these earnings and profits generally are treated as a
    non-taxable reduction of the shareholders basis in the
    shares 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
    shareholders shares. For the years ended December 31,
    2003 and 2002, approximately 33% and 52%, respectively, of
    distributions represented a return of capital for tax purposes.
    In addition, for the year ended December 31, 2003,
    approximately 74% of distributions represented capital gain for
    tax purposes. In order to maintain its qualification as a REIT,
    the Company must make annual distributions to shareholders of at
    least 90% of its REIT taxable income. Under certain
    circumstances, the Company 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 the Companys Board of Directors and are dependent on a
    number of factors, including the amount of funds available for
    distribution, the Companys financial condition,

8



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | any decision by the Board of Directors to
    reinvest funds rather than to distribute the funds, the
    Companys capital expenditures, the annual distribution
    required to maintain REIT status under the Code and other
    factors the Board of Directors may deem relevant.                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(3) | One of the Companys objectives is to
    provide cash distributions to its shareholders from cash
    generated by the Companys operations. Cash generated from
    operations is not equivalent to the Companys net income or
    loss as determined under accounting principles generally
    accepted in the United States (GAAP). Due to certain
    unique operating characteristics of real estate companies, the
    National Association of Real Estate Investment Trusts
    (NAREIT), an industry trade group, has promulgated a
    measure known as Funds from Operations or
    FFO, which it believes more accurately reflects the
    operating performance of a REIT such as the Company.

The Company defines FFO, a non-GAAP measure,
consistent with the NAREITs definition, as net income
available to common shareholders, plus depreciation and
amortization of assets uniquely significant to the real estate
industry, reduced by gains and increased by losses on
(i) sales of investment property and
(ii) extraordinary items.

The Company considers FFO to be an appropriate
supplemental measure of a REITs operating performance as
it is based on a net income analysis of property portfolio
performance that excludes non-cash items such as depreciation.
The historical accounting convention used for real estate assets
requires straight-line depreciation of buildings and
improvements, which implies that the value of real estate assets
diminishes predictably over time. Since real estate values
historically rise and fall with market conditions, presentations
of operating results for a REIT, using historical accounting for
depreciation, could be less informative. The use of FFO is
recommended by the REIT industry as a supplemental performance
measure.

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

FFO is calculated as follows:

|                                                                                     |                         |                          |            |           |  |      |           |         |  |   |          |         | 
|------------------------------------------------------------------------------------ | ----------------------- | ------------------------ | ---------- | --------- |  | ---- | --------- | ------- |  | - | -------- | ------- | 
|                                                                                     |                         |                         
|                                                                                     |                         | Years Ended December 31,
|                                                                                     |                         |                         
|                                                                                     |                         | 2003                     |            | 2002      |  | 2001
|                                                                                     |                         |                          |            |           |  |     
|Net income                                                                           |                         | $                        | 4,189,268  |           |  | $    | 2,293,758 |         |  | $ | (463,632 | )      
|Depreciation                                                                         |                         |                          |            |           |  |      |           |         |  |   |          |        
|                                                                                     | Continuing operations   |                          |            | 1,544,488 |  |      |           | 671,579 |  |   |          |        | 
|                                                                                     | Discontinued operations |                          |            | 102,175   |  |      |           | 74,064  |  |   |          | 593,627 | 
|(Gain) loss on sale of investments in real estate
    and unconsolidated real estate |                         |                          | (2,613,523 | )         |  |      | (213,352  | )       |  |   | 177,948  |        
|                                                                                     |                         |                          |            |           |  |      |           |         |  |   |          |        
|Funds from operations                                                                |                         | $                        | 3,222,408  |           |  | $    | 2,826,049 |         |  | $ | 307,943  |        
|                                                                                     |                         |                          |            |           |  |      |           |         |  |   |          |        






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

The following discussion should be read in
conjunction with Item 6, Selected Financial
Data, and the Companys historical consolidated
financial statements and related notes thereto included
elsewhere in this report.

Forward-Looking Statements

Historical results and trends should not be taken
as indicative of future operations. Managements statements
contained in this report that are not historical facts are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities

9



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##### Table of Contents



Exchange Act of 1934, as amended. Actual results
may differ materially from those included in the forward-looking
statements. The Company intends these forward-looking statements
to be covered by the safe-harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of
complying with those safe-harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are
generally identifiable by use of the words believe,
expect, intend, anticipate,
estimate, project,
prospects, or similar expressions. The
Companys ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and
future prospects of the Company on a consolidated basis include,
but are not limited to: changes in economic conditions generally
and the real estate market specifically, legislative/regulatory
changes (including changes to laws governing the taxation of
REITs), availability of capital, interest rates, competition,
supply and demand for operating properties in the Companys
current and proposed market areas and generally accepted
accounting principles, policies and guidelines applicable to
REITs. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should
not be placed on such statements. Additional information
concerning the Company and its business, including additional
factors that could materially affect the Companys
financial results, is included herein and in the Companys
other filings with the Securities and Exchange Commission.


Overview

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

As of December 31, 2003, the Company owned
two consolidated properties and interests in eight
unconsolidated properties. Comparability between 2003 and 2002
and between 2002 and 2001 is limited due to the number of
acquisitions and dispositions during these years.



| |                     
| | --------------------
| | Acquisitions in 2003



| |                                        
| | ---------------------------------------
| | Congress Center 
    Chicago, Illinois

On January 9, 2003, through its wholly-owned
subsidiary, TREIT  Congress Center, LLC, the Company
purchased an approximately 10.2% tenant in common interest in
Congress Center from an unaffiliated third party. Congress
Center is a 16-story Class A office building of
approximately 524,730 square feet located in Chicago,
Illinois. Affiliated entities purchased the remaining undivided
tenant in common interests in the property. The total purchase
price for Congress Center was $136,108,000. The Companys
total investment was approximately $5,000,000. The seller of the
property paid a sales commission to Realty of $2,000,000, or
approximately 1.5% of the purchase price.



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

On January 29, 2003, through its
wholly-owned subsidiary, TREIT  Gateway Mall ND, LLC,
the Company purchased Gateway Mall in Bismarck, North Dakota
from an unaffiliated third party for a purchase price of
$9,000,000. Gateway Mall is a multi-tenant regional mall of
approximately 333,878 square feet on a 45-acre site located
in Bismarck, North Dakota. The property is subject to a ground
lease expiring in 2028 with ten 5-year option periods
thereafter. The seller of the property paid a sales commission
to Realty of $250,000, or approximately 2.8% of the purchase
price.

10



---



##### Table of Contents





| |                                     
| | ------------------------------------
| | Enclave Parkway  Houston,
    Texas

On December 22, 2003, through its
wholly-owned subsidiary, TREIT  Enclave Parkway, LLC,
the Company purchased a 3.3% interest in Enclave Parkway in
Houston, Texas from an unaffiliated third party. The total
purchase price for Enclave Parkway was $34,500,000. The
Companys total investment was $437,500. Enclave Parkway is
a 207,435 square foot Class A office building situated
in Houstons energy corridor. The seller of the property
paid a sales commission to Realty of $1,000,000, or 2.9% of the
purchase price.



| |                     
| | --------------------
| | Dispositions in 2003



| |                                                        
| | -------------------------------------------------------
| | Northstar Crossing Shopping Center 
    Garland, Texas

On January 11, 2003, the Company sold the
Northstar Crossing Shopping Center in Garland, Texas to an
unaffiliated third party for a purchase price of $4,200,000. In
connection with the sale, the Company repaid a note payable
secured by the property with an outstanding balance of
$2,866,579 and received net cash proceeds totaling approximately
$1,015,000 after payment of closing costs and other transaction
expenses. The sale resulted in a net loss of approximately
$191,400. At closing, the Company paid a sales commission to an
unaffiliated broker of $168,000, or approximately 4.0% of the
selling price. The Company reinvested the proceeds from the sale
in other income producing commercial real estate property.



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

On August 11, 2003, the Company sold the
Thousand Oaks Shopping Center in San Antonio, Texas to an
unaffiliated third party for a purchase price of $15,880,000. In
connection with the sale, the Company repaid a note payable
secured by the property with an outstanding balance of
$8,750,000 and received net cash proceeds totaling approximately
$6,100,000 after payment of closing costs and other transaction
expenses. The sale resulted in a net gain of approximately
$2,100,000. At closing, the Company paid a sales commission to
Realty of $175,000, or approximately 1.1% of the selling price,
and a sales commission to an unaffiliated broker of $317,600, or
approximately 2.0% of the selling price. The Company reinvested
the proceeds from the sale in real estate property that
qualifies for like-kind exchange treatment under
Section 1031 of the Code.



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

On September 25, 2003, the Company sold the
Pahrump Valley Junction Shopping Center in Pahrump, Nevada to an
unaffiliated third party for a sales price of $18,985,000. In
connection with the sale, the Company repaid a note payable
secured by the property with an outstanding balance of
approximately $11,884,000 and received net cash proceeds of
approximately $5,950,000 after closing costs and other
transaction expenses. The sale resulted in a net gain of
approximately $874,000. The Company paid a sales commission to
Realty of $175,000, or approximately 1.0% of the sales price,
and sales commissions to unaffiliated brokers of $629,700, or
approximately 3.3% of the sales price. The Company reinvested
the proceeds from the sale in other income producing commercial
real estate property.



| |                     
| | --------------------
| | Acquisitions in 2002



| |                                                  
| | -------------------------------------------------
| | County Center Building  Temecula,
    California

On January 11, 2002, through its
wholly-owned subsidiary, NNN County Center  12, LLC,
the Company purchased a 16.0% undivided tenant in common
interest in the County Center Building from an unaffiliated
third party. County Center is a 77,582 square foot
office/distribution building located in Temecula, California.
The total purchase price was $6,335,000. The Companys
total investment was $500,000. The seller of the property paid a
sales commission to Realty of $150,000, or 2.4% of the purchase
price.

11



---



##### Table of Contents





| |                                                      
| | -----------------------------------------------------
| | City Center West A
    Building  Las Vegas, Nevada

On March 15, 2002, through its wholly-owned
subsidiary, T REIT  City Center West A, LLC, the
Company purchased an 89.1% undivided tenant in common interest
in the City Center West A Building from an
unaffiliated third party. City Center West A is a
105,964 square foot office building located in Las Vegas,
Nevada. The total purchase price for the property was
$21,670,000. The Companys total investment was $7,727,137.
The seller of the property paid a sales commission to Realty of
$420,000, or 1.9% of the purchase price.



| |                                             
| | --------------------------------------------
| | Pacific Corporate Park  Lake
    Forest, CA

On March 25, 2002, through its wholly-owned
subsidiary, TREIT  Pacific Corporate Park, LLC, the
Company purchased a 22.8% undivided tenant in common interest in
Pacific Corporate Park from an unaffiliated third party. Pacific
Corporate Park is a six-building, 167,486 square foot
office park located in Lake Forest, California. The total
purchase price for Pacific Corporate Park was $23,728,000. The
Companys total investment was $4,937,100. The seller of
the property paid a sales commission to Realty of $580,000, or
2.4% of the purchase price.



| |                                                                    
| | -------------------------------------------------------------------
| | Titan Plaza, Titan Building and Titan
    Land  San Antonio, Texas

On April 17, 2002, through its wholly-owned
subsidiary, T REIT  Titan Plaza, L.P., the Company
purchased a 48.5% undivided tenant in common interest in the
Titan Building and Titan Plaza located in San Antonio,
Texas from an unaffiliated third party. The Titan Building is a
103,762 square foot, six-story suburban office building.
Titan Plaza is an adjoining 27,765 square foot single-story
Class B suburban office building. The total purchase price
of the property was $9,167,000. The Companys total
investment was $1,536,000. The seller of the property paid a
sales commission to Realty of $250,000, or 2.7% of the purchase
price. The Company also purchased an adjoining 2.34-acre parcel
of land for a purchase price of $75,000.



| |                                                          
| | ---------------------------------------------------------
| | University Heights Business Park 
    San Antonio, Texas

On August 22, 2002, through its wholly-owned
subsidiary, TREIT  University Heights, LP, the
Company purchased the University Heights Business Park from an
unaffiliated third party for a purchase price of $6,750,000.
University Heights is a 68,400 square foot flex/service
center consisting of two one-story buildings located in
San Antonio, Texas. The seller of the property paid a sales
commission to Realty of $135,000, or 2.0% of the purchase price.



| |                                                           
| | ----------------------------------------------------------
| | Saddleback Financial Center  Laguna
    Hills, California

On September 25, 2002, through its
wholly-owned subsidiary, T REIT  Saddleback
Financial L.P., the Company purchased a 25.0% undivided tenant
in common interest in the Saddleback Financial Center from an
unaffiliated third party. The Saddleback Financial Center is a
72,711 square foot, four-story suburban office building
located in Laguna Hills, California. The total purchase price of
the property was $11,072,500. The Companys total
investment was $775,000. The seller of the property paid a sales
commission to Realty of $322,500, or 2.9% of the purchase price.



| |                     
| | --------------------
| | Dispositions in 2002



| |                                                  
| | -------------------------------------------------
| | Seguin Corners Shopping Center 
    Seguin Texas

On August 12, 2002, the Seguin Corners
Shopping Center was sold for approximately $2,500,000 to an
unaffiliated third party. The proportionate sale price of the
Companys 26.0% undivided tenant in common interest in the
property was approximately $650,000. The Company realized cash
proceeds of approximately $192,000 from this sale. No fees were
earned by the Advisor or any affiliate from this sale.

12



---



##### Table of Contents





| |                                                  
| | -------------------------------------------------
| | Plaza del Rey Shopping Center 
    Seguin, Texas

On September 23, 2002, the Plaza del Rey
Shopping Center was sold for approximately $5,403,000 to an
unaffiliated third party. The proportionate sale price of the
Companys 16.5% undivided tenant in common interest in the
property was approximately $891,000. The Company realized cash
proceeds of approximately $197,000 from this sale. No fees were
earned by the Advisor or any affiliate from this sale.



| |                                    
| | -----------------------------------
| | Titan Land  San Antonio,
    Texas

On October 17, 2002, the Company sold a
2.34-acre parcel of land adjacent to the Titan Building and
Titan Plaza for approximately $130,000 to an unaffiliated third
party. No fees were earned by the Advisor or any affiliate from
this sale.

Critical Accounting Policies

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



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

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



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

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



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

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

13



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##### Table of Contents





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

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

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

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

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

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



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

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

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

Results of Operations

The Companys operating results are
primarily comprised of income derived from its portfolio of
properties. Because of the significant property acquisitions and
dispositions throughout the years ended December 31, 2003,
2002 and 2001, the comparability of financial data from period
to period will be limited.

14



---



##### Table of Contents





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

Rental income increased by approximately
$2,225,000, or 733%, to approximately $2,529,000 for the year
ended December 31, 2003 compared to rental income of
approximately $304,000 for the year ended December 31,
2002. Approximately $1,530,000 of this increase was attributable
to the purchase, in January 2003, of the Gateway Mall, and the
remaining $695,000 was attributable to a full years
ownership in 2003 of University Heights Business Park.

Interest income decreased by approximately
$167,000, or 59%, to approximately $116,000 for the year ended
December 31, 2003 compared with interest income of
approximately $283,000 for the year ended December 31,
2002. This decrease was primarily due to the collection of
related party loans.

Rental expenses increased by approximately
$931,000, or 913%, to approximately $1,033,000 for the year
ended December 31, 2003 over rental expense of
approximately $102,000 for the year ended December 31,
2002. Approximately $835,000 of this increase was attributable
to the purchase, in January 2003, of the Gateway Mall, and the
remaining $96,000 was attributable to a full years
ownership in 2003 of University Heights Business Park.

General and administrative expenses consist
primarily of third party professional legal and accounting fees
and the cost of computerized information services and related
office expenses required to maintain the Companys
accounting and investor records. General and administrative
expenses increased approximately $356,000, or 66%, to
approximately $895,000 for the year ended December 31, 2003
over general and administrative expense of approximately
$539,000 for the year ended December 31, 2002, as a result
of increased professional fees and other administrative costs.

Interest expense increased by approximately
$474,000, or 3,646% to approximately $487,000 for the year ended
December 31, 2003 compared to interest expense of
approximately $13,000 for the year ended December 31, 2002.
This increase was attributable to interest expense related to a
mortgage loan in the approximate amount of $5,000,000 entered
into pursuant to the purchase of the Gateway Mall in January
2003, and to a full years interest expense related to a
mortgage loan in the approximate amount of $4,345,000, secured
by University Heights Business Park.

Depreciation and amortization expense increased
by approximately $357,000 or 1,700% to approximately $378,000
for the year ended December 31, 2003, compared to
depreciation and amortization expense for the year ended
December 31, 2002 of approximately $21,000. Approximately
$219,000 of this increase was attributable to the purchase, in
January 2003, of the Gateway Mall, and the remaining $138,000
was attributable to a full years ownership of University
Heights Business Park.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Comparison of the year ended
    December 31, 2002 to the year ended December 31,
    2001

Interest income increased by approximately
$86,000 or 15% to approximately $283,000 for the year ended
December 31, 2002, compared to interest income of
approximately $197,000 for the year ended December 31,
2001. This increase was due primarily to an increase in funds
held in short-term interest bearing instruments awaiting
investment during 2002.

General and administrative expenses decreased by
$32,000, or 6%, to approximately $539,000 for the year ended
December 31, 2002, compared with general and administrative
expenses of approximately $571,000 for the year ended
December 31, 2001. This decrease was primarily the result
of decreased professional fees for regulatory compliance and
acquisition audits.

Liquidity and Capital Resources



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

Cash flows provided by operating activities were
approximately $2,300,000 for the year ended December 31,
2003, approximately 1% greater than cash flows provided by
operating activities for the year ended December 31, 2002.

15



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##### Table of Contents



Cash flows provided by investing activities for
the year ended December 31, 2003 were approximately
$24,000,000, compared with cash flows used in investing
activities of approximately $19,000,000 for the year ended
December 31, 2002. The increase in cash flows provided by
investing activities of $43,000,000 was substantially
attributable to an increase of $34,500,000 in proceeds from the
sale of property in 2003 compared with 2002, and a reduction in
investments in consolidated and unconsolidated real estate of
$6,200,000.

Cash flows used in financing activities for the
year ended December 31, 2003 was approximately $27,000,000,
compared with cash flows provided by financing activities of
approximately $19,000,000 for the year ended December 31,
2002. The increase in cash flows used in financing activities of
$46,000,000 was substantially attributable to the repayment of
$23,000,000 of notes payable secured by properties that were
sold in 2003. In addition, approximately $19,000,000 was
generated from the issuance of common shares in 2002.



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

At December 31, 2003, the Company had
approximately $12,000,000 in cash and cash equivalents. The
Company intends to acquire additional properties and will seek
to fund these acquisitions through utilization of the current
cash balances, debt financings and/or asset dispositions.

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

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



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

The following table provides information with
respect to the maturities and scheduled principal repayments of
the Companys secured debt and scheduled interest payments
of the Companys fixed rate debt at December 31, 2003.
It also provides information about the minimum commitments due
in connection with the Companys ground lease obligation
and lease guarantee at December 31, 2003.

|                                  |       |                        |         |             |  |             |         |              |  |       |         |         |  |   |           |           |  |   |           |            | 
|--------------------------------- | ----- | ---------------------- | ------- | ----------- |  | ----------- | ------- | ------------ |  | ----- | ------- | ------- |  | - | --------- | --------- |  | - | --------- | ---------- | 
|                                  |       |                        |         |            
|                                  |       | Payments Due by Period |         |            
|                                  |       |                        |         |            
|                                  |       | Less Than              |         |             |  | More than   |         |             
|                                  |       | 1 Year                 |         | 1-3 Years   |  | 4-5 Years   |         | 5 Years      |  |      
|                                  |       | (2004)                 |         | (2005-2006) |  | (2007-2008) |         | (After 2008) |  | Total
|                                  |       |                        |         |             |  |             |         |              |  |      
|Principal payments  secured debt |       | $                      | 161,271 |             |  | $           | 343,157 |              |  | $     | 369,597 |         |  | $ | 8,376,253 |           |  | $ | 9,250,278 |           
|Lease guarantee(1)                |       |                        | 219,671 |             |  |             | 421,036 |              |  |       |        |         |  |   |          |           |  |   | 640,707   |           
|Ground lease obligation           |       |                        | 40,000  |             |  |             | 80,000  |              |  |       | 80,000  |         |  |   | 806,663   |           |  |   | 1,006,663 |           
|                                  |       |                        |         |             |  |             |         |              |  |       |         |         |  |   |           |           |  |   |           |           
|                                  | Total |                        | $       | 420,942     |  |             | $       | 844,193      |  |       | $       | 449,597 |  |   | $         | 9,182,916 |  |   | $         | 10,897,648 | 
|                                  |       |                        |         |             |  |             |         |              |  |       |         |         |  |   |           |           |  |   |           |           



---



|    |                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The lease guarantee relates to the Companys
    obligation on the Christie Street Office Building sold in 2001.
    The Companys Advisor agreed to indemnify the Company for
    the full amount of its obligation.



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

There are no off-balance sheet transactions,
arrangements or obligations (including contingent obligations)
that have, or are reasonably likely to have a current or future
material effect on the

16



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##### Table of Contents



Companys financial condition, changes in
the financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.


Subsequent Events



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

On January 20, 2004, the Company, through
its wholly-owned subsidiary, TREIT 
AmberOaks LP, purchased a 75.0% undivided tenant in common
interest in three buildings at AmberOaks Corporate Center
located in Austin, Texas from an unaffiliated third party. Three
unaffiliated entities purchased the remaining 25.0% tenant in
common interests in the property. The total purchase price for
AmberOaks was approximately $22,965,000. The Companys
total investment was approximately $6,462,000. The purchase
price included a sales commission payable to Realty of $585,000,
or 2.6% of the purchase price. AmberOaks is a Class A
three-building office portfolio totaling approximately 206,770
square feet that is part of an eight-building complex built
during 1999-2001. An affiliate of the Companys advisor
purchased the remaining five buildings.



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

On March 18, 2004, the Company sold Gateway
Mall to an unaffiliated third party for a purchase price of
$11,600,000. On February 27, 2004, the Company purchased
approximately 43 acres of land, including approximately
36 acres of land situated under Gateway Mall from another
unaffiliated third party for a purchase price including closing
costs of $1,631,000. Prior to the land acquisition, the property
had been subject to a ground lease. The sale of Gateway Mall
included the underlying 36 acres of land. Sales proceeds
included cash of approximately $3,032,500 and a note receivable
in the amount of $8,700,000. The note is secured by a pledge
agreement, bears interest at 6% per annum and is due
June 14, 2004. In connection with the sale of Gateway Mall,
the Company repaid a note payable secured by the property with
an outstanding balance of $4,876,000. At closing, the Company
paid a sales commission to Realty of $339,000, or approximately
2.9% of the selling price.



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

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

Impact of Accounting Principles

On January 1, 2003, the Company adopted the
provisions of SFAS 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145). The most
significant provisions of this statement relate to the
rescission of Statement No. 4 Reporting Gains and
Losses from Extinguishment of Debt. SFAS 145 also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings or describe
their applicability under changed conditions. Under
SFAS 145, any gain or loss on extinguishment of debt that
was classified as an extraordinary item in prior periods
presented that does not meet certain defined criteria must be
reclassified. The adoption of this statement did not have a
material effect on the Companys results of operations or
financial condition.

17



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##### Table of Contents



On January 1, 2003, the Company adopted the
provisions of SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3 Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. The adoption of this statement
did not have a material effect on the Companys results of
operations or financial condition.

On January 1, 2003, the Company adopted the
initial recognition and measurement provisions of Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45).
FIN 45 significantly changes the current practice in the
accounting for, and disclosure of, guarantees. Guarantees and
indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a
liability at fair value. FIN 45 also requires a guarantor
to make significant new disclosures for virtually all guarantees
even if the likelihood of the guarantor having to make payment
under the guarantee is remote. The Company adopted the
disclosure provisions of FIN 45 as of December 31,
2002. The adoption of the provisions of this interpretation did
not have a material effect on the Companys results of
operations or financial condition.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46
clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements and
provides guidance on the identification of entities for which
control is achieved through means other than voting rights
(variable interest entities or VIEs) and
how to determine when and which business enterprise should
consolidate the VIE. This new model for consolidation applies to
an entity in which either: (1) the equity investors (if
any) lack one or more characteristics deemed essential to a
controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entitys activities
without receiving additional subordinated financial support from
other parties. The provisions of this interpretation are
applicable to VIEs formed after January 31, 2003. For VIEs
formed prior to January 31, 2003, the provisions of this
interpretation apply to the first fiscal year or interim period
beginning after December 15, 2003. On February 1,
2003, the Company adopted the provisions of this interpretation,
which did not have a material effect on the Companys
results of operations or financial condition.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments imbedded in other
contracts and for hedging activities under
SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. The provisions of
SFAS 149 are generally effective for contracts entered into
or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption
of this statement did not have a material effect on the
Companys results of operations or financial condition.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both
liabilities and equity. The statement is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this
statement did not have a material effect on the Companys
results of operations or financial condition.

Inflation

We will be exposed to inflation risk as income
from long-term leases is expected to be the primary source of
our cash flows from operations. We expect that there will be
provisions in the majority of our tenant leases that would
protect us from the impact of inflation. These provisions
include rent steps, reimbursement billings for operating expense
pass-through charges, real estate tax and insurance

18



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##### Table of Contents



reimbursements on a per square foot allowance.
However, due to the long-term nature of the leases, the leases
may not re-set frequently enough to cover inflation.







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

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

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

|                                       |  |      |         |      |  |      |         |      |  |      |         |            |  |       |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|-------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                                       |  | 2004 |         | 2005 |  | 2006 |         | 2007 |  | 2008 |         | Thereafter |  | Total
|                                       |  |      |         |      |  |      |         |      |  |      |         |            |  |      
|Variable rate debt                     |  | $    | 161,271 |      |  | $    | 168,402 |      |  | $    | 174,755 |            |  | $     | 181,362 |   |  | $ | 188,235 |   |  | $ | 8,376,253 |   |  | $ | 9,250,278 |  
|Average interest rate on maturing debt |  |      | 4.02    | %    |  |      | 4.04    | %    |  |      | 4.04    | %          |  |       | 4.05    | % |  |   | 4.06    | % |  |   | 4.22      | % |  |   | 4.20      | %

The fair estimated value of the Companys
debt approximates its December 31, 2003 carrying amount.

An increase in interest rates of 0.25% on the
Companys variable rate mortgage loans would have increased
the Companys overall annual interest expense by
approximately $76,000 or 6%.

The table below presents, as of December 31,
2002, the principal amounts and weighted average interest rates
by year of expected maturity to evaluate the expected cash flows
and sensitivity to interest rate changes.

|                                       |  |      |         |      |  |      |           |      |  |      |         |            |  |   |         |   |  |   |         |   |  |   |            |  
|-------------------------------------- |  | ---- | ------- | ---- |  | ---- | --------- | ---- |  | ---- | ------- | ---------- |  | - | ------- | - |  | - | ------- | - |  | - | ---------- | -
|                                       |  | 2003 |         | 2004 |  | 2005 |           | 2006 |  | 2007 |         | Thereafter
|                                       |  |      |         |      |  |      |           |      |  |      |         |           
|Fixed rate debt                        |  | $    | 275,842 |      |  | $    | 297,189   |      |  | $    | 320,191 |            |  | $ | 344,977 |   |  | $ | 371,686 |   |  | $ | 13,330,240 |  
|Average interest rate on maturing debt |  |      | 7.43    | %    |  |      | 7.43      | %    |  |      | 7.43    | %          |  |   | 7.43    | % |  |   | 7.43    | % |  |   | 7.43       | %
|Variable rate debt                     |  | $    | 58,810  |      |  | $    | 8,812,018 |      |  | $    | 65,401  |            |  | $ | 68,969  |   |  | $ | 72,731  |   |  | $ | 4,072,071  |  
|Average interest rate on maturing debt |  |      | 6.75    | %    |  |      | 6.75      | %    |  |      | 6.75    | %          |  |   | 6.75    | % |  |   | 6.75    | % |  |   | 6.75       | %

The fair estimated value of the Companys
debt approximates its December 31, 2002 carrying amount.

Approximately $13,150,000 or 47% of the
Companys mortgages payable at December 31, 2002, have
variable interest rates averaging 6.8%. In comparison,
approximately $9,550,875 or 39% of the Companys mortgages
payable at December 31, 2001 had variable interest rates
averaging 6.8%. An increase in interest rates of 0.25% on the
Companys variable rate mortgage loans would not
significantly impact earnings due to current market interest
rates being substantially below the floor interest rates on
these mortgage loans.

19



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##### Table of Contents






INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                              |  |       |    | 
|------------------------------------------------------------- |  | ----- | -- | 
|                                                              |  | Pages
|                                                              |  |      
|Independent Auditors Report  2003                            |  |       | 21 | 
|Report of Independent Certified Public
    Accountants  2002 |  |       | 22 | 
|Report of Independent Certified Public
    Accountants  2001 |  |       | 23 | 
|Consolidated Balance Sheets                                   |  |       | 24 | 
|Consolidated Statements of Operations                         |  |       | 25 | 
|Consolidated Statements of Shareholders
    Equity           |  |       | 26 | 
|Consolidated Statements of Cash Flows                         |  |       | 27 | 
|Notes to Consolidated Financial Statements                    |  |       | 28 | 
|Schedule III (Real Estate and Accumulated
    Depreciation)   |  |       | 47 | 

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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders

T REIT, Inc.


We have audited the accompanying consolidated
balance sheet of T REIT, Inc. (the Company), as
of December 31, 2003, and the related consolidated
statements of operations, shareholders equity and cash
flows for the year then ended. Our audits also included the
financial statement schedule (Schedule III) listed
in the index to the consolidated financial statements. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of T REIT, Inc. as of
December 31, 2003, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects, the information set forth therein.

/s/ DELOITTE & TOUCHE, LLP

Los Angeles, California

April 21, 2004


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##### Table of Contents



REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

To the Board of Directors and Shareholders

T REIT, Inc.


We have audited the accompanying consolidated
balance sheet of T REIT, Inc. (the Company), as
of December 31, 2002, and the related consolidated
statements of operations, shareholders equity and cash
flows for the year then ended. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of T REIT, Inc. as of
December 31, 2002, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.



| |                       
| | ----------------------
| | /s/ GRANT THORNTON LLP

Irvine, California

March 19, 2003


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##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders

T REIT, Inc.


We have audited the consolidated statements of
operations, shareholders equity and cash flows of
T REIT, Inc., a Virginia corporation, and subsidiary
(the Company), as of December 31, 2001, and for
the year ended December 31, 2001. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the results of their operations and cash flows for the
year ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.



| |                                               
| | ----------------------------------------------
| | /s/ SQUAR, MILNER, REEHL & WILLIAMSON,
    LLP

Newport Beach, California

March 15, 2002


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##### Table of Contents



T REIT, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                                                                                                                                                 |                                           | 2003 |            | 2002      
|                                                                                                                                                                                 |                                           |      |            |           
|ASSETS                                                                                                                                                                          
|Real estate investments:                                                                                                                                                         |                                           |      |            |            |  |   |            |           
|                                                                                                                                                                                 | Operating properties, net                 |      | $          | 15,746,627 |  |   | $          | 36,262,924 | 
|                                                                                                                                                                                 | Property held for sale, net               |      |            |           |  |   |            | 3,917,239  | 
|                                                                                                                                                                                 | Investments in unconsolidated real estate |      |            | 19,331,447 |  |   |            | 14,499,831 | 
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|                                                                                                                                                                                 |                                           |      | 35,078,074 |            |  |   | 54,679,994 |           
|Cash and cash equivalents                                                                                                                                                        |                                           |      | 12,189,324 |            |  |   | 6,129,468  |           
|Accounts receivable, net                                                                                                                                                         |                                           |      | 36,908     |            |  |   | 242,587    |           
|Accounts receivable from related parties                                                                                                                                         |                                           |      | 537,915    |            |  |   | 593,670    |           
|Real estate deposits                                                                                                                                                             |                                           |      | 10,753     |            |  |   | 3,918,743  |           
|Other assets, net                                                                                                                                                                |                                           |      | 869,850    |            |  |   | 1,617,263  |           
|Note receivable                                                                                                                                                                  |                                           |      | 647,108    |            |  |   | 587,178    |           
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|Total assets                                                                                                                                                                     |                                           | $    | 49,369,932 |            |  | $ | 67,768,903 |           
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|                                                                                                                                                                                
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                                        
|Accounts payable and accrued liabilities                                                                                                                                         |                                           | $    | 1,634,577  |            |  | $ | 997,870    |           
|Distributions payable                                                                                                                                                            |                                           |      | 317,948    |            |  |   | 321,252    |           
|Security deposits and prepaid rent                                                                                                                                               |                                           |      | 59,327     |            |  |   | 144,018    |           
|Notes payable                                                                                                                                                                    |                                           |      | 9,250,278  |            |  |   | 25,221,036 |           
|Notes payable secured by property held for sale                                                                                                                                  |                                           |      |           |            |  |   | 2,869,089  |           
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|                                                                                                                                                                                 |                                           |      | 11,262,130 |            |  |   | 29,553,265 |           
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|Commitments and contingencies                                                                                                                                                    |                                           |      |            |            |  |   |            |           
|Shareholders equity:                                                                                                                                                            |                                           |      |            |            |  |   |            |           
|Common stock, $.01 par value;
    10,000,000 shares authorized; 4,720,176 shares issued,
    4,646,085 and 4,696,300 outstanding at December 31, 2003
    and 2002, respectively |                                           |      | 47,202     |            |  |   | 47,202     |           
|Additional paid-in capital                                                                                                                                                       |                                           |      | 41,265,443 |            |  |   | 41,265,443 |           
|Treasury stock, 74,091 and 23,876 shares at
    December 31, 2003 and 2002, respectively                                                                                         |                                           |      | (675,155   | )          |  |   | (220,653   | )         
|Distributions in excess of earnings                                                                                                                                              |                                           |      | (2,529,688 | )          |  |   | (2,876,354 | )         
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|Total shareholders equity                                                                                                                                                       |                                           |      | 38,107,802 |            |  |   | 38,215,638 |           
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           
|Total liabilities and shareholders equity                                                                                                                                       |                                           | $    | 49,369,932 |            |  | $ | 67,768,903 |           
|                                                                                                                                                                                 |                                           |      |            |            |  |   |            |           

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

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T REIT, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |         |  
|---------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ---- | --------- | --------- |  | ---- | --------- | ------- |  | - | --------- | ------- | -
|                                                                                                                                   |                                                                  | 2003 |           | 2002      |  | 2001
|                                                                                                                                   |                                                                  |      |           |           |  |     
|Revenues                                                                                                                           |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|                                                                                                                                   | Rental income                                                    |      | $         | 2,529,077 |  |      | $         | 303,502 |  |   | $         |        |  
|                                                                                                                                   | Interest income                                                  |      |           | 116,226   |  |      |           | 283,312 |  |   |           | 197,044 |  
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|                                                                                                                                   |                                                                  |      | 2,645,303 |           |  |      | 586,814   |         |  |   | 197,044   |        
|Expenses                                                                                                                           |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|                                                                                                                                   | Rental expenses                                                  |      |           | 1,032,814 |  |      |           | 102,294 |  |   |           |        |  
|                                                                                                                                   | General and administrative                                       |      |           | 895,446   |  |      |           | 538,600 |  |   |           | 571,157 |  
|                                                                                                                                   | Depreciation and amortization                                    |      |           | 378,323   |  |      |           | 20,888  |  |   |           |        |  
|                                                                                                                                   | Interest (including amortization of deferred
    financing fees) |      |           | 486,782   |  |      |           | 12,596  |  |   |           |        |  
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|                                                                                                                                   |                                                                  |      | 2,793,365 |           |  |      | 674,378   |         |  |   | 571,157   |        
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|Loss before equity in earnings of unconsolidated
    real estate                                                                   |                                                                  |      | (148,062  | )         |  |      | (87,564   | )       |  |   | (374,113  | )      
|Equity in earnings of unconsolidated real estate                                                                                   |                                                                  |      | 1,160,414 |           |  |      | 1,125,501 |         |  |   | 61,958    |        
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|Income (loss) from continuing operations before
    discontinued operations and gain (loss) on sale of real estate
    investments |                                                                  |      | 1,012,352 |           |  |      | 1,037,937 |         |  |   | (312,155  | )      
|Gain (loss) on sale of real estate investments                                                                                     |                                                                  |      | 2,613,523 |           |  |      | 213,351   |         |  |   | (177,948  | )      
|Income from discontinued operations                                                                                                |                                                                  |      | 563,393   |           |  |      | 1,042,470 |         |  |   | 26,471    |        
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|Net income (loss)                                                                                                                  |                                                                  | $    | 4,189,268 |           |  | $    | 2,293,758 |         |  | $ | (463,632  | )      
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|Net income (loss) per common share:                                                                                                |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|                                                                                                                                   | Continuing operations  basic and
    diluted                    |      | $         | .22       |  |      | $         | .26     |  |   | $         | (.22    | )
|                                                                                                                                   | Discontinued operations  basic and
    diluted                  |      |           | .68       |  |      |           | .31     |  |   |           | (.11    | )
|Total net income (loss) per common
    share  basic and diluted                                                                   |                                                                  |      | .90       |           |  |      | .57       |         |  |   | (.33      | )      
|Weighted average common shares
    outstanding  basic and diluted                                                                 |                                                                  |      | 4,676,026 |           |  |      | 4,013,175 |         |  |   | 1,398,104 |        
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|Distributions declared per share                                                                                                   |                                                                  | $    | 0.82      |           |  | $    | 0.83      |         |  | $ | 0.82      |        
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        
|Distributions declared                                                                                                             |                                                                  | $    | 3,842,601 |           |  | $    | 3,310,870 |         |  | $ | 1,145,621 |        
|                                                                                                                                   |                                                                  |      |           |           |  |      |           |         |  |   |           |        

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

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##### Table of Contents



T REIT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

For the Years Ended December 31, 2003,
2002 and 2001


|                                |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|------------------------------- |  | --------- | --------- | --------- |  | ---------- | ------ | -------- |  | ------------- | ---------- | ----- |  | - | -------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                |  |           |           | Common    |  | Additional |        |          |  | Distributions |            |      
|                                |  | Number of |           | Stock     |  | Paid-In    |        | Treasury |  | in Excess of  |            |      
|                                |  | Shares    |           | Par Value |  | Capital    |        | Stock    |  | Earnings      |            | Total
|                                |  |           |           |           |  |            |        |          |  |               |            |      
|BALANCE  January 1,
    2001   |  |           | 664,271   |           |  | $          | 6,643  |          |  | $             | 5,336,522  |       |  | $ |         |   |  | $ | (249,989   | ) |  | $ | 5,093,176  |  
|Issuance of common stock        |  |           | 1,807,216 |           |  |            | 18,072 |          |  |               | 16,272,478 |       |  |   |         |   |  |   |           |   |  |   | 16,290,550 |  
|Distributions                   |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | (1,145,621 | ) |  |   | (1,145,621 | )
|Repurchase of Shares            |  |           | (1,000    | )         |  |            |       |          |  |               |           |       |  |   | (9,050   | ) |  |   |           |   |  |   | (9,050     | )
|Net loss                        |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | (463,632   | ) |  |   | (463,632   | )
|                                |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|BALANCE  December 31,
    2001 |  |           | 2,470,487 |           |  |            | 24,715 |          |  |               | 21,609,000 |       |  |   | (9,050   | ) |  |   | (1,859,242 | ) |  |   | 19,765,423 |  
|Issuance of common stock        |  |           | 2,248,689 |           |  |            | 22,487 |          |  |               | 19,656,443 |       |  |   |         |   |  |   |           |   |  |   | 19,678,930 |  
|Distributions                   |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | (3,310,870 | ) |  |   | (3,310,870 | )
|Repurchase of Shares            |  |           | (22,876   | )         |  |            |       |          |  |               |           |       |  |   | (211,603 | ) |  |   |           |   |  |   | (211,603   | )
|Net income                      |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | 2,293,758  |   |  |   | 2,293,758  |  
|                                |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|BALANCE  December 31,
    2002 |  |           | 4,696,300 |           |  |            | 47,202 |          |  |               | 41,265,443 |       |  |   | (220,653 | ) |  |   | (2,876,354 | ) |  | $ | 38,215,638 |  
|Issuance of common stock        |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   |           |   |  |   |           |  
|Distributions                   |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | (3,842,602 | ) |  |   | (3,842,602 | )
|Repurchase of Shares            |  |           | (50,215   | )         |  |            |       |          |  |               |           |       |  |   | (454,502 | ) |  |   |           |   |  |   | (454,502   | )
|Net income                      |  |           |          |           |  |            |       |          |  |               |           |       |  |   |         |   |  |   | 4,189,268  |   |  |   | 4,189,268  |  
|                                |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  
|BALANCE  December 31,
    2003 |  |           | 4,646,085 |           |  | $          | 47,202 |          |  | $             | 41,265,443 |       |  | $ | (675,155 | ) |  | $ | (2,529,688 | ) |  | $ | 38,107,802 |  
|                                |  |           |           |           |  |            |        |          |  |               |            |       |  |   |          |   |  |   |            |   |  |   |            |  

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

26



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##### Table of Contents



T REIT, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2003,
2002 and 2001


|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |   |             |            |  
|----------------------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------------- | ---- | ----------- | ----------- | --------- | - | ----------- | ----------- | --------- | - | ----------- | ---------- | -
|                                                                                                      |                                             | 2003                                                      |                                                         | 2002 |             | 2001       
|                                                                                                      |                                             |                                                           |                                                         |      |             |            
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                  |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|Net income (loss)                                                                                     |                                             | $                                                         | 4,189,268                                               |      |             | $           | 2,293,758 |   |             | $           | (463,632  | )
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             | Equity in earnings of unconsolidated real estate          |                                                         |      | (1,160,414  | )           |           |   | (450,215    | )           |           |   | (61,958     | )         
|                                                                                                      |                                             | (Gain) loss on sale of real estate investments            |                                                         |      | (2,613,523  | )           |           |   | (213,352    | )           |           |   | 177,948     |           
|                                                                                                      |                                             | Depreciation  continuing operations                      |                                                         |      | 369,084     |             |           |   | 74,064      |             |           |   |            |           
|                                                                                                      |                                             | Depreciation  discontinued operations                    |                                                         |      | 102,478     |             |           |   | 671,579     |             |           |   | 593,627     |           
|                                                                                                      | Change in operating assets and liabilities: |                                                           |                                                         |      |             |             |           |   |             |             |           |   |            
|                                                                                                      |                                             | Accounts receivable                                       |                                                         |      | 205,679     |             |           |   | 50,576      |             |           |   | (189,694    | )         
|                                                                                                      |                                             | Accounts receivable from related parties                  |                                                         |      | 55,755      |             |           |   | 33,330      |             |           |   | (627,000    | )         
|                                                                                                      |                                             | Other assets                                              |                                                         |      | 626,623     |             |           |   | (582,367    | )           |           |   | (420,993    | )         
|                                                                                                      |                                             | Accounts payable and accrued liabilities                  |                                                         |      | 636,707     |             |           |   | 458,313     |             |           |   | (344,911    | )         
|                                                                                                      |                                             | Security deposits and prepaid rent                        |                                                         |      | (84,691     | )           |           |   | (46,138     | )           |           |   | 94,763      |           
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             |                                                           | Net cash provided by (used in) operating
    activities |      |             | 2,326,966   |           |   |             | 2,289,548   |           |   |             | (1,241,850 | )
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                  |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             | Purchase of real estate operating properties              |                                                         |      | (9,167,223  | )           |           |   | (6,885,437  | )           |           |   | (4,984,856  | )         
|                                                                                                      |                                             | Purchase of investments in unconsolidated real
    estate |                                                         |      | (3,671,202  | )           |           |   | (12,171,579 | )           |           |   | (1,663,657  | )         
|                                                                                                      |                                             | Real estate property improvements                         |                                                         |      | (197,704    | )           |           |   | (231,971    | )           |           |   | (152,422    | )         
|                                                                                                      |                                             | Proceeds from disposition of property held for
    sale   |                                                         |      | 35,940,424  |             |           |   | 1,502,197   |             |           |   | 1,050,000   |           
|                                                                                                      |                                             | Issuance of notes receivable                              |                                                         |      |            |             |           |   |            |             |           |   | (595,000    | )         
|                                                                                                      |                                             | Issuance of notes receivable from related parties         |                                                         |      |            |             |           |   |            |             |           |   | (837,579    | )         
|                                                                                                      |                                             | (Increase) decrease in notes receivable                   |                                                         |      | (59,930     | )           |           |   | 7,822       |             |           |   |            |           
|                                                                                                      |                                             | Collections of notes receivable from related
    parties  |                                                         |      |            |             |           |   | 1,787,579   |             |           |   |            |           
|                                                                                                      |                                             | Real estate deposits applied to purchases                 |                                                         |      | 3,907,990   |             |           |   | (3,287,243  | )           |           |   | (308,260    | )         
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             |                                                           | Net cash provided by (used in) investing
    activities |      |             | 26,752,355  |           |   |             | (19,278,632 | )         |   |             | (7,491,774 | )
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                  |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             | Issuance of common shares                                 |                                                         |      |            |             |           |   | 19,343,151  |             |           |   | 16,007,566  |           
|                                                                                                      |                                             | Borrowings under notes payable                            |                                                         |      | 5,000,000   |             |           |   | 4,400,000   |             |           |   | 13,150,000  |           
|                                                                                                      |                                             | Principal payments on notes payable                       |                                                         |      | (23,839,847 | )           |           |   | (1,047,336  | )           |           |   | (15,925,965 | )         
|                                                                                                      |                                             | Repurchase of shares                                      |                                                         |      | (454,502    | )           |           |   | (211,603    | )           |           |   | (9,050      | )         
|                                                                                                      |                                             | Distributions paid                                        |                                                         |      | (3,845,906  | )           |           |   | (2,862,599  | )           |           |   | (862,637    | )         
|                                                                                                      |                                             | Deferred financing costs                                  |                                                         |      | 120,790     |             |           |   | (150,220    | )           |           |   | (227,208    | )         
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             |                                                           | Net cash (used in) provided by financing
    activities |      |             | (23,019,465 | )         |   |             | 19,471,393  |           |   |             | 12,132,706 |  
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|NET INCREASE IN CASH AND CASH
    EQUIVALENTS                                                         |                                             |                                                           | 6,059,856                                               |      |             |             | 2,482,309 |   |             |             | 3,399,082 |  
|CASH AND CASH EQUIVALENTS 
    beginning of year                                                     |                                             |                                                           | 6,129,468                                               |      |             |             | 3,647,159 |   |             |             | 248,077   |  
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|CASH AND CASH EQUIVALENTS  end of
    year                                                           |                                             | $                                                         | 12,189,324                                              |      |             | $           | 6,129,468 |   |             | $           | 3,647,159 |  
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION:                                                 |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|Cash paid during the period for:                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             | Interest                                                  |                                                         | $    | 1,779,852   |             |           | $ | 1,820,223   |             |           | $ | 2,216,120   |           
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             | Income taxes                                              |                                                         | $    | 30,224      |             |           | $ | 68,796      |             |           | $ | 30,674      |           
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH
    ACTIVITIES:                                                    |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  
|                                                                                                      |                                             | Issuance of common stock for distributions
    reinvested |                                                         | $    |            |             |           | $ | 335,003     |             |           | $ | 292,984     |           
|                                                                                                      |                                             |                                                           |                                                         |      |             |             |           |   |             |             |           |  

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

27



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##### Table of Contents



T REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

For the Years Ended December 31, 2003,
2002 and 2001




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

T REIT, Inc. (the Company) was
formed in December 1998 in the Commonwealth of Virginia and
operates as a real estate investment trust (REIT)
under the Internal Revenue Code of 1986, as amended (the
Code). The Company is in the business of acquiring
existing office, industrial, retail and service properties
located in several states. As of December 31, 2003, the
Company owned two consolidated properties and interests in eight
unconsolidated properties. The Company acquires properties
through its operating partnership, T REIT, L.P., which is
wholly owned by the Company.

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



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

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



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

The accompanying consolidated financial
statements include the accounts of the Company and T REIT,
L.P. All significant intercompany accounts and transactions have
been eliminated in consolidation.



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



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

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

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

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

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

28



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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



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

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



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



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

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



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

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



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

Tenant receivables and unbilled deferred rent
receivables are carried net of the allowances for uncollectible
current tenant receivables and unbilled deferred rent.
Managements determination of the adequacy of these
allowances is based primarily upon evaluations of historical
loss experience, individual

29



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

tenant receivables considering the tenants
financial condition, security deposits, letters of credit, lease
guarantees and current economic conditions and other relevant
factors. Management has established an allowance for
uncollectible accounts of $40,889 and $67,759 at
December 31, 2003 and 2002, respectively, to reduce
receivables to its estimate of the amount recoverable.



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

Financial instruments that potentially subject
the Company to a concentration of credit risk are primarily cash
and accounts receivable from tenants. Cash is generally placed
in money market accounts and the amount of credit exposure to
any one party is limited. The Company has cash in financial
institutions which is insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per
institution. At December 31, 2003 and 2002, the Company had
cash accounts in excess of FDIC insured limits. Concentration of
credit risk with respect to accounts receivable from tenants is
limited. The Company performs credit evaluations of prospective
tenants, and security deposits are obtained.

As of December 31, 2003, the Company has
investments in three properties located in the state of Texas,
three properties located in the state of California, two
properties located in the state of Nevada, one property located
in the state of Illinois, and one property located in the state
of North Dakota. Accordingly, there is a geographic
concentration of risk subject to fluctuations in each
States economy. No single tenant accounted for a
significant portion of the Companys rental income.



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

The Company believes that the December 31,
2003 and 2002 interest rates associated with mortgages payable
approximate the market interest rates for these types of debt
instruments and as such, the carrying amount of the mortgages
payable approximate their fair value.

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



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

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



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

Real estate deposits are paid on properties the
Company is evaluating for purchase. Real estate deposits are
capitalized when paid and may become nonrefundable under certain
circumstances. When properties are acquired, the purchase price
is reduced by the amounts of deposits paid by the Company. At
December 31, 2003, management believes all real estate
deposits are refundable.



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

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

30



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

The Company operates as a real estate investment
trust for federal income tax purposes. As a REIT, the Company is
generally not subject to income taxes. To maintain its REIT
status, the Company is required to distribute annually as
dividends at least 90% of its REIT taxable income, as defined by
the Internal Revenue Code (IRC), to its
shareholders, among other requirements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be
subject to Federal income tax on its taxable income at regular
corporate tax rates. Although the Company qualifies for taxation
as a REIT, the Company may be subject to certain state and local
taxes on its income and property and Federal income and excise
taxes on its undistributed income. The Company believes that it
has met all of the REIT distribution and technical requirements
for the years ended December 31, 2003, 2002 and 2001 and
was not subject to any federal income taxes. Management intends
to continue to adhere to these requirements and maintain the
Companys REIT status.



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

The Company reports earnings per share pursuant
to Statement of Financial Accounting Standards No. 128,
Earnings Per Share. Basic earnings (loss) per share
attributable for all periods presented is computed by dividing
the earnings (loss) to common shareholders by the weighted
average number of common shares outstanding during the period.
Potentially dilutive securities consist of 101,490, 101,490 and
53,529 warrants at December 31, 2003, 2002 and 2001.



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

The preparation of the Companys financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of the assets and liabilities as of December 31, 2003 and
2002, and the revenues and expenses for each of the years in the
three year period ended December 31, 2003. Actual results
could differ from those estimates.



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

The Company internally evaluates all properties
as one industry segment and accordingly does not report segment
information.



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

On January 1, 2003, the Company adopted the
provisions of SFAS 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145). The most
significant provisions of this statement relate to the
rescission of Statement No. 4 Reporting Gains and
Losses from Extinguishment of Debt. SFAS 145 also
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings or describe
their applicability under changed conditions. Under
SFAS 145, any gain or loss on extinguishment of debt that
was classified as an extraordinary item in prior periods
presented that does not meet certain defined criteria

31



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

must be reclassified. The adoption of this
statement did not have a material effect on the Companys
results of operations or financial condition.

On January 1, 2003, the Company adopted the
provisions of SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3 Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized
when the liability is incurred. The adoption of this statement
did not have a material effect on the Companys results of
operations or financial condition.

On January 1, 2003, the Company adopted the
initial recognition and measurement provisions of Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45).
FIN 45 significantly changes the current practice in the
accounting for, and disclosure of, guarantees. Guarantees and
indemnification agreements meeting the characteristics described
in FIN 45 are required to be initially recorded as a
liability at fair value. FIN 45 also requires a guarantor
to make significant new disclosures for virtually all guarantees
even if the likelihood of the guarantor having to make payment
under the guarantee is remote. The Company adopted the
disclosure provisions of FIN 45 as of December 31,
2002. The adoption of the provisions of this interpretation did
not have a material effect on the Companys results of
operations or financial condition.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46
clarifies the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements and
provides guidance on the identification of entities for which
control is achieved through means other than voting rights
(variable interest entities or VIEs) and
how to determine when and which business enterprise should
consolidate the VIE. This new model for consolidation applies to
an entity in which either: (1) the equity investors (if
any) lack one or more characteristics deemed essential to a
controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entitys activities
without receiving additional subordinated financial support from
other parties. The provisions of this interpretation are
applicable to VIEs formed after January 31, 2003. For VIEs
formed prior to January 31, 2003, the provisions of this
interpretation apply to the first fiscal year or interim period
beginning after December 15, 2003. On February 1,
2003, the Company adopted the provisions of this interpretation,
which did not have a material effect on the Companys
results of operations or financial condition.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments imbedded in other
contracts and for hedging activities under
SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. The provisions of
SFAS 149 are generally effective for contracts entered into
or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption
of this statement did not have a material effect on the
Companys results of operations or financial condition.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both
liabilities and equity. The statement is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this
statement did not have a material effect on the Companys
results of operations or financial condition.

32



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

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



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

The Companys consolidated properties
consist of the following at December 31:

|                                  |  |      |            |      |  |   |            |  
|--------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                  |  | 2003 |            | 2002
|                                  |  |      |            |     
|Buildings and tenant improvements |  | $    | 15,159,952 |      |  | $ | 28,790,880 |  
|Land                              |  |      | 1,011,262  |      |  |   | 8,583,900  |  
|                                  |  |      |            |      |  |   |            |  
|                                  |  |      | 16,171,214 |      |  |   | 37,374,780 |  
|Less: accumulated depreciation    |  |      | (424,587   | )    |  |   | (1,111,856 | )
|                                  |  |      |            |      |  |   |            |  
|                                  |  | $    | 15,746,627 |      |  | $ | 36,262,924 |  
|                                  |  |      |            |      |  |   |            |  

At December 31, 2003, the Company owned two
consolidated properties:

Gateway Mall, Bismark, North Dakota

University Heights Business park,
San Antonio, Texas




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



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

On January 29, 2003, through its
wholly-owned subsidiary, TREIT  Gateway Mall ND, LLC,
the Company purchased Gateway Mall in Bismarck, North Dakota
from an unaffiliated third party for a purchase price of
$9,000,000. Gateway Mall is a multi-tenant regional mall of
approximately 333,878 square feet on a 45-acre site located
in Bismarck, North Dakota. The property is subject to a ground
lease expiring in 2028 with ten 5-year option periods
thereafter. The seller of the property paid a sales commission
to Realty of $250,000, or approximately 2.8% of the purchase
price.



| |                                                          
| | ---------------------------------------------------------
| | University Heights Business Park 
    San Antonio, Texas

On August 22, 2002, through its wholly-owned
subsidiary, TREIT  University Heights, LP, the
Company purchased the University Heights Business Park from an
unaffiliated third party for a purchase price of $6,750,000.
University Heights is a 68,400 square foot flex/service
center consisting of two one-story buildings located in
San Antonio, Texas. The seller of the property paid a sales
commission to Realty of $135,000, or 2.0% of the purchase price.



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



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

On September 25, 2003, the Company sold the
Pahrump Valley Junction Shopping Center in Pahrump, Nevada to an
unaffiliated third party for a sales price of $18,985,000. In
connection with the sale, the Company repaid a note payable
secured by the property with an outstanding balance of
approximately $11,884,000 and received net cash proceeds of
approximately $5,950,000 after closing costs

33



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and other transaction expenses. The sale resulted
in a net gain of approximately $874,000. The Company paid a
sales commission fee to Realty of $175,000, or approximately
1.0% of the sales price, and sales commissions to unaffiliated
brokers of $629,700, or approximately 3.3% of the sales price.
The Company reinvested the proceeds from the sale in other
income producing commercial real estate property.



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

On August 11, 2003, the Company sold the
Thousand Oaks Shopping Center in San Antonio, Texas to an
unaffiliated third party for a purchase price of $15,880,000. In
connection with the sale, the Company repaid a note payable
secured by the property with an outstanding balance of
$8,750,000 and received net cash proceeds totaling approximately
$6,100,000 after payment of closing costs and other transaction
expenses. The sale resulted in a net gain of approximately
$2,100,000. At closing, the Company paid a sales commission to
Realty of $175,000, or approximately 1.1% of the selling price,
and a sales commission to an unaffiliated broker of $317,600, or
approximately 2.0% of the selling price. The Company reinvested
the proceeds from the sale in real estate property that
qualifies for like-kind exchange treatment under
Section 1031 of the Code.



| |                                                        
| | -------------------------------------------------------
| | Northstar Crossing Shopping Center 
    Garland, Texas

On January 11, 2003, the Company sold the
Northstar Crossing Shopping Center in Garland, Texas to an
unaffiliated third party for a purchase price of $4,200,000. In
connection with the sale, the Company repaid a note payable
secured by the property with an outstanding balance of
$2,866,579 and received net cash proceeds totaling approximately
$1,015,000 after payment of closing costs and other transaction
expenses. The sale resulted in a net loss of approximately
$191,400. At closing, the Company paid a sales commission to an
unaffiliated broker of $168,000, or approximately 4.0% of the
selling price. The Company reinvested the proceeds from the sale
in other income producing commercial real estate property.



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

There was no property held for sale at
December 31, 2003.

Property held for sale at December 31, 2002
consisted of the Northstar Crossing Shopping Center. As
discussed above, this property was sold in January, 2003.

The results of operations for the property held
for disposition as of December 31, 2002 and the three
properties sold during 2003 classified as discontinued
operations for the years ended December 31, 2003, 2002 and
2001 are as follows:

|                                                                             |  |                                  |           |      |  |      |           |  |  |   |           | 
|---------------------------------------------------------------------------- |  | -------------------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                                             |  |                                 
|                                                                             |  | For the Years Ended December 31,
|                                                                             |  |                                 
|                                                                             |  | 2003                             |           | 2002 |  | 2001
|                                                                             |  |                                  |           |      |  |     
|Rental income                                                                |  | $                                | 2,677,673 |      |  | $    | 5,087,069 |  |  | $ | 3,945,738 | 
|Rental expenses                                                              |  |                                  | 647,821   |      |  |      | 1,311,038 |  |  |   | 1,190,376 | 
|Depreciation and amortization                                                |  |                                  | 203,211   |      |  |      | 911,010   |  |  |   | 611,764   | 
|Interest Expense                                                             |  |                                  | 1,263,248 |      |  |      | 1,822,551 |  |  |   | 2,117,127 | 
|                                                                             |  |                                  |           |      |  |      |           |  |  |   |           | 
|Income (loss) from discontinued
    operations  property held for sale, net |  | $                                | 563,393   |      |  | $    | 1,042,470 |  |  | $ | 26,471    | 
|                                                                             |  |                                  |           |      |  |      |           |  |  |   |           | 

34



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                               |  |                  |      |      |  |      |            |  |  |   |            | 
|------------------------------ |  | ---------------- | ---- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                               |  | Percentage Owned |      | 2003 |  | 2002
|                               |  |                  |      |      |  |     
|Reno Trademark Building        |  |                  | 40.0 | %    |  | $    | 1,151,334  |  |  | $ | 1,075,370  | 
|County Center Building         |  |                  | 16.0 | %    |  |      | 444,627    |  |  |   | 535,762    | 
|City Center West A Building  |  |                  | 89.1 | %    |  |      | 7,878,315  |  |  |   | 7,954,296  | 
|Pacific Corporate Park         |  |                  | 22.8 | %    |  |      | 1,973,807  |  |  |   | 2,283,092  | 
|Titan Building and Titan Plaza |  |                  | 48.5 | %    |  |      | 1,793,547  |  |  |   | 1,788,356  | 
|Saddleback Financial Center    |  |                  | 25.0 | %    |  |      | 811,053    |  |  |   | 862,955    | 
|Congress Center                |  |                  | 10.2 | %    |  |      | 4,838,700  |  |  |   |           | 
|Enclave Parkway                |  |                  | 3.3  | %    |  |      | 440,064    |  |  |   |           | 
|                               |  |                  |      |      |  |      |            |  |  |   |            | 
|                               |  |                  |      |      |  | $    | 19,331,447 |  |  | $ | 14,499,831 | 
|                               |  |                  |      |      |  |      |            |  |  |   |            | 

Condensed combined historical financial
information of investments in unconsolidated real estate as of
December 31, 2003 and 2002 is as follows:

|                               |  |      |             |      |  |   |            | 
|------------------------------ |  | ---- | ----------- | ---- |  | - | ---------- | 
|                               |  | 2003 |             | 2002
|                               |  |      |             |     
|Assets (primarily real estate) |  | $    | 246,975,115 |      |  | $ | 76,941,458 | 
|                               |  |      |             |      |  |   |            | 
|Mortgage notes payable         |  | $    | 159,962,007 |      |  | $ | 44,083,700 | 
|Other liabilities              |  |      | 3,713,144   |      |  |   | 1,790,392  | 
|Equity                         |  |      | 83,299,964  |      |  |   | 31,067,366 | 
|                               |  |      |             |      |  |   |            | 
|                               |  | $    | 246,975,115 |      |  | $ | 76,941,458 | 
|                               |  |      |             |      |  |   |            | 
|Companys share of equity      |  | $    | 19,331,447  |      |  | $ | 14,499,831 | 
|                               |  |      |             |      |  |   |            | 
|Revenues                       |  | $    | 25,325,576  |      |  | $ | 14,859,847 | 
|Expenses                       |  |      | 22,775,057  |      |  |   | 12,347,640 | 
|                               |  |      |             |      |  |   |            | 
|                               |  | $    | 2,550,519   |      |  | $ | 2,512,207  | 
|                               |  |      |             |      |  |   |            | 
|Companys equity in earnings   |  | $    | 1,160,414   |      |  | $ | 1,125,501  | 
|                               |  |      |             |      |  |   |            | 



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



| |                                     
| | ------------------------------------
| | Enclave Parkway  Houston,
    Texas

On December 22, 2003, through its
wholly-owned subsidiary, TREIT  Enclave Parkway, LLC,
the Company purchased a 3.3% interest in Enclave Parkway in
Houston, Texas from an unaffiliated third party. The total
purchase price for Enclave Parkway was $34,500,000. The
Companys total investment was $437,500. Enclave Parkway is
a 207,435 square foot Class A office building situated
in Houstons energy corridor. The seller of the property
paid a sales commission to Realty of $1,000,000, or 2.9% of the
purchase price.



| |                                        
| | ---------------------------------------
| | Congress Center 
    Chicago, Illinois

On January 9, 2003, through its wholly-owned
subsidiary, TREIT  Congress Center, LLC, the Company
purchased an approximately 10.2% tenant in common interest in
Congress Center from an

35



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

unaffiliated third party. Congress Center is a
16-story Class A office building of approximately
524,730 square feet located in Chicago, Illinois.
Affiliated entities purchased the remaining undivided tenant in
common interests in the property. The total purchase price for
Congress Center was $136,108,000. The Companys total
investment was approximately $5,000,000. The seller of the
property paid a sales commission to Realty of $2,000,000, or
approximately 1.5% of the purchase price.



| |                                                           
| | ----------------------------------------------------------
| | Saddleback Financial Center  Laguna
    Hills, California

On September 25, 2002, through its
wholly-owned subsidiary, T REIT  Saddleback
Financial L.P., the Company purchased a 25.0% undivided tenant
in common interest in the Saddleback Financial Center from an
unaffiliated third party. The Saddleback Financial Center is a
72,711 square foot, four-story suburban office building
located in Laguna Hills, California. The total purchase price of
the property was $11,072,500. The Companys total
investment was $775,000. The seller of the property paid a sales
commission to Realty of $322,500, or 2.9% of the purchase price.



| |                                                                    
| | -------------------------------------------------------------------
| | Titan Plaza, Titan Building and Titan
    Land  San Antonio, Texas

On April 17, 2002, through its wholly-owned
subsidiary, T REIT  Titan Plaza, L.P., the Company
purchased a 48.5% undivided tenant in common interest in the
Titan Building and Titan Plaza located in San Antonio,
Texas from an unaffiliated third party. The Titan Building is a
103,762 square foot, six-story suburban office building.
Titan Plaza is an adjoining 27,765 square foot single-story
Class B suburban office building. The total purchase price
of the property was $9,167,000. The Companys total
investment was $1,536,000. The seller of the property paid a
sales commission to Realty of $250,000, or 2.7% of the purchase
price. The Company also purchased an adjoining 2.34-acre parcel
of land for a purchase price of $75,000.



| |                                             
| | --------------------------------------------
| | Pacific Corporate Park  Lake
    Forest, CA

On March 25, 2002, through its wholly-owned
subsidiary, TREIT  Pacific Corporate Park, LLC, the
Company purchased a 22.8% undivided tenant in common interest in
Pacific Corporate Park from an unaffiliated third party. Pacific
Corporate Park is a six-building, 167,486 square foot
office park located in Lake Forest, California. The total
purchase price for Pacific Corporate Park was $23,728,000. The
Companys total investment was $4,937,100. The seller of
the property paid a sales commission to Realty of $580,000, or
2.4% of the purchase price.



| |                                                      
| | -----------------------------------------------------
| | City Center West A
    Building  Las Vegas, Nevada

On March 15, 2002, through its wholly-owned
subsidiary, T REIT  City Center West A, LLC, the
Company purchased an 89.1% undivided tenant in common interest
in the City Center West A Building from an
unaffiliated third party. City Center West A is a
105,964 square foot office building located in Las Vegas,
Nevada. The total purchase price for the property was
$21,670,000. The Companys total investment was $7,727,137.
The seller of the property paid a sales commission to Realty of
$420,000, or 1.9% of the purchase price.



| |                                                  
| | -------------------------------------------------
| | County Center Building  Temecula,
    California

On January 11, 2002, through its
wholly-owned subsidiary, NNN County Center  12, LLC,
the Company purchased a 16.0% undivided tenant in common
interest in the County Center Building from an unaffiliated
third party. County Center is a 77,582 square foot
office/distribution building located in Temecula, California.
The total purchase price was $6,335,000. The Companys
total investment was $500,000. The seller of the property paid a
sales commission to Realty of $150,000, or 2.4% of the purchase
price.

36



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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



| |                                    
| | -----------------------------------
| | Titan Land  San Antonio,
    Texas

On October 17, 2002, the Company sold a
2.34-acre parcel of land adjacent to the Titan Building and
Titan Plaza for approximately $130,000 to an unaffiliated third
party. No fees were earned by the Advisor or any affiliate from
this sale.



| |                                                  
| | -------------------------------------------------
| | Plaza del Rey Shopping Center 
    Seguin, Texas

On September 23, 2002, the Plaza del Rey
Shopping Center was sold for approximately $5,403,000 to an
unaffiliated third party. The proportionate sale price of the
Companys 16.5% undivided tenant in common interest in the
property was approximately $891,000. The Company realized cash
proceeds of approximately $197,000 from this sale. No fees were
earned by the Advisor or any affiliate from this sale.



| |                                                  
| | -------------------------------------------------
| | Seguin Corners Shopping Center 
    Seguin Texas

On August 12, 2002, the Seguin Corners
Shopping Center was sold for approximately $2,500,000 to an
unaffiliated third party. The proportionate sale price of the
Companys 26.0% undivided tenant in common interest in the
property was approximately $650,000. The Company realized cash
proceeds of approximately $192,000 from this sale. No fees were
earned by the Advisor or any affiliate from this sale.



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

At December 31, 2002, the Advisor owed the
Company approximately $120,000 related to offering costs paid.
Per the terms of the Advisory Agreement, the Company reimburses
the Advisor for offering costs incurred up to a maximum of 2.5%
of the gross offering proceeds. The Advisor must pay for any
offering costs incurred that, in the aggregate, are greater than
the maximum.

At December 31, 2003 and 2002, the Advisor
owed the Company $520,431 and $440,000 for amounts due under an
indemnification agreement (See Note 11, Commitments and
Contingencies).



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

Other assets consist of the following at
December 31:

|                                                                                                       |                    |      |         |         |  |   |         |           | 
|------------------------------------------------------------------------------------------------------ | ------------------ | ---- | ------- | ------- |  | - | ------- | --------- | 
|                                                                                                       |                    | 2003 |         | 2002   
|                                                                                                       |                    |      |         |        
|Loan impounds and reserves                                                                             |                    | $    | 574,162 |         |  | $ | 568,297 |          
|Deferred rent receivable                                                                               |                    |      | 75,233  |         |  |   | 436,622 |          
|Lease commissions, net of accumulated
    amortization of $8,935 and $0 at 2003 and 2002, respectively |                    |      | 74,936  |         |  |   | 117,372 |          
|Loan fees, net of accumulated amortization of
    $47,847 and 1,578 at 2003 and 2002, respectively     |                    |      | 144,909 |         |  |   | 417,480 |          
|Prepaid expenses                                                                                       |                    |      |        |         |  |   | 77,142  |          
|Other assets                                                                                           |                    |      | 610     |         |  |   | 350     |          
|                                                                                                       |                    |      |         |         |  |   |         |          
|                                                                                                       | Total other assets |      | $       | 869,850 |  |   | $       | 1,617,263 | 
|                                                                                                       |                    |      |         |         |  |   |         |          



|   |                
|-- | ---------------
|6. | Note Receivable

As of December 31, 2003 and 2002, the
Company was owed $647,108 and $587,178, respectively, under the
terms of a note receivable. The note is secured by a first deed
of trust on a real estate property, with interest at
8.5% per annum. All accrued, unpaid interest and principal
is due December 2006.

37



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

On September 3, 2003, the Company entered
into an agreement with Fleet National Bank for a line of credit
in the amount of $1,000,000 which bears interest at Fleets
prime rate plus fifty basis points (4.5% at December 31,
2003). The credit facility matures on September 2, 2004 and
has two one-year extensions. The credit facility is subject to a
fee of 1% to be paid one-third on each of the effective date,
the first anniversary and the second anniversary. As of
December 31, 2003, the Company had not borrowed any amounts
from the line of credit.



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

Notes payable consisted of the following at
December 31:

|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --------- | ---- |  | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 2003 |           | 2002
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |     
|Note payable to a mortgage company, secured by a
    deed of trust, rate per annum equal to an initial benchmark
    floor rate of 3% based on the 10-year Treasury note plus 2.25%.
    At December 31, 2003 and 2002, the interest rate was 5.25%
    and 5.25%, respectively. Matures in January 1, 2008. Equal
    principal and interest payments are payable monthly until
    repayment in full.                                    |  | $    | 4,345,840 |      |  | $ | 4,400,000  |  
|Note payable to a mortgage company, secured by a
    first deed of trust, interest at six-month LIBOR plus 2.15%.
    Principal and interest payable in monthly installments of
    $25,165. Matures on February 1, 2006.                                                                                                                                                                                                                  |  |      | 4,904,438 |      |  |   |           |  
|Note payable to a life insurance company, secured
    by a deed of trust, fixed interest at 6.0%; principal and
    accrued interest due in January 2009. Principal and interest
    payable in monthly installments of $93,242. The note was repaid
    in September 2003.                                                                                                                                                                |  |      |          |      |  |   | 12,071,036 |  
|Note payable to a mortgage company, secured by a
    first deed of trust, fixed interest at 8.2%; principal and
    accrued interest due in January 2012(d)(g). Principal and
    interest payable in monthly installments of $36,105. The note
    was repaid in January 2003.                                                                                                                                                            |  |      |          |      |  |   | 2,869,089  |  
|Note payable to a mortgage company, secured by
    the a first deed of trust, interest at the greater of 6.5% or a
    30-day LIBOR plus 3.5% floor for the first ninety days. After
    the ninety days rate will be the greater of 7.5% or 30-day LIBOR
    plus 3.5% (4.88% and 4.68% at December 31, 2003 and 2002,
    respectively); principal and accrued interest are due in January
    2004. The note was repaid in August 2003. |  |      |          |      |  |   | 8,750,000  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |  |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 9,250,278 |      |  |   | 28,090,125 |  
|Less notes payable secured by property held for
    sale(a)                                                                                                                                                                                                                                                                                                                                                                                |  |      |          |      |  |   | (2,869,089 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |  |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | $    | 9,250,278 |      |  | $ | 25,221,036 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |           |      |  |   |            |  



---



|    |  |                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | In November 2002, the Board of Directors of the
    Company approved the sale of Northstar Crossing Shopping Center.
    Such property is classified as held for sale at
    December 31, 2002 (See Note 3).

38



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The principal payments due on notes payable for
each of the next five years ending December 31, 2003 and
thereafter are summarized as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 161,271   | 
|2005       |  |   | 168,402   | 
|2006       |  |   | 174,755   | 
|2007       |  |   | 181,362   | 
|2008       |  |   | 188,235   | 
|Thereafter |  |   | 8,376,253 | 
|           |  |   |           | 
|           |  | $ | 9,250,278 | 
|           |  |   |           | 



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



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

Pursuant to a registration statement on
Form S-11 (the Registration Statement) under
the Securities Act of 1933, as amended, the Company offered for
sale up to 10,000,000 shares of its common stock (the
Shares), and (collectively the Offering)
at an Offering price of $10.00 per Share and up to
700,000 Shares under the Companys Dividend
Reinvestment Plan (the DRIP). The Registration
Statement was declared effective on February 22, 2000. By
May 31, 2002, when the Offering was terminated, the Company
had sold approximately 4,720,176 shares of common stock and
69,676 shares issued under the DRIP. Aggregate gross
proceeds before Offering costs and selling commissions were
approximately $46,395,000. The Offering and the DRIP were
terminated May 31, 2002.

Through December 31, 2002, the Company sold
4,696,300 shares of common stock including
22,100 shares issued to the Advisor at $9.05 per share
and 69,676 shares issued under the DRIP.



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

Effective May 24, 2001 the Company adopted
the Share Repurchase Plan (the Repurchase Plan),
which provides eligible shareholders with limited liquidity by
enabling them to sell their common stock back to the Company at
the sole discretion of the Board of Directors. To be eligible to
participate in the Repurchase Plan, a shareholder must offer for
resale at least 25% of the total number of his shares of Common
Stock and must have owned such Shares for at least one year.

The price paid by the Company per repurchased
Share of common stock varies based on the terms of the
Repurchase Plan. Repurchases are effected by the Company on or
about the last day of each calendar quarter. Funding for the
Repurchase Plan currently comes from operating revenues. The
Company repurchased 50,215, 22,876 and 1,000 shares of
common stock for $454,502, $211,603 and $9,050 during the years
ended December 31, 2003, 2002 and 2001, respectively.



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

The Company agreed to sell to the dealer manager,
NNN Capital Corp. (a related party, wholly owned by Chief
Executive Officer, Anthony Thompson), one warrant to purchase
one share of common stock for every 40 shares of common
stock sold by the dealer manager in any state other than
Arizona, Missouri, Ohio, or Tennessee, up to a maximum of
250,000 warrants to purchase an equivalent number of shares. The
dealer manager has agreed to pay the Company $0.0008 for each
warrant. The warrants were issued on a quarterly basis
commencing 60 days after the date the shares are first sold
under the Offering. Except where prohibited by securities laws,
the dealer manager may retain or distribute such warrants to
broker-dealers participating in the offering.

39



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

As of December 31, 2003 and 2002, there were
101,490 outstanding warrants held by soliciting dealers that
sold the Companys shares. No warrants had been exercised
to date. The Company applies the fair value method of accounting
for the warrants in accordance with SFAS 123.



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

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

Concurrent with commencement of the Offering, the
Company adopted stock option plans for (1) independent and
outside directors and (2) its officers and employees.
Shares of common stock issued upon the exercise of such options
will have certain transferability restrictions. The unregistered
public sale of restricted stock, which is governed by
Rule 144 of the Securities Act of 1933, as amended, is
prohibited during the first year of ownership and limited as set
forth in such rule during the second year of ownership.

Stock options granted pursuant to the Plans will
expire ten years from the grant date and will be exercisable in
whole or in part upon the second anniversary of the grant date;
provided, however, that if the exercise of any stock option
would cause the aggregate of all Company stock owned by the
Advisor, the Dealer Manager of the Offering (NNN Capital Corp.,
an affiliate of the Company and the Advisor), their affiliates,
and the Companys officers and directors to exceed 10.0% of
the total outstanding shares of the Companys common stock,
such exercise would be delayed until the first date on which the
exercise would not cause such limit to be exceeded. The Company
has authorized and reserved a total of 100,000 shares and
700,000 shares for issuance under the Director Plan and the
Officer/ Employee Plan,

40



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

respectively. Options grants are subject to
shareholder approval of the Plans. Each of the Plans was
approved by shareholders at the Annual Meeting of Shareholders
held June 28, 2003.

As of December 31, 2003, options for a total
of 165,000 shares are outstanding under the Officer and
Employee Stock Option Plan and Independent Director Stock Option
Plan.

|                       |           |           |         |                 |  |                  |      |      |  |   |      |      | 
|---------------------- | --------- | --------- | ------- | --------------- |  | ---------------- | ---- | ---- |  | - | ---- | ---- | 
|                       |           | Number    |         | Range of        |  | Weighted Average
|Options Outstanding at |           | of Shares |         | Exercise Prices |  | Exercise Price  
|                       |           |           |         |                 |  |                 
|January 1, 2001        |           |           | 105,000 |                 |  | $                | 9.05 |      |  | $ | 9.05 |     
|                       | Granted   |           |         | 60,000          |  |                  |      | 9.05 |  |   |      | 9.05 | 
|                       | Exercised |           |         |                |  |                  |      |     |  |   |      |     | 
|                       | Cancelled |           |         | 55,000          |  |                  |      | 9.05 |  |   |      | 9.05 | 
|                       | Expired   |           |         |                |  |                  |      |     |  |   |      |     | 
|                       |           |           |         |                 |  |                  |      |      |  |   |      |     
|December 31, 2001      |           |           | 110,000 |                 |  |                  | 9.05 |      |  |   | 9.05 |     
|                       | Granted   |           |         | 65,000          |  |                  |      | 9.05 |  |   |      | 9.05 | 
|                       | Exercised |           |         |                |  |                  |      |     |  |   |      |     | 
|                       | Cancelled |           |         | 20,000          |  |                  |      | 9.05 |  |   |      | 9.05 | 
|                       | Expired   |           |         |                |  |                  |      |     |  |   |      |     | 
|                       |           |           |         |                 |  |                  |      |      |  |   |      |     
|December 31, 2002      |           |           | 155,000 |                 |  |                  | 9.05 |      |  |   | 9.05 |     
|                       | Granted   |           |         | 10,000          |  |                  |      |      |  |   |      |      | 
|                       | Exercised |           |         |                 |  |                  |      |     |  |   |      |     | 
|                       | Cancelled |           |         |                |  |                  |      |     |  |   |      |     | 
|                       | Expired   |           |         |                |  |                  |      |     |  |   |      |     | 
|                       |           |           |         |                 |  |                  |      |      |  |   |      |     
|December 31, 2003      |           |           | 165,000 |                 |  | $                | 9.05 |      |  | $ | 9.05 |     
|                       |           |           |         |                 |  |                  |      |      |  |   |      |     

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

|                |  |             |         |              |  |                     |      |             |  |                     |      |  |  |  |        |  |  |   |      | 
|--------------- |  | ----------- | ------- | ------------ |  | ------------------- | ---- | ----------- |  | ------------------- | ---- |  |  |  | ------ |  |  | - | ---- | 
|                |  |             |         | Wtd Avg      |  |                     |      |             |  |                    
|                |  |             |         | Remaining    |  | Wtd Avg             |      |             |  | Wtd Avg            
|Range of        |  | Number      |         | Contractual  |  | Exercise Price     |      | Number      |  | Exercise Price    
|Exercise Prices |  | Outstanding |         | Life (Years) |  | Outstanding Options |      | Exercisable |  | Exercisable Options
|                |  |             |         |              |  |                     |      |             |  |                    
|$9.05           |  |             | 165,000 |              |  |                     | 8.84 |             |  | $                   | 9.05 |  |  |  | 90,000 |  |  | $ | 9.05 | 

The fair value of the options are calculated
using the Black-Scholes option-pricing model. Assumptions used
in the calculation included a 7.50% dividend yield, a 3.53%
risk-free interest rate based on the 10-year U.S. Treasury
Bond, an expected life of 9.25 years, and a 0% volatility
rate.

The weighted average remaining contractual life
of all options outstanding at December 31, 2003 was
approximately 8.84 years.

41



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The Company has operating leases with tenants
that expire at various dates through 2019 and are either subject
to scheduled fixed increases or adjustments based on the
Consumer Price Index. Generally, the leases grant tenants
renewal options. Leases also provide for additional rents based
on certain operating expenses. Future minimum rent contractually
due under operating leases, excluding tenant reimbursements of
certain costs, as of December 31, 2003, are summarized as
follows:

|            |       |   |           |            | 
|----------- | ----- | - | --------- | ---------- | 
|Year Ending |       |  
|            |       |  
|2004        |       | $ | 1,994,034 |           
|2005        |       |   | 1,976,510 |           
|2006        |       |   | 1,827,303 |           
|2007        |       |   | 1,645,965 |           
|2008        |       |   | 1,471,946 |           
|Thereafter  |       |   | 4,379,807 |           
|            | Total |   | $         | 13,295,565 | 
|            |       |   |           |           

A certain amount of the Companys rental
income is from tenants with leases which are subject to
contingent rent provisions. These contingent rents are subject
to the tenant achieving periodic revenues in excess of specified
levels. For the years ended December 31, 2003, 2002 and
2001, the amount of contingent rent earned by the Company was
not significant.



|    |                                                       
|--- | ------------------------------------------------------
|11. | Advisory Fees and Other Related Party
    Transactions



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

The Advisory Agreement between the Company and
the Advisor, as amended, was renewed by the Board of Directors
on June 28, 2003 for an additional one-year term effective
February 22, 2003. The Company compensates the Advisor for
its services through a series of fees pursuant to the Advisory
Agreement. No amounts are currently due the Advisor under this
agreement. The Company paid the Advisor approximately $1,000,
$620,000 and $153,000 for services provided during the years
ended December 31, 2003, 2002 and 2001, respectively.

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

The Advisor may receive an annual Asset
Management Fee of up to 1.5% of the Average Invested Assets.
This fee will be paid or accrue quarterly, but will not be paid
until the Shareholders have received distributions equal to a
cumulative non-compounded rate of 8.25% per annum on their
investment in the Company. If the fee is not paid in any
quarter, it will accrue and be paid once the Shareholders have

42



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

received a cumulative 8.25% return. The Advisor
is also entitled to receive property management fees for
management and leasing services. Such fees may not exceed 5% of
the gross revenue earned by the Company on properties managed.



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

The Company pays Realty property management fees
equal to 5% of the gross income of each property managed by
Realty. All of the Companys properties are managed by
Realty. The Company paid Realty approximately $195,300, $225,000
and $106,000 for services provided during the years ended
December 31, 2003, 2002 and 2001, respectively.



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

Realty earns sales commissions from acquisitions
and dispositions of the Companys properties. For the year
ended December 31, 2003, the Company paid sales commissions
to Realty of $350,000. For the years ended December 31,
2003 and 2002, unaffiliated sellers paid sales commissions to
Realty of $3,380,000 and $1,857,500, respectively, related to
consolidated and unconsolidated properties purchased by the
Company.



