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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number: 0-49782

T REIT, Inc.

1551 N. Tustin Avenue, Suite 200

(877) 888-7348

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

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

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

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

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

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

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

T REIT, INC.

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PART I

Description of Business

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

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

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

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

Developments During 2003

      During 2003:

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

Investment Objectives & Policies

General

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

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

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

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Acquisition Strategies

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

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

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

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

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

Acquisition Standards

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

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

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	•	potential for economic growth in the tax and regulatory environment of the community in which the property is located;
	•	potential for expanding the physical layout of the property;
	•	occupancy and demand by tenants for properties of a similar type in the same geographic vicinity;
	•	prospects for liquidity through sale, financing or refinancing of the property;
	•	competition from existing properties and the potential for the construction of new properties in the area; and
	•	treatment under applicable federal, state and local tax and other laws and regulations.

Operating Strategies

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

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

Tax Status

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

Competition

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

Government Regulations

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

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

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

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

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

Significant Tenants

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

Employees

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

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Financial Information About Industry Segments

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

Real Estate Investments

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

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

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

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

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

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Lease Expiration Table

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

Indebtedness

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

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

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

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

PART II

Market Information

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

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

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

Shareholders

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

Distributions

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

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

Equity Compensation Plan Information

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

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

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SELECTED FINANCIAL DATA

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

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

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

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

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

      FFO is calculated as follows:

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

Forward-Looking Statements

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

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Overview

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

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

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

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

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

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

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

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

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

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      On March 15, 2002, through its wholly-owned subsidiary, T REIT — City Center West A, LLC, the Company purchased an 89.1% undivided tenant in common interest in the City Center West “A” Building from an unaffiliated third party. City Center West “A” is a 105,964 square foot office building located in Las Vegas, Nevada. The total purchase price for the property was $21,670,000. The Company’s total investment was $7,727,137. The seller of the property paid a sales commission to Realty of $420,000, or 1.9% of the purchase price.

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

      On April 17, 2002, through its wholly-owned subsidiary, T REIT — Titan Plaza, L.P., the Company purchased a 48.5% undivided tenant in common interest in the Titan Building and Titan Plaza located in San Antonio, Texas from an unaffiliated third party. The Titan Building is a 103,762 square foot, six-story suburban office building. Titan Plaza is an adjoining 27,765 square foot single-story Class B suburban office building. The total purchase price of the property was $9,167,000. The Company’s total investment was $1,536,000. The seller of the property paid a sales commission to Realty of $250,000, or 2.7% of the purchase price. The Company also purchased an adjoining 2.34-acre parcel of land for a purchase price of $75,000.

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

      On September 25, 2002, through its wholly-owned subsidiary, T REIT — Saddleback Financial L.P., the Company purchased a 25.0% undivided tenant in common interest in the Saddleback Financial Center from an unaffiliated third party. The Saddleback Financial Center is a 72,711 square foot, four-story suburban office building located in Laguna Hills, California. The total purchase price of the property was $11,072,500. The Company’s total investment was $775,000. The seller of the property paid a sales commission to Realty of $322,500, or 2.9% of the purchase price.

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

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

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

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

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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Subsequent Events

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

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

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

Impact of Accounting Principles

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

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

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

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

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

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

Inflation

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

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

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

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

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

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

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

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

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders

      We have audited the accompanying consolidated balance sheet of T REIT, Inc. (the “Company”), as of December 31, 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. Our audits also included the financial statement schedule (“Schedule III”) listed in the index to the consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

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

/s/ DELOITTE & TOUCHE, LLP

Los Angeles, California

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders

      We have audited the accompanying consolidated balance sheet of T REIT, Inc. (the “Company”), as of December 31, 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

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

	/s/ GRANT THORNTON LLP

Irvine, California

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders

      We have audited the consolidated statements of operations, shareholders’ equity and cash flows of T REIT, Inc., a Virginia corporation, and subsidiary (the “Company”), as of December 31, 2001, and for the year ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

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

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

Newport Beach, California

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T REIT, INC.

CONSOLIDATED BALANCE SHEETS

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

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T REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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T REIT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY