<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               -----------------

                                   FORM 10-K

(Mark One)

<TABLE>
       <C>   <S>
         [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

             For the fiscal year ended December 31, 2001

                                         OR

       [_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</TABLE>

      For the transition period from ________________ to ________________

                       Commission File Number: 333-77229

                               -----------------

                                 T REIT, Inc.
            (Exact name of registrant as specified in its charter)

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

                       1551 N. Tustin Avenue, Suite 650
                          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:

                                          Name of each exchange
                Title of each class:       on which registered
                --------------------       -------------------
                        None                      None

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

                   Title of class:           Title of class:
                   ---------------           ---------------
                        None                      None

   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 [_]    No [X]

   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. [X]

   As of March 15, 2002, the aggregate market value of the shares of common
stock held by non-affiliates of the registrant was approximately $30,200,000
(based on the price for which each share was sold).

   As of March 15, 2002, there were 3,071,217 shares of common stock of T REIT,
Inc. outstanding

================================================================================

<PAGE>

                                 T REIT, INC.
                           (A Virginia Corporation)

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----
<C>       <S>                                                                                   <C>
                                                 PART I

Item 1.   Business.............................................................................   3
Item 2.   Properties...........................................................................  10
Item 3.   Legal Proceedings....................................................................  11
Item 4.   Submission of Matters to a Vote of Security Holders..................................  11

                                                 PART II

Item 5.   Market for Registrant's Common Equity and Related Shareholder Matters................  12
Item 6.   Selected Financial Data..............................................................  14
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations  16
Item 7(a) Quantitative and Qualitative Disclosures About Market Risk...........................  23
Item 8.   Consolidated Financial Statements and Supplementary Data.............................  24
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  47

                                                PART III

Item 10.  Directors and Executive Officers of the Registrant...................................  48
Item 11.  Executive Compensation...............................................................  49
Item 12.  Security Ownership of Certain Beneficial Owners and Management.......................  50
Item 13.  Certain Relationships and Related Transactions.......................................  51

                                                 PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................  53

SIGNATURES.....................................................................................  56
</TABLE>


                                      2

<PAGE>

                                    PART I

Item 1.  BUSINESS

General

   T REIT, Inc. (the "Company") was formed as a Virginia corporation in
December, 1998. On February 22, 2000, the Company commenced a public offering
(the "Offering") on a best efforts basis of up to 10,000,000 shares of common
stock (the "Shares") at $10.00 per Share, subject to discounts in certain
cases, and up to 700,000 Shares at $9.05 per Share pursuant to the Company's
Dividend Reinvestment Program ("DRIP"), pursuant to a Registration Statement on
Form S-11 under the Securities Act of 1933, as amended. As of June 28, 2000,
the Company had received and accepted subscriptions for the minimum offering of
100,000 Shares or $1,000,000. As of December 31, 2001, the Company had sold
2,433,469 Shares to the public resulting in gross proceeds of approximately
$24,267,000 and 37,018 additional Shares pursuant to the DRIP for approximately
$335,000 of additional gross proceeds. Triple Net Properties, LLC (the
"Advisor"), an affiliated entity, purchased 22,100 Shares for $200,005
preceding the commencement of the Offering.

   The Offering was to be terminated on the earlier of February 22, 2002, or
the date on which the maximum number of shares had been sold, but was extended
until May 31, 2002 because the Company has not sold the maximum number of shares

   The Registration Statement also includes the Soliciting Dealer Warrants that
the Company will offer to sell to NNN Capital Corp., the dealer manager (the
"Dealer Manager"), an affiliated entity, of the Offering, at the rate of one
Soliciting Dealer Warrant (for a price of $.0008 per Warrant) for every 40
Shares sold during the Offering in states other than Arizona, Missouri, Ohio,
or Tennessee. The Dealer Manager may reallow a portion of the Soliciting Dealer
Warrants to broker-dealers participating in the Offering, up to a maximum of
250,000 Soliciting Dealer Warrants. Each Warrant entitles the holder to
purchase one Share from the Company at a price of $12.00 per Share. As of
December 31, 2001, the Company had issued 53,529 Soliciting Dealer Warrants;
however, no warrants had been exercised as of December 31, 2001.

Description of Business

   The Company was organized 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 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, 2001, the Company owned 100% fee simple interests in
three shopping centers, two located in Texas and one in Nevada, containing an
aggregate of approximately 336,145 square feet of gross leasable area ("GLA").
In addition, the Company owned undivided tenant in common interests in three
other buildings, 16.5% and 26%, respectively, in two additional shopping
centers in Texas and 40% in an office/distribution building in Nevada. The
total GLA of the buildings in which the Company owned undivided tenant in
common interests as of December 31, 2001 was 221,751 square feet, and, on a
proportionate basis, the Company owned approximately 56,269 square feet of the
total GLA in these buildings. As of December 31, 2001, approximately 94% of the
total GLA in the Company's six properties was leased.

   The Company is the sole general partner and 100% owner (other than the
incentive limited partnership interest owned by the Advisor) of T REIT, L.P., a
Virginia limited partnership (the "Operating Partnership"), which was organized
for the purpose of acquiring, developing, owning, operating, improving,
leasing, and otherwise managing for investment purposes, income producing
commercial properties on behalf of the Company.

   The Company's principal executive offices are located at 1551 N. Tustin
Avenue, Suite 650, Santa Ana, California 92705 and its telephone number is
(877) 888-7348.

                                      3

<PAGE>

Acquisition Strategies

   The Company, through entities owned or controlled directly or indirectly by
the Company, acquires and manages office, industrial, retail, and service
properties, including neighborhood retail centers and single-user properties
leased by generally creditworthy tenants under net leases. It may enter into
sale and leaseback transactions, under which it will purchase the property from
an entity and lease the property back to such entity under a net lease.

   A majority of properties acquired will be at least 75% leased on the
acquisition date. The Company may acquire 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 the Operating
Partnership. However, when the Company thinks it is prudent, it will incur
indebtedness to acquire properties. On properties purchased on an all-cash
basis, it may later incur mortgage indebtedness by obtaining loans secured by
selected properties, if favorable financing terms are available. The proceeds
from such loans will be used to acquire additional properties and increase the
Company's cash flow. On November 26, 2001 the Company's Board of Directors
voted to amend the policy regarding the use of leverage to increase the limit
on aggregate borrowings, both secured and unsecured, from 60% to 70% of the
properties' combined fair market value, as determined at the end of each
calendar year. As of December 31, 2001, total leverage for all of the Company's
properties was approximately 68%. Fair market value will be determined each
year by an internal or independent certified appraiser and in a similar manner
as the fair market determination at the time of purchase.

Acquisition Standards

   Based on the Advisor's prior real estate experience, the Company believes it
has the ability to identify quality 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;

  .   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.

Property Acquisition

   The Company acquires fee simple and tenant in common interests in real
properties and real properties subject to long-term ground leases, although
other methods of acquiring a property may be used when advantageous. 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. It may also use wholly owned subsidiaries of the Operating
Partnership to acquire properties. Such wholly owned subsidiaries will be
formed solely for the purpose of acquiring and/or financing a property or
properties.

                                      4

<PAGE>

   The Company has purchased certain tenant-in-common interests in properties
whereas 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, and may impact the extent to which the
Company participates in such acquisitions.

   In some cases, the Company may commit to purchase properties subject to
completion of construction in accordance with terms and conditions specified by
the Advisor. In such cases, the Company will be obligated to purchase the
property at the completion of construction, provided that (1) the construction
conforms to definitive plans, specifications and costs approved by the Company
in advance and embodied in the construction contract and (2) agreed upon
percentages of the property are leased. The Company will receive a certificate
of an architect, engineer or other appropriate party, stating that the property
complies with all plans and specifications. The Company does not intend to
construct or develop properties, or render any services in connection with such
development or construction.

   If remodeling is required prior to the purchase of a property, the Company
will pay a negotiated maximum amount either upon completion or in installments
commencing prior to completion. Such amount will be based on the estimated cost
of such remodeling. In such instances, the Company will also have the right to
review the lessee's books during and following completion of the remodeling to
verify actual costs. In the event of substantial disparity between estimated
and actual costs, an adjustment in purchase price may be negotiated. If
remodeling is required after the purchase of a property, the Advisor or an
affiliate may serve as construction manager for a fee no greater than the fee a
third party would charge for such services.

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 the modern real estate marketplace.
Key elements of the Company's strategy to achieve those objectives include the
items in the following list. The Company's Board of Directors may change the
Company's business objectives at any time without shareholder approval.

Acquiring Properties:

  .   The Company will seek to selectively acquire well-located office,
      industrial, retail and service properties located primarily in focus
      states, including neighborhood retail centers and properties net leased
      by one or more creditworthy tenants.

  .   The Company may acquire some properties by issuing units of limited
      partnership interest in the Operating Partnership to the sellers, which
      may allow such sellers to defer taxation on any gain from their
      disposition of that property.

  .   The Company may acquire some properties on an all-cash basis, which may
      provide a competitive advantage over other potential purchasers who must
      secure financing. The Company may also acquire some properties with the
      proceeds of debt financing or subject to existing indebtedness.

Enhancing Property Values:

  .   The Company will actively manage costs and seek to minimize operating
      expenses by centralizing management, leasing, marketing, financing,
      accounting, renovation and data processing activities.

  .   The Company will seek to improve rental income and cash flow by
      aggressively marketing rentable space and raising rents when feasible.

  .   The Company will emphasize regular maintenance and periodic renovation to
      meet the needs of tenants and to maximize long-term returns.

                                      5

<PAGE>

  .   In its neighborhood retail centers, the Company will seek to maintain a
      diversified tenant base, consisting primarily of retail tenants providing
      consumer goods and services.

  .   The Company will seek to finance acquisitions and refinance properties
      when favorable financing terms are available to increase its cash flow.

   The Company may incur indebtedness to fund the acquisition and/or operation
of its properties. The Company intends to limit its aggregate indebtedness,
both secured and unsecured, to no more than 70% of the aggregate of all of its
properties' fair market values, as determined at the end of each calendar year.
In addition, it does not intend to incur secured indebtedness on a specific
property in excess of approximately 80% of such property's fair market value.

Investment Objectives & Policies

General

   The Board of Directors has established written investment and borrowing
policies. While it is the Board's responsibility to monitor the administrative
procedures, investment operations and performance of the Company and the
Advisor to assure such policies are carried out, generally the Board may change
such policies at any time without a vote of shareholders. The independent
directors review investment policies at least annually to determine that the
Company's policies are in the best interests of shareholders and set forth
their determinations in the minutes of the board meetings.

   The Company's Articles of Incorporation prohibit the Company from making any
loans to its Advisor, directors, officers or any affiliated entities, however,
the Company has at present a loan outstanding to an affiliate. Management is
not certain how such violation of the Articles of Incorporation will have an
impact, if any, on the future operations of the Company.

Types of Investments

   The Company intends to acquire office, industrial, retail and service
properties, including neighborhood retail centers and single-user properties
leased by generally creditworthy tenants under net leases. The Company may
enter into sale and leaseback transactions, under which the Company will
purchase a property from an entity and lease the property back to such entity
under a net lease.

   "Net" leases typically require that tenants pay all or a majority of the
operating expenses, including real estate taxes, special assessments and sales
and use taxes, utilities, insurance and building repairs related to the
property, in addition to the lease payments. The Company expects that most of
the leases will be long-term (typically 10 to 15 years, but generally not less
than 5 years) and may provide for a base minimum annual rent with periodic
increases. The Company considers a tenant to be creditworthy when it has:

  .   a corporate debt rating by Moody's or Standard & Poors of B or better;

  .   a minimum tangible net worth equal to ten times one year's rental
      payments required under the terms of the lease;

  .   or a guaranty for its payments under the lease by a guarantor with a
      minimum tangible net worth of $10 million.

   A majority of properties acquired will be at least 75% leased on the
acquisition date. The Company 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 the Operating
Partnership. However, when management deems it prudent, the Company will incur
indebtedness to acquire properties. On 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

                                      6

<PAGE>

acquire additional properties and increase its cash flow. 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.
Fair market value will be determined each year by an internal or independent
certified appraiser and in a similar manner as the fair market determination at
the time of purchase.

   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 its independent directors.

Developments During the 2001 Fiscal Year

   During 2001, the Company invested in real estate worth approximately
$20,000,000 consisting of approximately $5,830,000 in cash paid and $14,170,000
in notes payable for the acquisition of a shopping center and an undivided
tenant in common interest in an industrial/distribution building containing a
total GLA of approximately 106,000 square feet. See Item 2 for a more detailed
description of these properties.

   The Company also sold a 100%-owned office building containing a total GLA of
17,141 square feet for approximately $1,050,000. See Item 7 for more
information about this transaction.

Tax Status

   The Company is qualified and has elected to be taxed as a real estate
investment trust ("REIT") for federal income tax purposes under Sections 856
through 860 of the Internal Revenue Code (the "Code"). So long as the Company
qualifies for taxation as a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes at least 90% of its REIT
taxable income to its shareholders. If the Company fails to qualify as a REIT
in any taxable year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Even if 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 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 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, the Company 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.

   Costs of Compliance with the Americans with Disabilities Act.  Under the
Americans with Disabilities Act of 1990 (the "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 the Company's 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 the
properties. Management cannot predict the cost of compliance with the

                                      7

<PAGE>

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 considered to have arranged for the disposal or treatment of hazardous or
toxic substances.

   Use of Hazardous Substances by Some of Our Tenants.  Some of the Company's
tenants routinely handle hazardous substances and wastes on its 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 the Company for any
related liabilities. Management does not believe that these activities by the
Company's tenants will have any material adverse effect on the Company's
operations. Furthermore, 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 might incur governmental fines or
private damage awards. Management believes that the Company's properties are
currently in material compliance with all of these regulatory requirements.
However, management does not know whether existing requirements will change or
whether future requirements will require the Company to make significant
unanticipated expenditures that will adversely affect its ability to make
distributions to its 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 were 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.

Business Risks

   All real property investments are subject to some degree of risk. The
Company is subject to the general economic environment of the United States and
to risks due to a concentration of tenants within the portfolio, a
concentration of one type of retail tenant, a concentration of regional
economic exposure, and the illiquidity of real estate investments, among other
business risks.

   The recession experienced by the United States economy during 2001, further
exacerbated by the economic impact of the terrorist attacks in New York and
Washington on September 11, 2001, resulted in a slowdown in business activity
in the local markets in which the Company's properties are located. The Company
has not noticed any significant adverse impact on its operations as a result of
these events. The Company believes that the impact of a continuing economic
slowdown will be mitigated by the large proportion of the Company's tenants
that 1) serve non-discretionary shopping needs, 2) are discount retailers that
compete well during economic slowdowns, and 3) are financially strong national
tenants able to withstand economic adversity. The Company's operations,
however, could be negatively affected by a more severe or prolonged economic
downturn.

                                      8

<PAGE>

   The following table presents the Company's risk due to concentration of
tenants:

<TABLE>
<CAPTION>
                                               Annualized      % of
                      GLA Occupied             Base Rental  Annualized
                       by Tenant   % of Total  Income From  Total Base
       Tenant           (Sq Ft)    Company GLA   Tenant    Rental Income
       -----------------------------------------------------------------
       <S>            <C>          <C>         <C>         <C>
       Albertson's...    62,433        16%     $  998,928       22%
       H. E. Butt....    65,681        17         478,158       11
       Gold's Gym....    32,383         8         242,873        5
                        -------        --      ----------       --
          Total......   160,497        41%     $1,719,959       38%
                        =======        ==      ==========       ==
</TABLE>

   The loss of these tenants or any of the other major tenants of the Company
or their inability to pay rent could have a material adverse effect on the
Company's business.

   The Company is subject to risk due to a concentration of one type of tenant
resulting from grocery stores occupying 128,114 square feet or 33% of the
Company's GLA as of December 31, 2001. Annualized base rental income from these
stores accounted for 33% of the Company's annualized total base rental income.
Business conditions specific to the grocery industry (e.g., mergers,
acquisitions, or increased competition) could have an adverse impact on the
Company's operations.

   The Company is subject to a concentration of regional economic exposure as
256,590 square feet or 65% of the Company's total GLA is located in the State
of Texas. In addition, the remaining 135,824 square feet or 35% of the
Company's total GLA is located in the State of Nevada. Regional economic
downturns in either state could adversely impact the Company's operations.

   The Company's investments in its properties are relatively illiquid which
limits its ability to sell properties quickly in response to changes in
economic or other conditions. In addition, the Internal Revenue Code generally
imposes a 100% prohibited transaction tax on profits the Company derives from
sales of properties held primarily for sale to customers in the ordinary course
of business, which could affect the Company's ability to sell properties. These
restrictions on the Company's ability to sell its properties could have an
adverse effect on its financial position.

   The Company continues to evaluate the market of available properties and may
acquire shopping center, office and other properties when strategic
opportunities exist. The Company's ability to acquire properties on favorable
terms and successfully operate them is subject to the following risks: the
potential inability to acquire a desired property because of competition from
other real estate investors with significant capital, including both
publicly-traded REITs and institutional investment funds; even if the Company
enters into agreements for the acquisition of properties, these agreements are
subject to customary conditions to closing, including completion of due
diligence investigations to management's satisfaction; the Company may be
unable to finance the acquisition on favorable terms; the Company may spend
more than budgeted amounts to make necessary improvements or renovations to
acquired properties; and the Company may lease the acquired properties at below
expected rental rates. If the Company cannot finance property acquisitions on
favorable terms or operate acquired properties to meet financial expectations,
its financial position could be adversely affected.

Employees

   As of December 31, 2001, the Company had no direct employees. All work of
the Company is accomplished through the efforts of the Advisor's employees.

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

                                      9

<PAGE>

Item 2.  PROPERTIES

   As of December 31, 2001, the Company, through the Operating Partnership, had
acquired 100% fee simple interests in three shopping centers, two located in
Texas and one in Nevada, containing an aggregate of approximately 336,145
square feet of gross leasable area ("GLA"). In addition, the Company owned
undivided tenant in common interests in three other buildings, 16.5% and 26%,
respectively, in two additional shopping centers in Texas and 40% in an
office/distribution building in Nevada. The total GLA of the buildings in which
the Company owned undivided tenant in common interests as of December 31, 2001
was 221,751 square feet, and, on a proportionate basis, the Company owned
approximately 56,269 square feet of the total GLA in these buildings. The
following table presents a summary of the Company's properties as of December
31, 2001:

<TABLE>
<CAPTION>
                    GLA (1)           Date   Year   Mortgage     Number     Major
     Property       (Sq Ft) % Owned Acquired Built Payable (2) of Tenants Tenant (3)
-------------------------------------------------------------------------------------
<S>                 <C>     <C>     <C>      <C>   <C>         <C>        <C>
Northstar..........  67,560  100.0% 10/26/00 1986  $ 2,900,000     13      Gold's Gym
  Garland, TX

Plaza del Rey...... 125,494   16.5  11/17/00 1975    3,995,000     21     Aaron Rents
  Seguin, TX

Seguin Corners.....  21,000   26.0  11/22/00 1999      545,000     10     Dollar Tree
  Seguin, TX

Thousand Oaks...... 162,864  100.0  12/06/00 1986    8,750,000     17      H. E. Butt
  San Antonio, TX

Pahrump Valley..... 105,721  100.0   5/11/01 1993   12,286,586     14     Albertson's
  Pahrump, NV

Trademark Building.  75,257   40.0   9/04/01 1998    2,700,000      1     Memec, Inc.
                    -------                        -----------     --
 Reno, NV
       Total....... 557,896                        $31,176,586     76
                    =======                        ===========     ==
</TABLE>
--------
(1) GLA unadjusted for the Company's percentage undivided tenant in common
    interest.
(2) Mortgage payable unadjusted for the Company's percentage undivided tenant
    in common interest.
(3) Tenant occupies largest space of property.

   The following schedule lists the approximate physical occupancy levels for
the Company's investment properties as of the end of each quarter during 2001.
N/A indicates that the property was not owned at the end of the quarter.

<TABLE>
<CAPTION>
    Property                                3/31/01 6/30/01 9/30/01 12/31/01
    ------------------------------------------------------------------------
    <S>                                     <C>     <C>     <C>     <C>
    Northstar..............................    86%     91%     90%     89%
    Plaza del Rey..........................    82%     82%     82%     82%
    Seguin Corners.........................    95%    100%     98%    100%
    Thousand Oaks..........................    88%     90%     90%     91%
    Pahrump Valley.........................   N/A      98%    100%     98%
    Trademark Building.....................   N/A     N/A     100%    100%
</TABLE>

                                      10

<PAGE>

   The following schedule presents aggregate expiring leases for the Company's
total portfolio of properties as of December 31, 2001 by number, percentage of
total GLA and annual base rent.

<TABLE>
<CAPTION>
                            Total Square      % of
        Year of   Number of  Footage of     Total GLA      Annual Base
         Lease    Expiring    Expiring   Represented by    Rent Under
       Expiration  Leases      Leases    Expiring Leases Expiring Leases
       -----------------------------------------------------------------
       <S>        <C>       <C>          <C>             <C>
        2002.....     7        23,554          4.21%       $  239,584
        2003.....    11        18,208          3.26%          270,877
        2004.....    18        48,152          8.61%          454,168
        2005.....    11        39,291          7.03%          420,586
        2006.....    13        41,935          7.50%          414,778
                     --       -------         -----        ----------
          Total..    60       171,140         30.61%       $1,799,993
                     ==       =======         =====        ==========
</TABLE>

Item 3.  LEGAL PROCEEDINGS

   There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company is a party to, or
of which any of its properties is the subject.

Item 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 2001.

                                      11

<PAGE>

                                    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.

   The Company provides the following program to facilitate investment in the
Shares:

   Effective with the Offering, the Company adopted the Dividend Reinvestment
Program (the "DRIP") which offers to holders of the Company's common stock,
$0.01 par value per Share (the "Common Stock"), the opportunity to purchase
through reinvestment of dividends, additional Shares of Common Stock subject to
certain conditions. The Company has registered and reserved 700,000 Shares for
distribution pursuant to the DRIP.

   Dividends reinvested pursuant to the DRIP are applied to the purchase of
Shares of Common Stock at a price per Share (the "DRIP Price") equal to the
greater of (i) $9.05 or (ii) 95% of the Market Price (as defined in the DRIP)
until 700,000 Shares have been purchased or the termination of the Offering,
whichever occurs first. Thereafter, the Company may in its sole discretion
effect additional registrations of Common Stock for use in the DRIP. In any
case, the per Share purchase price under the DRIP for such additionally
acquired Shares will equal the DRIP Price. As of December 31, 2001, the Company
has sold approximately 37,000 Shares of Common Stock amounting to approximately
$335,000 pursuant to the terms of the DRIP.

   In addition, 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. 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 during
the Offering 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 the sale of Shares under the DRIP and
limited amounts sold during the Offering.

Shareholders

   As of March 15, 2001, there were 1,314 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 a rate of $0.80 per Share per annum. Effective
April 1, 2001, the Company increased its monthly distributions to $0.825 per
Share per annum.

   The Company declared distributions to shareholders totaling approximately
$0.82 per weighted average number of Shares outstanding during the year ended
December 31, 2001. For federal income purposes, all such distributions
represent a return of capital. Because the Company incurred a net loss, none of
the distributions during the year ended December 31, 2001 are taxable to
shareholders.

   As of December 31, 2001, the Company's operating activities used net cash of
$1,469,058. The Company's ability to pay dividends subsequent to the
termination of the Offering on May 31, 2002 will be significantly impacted by
the Company's ability to generate positive cash flow from future operations.

                                      12

<PAGE>

Use of Proceeds from Registered Securities

   The Company originally registered pursuant to a registration statement under
the Securities Act of 1933 (SEC File Number 333-77229) the Offering to the
public on a "best efforts" basis of up to 10,000,000 Shares at $10.00 per
share, subject to discounts in certain cases; up to 700,000 Shares at $9.05 per
Share pursuant to the Company's DRIP; 250,000 Soliciting Dealer Warrants at
$.0008 per Soliciting Dealer Warrant; and up to 800,000 Shares issuable
pursuant to two stock option plans. The Offering began on February 22, 2000.

   On November 30, 2001, the Company deregistered 5,000,000 of its Shares
previously available for distribution on a "best efforts" basis in the
Offering, which is the amount of Shares that the Company does not believe can
be sold between November 30, 2001, the deregistration date, and May 31, 2002,
the offering termination date. With the deregistration of these Shares, the
Company is offering a maximum of 6,750,000 shares or $67,500,000 (the adjusted
maximum offering amount) as follows: 5,000,000 Shares available for
distribution to the public on a "best efforts" basis, 700,000 Shares for
distribution under the DRIP, 250,000 Shares issuable in connection with
warrants granted to broker-dealers, and 800,000 Shares issuable in connection
with options granted under the Company's stock option plans.

   As of December 31, 2001, including the 22,100 Shares sold to and $200,005
received from the Advisor preceding the commencement of the public Offering,
the Company has sold the following number of Shares for the following aggregate
offering prices:

<TABLE>
  <C> <C>       <S>
  .   2,433,469 Shares to the public on a best efforts basis for $24,266,597;
  .      37,018 Shares pursuant to the DRIP for $335,014;
  .          -- Shares pursuant to the exercise of options; and
  .          -- Shares pursuant to the exercise of Soliciting Dealer Warrants,
      ---------
  .   2,470,487 Total Shares for $24,601,611 of gross proceeds
      =========
</TABLE>

   From the February 22, 2000 effective date of the Offering through December
31, 2001 (the "Cumulative Period"), the following expenses have been incurred
for the Company's account in connection with the issuance and distribution of
the registered securities:

<TABLE>
<CAPTION>
                                                                       E=Estimated
Type of Expense                                               Amount    A=Actual
---------------                                             ---------- -----------
<S>                                                         <C>        <C>
Sales commissions and fees................................. $2,269,827      A
Finders' fees..............................................         --
Expense reimbursements paid to or for the Dealer Manager...      8,969      A
Other expenses to affiliates...............................    153,360      A
Other expenses to non-affiliates...........................    544,790      A
                                                            ----------
Total expenses............................................. $2,976,946      A
                                                            ==========
</TABLE>

   Sales commissions and fees, which include due diligence fee, underwriting
discounts and underwriters' expenses were paid to the Dealer Manager, that
re-allowed all or a portion of the commissions and expenses to Soliciting
Dealers. The net offering proceeds to the Company for the Cumulative Period,
after deducting the expenses described in the above table, are approximately
$21,625,000.

                                      13

<PAGE>

   For the Cumulative Period, the Company used the net offering proceeds as
follows:

<TABLE>
<CAPTION>
                                                            E=Estimated
        Use of Proceeds                           Amount     A=Actual
        ---------------                         ----------- -----------
        <S>                                     <C>         <C>
        Investments in real estate............. $10,841,230      A
        Cash and cash equivalents.............. $ 3,647,159      A
        Net repayment of principal on debt..... $ 2,775,965      A
        Loans secured by real estate........... $ 2,382,579      A
        Working capital........................ $ 1,346,567      E
        Deposits on real estate................ $   631,500      A
</TABLE>

Other Uses

   Approximately $150,000 and $835,000 was earned by the Advisor and affiliates
of the Advisor in connection with the acquisition of properties during the
years ended December 31, 2001 and 2000, respectively. Pending purchases of real
estate, the Company temporarily invested net offering proceeds in short-term
interest bearing money market accounts.

Item 6.  SELECTED FINANCIAL DATA

                            SELECTED FINANCIAL DATA
                                 T REIT, INC.
                           (a Virginia corporation)

                For the years ended December 31, 2001 and 2000
               (not covered by the Independent Auditors' Report)

<TABLE>
<CAPTION>
Selected Financial Data (1)                              2001         2000
-------------------------------------------------------------------------------
<S>                                                   <C>          <C>
Total assets......................................... $45,441,357  $21,571,605
Mortgages payable.................................... $24,737,461  $15,078,808
Total revenue........................................ $ 4,142,782  $   298,621
Net income(loss)..................................... $  (463,632) $  (100,782)
Net Loss per common share, basic and diluted (2)..... $      (.33) $      (.44)
Distributions declared............................... $ 1,145,621  $   149,207
Distributions per common share (2)................... $       .82  $       .65
Funds From Operations (2)(3)......................... $    37,667  $   (62,409)
Funds available for distribution (3)................. $   227,667  $   (66,976)
Cash flows provided by operating activities.......... $(1,469,058) $   278,602
Cash flows (used in) investing activities............ $(7,491,774) $(5,224,483)
Cash flows provided by financing activities.......... $12,359,914  $ 5,193,858
Weighted average number of common shares outstanding,
  basic and diluted..................................   1,398,104      228,269
</TABLE>
--------
(1) The above selected financial data should be read in conjunction with the
    consolidated financial statements and related notes appearing elsewhere in
    this Form 10-K.

(2) The loss and distributions per share are based upon the weighted average
    number of common shares outstanding. See Footnote (3) below for information
    regarding the Company's calculation of FFO. 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), 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.

                                      14

<PAGE>

   For the year ended December 31, 2001, $1,145,621 represented a return of
   capital. In order to maintain its qualification as a REIT, the Company must
   make annual distributions to shareholder's of at least 90% of its REIT
   taxable income. REIT taxable income does not include net capital gains.
   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, 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
    shareholder's from cash generated by the Company's operations. Cash
    generated from operations is not equivalent to the Company's net operating
    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 standard known as "Funds from Operations" or "FFO," which it
    believes more accurately reflects the operating performance of a REIT such
    as the Company. As defined by NAREIT, FFO means net income or loss computed
    in accordance with GAAP, less extraordinary, unusual and non-recurring
    items, excluding gains (or losses) from debt restructuring and sales of
    property plus depreciation on real property and amortization and after
    adjustments for unconsolidated partnerships and joint ventures in which the
    REIT holds an interest. The Company has adopted the NAREIT definition for
    computing FFO because management believes that, subject to the following
    limitations, FFO provides a basis for comparing the performance and
    operations of the Company to those of other REITs. The calculation of FFO
    may vary from entity to entity since capitalization and expense policies
    tend to vary from entity to entity. Items which are capitalized do not
    impact FFO, whereas items that are expensed reduce FFO. Consequently, the
    presentation of FFO by the Company may not be comparable to other similarly
    titled measures presented by other REITs. FFO is not intended to be an
    alternative to "Net Income" as an indicator of the Company's performance
    nor to "Cash Flows from Operating Activities" as determined by GAAP as a
    measure of the Company's capacity to pay distributions.

   FFO and funds available for distribution for the year ended December 31,
   2001 and 2000 are calculated as follows:

<TABLE>
<CAPTION>
                                                              2001       2000
                                                            ---------  ---------
<S>                                                         <C>        <C>
Net (loss)................................................. $(463,632) $(100,782)
Depreciation and amortization..............................   611,765     38,373
Loss on sale of real estate................................   227,948         --
                                                            ---------  ---------
Funds from operations (a)..................................   376,081    (62,409)
Principal amortization of debt.............................  (148,414)    (4,567)
Deferred rent receivable (b)...............................  (190,000)        --
                                                            ---------  ---------
Funds available for distribution (c)....................... $  37,667  $ (66,976)
                                                            =========  =========
</TABLE>
--------
(a) FFO does not represent cash generated from operating activities calculated
    in accordance with GAAP and is not necessarily indicative of cash available
    to fund cash needs. FFO should not be considered as an alternative to net
    income or loss as an indicator of the Company's operating performance or as
    an alternative to cash flow as a measure of liquidity.

(b) Certain tenant leases contain provisions providing for stepped rent
    increases. GAAP requires the Company to record rental income for the period
    of occupancy using the effective monthly rent, which is the average monthly
    rent for the entire period of occupancy during the term of the lease.

(c) Dividends distributed through December 31, 2001 are effectively a return of
    capital to the investor as the Company has not generated any profits to
    support such dividends.

                                      15

<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
       RESULTS OF OPERATIONS

Overview

   The following discussion should be read in conjunction with the Company's
financial statements and notes and the "Selected Financial Data" appearing
elsewhere in this Form 10-K. Such financial statements and information have
been prepared to reflect the Company's financial position as of December 31,
2001 and 2000, together with results of operations and cash flows for the years
then ended. Comparability of financial information between fiscal years 2001
and 2000, however, is limited in that the Company did not begin significant
business operations until the fourth quarter of 2000. Prior to that time the
Company was primarily raising capital and establishing a corporate
infrastructure to support planned operations.

   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 Exchange Act of 1934, as amended. Actual results may differ
materially from those included in the forward-looking statements. The Company
intends such forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
complying with 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. Further information
concerning the Company and its business, including additional factors that
could materially affect the Company's financial results, is included herein and
in the Company's other filings with the Securities and Exchange Commission.

   The comparability of the financial information discussed below was further
impacted by acquisitions during 2001 consisting of one shopping center with a
GLA of 105,721 square feet and an undivided 40% tenant in common interest in an
office building with a GLA of 75,257 square feet. In addition, the Company sold
an office building with a GLA of 17,141 square feet.

   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 real
estate investment trust ("REIT") for federal and state income tax purposes. The
Company, through entities owned or controlled directly or indirectly by it, has
initially focused on acquiring properties in Texas and Nevada. 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.

   The recession experienced by the United States economy during 2001, further
exacerbated by the economic impact of the terrorist attacks in New York and
Washington on September 11, 2001, resulted in a slowdown in business activity
in the local markets in which the Company's properties are located. The Company
has not noticed any significant adverse impact on its operations as a result of
these events. The Company believes that

                                      16

<PAGE>

the impact of a continuing economic slowdown will be mitigated by the large
proportion of the Company's tenants that 1) serve non-discretionary shopping
needs, 2) are discount retailers that compete well during economic slowdowns,
and 3) are financially strong national tenants able to withstand economic
adversity. The Company's operations, however, could be negatively affected by a
more severe or prolonged economic downturn.

   As of December 31, 2001, the Company owned 100% fee simple interests in
three shopping centers, two located in Texas and one in Nevada, containing an
aggregate of GLA of approximately 336,145 square feet. In addition, the Company
owned undivided tenant in common interests in three other buildings, 16.5% and
26%, respectively, in two additional shopping centers in Texas and 40% in an
office/distribution building in Nevada. The total GLA of the buildings in which
the Company owned undivided tenant in common interests as of December 31, 2001
was 221,751 square feet, and, on a proportionate basis, the Company owned
approximately 56,269 square feet of the total GLA in these buildings. As of
December 31, 2001, approximately 94% of the total GLA in the Company's six
properties was leased.

Results of Operations

  General

   The following discussion, subject to the limits on comparability between the
years previously noted, is based primarily on the consolidated financial
statements of the Company as of December 31, 2001 and 2000 and for the years
ended December 31, 2001 and 2000. The Company has acquired three shopping
centers and three undivided tenant in common interests and acquired and sold
one office building through December 31, 2001. None of the property sellers in
2000 or 2001 were affiliates of the Company or the Advisor.

  Acquisitions in 2000

   On September 26, 2000, the Company acquired the Christie Street Office
Building, a Class C office building in Lufkin, Texas containing a GLA of 17,141
square feet. The total purchase price of $1,250,000 consisted of $500,000 in
cash and a $750,000 note payable to the seller.

   On October 26, 2000, the Company purchased the Northstar Crossing Shopping
Center, a shopping center in Garland, Texas containing a GLA of 67,560 square
feet. The total purchase price of $3,930,000 consisted of $1,235,000 in cash
and a $2,695,000 note payable to an affiliate of the seller.

   On December 6, 2000, the Company acquired the Thousand Oaks Shopping Center,
a shopping center in San Antonio, Texas containing a GLA of 162,864 square
feet. The total purchase price of $13,000,000 consisted of $2,162,500 in cash
and a $10,837,500 note payable to an affiliate of the seller.

   The Company also acquired two undivided tenant in common interests in 2000,
purchasing Plaza Del Rey Shopping Center, a shopping center in Seguin, Texas,
on November 17, 2000 and Seguin Shopping Center, a shopping center also located
in Seguin, Texas, on November 22, 2000. Plaza Del Rey's total purchase price of
$5,050,000 consisted of $1,055,000 in cash and a $3,995,000 note payable to an
affiliate of the seller for which the Company is jointly and severally liable.
The Company's percentage of ownership of Plaza Del Rey is 26%. Lake Air
Mall--PDR, LLC, whose sole member is NNN Lake Air Mall, L.P., an affiliate of
the Advisor, purchased a 19% interest in Plaza Del Rey. Seguin's total purchase
price of $2,450,000 consisted of $1,905,000 in cash and a $545,000 note payable
to an affiliate of the seller for which the Company is jointly and severally
liable. The Company's percentage ownership of Seguin is 16.5%. Lake Air
Mall--Seguin, LLC, whose sole member is NNN Lake Air Mall, L.P., an affiliate
of the Company's Advisor, purchased a 10% undivided tenant in common interest
in Seguin.

                                      17

<PAGE>

  Acquisitions and Dispositions in 2001

   On May 11, 2001, the Company acquired Pahrump Valley Junction Shopping
Center, a shopping center in Pahrump, Nevada containing a GLA of 105,721 square
feet. The total purchase price of $17,150,000 consisted of $4,750,000 in cash
and a $12,435,000 note payable to an unaffiliated third party. The Company
borrowed a total of $1,500,000 of the cash portion of the purchase price. Of
this amount, the Company borrowed $505,000 from its Advisor and $995,000 from
NNN 2004 Notes Program, LLC, an affiliate of its Advisor. The Company paid the
two related party notes in full during 2001.

   On September 4, 2001, the Company acquired a 40% undivided tenant in common
interest in the Trademark Building, an industrial building containing a GLA of
75,257 square feet situated on a 7.55-acre site in Reno, Nevada. The $2,851,622
purchase price of the tenant in common interest consisted of $1,772,000 in cash
and a $1,080,000 note payable for which the Company is jointly and severally
liable. The remaining 60% of the Trademark Building was purchased by NNN Reno
Trademark, LLC, an affiliate of the Advisor.

   On November 13, 2001, the Company sold the Christie Street Office Building
to an unaffiliated buyer for $1,050,000, at a net loss of approximately
$227,000 before the refund of a $50,000 real estate commission from an
affiliate of the Advisor. The Company provided seller financing in the form of
a $595,000 note secured by a first deed of trust on the Christie Street Office
Building. The Company also guaranteed lease payments in the amount of $20,000
per month for a period of five years under a Master Lease agreement, obligating
the Company to make lease payments to the lessor in the event the sub-lessee
fails to make the lease payments. The Company would be 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. The Advisor agreed to
indemnify the Company against any future losses under the Master Lease
Agreement.

  Refinancing of Properties

   The Company refinanced two properties during 2001. The commercial real
estate lending market experienced a slowdown during 2001 due to the recession,
general credit quality concerns and the uncertainty caused by the terrorist
attacks in New York and Washington on September 11. As a result, the Company
experienced some difficulty in refinancing its short-term mortgage loans in a
timely manner.

   Northstar Crossing Shopping Center.  A final payment of the principal amount
of the mortgage loan on Northstar, together with all accrued but unpaid
interest, and late charges, if any, was due on or before July 26, 2001;
however, pursuant to an agreement with the lender, the Company continued to
make payments on the loan according to the original terms. The lender provided
the Company with a notice of default dated November 16, 2001 on the original
$2,695,000 mortgage loan to preserve its rights, but indicated a willingness to
forbear any further action. On December 31, 2001, the property was refinanced
when the Company obtained a new $2,900,000 mortgage loan. The Company paid the
original lender $47,162 in default interest.

   Plaza Del Rey Shopping Center.  A final payment of the principal amount of
the mortgage loan on Plaza Del Rey, together with all accrued but unpaid
interest, and late charges, if any, was due on or before November 16, 2001;
however, pursuant to an agreement with the lender, the Company continued to
make payments on the loan according to the original terms. The lender provided
the Company with a notice of default dated November 16, 2001 on the original
$3,995,000 mortgage loan to preserve its rights, but indicated a willingness to
forbear any further action. On January 4, 2002, the Company received a
commitment letter for a $4,900,000 mortgage loan. The Company anticipates
completing the refinancing of the property and paying default interest to the
original lender in early April, but there can be no assurance that the original
lender will continue to exercise forbearance. See "Subsequent Events" for more
information regarding the refinancing of this loan.

   Thousand Oaks Shopping Center.  A final payment of the principal amount of
the mortgage loan on Thousand Oaks, together with all accrued but unpaid
interest, and late charges, if any, was due on or before

                                      18

<PAGE>

July 26, 2001; however, pursuant to an agreement with the lender, the Company
continued to make payments on the loan according to the original terms. The
lender provided the Company with a notice of default dated November 16, 2001 on
the original $10,837,500 mortgage loan to preserve its rights, but indicated a
willingness to forbear any further action. On December 31, 2001, the property
was refinanced when the Company obtained a new $8,750,000 mortgage loan. The
Company paid the original lender $189,656 in default interest.

  Financial and Operating Results

   As previously noted, rental income, rental expenses, mortgage interest,
depreciation and amortization and substantially all of the general and
administrative expenses incurred during 2000 were a result of the operations
from the three properties and two tenant in common interests acquired at the
end of the third quarter and during the fourth quarter of 2000.

   Rental Income.  Rental income consists of basic monthly rent, percentage
rental income, if applicable, due pursuant to tenant leases and property
operating expenses recovered from tenants. Rental income increased to
$3,934,690 for the year ended December 31, 2001, an increase of $3,684,579
compared to rental income of $250,111 for the year ended December 31, 2000.
This increase is due primarily to the ownership of properties acquired late in
2000 that the Company continued to own for the entire 2001 fiscal year and
secondarily to the additional properties owned and operated during the year
ended December 31, 2001 as compared to the year ended December 31, 2000.

   Interest Income.  Interest income consists of interest earned from
short-term money market investments and loans that are held by the Company.
Interest income increased by $159,582 to $208,092 for the year ended December
31, 2001 from $48,510 for the year ended December 31, 2000. This increase is
due primarily to the additional funds held in interest bearing instruments and
short-term loans bearing higher rates during the year ended December 31, 2001.
This increase was partially offset by decreases in the interest rates on the
short-term instruments in which the Company invests. Also included is interest
earned on a $950,000 12% short-term first mortgage note outstanding to an
affiliate of the Company's Advisor throughout 2001, an additional $430,000 12%
rate short-term first mortgage note outstanding to the same party for nine
months of 2001, a $258,000 12% rate note receivable secured by the assets of
another affiliate of the Company's Advisor outstanding beginning in November
2001 and the $595,000 8.50% first mortgage seller financing note to the
non-affiliated buyer of the Christie Street Building also beginning November
2001.

   Rental Expenses.  Rental expenses consist of the costs of owning and
maintaining the Company's properties including primarily property management
fees, real estate taxes, insurance, maintenance to the exterior of the
buildings and the parking lots. These expenses increased by $1,064,409 to
$1,125,047 for the year ended December 31, 2001 from $60,638 for the year ended
December 31, 2000. This increase is due primarily to the ownership of
properties acquired late in 2000 that the Company continued to own for the
entire 2001 fiscal year and secondarily to the additional properties owned and
operated during the year ended December 31, 2001 as compared to the year ended
December 31, 2000.

   General and Administrative Expenses.   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. These expenses
increased by $534,243 to $636,543 for the year ended December 31, 2001 from
$102,300 for the year ended December 31, 2000. This increase resulted largely
from fees paid to the Company's attorneys and accountants to facilitate the
Company's regulatory filings and compliance and to conduct audits of the
Company's property acquisitions and the Company. General and administrative
expenses have also increased due to the additional work required as the Company
moves from a formation stage to an operational stage.

   Depreciation.  Depreciation expense increased by $573,392 to $611,765 for
the year ended December 31, 2001 from $38,373 for the year ended December 31,
2000. This increase is due primarily to the ownership of properties acquired
late in 2000 that the Company continued to own for the entire 2001 fiscal year
and secondarily to the additional properties owned and operated during the year
ended December 31, 2001 as compared to the year ended December 31, 2000.

                                      19

<PAGE>

   Interest Expense.  Interest expense consists almost entirely of mortgage
interest paid on the Company's properties. Interest expense increased by
$1,948,865 to $2,117,069 for the year ended December 31, 2001 from $168,204 for
the year ended December 31, 2000. This increase is due primarily to the
ownership of properties acquired late in 2000 that the Company continued to own
for the entire 2001 fiscal year and secondarily to the additional properties
owned and operated during the year ended December 31, 2001 as compared to the
year ended December 31, 2000.

   Gain (Loss) on Sale of Real Estate.  On November 13, 2001, the Company sold
the Christie Street Office Building located in Lufkin, Texas to an unaffiliated
buyer for $1,050,000, a net loss of approximately $227,000 before the refund of
a $50,000 real estate commission from an affiliate of the Advisor.

Liquidity and Capital Resources

  Capital Resources

   At December 31, 2001, the Company had $3,647,159 of cash compared to
$248,077 of cash at December 31, 2000 to meet its immediate short-term
liquidity requirements. Future short-term liquidity requirements are
anticipated to be met through the net cash flow from operations and existing
working capital. Operating cash flows are expected to increase as additional
properties are added to the Company's portfolio.

   The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in the
foreseeable future.

   In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its shareholders of at least 90% of REIT
taxable income, effective January, 2001. The Company expects to use its cash
flow from operating activities for distributions to shareholders and for
payment of other expenditures. The Company intends to invest amounts
accumulated for distribution in short-term investments.

   Distributions declared for the year ended December 31, 2001 were $1,145,621
compared to $149,207 for the year ended December 31, 2000. In both years, the
full amount of distributions represented a return of capital for federal income
tax purposes. 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 Code and other factors the Board of Directors
may deem relevant.

  Cash Flows From Operating Activities

   Net cash used in operating activities was $1,469,059 for the year ended
December 31, 2001 compared to net cash provided by operating activities of
$278,602 for the year ended December 31, 2000. The primary reason for the
decrease in cash provided by operating activities was an increase in accounts
receivable, a decrease in accounts payable and accrued expenses, the increase
in other assets due to loan fees that were incurred in connection with the
refinance of Thousand Oaks and Northstar in December 2001 and the Company's
larger net loss from operations attributable to a full year of business
operations in 2001.

   The Company expects future cash flows from operating activities to increase
substantially due primarily to the City Center West A Building, and NNN Pacific
Corporate Park I, LLC acquisitions. See "Subsequent Events."

  Cash Flows From Investing Activities

   Net cash used in investing activities amounted to $7,491,774 for the year
ended December 31, 2001 compared to $5,224,483 for the year ended December 31,
2000. The increased use of cash for investing activities resulted primarily
from $4,984,856 in real estate investments in 2001 compared to $3,951,243 in
2000 as the Company continued to build its portfolio of properties. In addition
the Company issued $688,000 of short-term mortgage loans and notes receivable
to related parties and a $595,000 mortgage loan to a non-related party in 2001
compared to the issuance of a $950,000 short-term mortgage loan to a related
party in 2000. Partially offsetting the net use of cash in investing activities
during 2001 was the $1,050,000 net cash flow received from the sale of the
Christie Street Building.

                                      20

<PAGE>

   At December 31, 2001, the Company does not have any material planned capital
expenditures resulting from any known demand based on existing trends. However,
management may conclude that expenditures to improve properties purchased after
December 31, 2001 are necessary and/or desirable.

  Cash Flows From Financing Activities

   Cash provided by financing activities amounted to $12,359,914 for the year
ended December 31, 2001 compared to $5,193,858 for the year ended December 31,
2000. The primary reason for the increase was $16,281,500 raised through the
Company's equity offering (net of offering costs) in 2001 compared to
$5,343,065 raised in 2000. For the years ended December 31, 2001 and 2000, the
Company paid offering costs of $1,709,492 and $1,267,454, respectively. The
Company will not continue to incur signigicant offering costs beyond the
termination of the Offering on May 31, 2002.

   The Advisor has guaranteed payment of all public offering expenses
(excluding selling commissions, the marketing contribution and the due
diligence expense allowance) in excess of 1.5% of the gross offering proceeds
or all organizational and offering expenses (including such selling expenses)
which together exceed 15% of the gross offering proceeds. As of December 31,
2001, organizational and offering costs did not exceed these limitations and
the Company anticipates that these costs will not exceed these limitations upon
completion of the Offering. Any excess amounts at the completion of the
Offering will be reimbursed by the Advisor.

   The weighted average annual interest rates on mortgages payable outstanding
at December 31, 2001 and 2000 was approximately 6.8% and 10.2%, respectively.
See Note 9 of the Notes to Consolidated Financial Statements (Item 8 of this
annual report) for a description of the terms of the mortgages payable.

   Management of the Company monitors the various qualification tests the
Company must meet to maintain its status as a REIT. Large ownership of the
Company's stock is tested upon purchase to determine that no more than 50% in
value of the outstanding stock is owned directly, or indirectly, by five or
fewer persons or entities at a time. Management of the Company also determines,
on a quarterly basis, that the Gross Income, Asset and Distribution Tests
imposed by the REIT requirements are met. On an ongoing basis, as due diligence
is performed by the Advisor on potential real estate purchases or temporary
investment of uninvested capital, management determines that the income from
the new asset will qualify for REIT purposes.

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

   Although the Company has defaulted on three of its notes payable maturing in
2001, management was successful in refinancing two of these notes in December
2001 and has entered into a loan commitment to refinance the third note in
January 2002 (See Note 9). Management believes that, inclusive of proposed
future acquisitions (See Note 11), the Company will generate sufficient cash
flow in the year ending December 31, 2002 to fund operations and any declared
dividends.

   Management also believes that, to the extent, if any, that the Company is
not successful in generating operations sufficient to meet its cash flow
requirements, the Company can secure a line of credit to finance any cash flow
deficits. Additionally, the Company's current cash position of $3,647,159 at
December 31, 2001 could be used to compensate for cash flow deficits.
Accordingly, the Company's continuation in its present form is dependent upon
its ability to achieve positive cash flow from operations and secure permanent
financing of its real estate properties as needed. Subsequent to December 31,
2001 and through March 15, 2002, the Company has recorded an additional
$5,845,000 in gross Offering proceeds.

                                      21

<PAGE>

Subsequent Events

   As of March 15, 2002, the Company had sold a total of 3,015,992 Shares and
issued an additional 55,225 Shares to shareholders participating in the DRIP
program for total gross proceeds of approximately $30,598,000. In addition, the
Company has issued to the Dealer Manager 67,798 Soliciting Dealer Warrants;
however, no warrants have been exercised as of March 15, 2001.

   The Company paid distributions of $122,786 and $134,942 to its shareholders
in January and February 2002, respectively.

   On January 11, 2002, the Company purchased a 16% tenant in common interest
in the County Center Building, a Class A distribution warehouse and office
building in Temecula, California containing a GLA of 77,582 square feet, from
an affiliated party. The total purchase price of $1,029,000 consisted of
$515,000 in cash and a $514,000 note payable for which the Company is jointly
and severally liable.

   On March 15, 2002, the Company purchased an 89.125% tenancy in common
interest in the City Center West "A" Building, a Class A office building in Las
Vegas, Nevada containing a GLA of 105,964 square feet from an unaffiliated
third party. The remaining undivided tenant in common interest in the building
was purchased by an affiliate, NNN City Center West A, LLC. The Company's
proportionate total purchase price of $19,313,387 consisted of $7,727,137 in
cash and a $11,586,250 note payable for which the Company is jointly and
severally liable.

                                      22

<PAGE>

   On March 25, 2002, the Company purchased an approximately 38% membership
interest in NNN Pacific Corporate Park 1, LLC, an affiliate of the Advisor. NNN
Pacific Corporate Park 1, LLC simultaneously purchased a 60% undivided tenant
in common interest in Pacific Corporate Park, six Class A office buildings in
Lake Forest, California containing a GLA of 167,486 square feet on a 11.74 acre
site, from an unaffiliated third party. The remaining undivided tenant in
common interest was purchased by an affiliate of the Advisor, NNN Value Fund
2001, LLC. The total purchase price of NNN Pacific Corporation Park 1, LLC 's
proportionate share of the building was $14,237,100 consisting of $4,937,100 in
cash and 9,300,000 in debt for which NNN Pacific Corporate Park 1, LLC is
jointly and severally liable.

   On February 5, 2002, pursuant to a request by the Advisor on behalf of all
tenants in common, the lender agreed to "re-size" the mortgage loan on Sequin
Corners from $545,000 to $1,148,700.

   On behalf of all tenants in common, the Advisor has secured a $4,950,000
mortgage loan to refinance Plaza Del Rey. The Company expects this transaction
to close in early April and will incur its 16.5% proportionate share of $9,391
of the total of approximately $56,915 in default interest.

   On January 16, 2002, the Company's $258,000 12% note receivable to NNN
County Center Drive LLC, an affiliated entity, was paid in full with all
applicable interest.

   In January, 2002, the Company loaned $1,925,000 to Rancho Murieta Lodge
Partners II, L.L.C. The note was secured by a first mortgage with interest at
6.50% and maturity in February 2002. Rancho Murieta Lodge Partners II L.L.C.
used the proceeds to acquire the real estate serving as collateral for the
note. The real estate, two of the seven buildings comprising Bowling Green
Financial Park in Sacramento, California, was owned by an affiliated company,
NNN Value Fund 2000. NNN Value Fund 2000 paid the Company 5.50% in additional
interest on the note for a total interest rate of 12%. The Advisor is the
manager of NNN Value Fund 2000. On February 12, 2002, Rancho Murieta Lodge
Partners II, L.L.C. paid the note in full with all applicable interest.

   On behalf of the Company, the Advisor is currently exploring the purchase of
additional properties from unaffiliated third parties.

Impact of Accounting Principles

   In fiscal 2001, the Company adopted Statement on Financial Standards No. 133
"Accounting for Derivatives, Instruments and Hedging Activities" ("SFAS 133"),
as amended. Management does not believe that it engages in the activities
described under such pronouncement, and therefore the adoption of SFAS 133 had
no effect on the Company's consolidated financial statements.

   In July 2001, the Financial Accounting Standards Board issued Statements No.
141, "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other
Intangible Assets" (SFAS 142"). SFAS 141 supersedes Accounting Principles Board
Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for
Pre-acquisition Contingencies of Purchased Enterprises". SFAS 141 is effective
for fiscal years beginning after June 30, 2001 and requires that all business
combinations be accounted for by the purchase method. SFAS 142 supersedes APB
Opinion No. 17, "Intangible Assets". SFAS 142 is effective for fiscal years
beginning after December 15, 2001 and provides that all existing and newly
acquired goodwill and intangible assets will no longer be amortized but will be
tested for impairment at least annually and written down only when impaired.
Management does not believe that the requirements of such pronouncements will
have a significant impact on the Company's future financial statements.

   Additionally, Financial Accounting Standards Board has recently issued
Statements No. 143, "Accounting for Asset Retirement Obligations" ("SFAS") and
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS"). SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of intangible long-lived assets and the
associated asset retirement costs, and is effective for

                                      23

<PAGE>

financial statements issued for fiscal years beginning after June 15, 2002.
SFAS 144 supercedes Statement No. 121., "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets, including accounting for a segment of a business accounted for as a
discounted operation. SFAS 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001. Management has not determined
how the requirements of such pronouncements will affect the Company's future
financial statements.

Inflation

   For the Company's multi-tenant shopping centers, inflation is likely to
increase rental income from leases to new tenants and lease renewals, subject
to market conditions. The Company's rental income and operating expenses for
those properties owned or to be owned and operated under triple-net leases are
not likely to be directly affected by future inflation, since rents are or will
be fixed under the leases and property expenses are the responsibility of the
tenants. The capital appreciation of the triple-net leased properties is likely
to be influenced by interest rate fluctuations. To the extent that inflation
determines interest rates, future inflation may have an effect on the capital
appreciation of the triple-net leased properties. As of December 31, 2001, the
Company owned some properties subject to triple-net leases.

Item 7(a).  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 the Company's 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 its objectives the Company 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.

<TABLE>
<CAPTION>
                                                              2002      2003       2004       2005       2006      Thereafter
                                                            --------  --------  ----------  ---------  ---------  ------------
<S>                                                         <C>       <C>       <C>         <C>        <C>        <C>
Fixed rate debt............................................ $234,446  $252,000  $  270,911   $291,218   $313,047   $13,843,840
Average interest rate on maturing debt.....................        6%        6%          6%         6%         6%          6.5%
Variable rate debt......................................... $659,175  $141,700  $8,750,000        --         --            --
Average interest rate on maturing debt.....................      6.9%      5.8%        6.5%       -- %       -- %          -- %
</TABLE>

   The fair estimated value of the Company's debt approximates its December 31,
2001 carrying amount.

   Approximately $9,550,875, or 39% of the Company's mortgages payable at
December 31, 2001, have variable interest rates averaging 6.8%. In comparison,
approximately $14,333,375 or 95% of the Company's mortgages payable at December
31, 2000 had variable interest rates averaging 10.2%. An increase in the
variable interest rate on certain mortgages payable constitutes a market risk.

                                      24

<PAGE>

Item 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Independent Auditors' Report............................................... 26

Consolidated Balance Sheets................................................ 27

Consolidated Statements of Operations...................................... 28

Consolidated Statements of Shareholders' Equity............................ 29

Consolidated Statements of Cash Flows...................................... 30

Notes to Consolidated Financial Statements................................. 31

Schedule III (Real Estate and Accumulated Depreciation).................... 47

                                      25

<PAGE>

                         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.,
a Virginia corporation, and subsidiary (the "Company"), as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years 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 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 audits provide a
reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of T REIT,
Inc. as of December 31, 2001 and 2000, and the results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule III entitled "Real Estate and Accumulated
Depreciation", 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/  Squar, Milner, Reehl & Williamson, LLP

Newport Beach, California
March 15, 2002

                                      26

<PAGE>

                                 T REIT, INC.

                          CONSOLIDATED BALANCE SHEETS
                          December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                 2001         2000
                                                                              -----------  -----------
<S>                                                                           <C>          <C>
                                   ASSETS
                                   ------
Real estate operating properties:
   Land...................................................................... $ 8,926,043  $ 4,763,737
   Buildings and improvements................................................  26,951,837   15,010,455
   Investment in unconsolidated real estate..................................   1,878,037           --
                                                                              -----------  -----------
                                                                               37,755,917   19,774,192
   Less accumulated depreciation and amortization............................    (594,381)     (38,373)
                                                                              -----------  -----------
                                                                               37,161,536   19,735,819
Cash and cash equivalents....................................................   3,647,159      248,077
Restricted cash..............................................................          --      211,000
Real estate deposits.........................................................     631,500      323,240
Accounts receivable..........................................................     293,163      103,469
Accounts receivable from related parties.....................................     627,000           --
Other assets, net............................................................     698,420           --
Note receivable..............................................................     595,000           --
Notes receivable from related parties........................................   1,787,579      950,000
                                                                              -----------  -----------
                                                                              $45,441,357  $21,571,605
                                                                              ===========  ===========

                    LIABILITIES AND SHAREHOLDERS' EQUITY
                    ------------------------------------
Accounts payable and accrued liabilities..................................... $   748,317  $ 1,093,228
Security deposits and prepaid rent...........................................     190,156       95,393
Common stock subscription deposits...........................................          --      211,000
Notes payable................................................................  24,737,461   15,078,808
                                                                              -----------  -----------
                                                                               25,675,934   16,478,429
Commitments and contingencies

Shareholders' equity:
   Common stock, $.01 par value; 10,000,000 shares authorized; 2,470,487 and
     664,271 shares issued and outstanding at December 31, 2001 and 2000,
     respectively............................................................      24,705        6,643
   Additional paid-in capital, net of offering costs of $2,976,946...........  20,305,132    5,187,315
   Accumulated deficit.......................................................    (564,414)    (100,782)
                                                                              -----------  -----------
                                                                               19,765,423    5,093,176
                                                                              -----------  -----------
                                                                              $45,441,357  $21,571,605
                                                                              ===========  ===========
</TABLE>



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

                                      27

<PAGE>

                                 T REIT, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                For the Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                               2001       2000
                                                            ----------  ---------
<S>                                                         <C>         <C>
Revenues
   Rental income........................................... $3,934,690  $ 250,111
   Interest income.........................................    208,092     48,510
                                                            ----------  ---------
                                                             4,142,782    298,621
Expenses
   Rental expenses.........................................  1,125,047     60,638
   General and administrative..............................    636,543    102,300
   Organizational..........................................         --     29,888
   Depreciation and amortization...........................    611,765     38,373
   Interest................................................  2,117,069    168,204
                                                            ----------  ---------
                                                             4,490,424    399,403
Loss on sale of real estate operating properties...........    177,948         --
Equity in earnings of uncolidated real estate operating
  properties...............................................     61,958         --
                                                            ----------  ---------
Net loss................................................... $ (463,632) $(100,782)
                                                            ==========  =========
Basic and diluted loss per common share.................... $    (0.33) $   (0.44)
                                                            ==========  =========
Weighted average number of common shares outstanding, basic
  and diluted..............................................  1,398,104    228,269
                                                            ==========  =========
</TABLE>









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

                                      28

<PAGE>

                                 T REIT, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                For the Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                             Additional
                                        Number of    Par      Paid-in    Accumulated
                                         Shares     Value   Capital, net   Deficit      Total
                                        ---------  -------  ------------ ----------- -----------
<S>                                     <C>        <C>      <C>          <C>         <C>
BALANCE - January 1, 2000..............       100  $     1  $        99   $      --  $       100
Redemption of common stock.............      (100)      (1)         (99)         --         (100)
Issuance of common stock...............   664,271    6,643    5,336,522          --    5,343,165
Distributions..........................        --       --     (149,207)         --     (149,207)
Net loss...............................        --       --           --    (100,782)    (100,782)
                                        ---------  -------  -----------   ---------  -----------

BALANCE - December 31, 2000............   664,271  $ 6,643  $ 5,187,315   $(100,782) $ 5,093,176
Issuance of common stock............... 1,806,216   18,062   16,263,438          --   16,281,500
Distributions..........................        --       --   (1,145,621)         --   (1,145,621)
Net loss...............................        --       --           --    (463,632)    (463,632)
                                        ---------  -------  -----------   ---------  -----------
BALANCE - December 31, 2001............ 2,470,487  $24,705  $20,305,132   $(564,414) $19,765,423
                                        =========  =======  ===========   =========  ===========
</TABLE>

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

                                      29

<PAGE>

                                 T REIT, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Years Ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                  2001         2000
                                                                              ------------  -----------
<S>                                                                           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss..................................................................... $   (463,632) $  (100,782)
Adjustments to reconcile net loss to net cash provided by (used in) operating
  activities
   Equity in earnings of unconsolidated real estate operating properties.....      (61,958)          --
   Loss on sale of real estate operating properties..........................      227,948           --
   Depreciation and amortization.............................................      611,765       38,373
   Change in operating assets and liabilities:
       Accounts receivable...................................................     (189,694)    (103,469)
       Accounts receivable from related parties..............................     (627,000)          --
       Other assets..........................................................     (716,339)          --
       Accounts payable and accrued liabilities..............................     (344,911)     349,087
       Security deposits and prepaid rent....................................       94,763       95,393
                                                                              ------------  -----------
Net cash provided by (used in) operating activities..........................   (1,469,058)     278,602

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate operating properties.................................   (4,984,856)  (3,951,243)
Sale of real estate operating properties.....................................    1,050,000           --
Issuance of note receivable..................................................     (595,000)          --
Issuance of notes receivable from related parties............................     (837,579)    (950,000)
Real estate deposits.........................................................     (308,260)    (323,240)
Investment in unconsolidated real estate.....................................   (1,816,079)          --
                                                                              ------------  -----------
Net cash used in investing activities........................................   (7,491,774)  (5,224,483)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net..................................   16,281,500    5,343,065
Proceeds from issuance of notes payable......................................   13,150,000           --
Principal payments on notes payable..........................................  (15,925,965)          --
Distributions................................................................   (1,145,621)    (149,207)
                                                                              ------------  -----------
Net cash provided by financing activities....................................   12,359,914    5,193,858
                                                                              ------------  -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS....................................    3,399,082      247,977

CASH AND CASH EQUIVALENTS -- beginning of year...............................      248,077          100
                                                                              ------------  -----------

CASH AND CASH EQUIVALENTS -- end of year..................................... $  3,647,159  $   248,077
                                                                              ============  ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
   Interest.................................................................. $  2,216,120  $    69,153
                                                                              ============  ===========
   Income taxes.............................................................. $     30,674  $        --
                                                                              ============  ===========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of real estate operating properties with debt....................... $ 12,434,618  $15,078,808
                                                                              ============  ===========
Purchase of real estate with accrued liabilities, net of repayments.......... $         --  $   744,141
                                                                              ============  ===========
</TABLE>

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

                                      30

<PAGE>

                                 T REIT, INC.

                       NOTES TO CONSOLIDATED STATEMENTS
                For the Years Ended December 31, 2001 and 2000

1.  ORGANIZATION

   T REIT, Inc. (the "Company") was formed in December 1998 in the Commonwealth
of Virginia and operates as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended. The Company is in the business of
acquiring existing office, industrial, retail and service properties located in
several states. As of December 31, 2001, the Company has three properties,
three tenancy in common interests and has entered into several agreements to
purchase additional properties (See Note 11). 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 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 10).

   Pursuant to a registration statement on Form S-11 (the "Registration
Statement") under the Securities Act of 1933, as amended, the Company is
offering for sale up to 10,000,000 shares of its common stock (the "Shares",
and collectively the "Offering") at an Offering price of $10 per Share. The
Registration Statement was declared effective on February 22, 2000. The
Offering was to be terminated on the earlier of February 22, 2002, or the date
on which the maximum number of shares have been sold. Considering that as of
December 31, 2001, the Company had sold 2,470,487 shares of its common stock,
the Company extended the offering until May 31, 2002. Additionally, the Company
deregistered 5,000,000 shares that management did not believe could be sold
between February 22, 2002 and May 31, 2002.

   The accompanying consolidated financial statements of the Company have been
prepared assuming that the Company continues in its present form. Effective
September 26, 2000, the Company completed its first property acquisition and
thus commenced its planned principal operations. As of December 31, 2001, the
Company has completed its first full year of operations. However, the Company
has not generated sufficient cash flow to support its operations, has an
accumulated deficit of approximately $564,414, does not have a cash reserve
dedicated to fund capital expenditures, and historically has been supported by
Offering proceeds. As such, all dividends distributed through December 31, 2001
are effectively a return of capital to the investors as the Company has not
generated any profits to support such dividends. For the year ended December
31, 2001, the Company has made cash distributions of $1,145,621 and its
operating activities used net cash of $1,469,058. The Company's ability to pay
dividends subsequent to the termination of the Offering on May 31, 2002 will be
significantly impacted by the Company's ability to generate positive cash flow
from future operations. Effective April 1, 2001, the Company increased its
annual dividend rate from 8% to 8.25%, and has committed to paying monthly
dividends at an annual rate of 8.25% to the extent of lawfully available funds.

   Although the Company has defaulted on three of its notes payable maturing in
2001, management was successful in refinancing two of these notes in December
2001 and has entered into a loan commitment to refinance the third note in
January 2002 (See Note 9). Management believes that, inclusive of proposed
future acquisitions (See Note 11), the Company will generate sufficient cash
flow in the year ending December 31, 2002 to fund operations and any declared
dividends.

   Management also believes that, to the extent, if any, that the Company is
not successful in generating operations sufficient to meet its cash flow
requirements, the Company can secure a line of credit to finance any cash flow
deficits. Additionally, the Company's current cash position of $3,647,159 at
December 31, 2001 could be used to compensate for cash flow deficits.
Accordingly, the Company's continuation in its present form is dependent upon
its ability to achieve positive cash flow from operations and secure permanent
financing of its

                                      31

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

real estate properties as needed. Subsequent to December 31, 2001 and through
March 15, 2002, the Company has recorded an additional $5,845,000 in gross
Offering proceeds.

   In the event Management's plans are not attained, the Company's financial
condition could be adversely impacted to a material extent.

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 ("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 Operating Properties

   Real estate 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 40 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.

   Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the asset's carrying amount is greater
than the sum of the future undiscounted cash flows (excluding interest)
estimated to be generated by those assets. As of December 31, 2001 and 2000, no
indicators of impairment existed and, thus, no impairment losses have been
recorded.

   The Company follows the provisions of Financial Accounting Standards Board's
Emerging Issues Task Force 97-11, "Accounting for Internal Costs Related to
Real Estate Property Acquisitions." Accordingly, the Company does not
capitalize its internal acquisition costs incurred in conjunction with the
identification and acquisition of properties to be held for investment.

  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 Receivables

   Management believes that all accounts receivable will be collected by the
Company; accordingly, the accompanying consolidated financial statements do not
include an allowance for uncollectible accounts.

                                      32

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Concentration of Credit Risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk are primarily cash investments and accounts
receivable from tenants. Cash is generally invested in investment-grade
short-term instruments and the amount of credit exposure to any one commercial
issuer 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, 2001 and 2000, 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.

  Other Concentrations

   As of December 31, 2001, the Company has two properties and two tenants in
common interests in properties located in the State of Texas. Accordingly,
there is a geographic concentration of risk subject to fluctuations in the
State's economy. Additionally, Albertson's and H.E. Butt Grocery Co. account
for approximately 22% and 11%, respectively, of the Company's annualized base
rental income. No other 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, 2001 and 2000 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 notes receivable, cash and cash equivalents,
restricted cash, accounts receivable, and accounts payable and accrued
liabilities, approximate fair value because of the relatively short maturity of
these instruments.

  Rental Income

   Rental income is recognized on a straight-line basis over the related lease
term. As a result, deferred rent is created when rental income is recognized
during "free rent" periods of a lease. Deferred rent is not significant at
December 31, 2001 and 2000.

  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 95% of its REIT taxable income for the year ended December
31, 2000, and effective January 1, 2001, 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. For the year ended December 31, 2001, the Company
incurred franchise taxes in the State of Texas of approximately $70,000. Such
taxes incurred for the year ended December 31, 2000 are considered
insignificant to the accompanying consolidated financial statements.

                                      33

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Per Share Data

   The company reports earnings per share pursuant to Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Basic loss per share
attributable for all periods presented is computed by dividing the loss to
common stockholders by the weighted average number of common shares and
potential common stock outstanding during the period. Diluted loss per share is
antidilutive since the Company incurred losses for the years ended December 31,
2001 and 2000.

  Use of Estimates

   The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of the assets and liabilities as of December 31, 2001 and 2000, and the
revenues and expenses for the years then ended. Actual results could differ
from those estimates.

  Stock Options and Similar Equity Instruments

   The Company has adopted 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" ("APB 25"). 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.

  Recently Issued Accounting Pronouncements

   In fiscal 2001, the Company adopted Statement of Financial Standards No.
133, "Accounting for Derivatives, Instruments and Hedging Activities" ("SFAS
133"), as amended. Management does not believe that it engages in the
activities described under such pronouncement, and therefore the adoption of
SFAS 133 had no effect on the Company's consolidated financial statements.

   In July 2001, the Financial Accounting Standards Board issued Statements No.
141, "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 supersedes Accounting Principles
Board Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for
Pre-acquisition Contingencies of Purchased Enterprises". SFAS 141 is effective
for fiscal years beginning after June 30, 2001 and requires that all business
combinations be accounted for by the purchase method. SFAS 142 supersedes APB
Opinion No. 17, "Intangible Assets". SFAS 142 is effective for fiscal years
beginning after December 15, 2001 and provides that all existing and newly
acquired goodwill and intangible assets will no longer be amortized but will be
tested for impairment at least annually and written down only when impaired.
Management does not believe that the requirements of such pronouncements will
have a significant impact on the Company's future financial statements.

   Additionally, the Financial Accounting Standards Board has recently issued
Statements No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143")
and No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). SFAS 143 addresses financial accounting and reporting for

                                      34

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs, and is effective for financial
statements issued for fiscal years beginning after June 15, 2002. SFAS 144
supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", addresses financial
accounting and reporting for the impairment or disposal of long-lived assets,
including accounting for a segment of a business accounted for as a
discontinued operation. SFAS 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001. Management has not
determined how the requirements of such pronouncements will affect the
Company's future financial statements.

3.  REAL ESTATE OPERATING PROPERTIES

   The Company generally allocates the purchase price between land and
buildings at a rate of 90% and 10% for office buildings and 75% and 25% for
shopping centers.
   On September 26, 2000, the Company acquired the Christie Street Office
Building (the "Christie Building") from an unrelated party, a 17,141 square
foot Class C office building in Lufkin, Texas. The purchase price of $1,250,000
consisted of cash and a note payable to the seller in the amounts of $500,000
and $750,000, respectively. The building was sold on November 13, 2001 as
described below.
   On October 26, 2000, the Company purchased the Northstar Crossing Shopping
Center, located in Garland, Texas containing 67,500 rentable square feet. The
purchase price of $3,930,000 consisted of cash and a note payable to an
affiliate of the seller in the amounts of $1,235,000 and $2,695,000,
respectively. The seller is not affiliated with the Company or the Advisor and
the building was 89% occupied at December 31, 2001.
   On December 6, 2000, the Company also acquired the Thousand Oaks Shopping
Center, located in San Antonio, Texas containing 162,864 rentable square feet.
The purchase price of $13,000,000 consisted of cash and a note payable to an
affiliate of the seller in the amounts of $2,162,500 and $10,837,500,
respectively. The seller is not affiliated with the Company or the Advisor and
the building was 91% occupied at December 31, 2001. Through purchases and
simultaneous sales, the Company acquired a tenant in common interest in both
Plaza Del Rey Shopping Center, a shopping center in Seguin, Texas containing
126,322 rentable square feet, and Seguin Shopping Center, a shopping center in
Seguin, Texas containing 21,000 rentable square feet, on November 17, 2000 and
November 22, 2000, respectively. Plaza Del Rey's total purchase price of
$5,050,000 consisted of cash and a note payable to an affiliate of the seller
in the amounts of $1,055,000 and $3,995,000, respectively. Seguin's total
purchase price of $2,450,000 consisted of cash and a note payable to an
affiliate of the seller in the amounts of $1,905,000 and $545,000,
respectively. The Company's percentage of ownership in Plaza Del Rey and Seguin
is 16.5% and 26.0%, respectively, and the Company's portion of the purchase
price and debt is $833,250 and $659,175 for Plaza Del Rey and $637,000 and
$141,700 for Seguin Shopping Center, respectively. Plaza Del Rey and Seguin
were 82% and 100% occupied at December 31, 2001, respectively.