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

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



| |                                             
| | --------------------------------------------
| | Investment in unconsolidated real
    estate

The Company has purchased certain tenant in
common interests in properties where the other tenants in common
were participating in a tax-free exchange arranged by the
Advisor. Such transactions earn the Advisor or its affiliates
commissions on the tax-free exchanges, however, the Board of
Directors of the Company evaluates the extent to which the
Company participates in such acquisitions.



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



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

The Company has a noncancelable ground lease
obligation related to its Gateway Mall property. The lease
expires in 2028, with ten options to extend the lease for an
additional five years each. During the years ended
December 31, 2003, 2002 and 2001, ground lease expenses
totalled $36,700, $0, and $0, respectively.

The minimum commitment under these leases at
December 31, 2003 was as follows:

|            |       |   |         |           | 
|----------- | ----- | - | ------- | --------- | 
|Year Ending |       |  
|            |       |  
|2004        |       | $ | 40,000  |          
|2005        |       |   | 40,000  |          
|2006        |       |   | 40,000  |          
|2007        |       |   | 40,000  |          
|2008        |       |   | 40,000  |          
|Thereafter  |       |   | 806,663 |          
|            |       |   |         |          
|            | Total |   | $       | 1,006,663 | 
|            |       |   |         |          

43



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

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



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

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



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

In connection with the sale of the Christie
Building in November 2001, the Company agreed as part of the
sale transaction, to guarantee the lease payment in the amount
$20,000 per month for a period of five years under a master
lease agreement. Under this agreement, the Company is obligated
to make lease payments to the lessor only in the event the
sub-lessee fails to make the lease payments. In addition, the
Company is also obligated to pay a pro rata share of lease
commissions and tenant improvements in the event the premises
are re-leased prior to November 13, 2006. Concurrent with
the issuance of the guaranty, the Advisor agreed to indemnify
the Company against any future losses under the master lease
agreement with the indemnification evidenced by an indemnity
agreement dated November 13, 2001. The Christie Building is
a single tenant office building with the current tenants
lease which expired on August 31, 2002. In October 2002,
the tenant vacated the property. Accordingly, the Company has
accrued $640,707 related to its obligations under the guaranty
at December 31, 2003. The Company has no collateral,
however it has recourse against the Advisor under the indemnity
agreement. At April 19, 2004, the Company has been
reimbursed by the Advisor for all amounts paid under the
guarantee and expects to be reimbursed in the future by the
Advisor in connection with the indemnity agreement for the full
amount of its obligation.

44



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Investments at Risk

As of December 31, 2003, the Company had
contingent loan obligations associated with its investments in
unconsolidated real estate which it discloses under FIN 45.
None of these liabilities are carried on the consolidated
balance sheets as the Company accounts for related real estate
investments using the equity method of accounting. The
Companys liability for the debt of its unconsolidated
properties is limited to the amount of its investment at each
property.



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

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



|    |                                    
|--- | -----------------------------------
|13. | Selected Quarterly Data (Unaudited)

Set forth below is certain unaudited quarterly
information. The Company believes that all necessary
adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present
fairly, and in accordance with generally accepted accounting
principles, the selected quarterly information when read in
conjunction with the financial statements.

|                                                                          |                                             |                              |          |             |   |             |           |             |   |   |         |      |  |   |         |      | 
|------------------------------------------------------------------------- | ------------------------------------------- | ---------------------------- | -------- | ----------- | - | ----------- | --------- | ----------- | - | - | ------- | ---- |  | - | ------- | ---- | 
|                                                                          |                                             |                             
|                                                                          |                                             | Year Ended December 31, 2003
|                                                                          |                                             |                             
|                                                                          |                                             | 4th Quarter                  |          | 3rd Quarter |   | 2nd Quarter |           | 1st Quarter
|                                                                          |                                             |                              |          |             |   |             |           |            
|Revenues                                                                  |                                             | $                            | 892,230  |             |   | $           | 559,055   |             |   | $ | 676,698 |      |  | $ | 517,320 |     
|Expenses                                                                  |                                             |                              | 714,556  |             |   |             | 824,288   |             |   |   | 688,945 |      |  |   | 565,576 |     
|                                                                          |                                             |                              |          |             |   |             |           |             |   |   |         |      |  |   |         |     
|Income (loss) before equity in earnings of
    unconsolidated real estate |                                             |                              | 177,674  |             |   |             | (265,233  | )           |   |   | (12,247 | )    |  |   | (48,256 | )   
|Gain (loss) on sale of real estate investments                            |                                             |                              | (223,644 | )           |   |             | 2,813,550 |             |   |   |        |      |  |   | 23,617  |     
|Equity in earnings of unconsolidated real estate                          |                                             |                              | (70,768  | )           |   |             | 267,125   |             |   |   | 405,896 |      |  |   | 558,161 |     
|                                                                          |                                             |                              |          |             |   |             |           |             |   |   |         |      |  |   |         |     
|Income from continuing operations                                         |                                             |                              | (116,738 | )           |   |             | 2,815,442 |             |   |   | 393,649 |      |  |   | 533,522 |     
|Income (loss) from discontinued operations                                |                                             |                              | (59,681  | )           |   |             | (118,809  | )           |   |   | 488,498 |      |  |   | 253,385 |     
|                                                                          |                                             |                              |          |             |   |             |           |             |   |   |         |      |  |   |         |     
|Net income (loss)                                                         |                                             | $                            | (176,419 | )           |   | $           | 2,696,633 |             |   | $ | 882,147 |      |  | $ | 786,907 |     
|                                                                          |                                             |                              |          |             |   |             |           |             |   |   |         |      |  |   |         |     
|                                                                          | Earnings (loss) per share-basic and diluted |                              |          |             |   |             |           |             |   |   |         |      |  |   |         |      | 
|                                                                          | Continuing operations                       |                              | $        | 0.02        |   |             | $         | 0.60        |   |   | $       | 0.08 |  |   | $       | 0.11 | 
|                                                                          | Discontinued operations                     |                              | $        | (0.01       | ) |             | $         | (0.03       | ) |   | $       | 0.10 |  |   | $       | 0.06 | 
|                                                                          | Total net income (loss) per common share    |                              | $        | 0.02        |   |             | $         | 0.57        |   |   | $       | 0.18 |  |   | $       | 0.17 | 

45



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##### Table of Contents



T REIT, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                          |  |                              |         |             |  |             |         |             |  |   |          |   |  |   |         |  
|------------------------------------------------------------------------- |  | ---------------------------- | ------- | ----------- |  | ----------- | ------- | ----------- |  | - | -------- | - |  | - | ------- | -
|                                                                          |  |                             
|                                                                          |  | Year Ended December 31, 2002
|                                                                          |  |                             
|                                                                          |  | 4th Quarter                  |         | 3rd Quarter |  | 2nd Quarter |         | 1st Quarter
|                                                                          |  |                              |         |             |  |             |         |            
|Revenues                                                                  |  | $                            | 92,577  |             |  | $           | 305,790 |             |  | $ | 77,397   |   |  | $ | 111,050 |  
|Expenses                                                                  |  |                              | 73,579  |             |  |             | 219,450 |             |  |   | 265,065  |   |  |   | 116,284 |  
|                                                                          |  |                              |         |             |  |             |         |             |  |   |          |   |  |   |         |  
|Income (loss) before equity in earnings of
    unconsolidated real estate |  |                              | 18,998  |             |  |             | 86,340  |             |  |   | (187,668 | ) |  |   | (5,234  | )
|Gain on sale of real estate investments                                   |  |                              | 68,935  |             |  |             | 144,417 |             |  |   |         |   |  |   |        |  
|Equity in earnings of unconsolidated real estate                          |  |                              | 523,776 |             |  |             | 191,442 |             |  |   | 356,150  |   |  |   | 54,133  |  
|                                                                          |  |                              |         |             |  |             |         |             |  |   |          |   |  |   |         |  
|Income from continuing operations                                         |  |                              | 611,709 |             |  |             | 422,199 |             |  |   | 168,482  |   |  |   | 48,899  |  
|Income (loss) from discontinued operations                                |  |                              | 359,467 |             |  |             | 138,018 |             |  |   | 263,060  |   |  |   | 281,925 |  
|                                                                          |  |                              |         |             |  |             |         |             |  |   |          |   |  |   |         |  
|Net income (loss)                                                         |  | $                            | 971,176 |             |  | $           | 560,217 |             |  | $ | 431,542  |   |  | $ | 330,824 |  
|                                                                          |  |                              |         |             |  |             |         |             |  |   |          |   |  |   |         |  
|Earnings (loss) per share-basic and diluted                               |  |                              |         |             |  |             |         |             |  |   |          |   |  |   |         |  
|Continuing operations                                                     |  | $                            | 0.14    |             |  | $           | 0.09    |             |  | $ | 0.04     |   |  | $ | 0.02    |  
|Discontinued operations                                                   |  | $                            | 0.08    |             |  | $           | 0.03    |             |  | $ | 0.07     |   |  | $ | .10     |  
|Total net income (loss) per common share                                  |  | $                            | 0.23    |             |  | $           | 0.12    |             |  | $ | 0.11     |   |  | $ | .12     |  



|    |                  
|--- | -----------------
|14. | Subsequent Events

On January 20, 2004, the Company, through
its wholly-owned subsidiary, TREIT 
AmberOaks LP, a Texas limited partnership, purchased a 75%
undivided tenant in common interest in three buildings at
AmberOaks Corporate Center located in Austin, Texas from an
unaffiliated third party. Three unaffiliated entities purchased
the remaining 25% tenant in common interest in the property. The
total purchase price for AmberOaks was approximately
$22,965,000. The Companys total investment was
approximately $6,462,000. The seller paid a sales commission to
Realty of $585,000, or 2.3% of the purchase price. AmberOaks is
a Class A three-building office portfolio totaling
approximately 206,770 square feet that is part of an
eight-building complex built during 1999-2001. An affiliate of
the Companys advisor purchased the remaining five
buildings.

On March 18, 2004, the Company sold Gateway
Mall to an unaffiliated third party for a purchase price of
$11,600,000. On February 27, 2004, the Company purchased
approximately 43 acres of land, including approximately
36 acres of land situated under Gateway Mall from another
unaffiliated third party for a purchase price including closing
costs of $1,631,000. Prior to the land acquisition, the property
had been subject to a ground lease. The sale of Gateway Mall
included the underlying 36 acres of land. Sales proceeds
included cash of approximately $3,032,500 and a note receivable
in the amount of $8,700,000. The note is secured by a pledge
agreement, bears interest at 6% per annum and is due
June 14, 2004. In connection with the sale of Gateway Mall,
the Company repaid a note payable secured by the property with
an outstanding balance of $4,876,000. At closing, the Company
paid a sales commission to Realty of $339,000, or approximately
2.9% of the selling price.

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

46



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##### Table of Contents



SCHEDULE III

T REIT, INC.

REAL ESTATE OPERATING PROPERTIES AND
ACCUMULATED DEPRECIATION


|                       |  |                          |           |                                                  |  |              |           |               |  |              |            |             |  |              |           |                  |  |   |            |  |  |   |            |  |  |   |          |   |  |  |      | 
|---------------------- |  | ------------------------ | --------- | ------------------------------------------------ |  | ------------ | --------- | ------------- |  | ------------ | ---------- | ----------- |  | ------------ | --------- | ---------------- |  | - | ---------- |  |  | - | ---------- |  |  | - | -------- | - |  |  | ---- | 
|                       |  |                          |           |                                                 
|                       |  | Initial Costs to Company |           | Gross Amount at Which Carried at Close of Period
|                       |  |                          |           |                                                 
|                       |  |                          |           | Buildings and                                    |  |              |           | Buildings and |  |              |            | Accumulated |  |             
|                       |  | Encumbrances             |           | Land                                             |  | Improvements |           | Land          |  | Improvements |            | Total       |  | Depreciation |           | Date Constructed
|                       |  |                          |           |                                                  |  |              |           |               |  |              |            |             |  |              |           |                 
|Gateway Mall, ND       |  | $                        | 5,000,000 |                                                  |  | $            |          |               |  | $            | 9,167,223  |             |  | $            |          |                  |  | $ | 9,363,501  |  |  | $ | 9,363,501  |  |  | $ | (219,133 | ) |  |  | 1979 | 
|University Heights, TX |  |                          | 4,400,000 |                                                  |  |              | 1,011,262 |               |  |              | 5,724,750  |             |  |              | 1,011,262 |                  |  |   | 5,796,451  |  |  |   | 6,807,713  |  |  |   | (205,454 | ) |  |  | 2000 | 
|                       |  |                          |           |                                                  |  |              |           |               |  |              |            |             |  |              |           |                  |  |   |            |  |  |   |            |  |  |   |          |   |  |  |      | 
|Total                  |  | $                        | 9,400,000 |                                                  |  | $            | 1,011,262 |               |  | $            | 14,891,973 |             |  | $            | 1,011,262 |                  |  | $ | 15,159,952 |  |  | $ | 16,171,214 |  |  | $ | (424,587 | ) |  |  |      | 
|                       |  |                          |           |                                                  |  |              |           |               |  |              |            |             |  |              |           |                  |  |   |            |  |  |   |            |  |  |   |          |   |  |  |      | 

|                       |  |               |      |                                       |  |  |    | 
|---------------------- |  | ------------- | ---- | ------------------------------------- |  |  | -- | 
|                       |  |               |      | Maximum Life on Which Depreciation in
|Description            |  | Date Acquired |      | Latest Income Statement is Computed  
|                       |  |               |      |                                      
|Gateway Mall, ND       |  |               | 2003 |                                       |  |  | 39 | 
|University Heights, TX |  |               | 2002 |                                       |  |  | 39 | 



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | (a) The changes in wholly-owned real estate
    for the year ended December 31, 2003 are as follows:

|                               |  |      |             |  
|------------------------------ |  | ---- | ----------- | -
|                               |  | 2003
|                               |  |     
|Balance at beginning of period |  | $    | 37,374,781  |  
|Acquisitions                   |  |      | 9,364,624   |  
|Dispositions                   |  |      | (30,568,191 | )
|                               |  |      |             |  
|Balance at end of period       |  | $    | 16,171,214  |  
|                               |  |      |             |  

(b) The changes in accumulated depreciation
for the year ended December 31, 2003 are as follows:

|                               |  |      |            |  
|------------------------------ |  | ---- | ---------- | -
|                               |  | 2003
|                               |  |     
|Balance at beginning of period |  | $    | 1,111,856  |  
|Additions                      |  |      | 369,084    |  
|Deletions                      |  |      | (1,056,353 | )
|                               |  |      |            |  
|Balance at end of period       |  | $    | 424,587    |  
|                               |  |      |            |  

47



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##### Table of Contents








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

Dismissal of Squar, Milner, Reehl &
Williamson, LLP and Engagement of Grant Thornton LLP

Effective December 3, 2002, the
Companys Board of Directors dismissed the accounting firm
of Squar, Milner, Reehl & Williamson, LLP and approved
the engagement of Grant Thornton LLP, as its independent
certified public accountants for the year ending
December 31, 2002. The decision to engage Grant Thornton
was approved by the Board of Directors on the recommendation of
the Audit Committee.

Squar Milners reports on the Companys
financial statements for the years ended December 31, 2001
and 2000 contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit
scope or accounting principles. During the period of Squar
Milners engagement, the Company had no disagreements with
Squar Milner on any matter of accounting principles of
practices, financial statement disclosure or auditing scope of
procedure, which disagreement(s), if not resolved to the
satisfaction of Squar Milner, would have caused it to make
reference to the subject matter of the disagreement(s) in
connection with its report. No reportable event (as defined in
Item 304(a)(1)(v) of Regulation S-K) occurred since
the date of Squar Milners engagement.

Squar Milner provided the Company with a letter
addressed to the Securities and Exchange Commission (the
Commission) stating that it had reviewed the
statements included in the Companys Current Report on
Form 8-K/ A, dated December 3, 2002, and filed with
the Commission on December 18, 2002, and that it agreed
with statements made by the Company regarding Squar Milner. A
copy of this letter, dated as of December 18, 2002, was
filed as Exhibit 16.1 to the Current Report on
Form 8-K/ A.

Prior to the Companys engagement of Grant
Thornton, it did not consult with Grant Thornton regarding
(1) the application of accounting principles to a specified
transaction, either completed or proposed, (2) the type of
audit opinion that might be rendered on the Companys
financial statements or (3) any other matter that was
either the subject of a disagreement (as defined in
paragraph 304(a)(1)(iv) of Regulation S-K and the
related instructions to this item) or a reportable event (as
described in paragraph 304(a)(1)(v) of Regulation S-K).

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

Effective February 8, 2004, the Board of
Directors dismissed Grant Thornton LLP as the Companys
independent certified public accountant based on the
recommendation of the Audit Committee of the Board of Directors.
Effective February 8, 2004, the Board of Directors retained
Deloitte & Touche, LLP as its independent certified
public accountant, based on the recommendation of the Audit
Committee.

The report of Grant Thornton on our financial
statements for the fiscal year ended December 31, 2002
contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or
accounting principles. During the period of Grant
Thorntons engagement, there were no disagreements with
Grant Thornton on any matter of accounting principles or
practice, financial statement disclosure or auditing scope or
procedure, which disagreement(s), if not resolved to the
satisfaction of Grant Thornton, would have caused it to make
reference to the subject matter of the disagreement(s) in
connection with its report.

There were no reportable events (as
defined in Item 304 (a) (1) (v) of
Regulation S-K) that occurred during the period of Grant
Thorntons engagement.

Grant Thornton provided the Company with a letter
addressed to the Commission stating that it had reviewed the
statements included in our Current Report on Form 8-K,
dated February 8, 2004, and filed with the Commission on
February 12, 2004, and that it agreed with the
Companys statement regarding Grant Thornton. A copy of
this letter was filed as Exhibit 16.1 to the Current Report
on Form 8-K.

48



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##### Table of Contents



Prior to the Companys engagement of
Deloitte & Touche, LLP, it did not consult with Deloitte
& Touche, LLP regarding (1) the application of
accounting principles to a specified transaction, either
completed or proposed, (2) the type of audit opinion that
might be rendered by Deloitte & Touche, LLP on the
Companys financial statements, or (3) any other
matter that was the subject of a disagreement between the
Company and its auditor (as defined in Item 304(a)(1)(iv)
of Regulation S-K and its related instructions) or a
reportable event (as described in Item 304(a) (1)(v) of
Regulation S-K).






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

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

As of December 31, 2003, the end of the
fiscal year covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of
the Companys management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure
controls and procedures. Based on the foregoing, the
Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures were effective at the reasonable assurance level.

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




PART III






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

The following table and biographical descriptions
set forth information with respect to the Companys
officers and Directors.

|                    |  |     |    |          |  |                                                                               |  |  |            | 
|------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------------------- |  |  | ---------- | 
|Name                |  | Age |    | Position |  | Term of Office                                                               
|                    |  |     |    |          |  |                                                                              
|Anthony W. Thompson |  |     | 57 |          |  | Chairman of the Board of Directors, Chief
    Executive Officer and President |  |  | Since 1999 | 
|D. Fleet Wallace    |  |     | 36 |          |  | Director                                                                      |  |  | Since 2002 | 
|W. Brand Inlow      |  |     | 50 |          |  | Director                                                                      |  |  | Since 2002 | 
|Diana M. Laing      |  |     | 49 |          |  | Chief Financial Officer                                                       |  |  | Since 2004 | 
|Jack R. Maurer      |  |     | 60 |          |  | Secretary and Treasurer                                                       |  |  | Since 1999 | 

There are no family relationships between any
Directors, executive officers or between any Director and
executive officer.

Anthony W. (Tony) Thompsonhas served as Chairman of the
Companys Board of Directors, Chief Executive Officer,
President and a Director of the Company since December 1999.
Mr. Thompson has also been Chief Executive Officer,
President and a Director of G REIT, Inc., an affiliate,
since December 2001. In addition, he is a co-founder of the
Advisor, Triple Net Properties, LLC, and has been

49



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its President since inception in April of 1998.
He is also President and 100% owner of Triple Net Properties
Realty, Inc., an affiliated real estate brokerage and
management company that will provide certain real estate
brokerage and management services to the Company. Prior to April
of 1998, Mr. Thompson was co-founder, co-owner, director
and officer of a number of real estate investment entities
trading under the name The TMP Companies, including the TMP
Group, Inc., a full-service real estate investment firm
founded in 1978. Mr. Thompson has been the President and
100% owner of our dealer manager, NNN Capital Corp., since 1986
and is a registered securities principal with the NASD. He is a
1969 graduate of Sterling College with a BS in Economics. He is
a member of the Sterling College Board of Trustees and various
other charitable and civic organizations.


D. Fleet Wallacehas served as a Director of the
Company since May 2002. He is a principal and co-founder of
Greystone Fund, L.P. and Greystone Capital Management, LLC,
Greystone Funds general partner. Greystone Fund, L.P. is a
professionally managed opportunity fund formed in September 2001
that invests primarily in promising venture capital
opportunities and distressed assets in the form of real estate,
notes and accounts receivable, inventory and other assets. Prior
to founding Greystone Fund and Greystone Capital Management,
from April 1998 to August 2001, Mr. Wallace served as
corporate counsel and Assistant Secretary of United Dominion
Realty Trust, Inc., a publicly-traded real estate
investment trust. At United Dominion, he managed general
corporate matters for over 150 affiliated entities, negotiated
and executed numerous real estate acquisitions and dispositions,
and provided legal support on over $1 billion in financing
transactions. From September 1994 to April 1998,
Mr. Wallace was in the private practice of law with the
firm of McGuire Woods in Richmond, Virginia. Mr. Wallace
also serves as a Director of G REIT, Inc., an affiliate.

W. Brand Inlowhas served as a Director of the
Company since May 2002. Mr. Inlow currently provides
professional consulting services to the multifamily industry on
matters related to acquisitions, dispositions, asset management
and property management operations. Mr. Inlow also is
President of Jessies Wish, Inc., a Virginia
non-profit corporation dedicated to awareness, education and
financial assistance for patients and families dealing with
eating disorders. Mr. Inlow served as President of Summit
Realty Group, Inc. in Richmond, Virginia, from September
2001 through October 2003. Prior to joining Summit Realty, from
November 1999 to September 2001 he was Vice President of
Acquisitions for EEA Realty, LLC in Alexandria, Virginia where
he was responsible for acquisition, disposition, and financing
of company assets, which were primarily garden apartment
properties. Prior to joining EEA Realty, from November 1991 to
November 1999, Mr. Inlow worked for United Dominion Realty
Trust, Inc. a publicly-traded real estate investment trust,
as Assistant Vice President and Senior Acquisition Analyst,
where he was responsible for the acquisition of garden apartment
communities. Mr. Wallace also serves as a Director of G
REIT, Inc., an affiliate.

Diana M. Lainghas
served as the Companys Chief Financial Officer since
January 2004 and is responsible for all areas of finance,
including accounting and financial reporting, as well as a
liaison for institutional investors, lenders and investment
banks. Ms. Laing served as a Principal and Chief Financial
Officer of New Pacific Realty Corporation, a private real estate
investment company from December 2001 to December 2003 and as
Executive Vice President and Chief Financial Officer of
Firstsource Corp., a private technology company, from July 2000
to May 2001. From August 1996 to July 2000, she was the
Executive Vice President and Chief Financial Officer of Arden
Realty, Inc., a NYSE publicly traded real estate investment
trust and the largest owner and operator of commercial office
properties in the Southern California region. Ms. Laing
received a BS in accounting from Oklahoma State University and
is a Texas Certified Public Accountant. Ms. Laing currently
serves as the Chairman of the Audit Committee of the Board of
Directors of The Macerich Company, a publicly traded real estate
investment trust which owns and operates regional malls. In
addition, Ms. Laing is the Chief Financial Officer of our
advisor and of G REIT, Inc., an affiliate. Ms. Laing has
resigned her position as Chief Financial Officer effective
April 22, 2004.

Jack R. Maurerhas
served as Secretary and Treasurer of the Company since December
1999. He has served as Chief Financial Officer of the Advisor
from April 1998 to December 2001, when he became Financial
Principal of NNN Capital Corp., our dealer manager and has
served as Executive Vice President

50



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of G REIT, Inc., an affiliate, since
December 2001. Mr. Maurer has over 29 years of real
estate financial management experience, including Chief
Financial Officer and Controller positions in residential and
commercial development and the banking industry. From 1986 to
April 1998, he was a General Partner and CEO of Wescon
Properties, where he was involved in finance, accounting and
forecasting. His previous experience also includes the national
accounting firm of Kenneth Leventhal & Company.
Mr. Maurer received a BS from California University at
Northridge in 1973 and is a Registered Operations and Financial
Principal with the NASD.


Committees of Our Board of Directors



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

Each of the Companys acquisitions must be
approved by the Acquisition Committee, a majority of whom are
independent Directors, or a majority of the Board of Directors,
including a majority of the independent Directors, as being fair
and reasonable to the Company and consistent with our investment
objectives. Currently the Acquisition Committee is comprised of
all members of the Board of Directors. The Board of Directors
may establish additional acquisition committees from time to
time based on property type or other relevant factors. The
Advisor will recommend suitable properties for consideration by
the appropriate acquisition committee or the Board of Directors
from time to time. If the members of the Acquisition Committee
unanimously approve a given acquisition, then the Advisor will
be directed to acquire the property on our behalf, if such
acquisition can be completed on terms approved by the Committee.
In the event we appoint an Acquisition Committee in the future,
and if the Acquisition Committee does not approve a proposed
acquisition, then the property may be presented to our full
Board of Directors for consideration, who, by majority vote, may
elect to acquire or reject the property. Properties may be
acquired from the Advisor or its affiliates or our officers and
Directors, provided that any interested or affiliated Directors
shall not vote on such an acquisition.



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

The Companys Audit Committee is comprised
of the two independent Directors, Messrs. Inlow and
Wallace. The Board of Directors has determined that
Mr. Inlow qualifies as an audit committee financial
expert under the rules of the Securities and Exchange
Commission. The Audit Committee:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | makes recommendations to the 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; and                                                        
|
| |  | consults with the independent public accountants
    regarding the adequacy of our internal accounting controls.



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

The Board of Directors has established an
Executive Compensation Committee consisting of up to three
Directors, including at least two independent Directors, to
establish compensation policies and programs for our Directors
and executive officers. The members of our Executive
Compensation Committee are Messrs. Thompson, Wallace and
Inlow. At present, our Executive Compensation Committee serves
only to determine the stock option grants under our two stock
option plans. However, at a later date, the Executive
Compensation Committee may exercise all powers of our Board of
Directors in connection with establishing and implementing
compensation matters, including incentive compensation and
benefit plans, except for those which require actions by all of
the Directors under our articles of incorporation, bylaws or
applicable law. Stock-based compensation plans will be
administered by the Board

51



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of Directors if the members of the Executive
Compensation Committee do not qualify as non-employee
directors within the meaning of the Exchange Act.


Director Compensation

We pay each independent Director a fee of $1,000
for attending, in person or by telephone, each meeting of the
Board or Committee thereof; however, such compensation,
including fees for attending meetings, may not exceed $12,000
annually. The independent and outside Directors also qualify for
the independent director stock option plan.

Independent Director Stock Option
Plan

In February 2000 the Company adopted the
Independent Director Stock Option Plan (the Director
Plan). Only outside and independent Directors are eligible
to participate in the Director Plan. We have authorized and
reserved a total of 100,000 shares of common stock for
issuance under the Director Plan.

The Director Plan provides for the grant of
initial and subsequent options. Initial options are
non-qualified stock options to purchase 5,000 shares of
common stock at the applicable option exercise price described
below granted to each independent Director and each outside
Director as of the date such individual becomes an independent
or outside Director. Subsequent options to purchase
5,000 shares of common stock at the applicable option
exercise price may be granted on the date of each annual
shareholders meeting to each independent and outside
Director so long as the individual is still in office. In 2003,
the Company granted options to purchase 5,000 shares at
$9.05 per share to each of the two independent Directors.
As of December 31, 2003, the Company has granted options to
purchase 30,000 shares in accordance with the Director
Plan. The Director Plan was approved at the annual shareholder
meeting on June 28, 2003.

Officer and Employee Stock Option
Plan

In February 2000 we adopted the Officer and
Employee Stock Option Plan (the Officer Plan). All
of our officers and employees are eligible to participate in the
Officer Plan.

The Company has authorized and reserved a total
of 700,000 shares of common stock for issuance under the
Officer Plan. The Board of Directors, acting on the
recommendation of the Compensation Committee, has discretion to
grant options to officers and employees effective as of each
annual meeting of our shareholders. No options were granted in
2003. As of December 31, 2003, the Company has granted
options to purchase 135,000 shares to officers of the
Company. The Officer Plan was approved at the annual shareholder
meeting on June 28, 2003.






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

Compensation of Executive Officers

The Company has no employees and the
Companys executive officers are all employees of the
Advisor and/or its affiliates. The executive officers are
compensated by the Advisor and/or its affiliates and will not
receive any compensation from the Company for their services.

52



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Option/ SAR Grants in Last Fiscal
Year

No option grants were made to officers and
directors in the last fiscal year ended December 31, 2003.

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

|                 |  |             |     |          |  |                           |     |                           |  |  |           |  |  |  |            | 
|---------------- |  | ----------- | --- | -------- |  | ------------------------- | --- | ------------------------- |  |  | --------- |  |  |  | ---------- | 
|                 |  |             |     |          |  |                           |     | Value of Unexercised     
|                 |  |             |     |          |  | Number of Securities      |     | In-the-Money             
|                 |  | Shares      |     | Value    |  | Underlying Unexercised    |     | Options /SARs at         
|                 |  | Acquired on |     | Realized |  | Options/SARs at FY-End    |     | FY-End ($)               
|Name             |  | Exercise($) |     | ($)      |  | Exercisable/Unexercisable |     | Exercisable/Unexercisable
|                 |  |             |     |          |  |                           |     |                          
|Anthony Thompson |  |             | -0- |          |  |                           | -0- |                           |  |  | 0/135,000 |  |  |  | 0/$224,454 | 

Compensation Committee Interlocks and Insider
Participation

During 2003, the following Directors served on
the Compensation Committee: Messrs. Thompson, Wallace and
Inlow. Mr. Thompson also served as Chief Executive Officer
and President.

Board Compensation Committee Report on
Executive Compensation

The Compensation Committee may recommend awards
of stock options to officers and other employees under the
Officer Plan.






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

The following table shows, as of March 30,
2004, the number and percentage of shares of our common stock
owned by (1) any person who is known by the Company to be
the beneficial owner of more than 5% of the outstanding shares
of the Companys common stock, (2) the Chief Executive
Officer and each of the Companys four most highly
compensated executive officers if such officers salary and
bonus for 2003 exceeded $100,000, (3) each Director and
(4) all Directors and executive officers as a group.

|                                                |  |              |         |            |  |  |      | 
|----------------------------------------------- |  | ------------ | ------- | ---------- |  |  | ---- | 
|                                                |  | Number of    |         |           
|                                                |  | Shares       |         |           
|                                                |  | Beneficially |         | Percent of
|Name of Beneficial Owner                        |  | Owned(1)     |         | Class     
|                                                |  |              |         |           
|Anthony W. Thompson(2)                          |  |              | 112,203 |            |  |  | 2.4% | 
|D. Fleet Wallace                                |  |              | 552     |            |  |  | *    | 
|W. Brand Inlow                                  |  |              | 552     |            |  |  | *    | 
|All Directors and Executive Officers as a group |  |              | 113,307 |            |  |  | 2.4% | 



---



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



|    |                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Beneficial ownership includes outstanding shares
    and shares that any person has the right to acquire within
    60 days after the date of this table. Except as indicated
    in the footnotes to this table and pursuant to applicable
    community property laws, the persons named in the table have
    sole voting and investment power with respect to all shares
    beneficially owned by them.
|   
|(2) | Includes 103 Shares owned by AWT LP, a
    Limited partnership controlled by Mr. Thompson and
    22,100 shares owned by Triple Net Properties, LLC a limited
    liability company controlled by Mr. Thompson.                                                                                                                                                                                             






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The Advisory Agreement between the Company and
the Advisor, as amended, was renewed by the Board of Directors
on June 28, 2003 for an additional one-year term effective
February 22, 2003. The Company compensates the Advisor for
its services through a series of fees pursuant to the Advisory
Agreement. No amounts are currently due the Advisor under this
agreement. The Company paid the

53



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Advisor $1,000, $620,000 and $153,000 for
services provided during the years ended December 31, 2003,
2002 and 2001, respectively.


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

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



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

The Company pays Realty property management fees
equal to 5% of the gross income of each property managed by
Realty. All of the Companys properties are managed by
Realty. The Company paid Realty $195,300, $225,000 and $106,000
for services provided during the years ended December 31,
2003, 2002 and 2001, respectively.



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

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



| |                                             
| | --------------------------------------------
| | Investment in Unconsolidated Real
    Estate

The Company has purchased certain tenant in
common interests in properties where the other tenants in common
were participating in a tax-free exchange arranged by the
Advisor. Such transactions earn the Advisor or its affiliates
commissions on the tax-free exchanges, however, the Board of
Directors of the Company evaluates the extent to which the
Company participates in such acquisitions.






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

Squar Milner Reehl & Williamson, LLP
served as the Companys independent auditors from our
formation in 2001 until they were dismissed by us on
August 22, 2002. Grant Thornton LLP served as our
independent auditors from December 3, 2002 until they were
dismissed by us on February 8, 2004. Effective
February 8, 2004, the Board of Directors, based on the
approval and recommendation of the Audit Committee, has selected
Deloitte & Touche, LLP as our independent auditors.
Deloitte & Touche, LLP will audit our financial
statements for the year ended December 31, 2003.