   On May 11, 2001, the Company acquired the Pahrump Valley Junction Shopping
Center located in Pahrump, Nevada and containing 105,721 rentable square feet.
The total purchase price of $17,150,000 consists of cash and a note payable in
the amounts of approximately $4,750,000 and $12,400,000, respectively. The
Seller is not affiliated with the Company or the Advisor and the building was
99% occupied at December 31, 2001.
   On November 13, 2001, the Company's operating partnership sold the Christie
Building for $1,050,000. In connection with the sale, the Company provided
seller financing in the form of a promissory note in the amount of $595,000
(See Note 6). The Company further agreed, as part of the sale transaction, to
guarantee the lease payment for a period of five years (See Note 15).

                                      35

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The sale of the Christie Building resulted in an initial loss of
approximately $225,000 before a refund of $50,000 in real estate commissions by
Triple Net Properties Realty, Inc., an affiliated entity, and a refund from the
Advisor of asset management fees of approximately $9,600.

   The Christie Building was disposed of in accordance with the Company's plan
to concentrate on larger, institutional quality assets.

   The Company's properties are leased to tenants under operating leases with
terms ranging from 3 to 25 years 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 to be received from
noncancelable operating leases, excluding tenant reimbursements of certain
costs, for each of the next five years ending December 31 and thereafter, are
summarized as follows:

<TABLE>
    <S>                                                         <C>
    2002....................................................... $ 3,592,000
    2003.......................................................   3,422,000
    2004.......................................................   3,271,000
    2005.......................................................   3,003,000
    2006.......................................................   2,808,000
    Thereafter.................................................  34,225,000
                                                                -----------
                                                                $50,321,000
                                                                ===========
</TABLE>

   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, 2001 and 2000, the amount of
contingent rent earned by the Company was not significant.

                                      36

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.  INVESTMENT IN UNCONSOLIDATED REAL ESTATE

   Investments in unconsolidated real estate is related to the acquisition on
September 4, 2001 of a 40% undivided tenancy in common interest in the
Trademark Building by T REIT - Reno Trademark, L.L.C. ("Reno Trademark"), a
wholly owned subsidiary of T REIT, L.P. The property is located in Reno, Nevada
and contains 75,257 rentable square feet. The Company uses the equity method of
accounting to account for the acquisition and the operations of the Trademark
Building. The total purchase price allocated to Reno Trademark was
approximately $2,852,000, which consists of cash and a note payable in the
amounts of approximately $1,772,000 and $1,080,000, respectively. The remaining
60% of the Trademark Building was purchased by NNN Reno Trademark, L.L.C., an
affiliate of the Advisor. The Seller is not affiliated with the Company or the
Advisor and Memec, Inc., a subsidiary of Schroder Ventures, a European
investment group, is the only tenant with an annual rental income of
approximately $748,000.

   Unaudited, condensed, combined historical financial information for the
Trademark Building as of and for the one hundred and eight day period ended
December 31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                         The     40% of the
                                                      Trademark  Trademark
                                                      Building    Building
                                                      ---------- ----------
    <S>                                               <C>        <C>
    Assets........................................... $7,492,749 $2,997,100
                                                      ========== ==========
    Liabilities......................................  2,700,000  1,080,000
    Equity...........................................  4,792,749  1,917,100
                                                      ---------- ----------
                                                      $7,492,749 $2,997,100
                                                      ========== ==========
    Revenues......................................... $  296,083 $  118,433
    Expenses.........................................    141,187     56,475
                                                      ---------- ----------
                                                      $  154,896 $   61,958
                                                      ========== ==========
</TABLE>

   The Company is jointly and severally liable for the entire note in
connection with this acquisition in the amount of $2,700,000 (See Note 15).

5.  COMMON STOCK SUBSCRIPTION DEPOSITS

   At December 31, 2000, the Company had subscription deposits of $211,000 in
an interest-bearing escrow account, which represents funds from the sale of the
Company's common stock under the Registration Statement to residents of
Pennsylvania. Pennsylvania law prohibits the disbursement of such funds until
at least one million shares are issued by the Company. As of April 30, 2001,
the Company reached this threshold and, accordingly, the cash is no longer
restricted.

6.  NOTE RECEIVABLE

   In November 2001, the Company advanced $595,000 to the buyer of the Christie
Building (See Note 3). The note is secured by a deed of trust, with interest at
8.5% and maturity in December 2006. Interest income earned in connection with
this note for the year ended December 31, 2001 was not significant.

7.  NOTES RECEIVABLE FROM RELATED PARTIES

   In December 2000, the Company advanced $900,000 to W REIT, L.P., an
affiliated entity, based on a note receivable with interest at 12%, maturity in
June 2001 and is secured by a first mortgage. W REIT, L.P. used the proceeds to
retire debt on the real estate property serving as collateral for the note.

                                      37

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In addition, the Company advanced $430,000 to W REIT, L.P. in March 2001
subject to the same terms and conditions as the previous note. W REIT, L.P. is
planning to refinance such property in 2002 and management believes such
refinancing will result in the Company being paid in full.

   During 2000, the Company also advanced W REIT, L.P. $50,000 at 12% and
maturity in June 2001. The original notes and the $50,000 advance matured in
June 2001 and have been extended through June 30, 2002. As of December 31,
2001, no interest has been paid on the W REIT advance or notes receivable.
Accordingly, accrued interest in the amount of approximately $150,000 is
included in the accompanying consolidated balance sheets under the caption
Notes receivable from related party (see Note 15).

   Anthony W. Thompson, the CEO of the Company, is a director of Western REIT,
Inc., the parent of W REIT, L.P., and the president and beneficial owner of
approximately 34% of Triple Net Properties, L.L.C., the advisor to both Western
REIT, Inc. and the Company. The Company's directors and officers own less than
1% of Western REIT, Inc. In addition, Triple Net Properties, LLC is the general
partner of W REIT, L.P.

   As of December 31, 2001, the Company also has a note receivable from NNN
County Center Drive, LLC ("County Center, LLC"), an affiliated entity, (See
Note 17) in the amount of $258,000. The note was entered into in November 2001,
secured by the assets of County Center, LLC with interest at 12% and maturity
in January 2002. The entire balance of the note and accrued interest was repaid
to the Company in January 2002.

8.  STOCK OFFERING COSTS

   As of December 31, 2001 and 2000, the Company sold 2,470,487 and 664,271
shares of common stock, respectively, including 22,100 shares issued to the
Advisor at $9.05 per share in 2000 and 32,374 and 4,644 shares sold under the
DRIP (see Note 12) for the years ended December 31, 2001 and 2000,
respectively. Aggregate gross proceeds before Offering costs and selling
commissions approximate $24,602,000 and $6,611,000 as of December 31, 2001 and
2000, respectively.

   Pursuant to the Registration Statement discussed in Note 1, the Company is
offering the Shares to the residents of 43 states. In connection with the
Offering, the Company incurred approximately $1,267,000 and $1,710,000 of costs
related to the issuance and distribution of the Shares for the years ended
December 31, 2001 and 2000. Such amount includes a total of approximately
$1,567,000 and $615,000 paid to the dealer manager (a related party--See Note
14), principally comprised of sales commissions, underwriting discounts, and
certain fees. As described in Note 10, an additional $153,000 and $87,000 was
paid to the Advisor as of December 31, 2001 and 2000, respectively.

   The Shares can be offered to affiliates (officers, directors and brokers) at
a discounted price of $9.05 per share.

   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. 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 during
the Offering 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 the sale of Shares under the DRIP and
limited amounts sold during the Offering. As of December 31, 2001, the Company
had repurchased 1,000 shares under this plan.

                                      38

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


9.  NOTES PAYABLE

   Notes payable consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                                2001        2000
                                                                             ----------- -----------
<S>                                                                          <C>         <C>
Note payable to an individual, secured by a first deed of trust, fixed
  interest at 9%; principal and interest due in September 2020 (a).......... $        -- $   745,433

Note payable to an affiliate ("lender") of the seller, secured by a first
  trust deed on the respective property with a variable interest rate at the
  lender's Composite Commercial paper rate plus 3.5% (10.24% as of
  December 31, 2000): Principal and interest due in July 2001 (b)...........          --   2,695,000

Principal and interest due in June 2001 (b).................................          --  10,837,500

Principal and interest due in November 2001 (b) (c).........................     659,175     659,175

Note payable to a financial institution, secured by a first deed of trust,
  interest at LIBOR plus 2.25%; principal and interest due in
  September 2003 (d)........................................................     141,700     141,700

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..............................................................  12,286,586          --

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 (e)..........................................................   2,900,000          --

Note payable to a mortgage company, secured by the a first deed of trust,
  interest at the greater of 6.5% or a spread of one month LIBOR plus
  3.5% floor for the first ninety days. After the ninety days rate will be
  the greater of 7.5% or a spread of 3.5% over the thirty day LIBOR;
  principal and accrued interest are due in January 2004 (f)................   8,750,000          --
                                                                             ----------- -----------
       Total................................................................ $24,737,461 $15,078,808
                                                                             =========== ===========
</TABLE>
--------
(a) During the year ended December 31, 2001, the buyer of the Christie Building
    assumed the balance of this note (See Note 3).

(b) On November 16, 2001, the Company received a notice of default regarding
    the three notes in connection with the Northstar, Thousand Oaks and Plaza
    Del Rey properties, respectively, all maturing during 2001. The Company had
    to pay default interest to the lender in the amount of approximately
    $47,000 and 190,000 for the Northstar and Thousand Oaks notes, respectively.

(c) The Company owns a 16.5% tenant in common interest in the Plaza Del Rey
    Property, however, the Company is jointly and severally liable for the
    entire note payable balance of $3,995,000 (See Note 15). In January 2002,
    the Company entered into a loan commitment with a financial institution to
    refinance the note with a $4,900,000 five-year note at a fixed interest
    rate of 8% and maturity in five years for which the Company will be jointly
    and severally liable.

(d) The Company only owns a 26% tenancy in common interest in the Seguin
    Corners Property, however, the Company is jointly and severally liable for
    the entire note payable balance of $545,000 (See Note 15).

(e) This note is to refinance the original note in connection with the
    Northstar acquisition. The Company has incurred loan fees of approximately
    2.5% on this note.

(f) This note is to refinance the original note in connection with the Thousand
    Oaks acquisition. The Company has incurred loan fees of approximately 2.5%
    on this note.

                                      39

<PAGE>

                                 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 and thereafter are summarized as follows:

<TABLE>
    <S>                                                         <C>
    2002....................................................... $   894,000
    2003.......................................................     252,000
    2004.......................................................   9,163,000
    2005.......................................................     291,000
    2006.......................................................     313,000
    Thereafter.................................................  13,824,000
                                                                -----------
                                                                $24,737,000
                                                                ===========
</TABLE>

10.  ADVISORY FEES

   The Advisor is primarily responsible for managing the Company's day-to-day
business affairs and assets and carrying out the board of directors'
directives. Several of the Company's officers and directors serve in that same
capacity for the Advisor, and own approximately 29% of the equity interest in
the Advisor. The Advisor is a Virginia limited liability company that was
formed in April of 1998 to advise syndicated limited partnerships, limited
liability companies, and other entities regarding the acquisition, management
and disposition of real estate assets. The Advisor currently advises thirty-one
entities that have invested in properties located in California, Colorado,
South Dakota, Nevada, Kansas and Texas.

   Before the commencement of the Offering, the Advisor purchased 22,100 shares
of Company common stock at a price of $9.05 per share for approximately
$200,000 in cash. The Advisor intends to retain such shares while serving as
the advisor to the Company.

   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 is compensated by the Company for its services through a series
of fees pursuant to the Advisory Agreement with the Company. In addition to fee
compensation, the Advisor is reimbursed organizational and offering costs and
expenses it incurs on behalf of the Company. As of December 31, 2001 and 2000,
the fees and cost reimbursements of approximately $153,000 and $87,000,
respectively, have been paid by the Company to the Advisor from offering
proceeds and no amounts are currently due the Advisor. However, the Advisor
agreed in accordance to the Registration Statement to reimburse the Company for
legal, accounting and certain other costs in excess of 2.5% of gross offering
proceeds. As of December 31, 2001, accounts receivable from related parties
include approximately $577,000 relating to such reimbursements.

                                      40

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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. Approximately $157,000 and $106,000 of asset
management fees and property management fees were paid to the Advisor by the
Company for the year ended December 31, 2001. Such fees were not significant in
2000. However, subsequent to December 31, 2001 the Company was reimbursed by
the Advisor for the entire amount of asset management fees.

   Approximately $150,000 and $835,000 was earned by the Advisor and affiliates
of the Advisor in connection with the Company's acquisition of properties
during the years ended December 31, 2001 and 2000, respectively.

11.  PROPOSED ACQUISITIONS

   As of December 31, 2001, the Company had escrow and financing deposits in
the amount of $81,500 for the proposed acquisition of an undivided tenant in
common interest in the City Center West A Building, which was acquired in March
2002 (See Note 17). The Company also had escrow and financing deposits in the
amount of $295,000 for the proposed acquisition of an undivided tenant in
common interest in the Titan building and the adjoining Titan Plaza (the "Titan
Property"). The purchase agreement was entered into in November 2001 between
the seller, an unaffiliated entity, and the Advisor. The Titan Property
consists of a six-story, 103,763 rentable square foot suburban office building
and a single story, 27,765 square foot office building in the city of San
Antonio, Texas and is anchored by St. Paul Fire, Marine Insurance and Titan
Indemnity Company. The estimated purchase price is $9,242,000. The Property is
currently 89% occupied.

   The proposed acquisitions are tenant in common interests in properties
whereas the other tenants in common are participating in a tax-free exchange
arranged by the Advisor. Such transactions 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.

12.  DIVIDEND REINVESTMENT PROGRAM

   Effective with the offering, the Company adopted the Dividend Reinvestment
Program (the "DRIP"), which allows Company stockholders to purchase $0.01 par
value per share Common Stock ("Common Stock"), through reinvestment of
dividends, subject to certain conditions. The Company has registered and
reserved 700,000 shares for distribution pursuant to the DRIP.

   Dividends reinvested pursuant to the DRIP are applied to the purchase of
shares of Common Stock at a price per share (the "DRIP Price") equal to the
greater of (i) $9.05 or (ii) 95% of the Market Price (as defined in the
Dividend Reinvestment Program) until 700,000 shares have been purchased or
until the termination of the offering, whichever occurs first. Thereafter, the
Company may in its sole discretion effect additional registrations of common
stock for use in the DRIP. The per share purchase price for any such
additionally acquired shares will equal the DRIP Price. The company has sold
32,374 and 4,644 shares of common stock under the DRIP for a total of
approximately $293,000 and $42,000 for the years ended December 31, 2001 and
2000, respectively.

13.  STOCK OPTION PLANS

   Effective with the offering, the Company authorized and reserved a total of
100,000 shares of common stock for issuance under the Independent Director
Stock Option Plan.

                                      41

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Independent Director Stock Option Plan provides for the grant of initial
and subsequent options. Initial options granted to each director 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. Subsequent options are options to purchase 5,000 shares of common
stock at the applicable option exercise price described below on the date of
each annual shareholders' meeting to each independent director so long as the
individual is still in office. During the years ended December 31, 2001 and
2000, the Company granted options to purchase 15,000 and 15,000 shares,
respectively, to independent directors at an exercise price of $9.05 (the
Offering price less the dealer manager's selling commission, marketing support,
and due diligence reimbursement fee). Such options vest on the grant date. In
May 2001, Debra Kirby declined to stand for reelection as an independent board
member and effectively forfeited her 10,000 options. As of December 31, 2001
and 2000, none of the options under the Independent Director Option Plan have
been exercised. In addition, in March 2002 James Nance and Warren James
resigned from the Company's Board of Directors and effectively forfeited their
20,000 options.

   Also effective with the Offering, the Company authorized and reserved a
total of 700,000 shares of common stock for issuance under the Officer and
Employee Stock Option Plan (the "Officer/Employee Plan"). Acting on the
recommendation of the compensation committee, the Board of Directors has the
discretion to grant options to officers and employees effective as of each
annual shareholders meeting. Options granted under the Officer/Employee Plan
must be exercised within 90 days of terminating employment with the Company. In
2000, the Company granted its CEO and President Anthony W. Thompson and its
Vice President, Sterling McGregor, options to purchase 45,000 shares,
respectively. In 2001, Sterling McGregor terminated his employment with the
Company and effectively forfeited the 45,000 options that he received and the
Company granted Anthony Thompson an additional 45,000 options. Under the
Officer/Employee Plan, options have an exercise price per share of $9.05 and
vest two years after the grant date. As of December 31, 2001, none of the
options under the Officer/Employee Plan have been exercised. Options granted
under both plans described above have a ten-year life.

   A summary of the aggregate stock option activity under both of the above
plans during the year ended December 31, 2001 and 2000 is presented below:

<TABLE>
<CAPTION>
                                                                  Shares
                                                                  -------
      <S>                                                         <C>
      Options outstanding -- December 31, 1999...................      --
      Options granted............................................ 105,000
      Options exercised..........................................      --
      Options expired or forfeited...............................      --
                                                                  -------
      Options outstanding -- December 31, 2000................... 105,000
      ptions granted.............................................  60,000
      Options exercised..........................................      --
      Options expired or forfeited...............................  55,000
                                                                  -------
      Options outstanding -- December 31, 2001................... 110,000
                                                                  =======
      Options exercisable -- December 31, 2001...................  20,000
                                                                  =======
      Weighted average remaining contractual life (in years) of
        options
        outstanding at year end..................................       9
                                                                  =======
</TABLE>

   The weighted average exercise price for options issued and outstanding as of
December 31, 2001 and 2000 was $9.05, respectively. The grant-date estimated
fair value of options granted in 2001 and 2000 was $1.29 and $1.56 per option,
respectively.

   Stock options granted to employees and independent directors are accounted
for using the intrinsic value method of APB 25. Under APB 25, there was no
compensation expense related to such options for the year ended December 31,
2001.

                                      42

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   If the fair value method of accounting had been applied to such options, the
Company's reported net loss and loss per share (excluding forfeited stock
options described above) would have been as follows for the years ended
December 31:

<TABLE>
<CAPTION>
                                                              2001       2000
                                                            ---------  ---------
<S>                                                         <C>        <C>
Net loss, as reported...................................... $(464,000) $(101,000)
                                                            =========  =========
Net loss, pro forma........................................ $(543,000) $(154,000)
                                                            =========  =========
Basic and diluted loss per share, as reported.............. $   (0.33) $   (0.44)
                                                            =========  =========
Basic and diluted loss per share, pro forma................ $   (0.39) $   (0.67)
                                                            =========  =========
</TABLE>

   The above pro forma effect of applying SFAS 123 is not necessarily
representative of the impact on reported net income or loss for future years.

   The fair value was estimated using the Black-Scholes stock option pricing
model based on the exercise price per share, the market price of the Company's
common stock, and the weighted-average assumptions set forth below for
issuances in the following years:

<TABLE>
<CAPTION>
                                                              2001       2000
                                                            ---------  ---------
<S>                                                         <C>        <C>
Expected life.............................................. 2.0 Years  2.0 years
Estimated volatility.......................................        22%        22%
Risk-free interest rate....................................      2.22%       5.1%
Dividends..................................................      8.25%      8.25%
</TABLE>

   Volatility has been estimated based on reviewing the stock-price history of
comparable publicly held REITs.

14.  EQUITY SECURITIES

   The Company has 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 are 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.

   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.

   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

                                      43

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 2001, the Company had issued 53,529 warrants to
soliciting dealers, however, no warrants had been exercised as of that date.
The Company applied the fair value method of accounting for the warrants in
accordance with SFAS 123 and determined that the impact on the financial
statements as of December 31, 2001 was not significant.

   Warrant holders who are not shareholders may not vote on Company matters and
are not entitled to receive distributions.

15.  COMMITMENTS AND CONTINGENCIES

   In connection with the sale of the Christie Building (See Note 3), 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. The Christie Building is a single tenant
office building with the current tenant's lease expiring on August 31, 2002. It
is not certain that the current tenant will choose to renew the lease. The
Advisor has 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 Company is jointly and severally liable for the entire balance of the
note in connection with the acquisition of the Trademark Building (See Note 4).
The note is secured by a deed of trust, interest at 30 day LIBOR plus a spread
of 2.45% during the first six months and 2.7% thereafter. Principal and
interest are due in September 2002. The Company is also jointly and severally
liable for the entire note payable balance of $545,000 and $3,995,000 in
connection with acquisition of the Seguin Corners property and Plaza Del Rey
property, respectively (See Note 9).

   Section 6.4 of Article 6 of the Company's Articles of Incorporation
prohibits the Company from making any loans or advances to its Advisor,
directors, officers or any affiliated entities, however, the Company has made
numerous loans or advances to affiliates. Management is not certain how such
violations of the Articles of Incorporation will impact future operations of
the Company.

16.  OTHER RELATED PARTY TRANSACTIONS

   On September 27, 2001, the Company entered into an agreement to participate
as a co-borrower on a $500,000 loan and pledged its wholly owned shopping
center in Pahrump, Nevada as collateral, evidenced by an unrecorded second deed
of trust. The other co-borrowers include the Advisor, NNN LV 1900 Aerojet Way
LLC, and Anthony W. Thompson (collectively the "affiliates"). The Company and
the affiliates (collectively the "borrowers") were jointly and severally liable
on the loan. The terms of the loan require the borrowers to pay a $15,000
commitment fee (deducted from the loan proceeds) and $97,500 per month through
the maturity date of April 1, 2002, for a total repayment of $600,000. The
proceeds of the loan were used to finance a property acquisition by a
subsidiary of the Advisor that resulted in acquisition fees of $150,000 paid to
the Advisor. All

                                      44

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

costs of the loan and the principal repayments were made by the Advisor (See
Note 15). The loan was paid in full on February 7, 2002.

   The Company has purchased certain tenant in common interests in properties
whereas 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, and may impact the extent to which the
Company participates in such acquisitions.

17.  SUBSEQUENT EVENTS

  Note Receivable

   On January 4, 2002, the Company advanced $2,100,000 to Rancho Murieta Lodge
Partners II, L.L.C. ("Rancho Murieta"), an unaffiliated entity, based on a
6.50% note receivable secured by a first deed of trust with interest at 6.50%
maturing February 2002. The advance was to facilitate the financing needed by
Rancho Murieta to acquire two of the seven buildings comprising the Bowling
Green Financial Park in Sacramento, California. Bowling Green Financial Park
was owned by, NNN Value Fund 2000, an affiliated entity of the Advisor (See
Note 15). NNN Value Fund 2000 paid the Company an additional 5.50% interest on
the note for a total interest rate of 12%. Rancho Murieta paid the Company
$175,000 at close of escrow on January 4, 2002 and the balance was paid in full
with $25,948 in interest on February 14, 2002.

  Subsequent Acquisitions

  County Center Drive Building

   On January 11, 2002, the Company acquired a 16% tenancy in common interest
in the County Center Drive Building from NNN County Center, LLC, an affiliate
of the Advisor. The building is a single tenant office/service building located
in Temecula, California containing 77,582 rentable square feet and is 100%
leased to FFF Enterprises with annual rental income of approximately $521,000.
In September 2001, the Company had an escrow deposit in the amount of $258,000
to acquire a tenancy in common interest in the building, however, the deposit
was converted to a note payable to the Company and was used by NNN County
Center, LLC to acquire 100% of the building for a purchase price of
approximately $5,395,000 (See Note 15). The 16% tenancy in common interest in
the building was acquired from the affiliate for a purchase price of
approximately $1,029,000 and consists of cash and note payable in the amount of
approximately $515,000 and $514,000 respectively.

   The Company is jointly and severally liable for the entire note in
connection with the acquisition in the amount of $3,210,000. The note is
secured by a first deed of trust, interest at six month LIBOR plus 4.125% and
maturity is in September 2011.

  City Center West A Building

   On March 15, 2002, the Company also acquired 89.125% tenant in common
interest in the City Center West A building. The building is a suburban Class A
office building in the city of Las Vegas, Nevada containing 105,964 rentable
square feet and is anchored by Sprint Communications Company LP, Citadel
Broadcasting Company and Dowling Myers and Helm, LLP. The Property is currently
100% occupied. The Company's portion of the total purchase price of
approximately $21,670,000 is approximately $19,313,000 and consists of cash and
note payable in the amount of $7,727,137 and $11,586,250, respectively.

   The Company is jointly and severely liable for the entire note in connection
with this acquisition in the amount of $13,000,000.

                                      45

<PAGE>

                                 T REIT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Independent Directors

   Subsequent to their initial election as independent directors of the
Company, James Nance and Warren James purchased ownership interests in
affiliates of the Advisor. Owning an interest in an affiliate of the Advisor
disqualifies them as being independent under the Company's Articles of
Incorporation. The seats on our board of directors held by these former
directors have been filled by two new directors who qualify as independent
under the Articles of Incorporation.

                                      46

<PAGE>

                                 SCHEDULE III

                                 T REIT, INC.
                   REAL ESTATE AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
                                                                  Gross Amount at Which Carried at
                                 Initial Costs to Company                 Close of Period
                           ------------------------------------ ------------------------------------
                                                  Buildings and            Buildings and             Accumulated     Date
  Description*             Encumbrance    Land    Improvements     Land    Improvements     Total    Depreciation Constructed
  ------------             ----------- ---------- ------------- ---------- ------------- ----------- ------------ -----------
<S>                        <C>         <C>        <C>           <C>        <C>           <C>         <C>          <C>
Christie Street, TX....... $         0 $  125,193  $ 1,129,944  $        0  $         0  $         0   $      0      1984
North Star, TX............   2,900,000    982,768    2,949,780     982,768    3,110,353    4,093,121     92,712      1986
Plaza Del Rey, TX.........     659,175    209,783      599,403     209,783      580,694      790,477     17,320      1976
Seguin Corner, TX.........     141,700    160,855      472,714     160,855      472,714      633,569     13,637      1999
Thousand Oaks, TX.........   8,750,000  3,285,138    9,855,414   3,285,138    9,876,887   13,162,025    263,488      1986
Pahrump Valley, NV........  12,286,586  4,287,500   12,911,189   4,287,499   12,911,189   17,198,688    207,224      1986
                           ----------- ----------  -----------  ----------  -----------  -----------   --------
                           $24,737,461 $9,051,237  $27,918,444  $8,926,043  $26,951,837  $35,877,880   $594,381
                           =========== ==========  ===========  ==========  ===========  ===========   ========
</TABLE>
<TABLE>
<CAPTION>


                                        Maximum Life on Which
                             Date   Depreciation in Latest Income
  Description*             Acquired     Statement is Computed
  ------------             -------- -----------------------------
<S>                        <C>      <C>
Christie Street, TX.......   2000                39
North Star, TX............   2000                39
Plaza Del Rey, TX.........   2000                39
Seguin Corner, TX.........   2000                39
Thousand Oaks, TX.........   2000                39
Pahrump Valley, NV........   2001                39



</TABLE>
--------
 *  All properties are shopping centers with the exception of Christie Street
    which was an office building that was sold on November 13, 2001.

(a) The changes in total real estate for the year ended December 31, 2001 are
    as follows:

<TABLE>
<CAPTION>
                                                                    2001
                                                                 -----------
   <S>                                                           <C>
   Balance at beginning of period............................... $19,774,192
   Acquisitions.................................................  17,358,825
   Dispositions.................................................  (1,255,137)
                                                                 -----------
   Balance at end of period..................................... $35,877,880
                                                                 ===========
</TABLE>

(b) The changes in accumulated depreciation for the year ended December 31,
    2001 are as follows:

<TABLE>
<CAPTION>
                                                                    2001
                                                                 -----------
   <S>                                                           <C>
   Balance at beginning of period............................... $    38,373
   Additions--depreciation expense..............................     593,484
   Deletions--accumulated depreciation related to 2001 disposals     (37,476)
                                                                 -----------
   Balance at end of period..................................... $   594,381
                                                                 ===========
</TABLE>

                                      47

<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   On July 11, 2000, Haskell & White, LLP resigned as the Company's independent
accountant. Haskell & White provided an independent auditors report on the
balance sheet of the Company dated as of December 31, 1999, and such
independent auditor's report is included in the Company's registration
statement on Form S-11 declared effective by the Securities and Exchange
Commission on February 22, 2000. Haskell & White's report on the balance sheet
did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
The Company does not have, and has not had, any disagreements with Haskell &
White on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. In addition, Haskell & White
informed the Company in writing that Haskell & White did not have any
disagreements with the Company on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.

   Haskell & White provided the Company a letter addressed to the Securities
and Exchange Commission stating that it reviewed the disclosure in the Current
Report on Form 8-K, dated July 11, 2000 and filed with the Securities and
Exchange Commission on August 2, 2000, and had no disagreement with the
relevant portions of such disclosure. A copy of this letter, dated as of July
31, 2000, was filed as Exhibit 16.1 to the Current Report on Form 8-K.

   On September 18, 2000, The Company engaged Squar, Milner, Reehl &
Williamson, LLP ("Squar Milner") as their independent accountant and Squar
Milner accepted such appointment. The decision to engage Squar Milner was
approved by the Board of Directors on the recommendation of the Audit Committee.

   The Company had no relationship with Squar Milner required to be reported
under Regulation S-K, Item 304(a)(2) during the two years ended December 31,
1999 and 1998, or the subsequent interim periods prior to and including
September 18, 2000.

                                      48

<PAGE>

                                   PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors

   On February 7, 2001, Sterling McGregor resigned as an officer and director
of the Company to accept other employment. Also, Debra M. Kirby declined to
stand for reelection to the Company's Board of Directors and accordingly her
term expired at the May 8, 2001 annual meeting of the Company's shareholders.
On March 5, 2002, Warren H. James and James R. Nance resigned from the
Company's Board of Directors and D. Fleet Wallace and W. Brand Inlow were
appointed to fill their vacancies. Also, in December 2001 William C. Daniel
replaced Jack R. Maurer as the Company's Chief Financial Officer. Mr. Maurer
remains with the Company as its Secretary and Treasurer. The Company's current
officers and directors and their positions and offices with the Company are as
follows:

<TABLE>
<CAPTION>
                                                                                       Term of
                 Name                   Age                 Position                   Office
                 ----                   ---                 --------                   ------
<S>                                     <C> <C>                                       <C>
Anthony W. Thompson.................... 54  Chairman of the Board of Directors, Chief Since 1999
                                            Executive Officer and President
D. Fleet Wallace....................... 34  Director                                  Since 2002
W. Brand Inlow......................... 47  Director                                  Since 2002
Jack R. Maurer......................... 58  Secretary and Treasurer                   Since 1999
Willliam C. Daniel..................... 43  Chief Financial Officer                   Since 2001
</TABLE>

   There are no family relationships between any Directors, Executive Officers
or between any Director and Executive Officer.