54



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The following table lists the fees for services
rendered by our independent auditors for 2003 and 2002:

|                      |  |      |         |      |  |   |         | 
|--------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|Services              |  | 2003 |         | 2002
|                      |  |      |         |     
|Audit Fees(1)         |  | $    | 226,700 |      |  | $ | 222,305 | 
|Audit-Related Fees(2) |  |      |        |      |  |   |        | 
|Tax Fees(3)           |  |      | 10,000  |      |  |   | 20,136  | 
|All Other Fees(4)     |  |      |        |      |  |   |        | 
|                      |  |      |         |      |  |   |         | 
|Total                 |  | $    | 236,700 |      |  | $ | 242,441 | 
|                      |  |      |         |      |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees billed in 2003 and 2002 consisted of
    audit of the Companys annual financial statements,
    acquisition audits, reviews of the Companys quarterly
    financial statements, and statutory and regulatory audits,
    consents and other services related to filings with the
    Securities and Exchange Commission.
|   
|(2) | Audit-related fees billed in 2003 and 2002
    consisted of financial accounting and reporting consultations.                                                                                                                                                                                                                        
|   
|(3) | Tax services billed in 2003 and 2002 consisted of
    tax compliance and tax planning and advice.                                                                                                                                                                                                                                    
|   
|(4) | There were no fees billed for other services in
    2003 or 2002.                                                                                                                                                                                                                                                                    

The Audit Committee has determined that the
provision by Grant Thornton LLP of non-audit services for us in
2003 is compatible with Grant Thorntons maintaining its
independence.

The Audit Committee has approved
Deloitte & Touche, LLP and Grant Thornton LLP to
perform the following non-audit services for us during 2004:

 Consultations and consents related to
SEC filings and registration statements

 Consultation of accounting matters

 Tax planning and tax compliance for
the U.S. income and other taxes




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) List of documents filed:



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | (1) The consolidated financial statements of
    the Company included in this report are set forth in Item 8.
|
| | (2) Financial Statement Schedules:                                                                           



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | The following financial statement schedule for
    the year ended December 31, 2002 is submitted herewith:

|                                                                                 |  |      |    | 
|-------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                 |  | Page
|                                                                                 |  |     
|Real Estate Operating Properties and Accumulated
    Depreciation (Schedule III) |  |      | 47 | 



| |                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules other than the one listed above
    have been omitted as the required information is inapplicable or
    the information is presented in the consolidated financial
    statements or related notes.

55



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##### Table of Contents





| |                                                                             
| | ----------------------------------------------------------------------------
| | (3) Exhibits. The following exhibits are
    filed as part of this document:

|     |    |             |  |                                                                                                                                                                                                                                                                                                                                                                         
|---- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |    |            
|No.  |    | Description
|     |    |            
|     | 1  | .1          |  | Dealer Manager Agreement between T
    REIT, Inc. and NNN Capital Corp. (included as
    Exhibit 1.1 to Amendment No. 2 the Companys
    Registration Statement on Form S-11 filed on
    October 13, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                         
|     | 1  | .2          |  | Form of Participating Broker-Dealer Agreement
    (included as Exhibit 1.2 to Amendment No. 2 to the
    Companys Registration Statement on Form S-11 filed on
    October 13, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                
|     | 3  | .1          |  | Articles of Incorporation of the Company
    (included as Exhibit 3.1 to the Companys Registration
    Statement on Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                                              
|     | 3  | .2          |  | Form of Amended and Restated Articles of
    Incorporation of the Company (included as Exhibit 3.2 to
    Amendment No. 3 to the Companys Registration
    Statement on Form S-11 filed on November 22, 1999
    (File No. 333-77229) and incorporated herein by this
    reference)                                                                                   
|     | 3  | .3          |  | Form of By-Laws of the Company (included as
    Exhibit 3.3 to the Companys Registration Statement on
    Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                                                                        
|     | 3  | .4          |  | Form of Amended By-Laws of the Company (included
    as Exhibit 3.4 to Post-Effective Amendment No. 2 to
    the Companys Registration Statement on Form S-11
    filed on July 17, 2001 (File No. 333-77229) and
    incorporated herein by reference.)                                                                                                               
|     | 4  | .1          |  | Form of Share Certificate (included as
    Exhibit 4.1 to Amendment No. 4 to the Companys
    Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                                    
|     | 10 | .1          |  | Form of Agreement of Limited Partnership of T
    REIT, L.P. (included as Exhibit 10.1 to Amendment
    No. 2 to the Companys Registration Statement on
    Form S-11 filed on October 13, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                                    
|     | 10 | .2          |  | Dividend Reinvestment Program (included as
    Exhibit C to the Companys Prospectus filed as part of
    the Companys Registration Statement on Form S-11 on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                   
|     | 10 | .3          |  | Independent Director Stock Option Plan (included
    as Exhibit 10.3 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                      
|     | 10 | .4          |  | Employee and Officer Stock Option Plan (included
    as Exhibit 10.4 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                                                                      
|     | 10 | .5          |  | Advisory Agreement between the Company and the
    Advisor (included as Exhibit 10.5 to Amendment No. 2
    to the Companys Registration Statement on Form S-11
    filed on October 13, 1999 (File No. 333-77229) and
    incorporated herein by this reference)                                                                                                      
|     | 10 | .6          |  | Purchase and Sale Agreement, dated June 5,
    2000, by and between Robert C. Parker and Carolyn De
    La Fuente Parker and Triple Net Properties, LLC (included
    as Exhibit 10.1 to Form 10-Q filed by the Registrant
    with the SEC on November 14, 2000 and incorporated herein
    by this reference)                                                         
|     | 10 | .7          |  | Purchase and Sale Agreement, dated
    October 25, 2000, by and between CMF Capital Company LLC
    and TREIT, L.P. (included as Exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on November 13, 2000
    and incorporated herein by this reference)                                                                                                  
|     | 10 | .8          |  | Purchase and Sale Agreement, dated
    October 26, 2000, by and between CMF Capital Company LLC
    and TREIT L.P. (included as exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on December 20, 2000
    and incorporated herein by this reference)                                                                                                   
|     | 10 | .9          |  | Purchase and Sale Agreement, dated
    August 24, 2000, as amended, by and between Drummer Boy
    Holdings, LLC and Triple Net Properties, LLC (included as
    Exhibit 10.9 to Post Effective Amendment No. 2 to the
    Companys Registration Statement on Form S-11 filed on
    July 17, 2001 (File No. 333-772229) and incorporated
    herein by this reference)

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|     |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |    |            
|No.  |    | Description
|     |    |            
|     | 10 | .10         |  | First Amendment to Advisory Agreement between the
    Company and the Advisor (included as Exhibit 10.10 to
    Post-Effective Amendment No. 1 to the Companys
    Registration Statement filed on Form S-11 on July 17,
    2001 (File No. 333-772229) and incorporated herein by this
    reference)                                                                                                  
|     | 10 | .11         |  | Purchase and Sale Agreement, dated April 16,
    2001, by and between Kilroy Realty, L.P. and Triple Net
    Properties LLC (included as Exhibit 10.11 to Post Effective
    Amendment No. 3 to the Companys Registration
    Statement no Form S-11 filed on October 19, 2001 (File
    No. 333-772229) and incorporated herein by reference)                                                          
|     | 10 | .12         |  | Purchase and Sale Agreement dated
    October 30, 2001, by and between Triple Net Properties, LLC
    and City Center West Development, LLC (included as
    Exhibit 10.1 to Form 8-K/ A filed by the Company on
    May 14, 2002 and incorporated herein by reference)                                                                                                                                  
|     | 10 | .13         |  | Purchase and Sale Agreement dated
    November [  ], 2001, by and between Triple Net
    Properties, LLC and United States Fidelity and Guaranty Company
    (included as Exhibit 10.1 to Form 8-K/ A filed by the
    Company on May 14, 2002 and incorporated herein by
    reference)                                                                                                                 
|     | 10 | .14         |  | Amended and Restated Real Estate Purchase and
    Sale Agreement dated as of July 24, 2002 by and between
    Transwestern Heights, L.P. as seller and Triple Net Properties,
    LLC, as assigned to TREIT  University Heights, LP, a
    Texas limited partnership (included as Exhibit 10.14 to the
    Form 8-K filed by the Company on September 5, 2002 and
    incorporated herein by reference).
|     | 10 | .15         |  | Purchase Agreement dated October 10, 2002
    between Congress Center, LLC and Triple Net Properties, LLC as
    assigned to NNN Congress Center, LLC, GREIT  Congress
    Center, LLC, and WREIT  Congress Center, LLC
    (included as Exhibit 10.14 to the Form 8-K filed by
    the Company on January 24, 2003 and incorporated herein by
    reference).                                         
|     | 31 | .1          |  | Certification of Chief Executive Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                 
|     | 31 | .2          |  | Certification of Chief Financial Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                 
|     | 32 | .1          |  | Certification of Chief Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                       
|     | 32 | .2          |  | Certification of Chief Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                        

(b) Reports on Form 8-K:

The following reports on Form 8-K were filed
during the last quarter of the period covered by this annual
report.

Current Report on Form 8-K, dated
September 23, 2003 and filed with the Commission on
September, 2003, reporting under Item 5 the resignation of
the Companys Chief Financial Officer and the appointment
of an interim Chief Financial Officer.

Current Report on Form 8-K, dated
September 25, 2003 and filed with the Commission on
October 9, 2003, reporting under Items 2 and 7 the
disposition of the Pahrump Valley Junction Shopping Center
property.

(c) See exhibit index included above.

(d) None

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the
Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf on April 22, 2004 by the undersigned, thereunto duly
authorized.



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



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

| |                                           
| | ------------------------------------------
| |                                           
| | Anthony W. Thompson                       
| | Chief Executive Officer, President
    and
| | Chairman of the Board                     

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                           |  |                                                 |  |                |  | 
|------------------------------------------ |  | ----------------------------------------------- |  | -------------- |  | 
|                                           |  |                                                 |  |               
|Name                                       |  | Title                                           |  | Date          
|                                           |  |                                                 |  |               
|                                          
|/s/ ANTHONY W. THOMPSONAnthony W. Thompson |  | Chief Executive Officer, President and Director |  | April 22, 2004
|                                          
|/s/ DIANA M. LAINGDiana M. Laing           |  | Chief Financial and Accounting Officer          |  | April 22, 2004
|                                          
|/s/ D. FLEET WALLACED. Fleet Wallace       |  | Director                                        |  | April 22, 2004
|                                          
|/s/ W. BRAND INLOWW. Brand Inlow           |  | Director                                        |  | April 22, 2004

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##### Table of Contents



EXHIBIT INDEX

|     |    |             |  |                                                                                                                                                                                                                                                                                                                
|---- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |    |            
|No.  |    | Description
|     |    |            
|     | 1  | .1          |  | Dealer Manager Agreement between T
    REIT, Inc. and NNN Capital Corp. (included as
    Exhibit 1.1 to Amendment No. 2 the Companys
    Registration Statement on Form S-11 filed on
    October 13, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                
|     | 1  | .2          |  | Form of Participating Broker-Dealer Agreement
    (included as Exhibit 1.2 to Amendment No. 2 to the
    Companys Registration Statement on Form S-11 filed on
    October 13, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                       
|     | 3  | .1          |  | Articles of Incorporation of the Company
    (included as Exhibit 3.1 to the Companys Registration
    Statement on Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                     
|     | 3  | .2          |  | Form of Amended and Restated Articles of
    Incorporation of the Company (included as Exhibit 3.2 to
    Amendment No. 3 to the Companys Registration
    Statement on Form S-11 filed on November 22, 1999
    (File No. 333-77229) and incorporated herein by this
    reference)                          
|     | 3  | .3          |  | Form of By-Laws of the Company (included as
    Exhibit 3.3 to the Companys Registration Statement on
    Form S-11 filed on April 28, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                                                                               
|     | 3  | .4          |  | Form of Amended By-Laws of the Company (included
    as Exhibit 3.4 to Post-Effective Amendment No. 2 to
    the Companys Registration Statement on Form S-11
    filed on July 17, 2001 (File No. 333-77229) and
    incorporated herein by reference.)                                                      
|     | 4  | .1          |  | Form of Share Certificate (included as
    Exhibit 4.1 to Amendment No. 4 to the Companys
    Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                                           
|     | 10 | .1          |  | Form of Agreement of Limited Partnership of T
    REIT, L.P. (included as Exhibit 10.1 to Amendment
    No. 2 to the Companys Registration Statement on
    Form S-11 filed on October 13, 1999 (File
    No. 333-77229) and incorporated herein by this reference)                                           
|     | 10 | .2          |  | Dividend Reinvestment Program (included as
    Exhibit C to the Companys Prospectus filed as part of
    the Companys Registration Statement on Form S-11 on
    April 28, 1999 (File No. 333-77229) and incorporated
    herein by this reference)                                                          
|     | 10 | .3          |  | Independent Director Stock Option Plan (included
    as Exhibit 10.3 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                             
|     | 10 | .4          |  | Employee and Officer Stock Option Plan (included
    as Exhibit 10.4 to Amendment No. 4 to the
    Companys Registration Statement on Form S-11 filed on
    February 3, 2000 (File No. 333-77229) and incorporated
    herein by this reference)                                                             
|     | 10 | .5          |  | Advisory Agreement between the Company and the
    Advisor (included as Exhibit 10.5 to Amendment No. 2
    to the Companys Registration Statement on Form S-11
    filed on October 13, 1999 (File No. 333-77229) and
    incorporated herein by this reference)                                             
|     | 10 | .6          |  | Purchase and Sale Agreement, dated June 5,
    2000, by and between Robert C. Parker and Carolyn De
    La Fuente Parker and Triple Net Properties, LLC (included
    as Exhibit 10.1 to Form 10-Q filed by the Registrant
    with the SEC on November 14, 2000 and incorporated herein
    by this reference)
|     | 10 | .7          |  | Purchase and Sale Agreement, dated
    October 25, 2000, by and between CMF Capital Company LLC
    and TREIT, L.P. (included as Exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on November 13, 2000
    and incorporated herein by this reference)                                         
|     | 10 | .8          |  | Purchase and Sale Agreement, dated
    October 26, 2000, by and between CMF Capital Company LLC
    and TREIT L.P. (included as exhibit 10.1 to Form 8-K
    filed by the Registrant with the SEC on December 20, 2000
    and incorporated herein by this reference)                                          

59



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##### Table of Contents



|     |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |    |            
|No.  |    | Description
|     |    |            
|     | 10 | .9          |  | Purchase and Sale Agreement, dated
    August 24, 2000, as amended, by and between Drummer Boy
    Holdings, LLC and Triple Net Properties, LLC (included as
    Exhibit 10.9 to Post Effective Amendment No. 2 to the
    Companys Registration Statement on Form S-11 filed on
    July 17, 2001 (File No. 333-772229) and incorporated
    herein by this reference)                                 
|     | 10 | .10         |  | First Amendment to Advisory Agreement between the
    Company and the Advisor (included as Exhibit 10.10 to
    Post-Effective Amendment No. 1 to the Companys
    Registration Statement filed on Form S-11 on July 17,
    2001 (File No. 333-772229) and incorporated herein by this
    reference)                                                                                                  
|     | 10 | .11         |  | Purchase and Sale Agreement, dated April 16,
    2001, by and between Kilroy Realty, L.P. and Triple Net
    Properties LLC (included as Exhibit 10.11 to Post Effective
    Amendment No. 3 to the Companys Registration
    Statement no Form S-11 filed on October 19, 2001 (File
    No. 333-772229) and incorporated herein by reference)                                                          
|     | 10 | .12         |  | Purchase and Sale Agreement dated
    October 30, 2001, by and between Triple Net Properties, LLC
    and City Center West Development, LLC (included as
    Exhibit 10.1 to Form 8-K/A filed by the Company on
    May 14, 2002 and incorporated herein by reference)                                                                                                                                   
|     | 10 | .13         |  | Purchase and Sale Agreement dated November
    [  ], 2001, by and between Triple Net Properties, LLC
    and United States Fidelity and Guaranty Company (included as
    Exhibit 10.1 to Form 8-K/A filed by the Company on
    May 14, 2002 and incorporated herein by reference)                                                                                                                      
|     | 10 | .14         |  | Amended and Restated Real Estate Purchase and
    Sale Agreement dated as of July 24, 2002 by and between
    Transwestern Heights, L.P. as seller and Triple Net Properties,
    LLC, as assigned to TREIT  University Heights, LP, a
    Texas limited partnership (included as Exhibit 10.14 to the
    Form 8-K filed by the Company on September 5, 2002 and
    incorporated herein by reference).
|     | 10 | .15         |  | Purchase Agreement dated October 10, 2002
    between Congress Center, LLC and Triple Net Properties, LLC as
    assigned to NNN Congress Center, LLC, GREIT  Congress
    Center, LLC, and WREIT  Congress Center, LLC
    (included as Exhibit 10.14 to the Form 8-K filed by
    the Company on January 24, 2003 and incorporated herein by
    reference).                                         
|     | 31 | .1          |  | Certification of Chief Executive Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                 
|     | 31 | .2          |  | Certification of Chief Financial Officer,
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                 
|     | 32 | .1          |  | Certification of Chief Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                       
|     | 32 | .2          |  | Certification of Chief Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as created by
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                        

60