   Certain information regarding its directors and executive officers is set
forth below.

   Anthony W. ("Tony") Thompson is a co-founder of the Advisor, Triple Net
Properties, L.L.C., and has been its President since its inception in April
1998. Prior to that time he 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
group founded in 1978. Mr. Thompson has been the President and co-owner of the
Dealer Manager, NNN Capital Corp. (formerly Cunningham Capital Corp. and TMP
Capital Corp.), since 1986 and is a registered securities principal with the
NASD. He is a 1969 graduate of Sterling College with a Bachelor of Science
degree in Economics. Mr. Thompson holds the professional designation of
Chartered Life Underwriter and Chartered Financial Consultant from the American
College. He is a member of the Sterling College Board of Trustees and UCLA's
Athletic Fund Major Gifts Committee.

   D. Fleet Wallace is a principal and co-founder of Greystone Fund, L.P. and
Greystone Capital Management, LLC, Greystone Fund's general partner. The
Greystone Fund 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.

   W. Brand Inlow is the President of Summit Realty Group, Inc. in Richmond,
Virginia, a position he has held since September 2001. Summit Realty operates
ten apartment communities in Virginia and North Carolina, and provides
acquisition, brokerage, new third-party management, business and consulting
services. Mr. Inlow also has established SRG Realty Advisors, LLC to acquire
and develop apartment communities. Prior to joining

                                      49

<PAGE>

Summit Realty, from November 1999 to September 2001 he was Vice President of
Acquisitions for EEA Realty, LLC in Alexandria, Virginia. 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.

   Jack R. Maurer served as Chief Financial Officer of the Advisor, Triple Net
Properties, L.L.C. from April, 1998 through December, 2001. Mr. Maurer
continues to serve as the Company's Secretary and Treasurer. Mr. Maurer has
over 24 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 Chief Financial Officer of Wescon Properties, where he was involved
in finance, accounting and forecasting. He also participated in the development
and construction management process, including due diligence, design
development, municipal processing, construction, marketing, property management
and investor services. Mr. Maurer's previous experience also includes
experience with the national accounting firm of Kenneth Leventhal & Company, a
leading provider of professional services to owners, developers, builders,
operators and financers of real estate. Mr. Maurer received a BS from
California University at Northridge in 1973 and is a Registered Operations and
Financial Principal with the NASD.

   William C. Daniel succeeded Mr. Maurer as Chief Financial Officer of the
Company in December, 2001 and is also the Chief Financial Officer of the
Company's Advisor, Triple Net Properties, LLC. Mr. Daniel has over 18 years of
executive experience with banks, savings and loan associations, investment
management, high tech and Internet companies. Beginning in 1984, he served as
Financial Analyst in the Financial Planning & Analysis unit of First Interstate
Bank of California. In 1986, Mr. Daniel began service as a Senior Financial
Analyst with Great Western Bank in the Corporate Planning Department, where he
rose to Vice President. In 1993, Mr. Daniel joined First Interstate Bancorp as
Vice President, Mergers and Acquisitions, where he led four bank and savings
institution acquisitions. In 1996, Mr. Daniel joined PIMCO Advisors LP, an
investment management company as Manager, Financial Planning & Analysis. At
PIMCO, Mr. Daniel managed financial analysis, financial applications and MIS
areas. In 1998, Mr. Daniel founded Stone Circle Advisors LLC, an investment
management and consulting company, and has consulted with a number of emerging
Internet and technology companies. Mr. Daniel received a BA and a BBA, cum
laude, from the University of Mississippi in 1980 and has an MBA from the
Johnson Graduate School of Management at Cornell University in 1983.

Item 11.  EXECUTIVE COMPENSATION

   The Company pays each independent director $1,000 for attending (in person
or by telephone) each meeting of the Board of Directors or a committee thereof.
Officers of the Company who served as directors in 2001 (Messrs. Thompson and
McGregor) were not paid fees for serving as directors.

   Under the Company's Independent Director Stock Option Plan, the Company has
authorized and reserved a total of 100,000 Shares for issuance to independent
directors. The Plan provides for the grant of initial and subsequent options to
purchase shares. Initial options are non-qualified stock options to purchase
5,000 Shares at the applicable option exercise price granted to each
independent director as of the date such individual becomes an independent
director. Subsequent options are options to purchase 5,000 Shares at the
applicable option exercise price on the date of each annual shareholders'
meeting to each independent director so long as the individual is still in
office. In 2001, the Company granted options to purchase 5,000 Shares to each
Independent Director under the Independent Directors Stock Option Plan. As of
December 31, 2001, such options had not been exercised. As of December 31,
2001, the Company has not granted any additional options under this plan.

   The Company's executive officers are all employees of the Advisor and/or its
affiliates. The Company does not pay any of these individuals cash compensation
for serving in their respective positions.

                                      50

<PAGE>

Compensation Committee Interlocks and Insider Participation

   During 2001, the following directors served on the Company's Compensation
Committee: Anthony W. Thompson, Debra M. Kirby and Warren H. James. Mr.
Thompson also served as Chief Executive Officer and President.

Board Compensation Committee Report on Executive Compensation

   The Compensation Committee has a policy of recommending awards of stock
options under the Company's Officer and Employee Stock Option Plan to reward
meritorious performance by officers and employees.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following table sets forth information as of March 15, 2002 regarding
the number and the percentage of Shares beneficially owned by: (i) each
director; (ii) the CEO and each of the Company's four most highly compensated
executive officers other than the CEO if such officers salary and bonus for
2001 exceeded $100,000; (iii) all directors and executive officers as a group;
and (iv) as of March 15, 2002, any person known to the Company to be the
beneficial owner of more than 5% of the Shares.

<TABLE>
<CAPTION>
                                                             Number of
                                                               Shares    Percent
                                                            Beneficially   of
                 Name of Beneficial Owner                     Owned(1)    Class
                 ------------------------                   ------------ -------
<S>                                                         <C>          <C>
Anthony W. Thompson (2)....................................    22,203     0.72%
D. Fleet Wallace...........................................       -0-        0%
W. Brand Inlow.............................................       -0-        0%
All Directors and Executive Officers as a group............    22,203     0.72%
</TABLE>
--------
(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, L.L.C. a
    limited liability company controlled by Mr. Thompson. Does not include
    options to purchase an additional 90,000 shares of which 30,000 are
    currently exercisable and of which 15,000 will be exercisable in 2002.

                                      51

<PAGE>

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The Advisor is primarily responsible for managing the Company's day-to-day
business affairs and assets and carrying out the Board of Director's
directives. Several of the Company's officers and directors serve in that same
capacity for the Advisor, and own approximately 29% of the equity interest in
the Advisor. The Advisor is a Virginia limited liability company that was
formed in April of 1998 to advise syndicated limited partnerships, limited
liability companies, and other entities regarding the acquisition, management
and disposition of real estate assets. The Advisor currently advises thirty-one
entities that have invested in properties located in California, Colorado,
South Dakota, Nevada and Kansas.

   Before the commencement of the Offering, the Advisor purchased 22,100 shares
of Company common stock at a price of $9.05 per share for approximately
$200,000 in cash. The Advisor intends to retain such shares while serving as
the advisor to the Company.

   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 is compensated by the Company for its services through a series
of fees pursuant to the Advisory Agreement with the Company. In addition to fee
compensation, the Advisor is reimbursed organizational and offering costs and
expenses it incurs on behalf of the Company. As of December 31, 2001 and 2000,
the fees and cost reimbursements of approximately $153,000 and $87,000,
respectively, have been paid by the Company to the Advisor from offering
proceeds and no amounts are currently due the Advisor. However, the Advisor
agreed in accordance to the Registration Statement to reimburse the Company for
legal, accounting and certain other costs in excess of 2.5% of gross offering
proceeds. As of December 31, 2001, accounts receivable from related parties
include approximately $577,000 relating to such reimbursements.

   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. Approximately $157,000 and $106,000 of asset
management fees and property management fees were paid to the Advisor by the
Company for the year ended December 31, 2001. Such fees were not significant in
2000. However, subsequent to December 31, 2001 the Company was reimbursed by
the Advisor for the entire amount of asset management fees.

   Approximately $150,000 and $835,000 was earned by the Advisor and affiliates
of the Advisor in connection with the Company's acquisition of properties
during the years ended December 31, 2001 and 2000, respectively.

   The Company has incurred approximately $1,567,000 and $615,000 of selling
commissions due diligence and certain fees paid to NNN Capital Corp., an
affiliated entity, owned by Anthony W. Thompson, the CEO of the Company for the
years ended December 31, 2001 and 2000, respectively.


                                      52

<PAGE>

   In December 2000, the Company advanced $900,000 to W REIT, L.P., an
affiliated entity, based on a note receivable with interest at 12%, maturity in
June 2001 and is secured by a first mortgage. W REIT, L.P. used the proceeds to
retire debt on the real estate property serving as collateral for the note.

   In addition, the Company advanced $430,000 to W REIT, L.P. in March 2001
subject to the same terms and conditions as the previous note. W REIT, L.P. is
planning to refinance such property in 2002 and management believes such
refinancing will result in the Company being paid in full.

   During 2000, the Company also advanced W REIT, L.P. $50,000 at 12% and
maturity in June 2001. The original notes and the $50,000 advance matured in
June 2001 and have been extended through June 30, 2002. As of December 31,
2001, no interest has been paid on the W REIT advance or notes receivable.
Accordingly, accrued interest in the amount of approximately $150,000 is
included in the accompanying consolidated balance sheets under the caption
Notes receivable from related party.

   Anthony W. Thompson, the CEO of the Company, is a director of Western REIT,
Inc., the parent of W REIT, L.P., and the president and beneficial owner of
approximately 34% of Triple Net Properties, L.L.C., the advisor to both Western
REIT, Inc. and the Company. The Company's directors and officers own less than
1% of Western REIT, Inc. In addition, Triple Net Properties, L.L.C. is the
general partner of W REIT, L.P.

   As of December 31, 2001, the Company also has a note receivable from NNN
County Center Drive, LLC ("County Center, LLC"), an affiliated entity, (See
Note 17) in the amount of $258,000. The note was entered into in November 2001,
secured by the assets of County Center, LLC with interest at 12% and maturity
in January 2002. The entire balance of the note and accrued interest was repaid
to the Company in January 2002.

   On September 27, 2001, the Company entered into an agreement to participate
as a co-borrower on a $500,000 loan and pledged its wholly owned shopping
center in Pahrump, Nevada as collateral, evidenced by an unrecorded second deed
of trust. The other co-borrowers include the Advisor, NNN LV 1900 Aerojet Way
LLC, and Anthony W. Thompson (collectively the "Affiliates"). The Company and
the Affiliates (collectively the "Borrowers") were jointly and severally liable
on the loan. The terms of the loan require the Borrowers to pay a $15,000
commitment fee (deducted from the loan proceeds) and $97,500 per month through
the maturity date of April 1, 2002, for a total repayment of $600,000. The
proceeds of the loan were used to finance a property acquisition by a
subsidiary of the Advisor that resulted in acquisition fees of $150,000 paid to
the Advisor. All costs of the loan and the principal repayments were made by
the Advisor. The loan was paid in full on February 7, 2002.

   The Company has purchased certain tenant in common interests in properties
whereas 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, and may impact the extent to which the
Company participates in such acquisitions.

                                      53

<PAGE>

                                    PART IV

Item 14.  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, 2001 is submitted herewith:

<TABLE>
<CAPTION>
                                                                  Page
                                                                  ----
          <S>                                                     <C>
          Real Estate and Accumulated Depreciation (Schedule III)  45
</TABLE>

       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.

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

<TABLE>
<CAPTION>
Item
No.                                                 Description
---                                                 -----------
<C>    <S>
 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)
 5.1   Opinion of Hunton & Williams (included as Exhibit 5.1 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)
 8.1   Opinion of Hunton & Williams as to Tax Matters (included as Exhibit 8.1 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)
</TABLE>

                                      54

<PAGE>

<TABLE>
<CAPTION>
Item
No.                                                 Description
---                                                 -----------
<C>     <S>
 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)
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)
 23.1   Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1 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)
 23.2   Consent of Haskell & White LLP (included as Exhibit 23.2 to Amendment No. 1 to the Company's
          Registration Statement on Form S-11 filed on July 23, 1999 (File No. 333-77229) and incorporated
          herein by this reference)
 23.3   Consent of Squar, Milner, Reehl & Williamson, LLP (included as Exhibit 23.3 to Amendment No. 6 to
          the Company's Registration Statement on Form S-11 filed on March 22, 2002 (File No. 333-77229)
          and incorporated herein by this reference.)
 24.1   Powers of Attorney (included on signature page to Amendment No. 1 to the Company's Registration
          Statement on Form S-11 filed on July 23, 1999 (File No. 333-77229) and incorporated herein by this
          reference)
</TABLE>

                                      55

<PAGE>

<TABLE>
<CAPTION>
Item
No.                                                Description
---                                                -----------
<C>    <S>
99.1   Consent of Debra Meyer Kirby to be named as a director (included as Exhibit 99.1 to Amendment No. 1
         to the Company's Registration Statement on Form S-11 filed on July 23, 1999 (File No. 333-77229)
         and incorporated herein by this reference)
99.2   Consent of Warren H. James to be named as a director (included as Exhibit 99.2 to Amendment No. 1
         to the Company's Registration Statement on Form S-11 filed on July 23, 1999 (File No. 333-77229)
         and incorporated herein by this reference)
99.3   Consent of James R. Nance to be named as a director (included as Exhibit 99.3 to Amendment No. 1 to
         the Company's Registration Statement on Form S-11 filed on July 23, 1999 (File No. 333-77229) and
         incorporated herein by this reference)
99.4   Consent of Sterling McGregor to be named as a director (included as Exhibit 99.4 to Amendment No. 1
         to the Company's Registration Statement on Form S-11 filed on July 23, 1999 (File No. 333-77229)
         and incorporated herein by this reference)
</TABLE>

   (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/A, dated November 13, 2001, reporting under
   Items 2 and 7, the requisite financial information concerning the
   acquisition of the Trademark Building in Reno, Nevada.

   (c) See exhibit index included above.

   (d) None


                                      56

<PAGE>

                                  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 March 30, 2002 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. THOMPSON    Chief Executive Officer,      March 30, 2002
-----------------------------   President and Director
     Anthony W. Thompson

   /s/  WILLIAM C. DANIEL     Chief Financial and           March 30, 2002
-----------------------------   Accounting Officer
      William C. Daniel

    /s/  D. FLEET WALLACE     Director                      March 30, 2002
-----------------------------
      D. Fleet Wallace

    /s/   W. BRENT INLOW      Director                      March 30, 2002
-----------------------------
       W. Brent Inlow

                                      57