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SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

T REIT, Inc.

N/ A

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

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

          As of August 16, 2004, there were 4,643,000 shares of common stock of T REIT, Inc. outstanding.

T REIT, INC.

FORM 10-Q

INDEX

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PART I — FINANCIAL INFORMATION

      The accompanying June 30, 2004 and 2003 interim financial statements of the Company required to be filed with this Form 10-Q Quarterly Report were prepared by management without audit and commence on the following page, together with the related Notes. In the opinion of management, these interim financial statements present fairly the financial condition, results of operations and cash flows of the Company, but should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2003 included in our Annual Report on Form 10-K/ A previously filed with the Securities and Exchange Commission.

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T REIT, INC.

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.

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

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T REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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T REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      T REIT, Inc. (the “Company”) was formed in December 1998 in the Commonwealth of Virginia and operates as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company is in the business of acquiring existing office, industrial, retail and service properties located in several states. As of June 30, 2004, the Company owned real estate investments consisting of one consolidated property and interests in ten unconsolidated properties. The Company acquires properties through its operating partnership, T REIT, L.P., which is wholly owned by the Company.

      The Company is externally advised by an affiliated company, Triple Net Properties, LLC (the “Advisor”), which is primarily responsible for managing the day-to-day operations and assets of the Company. The Advisory Agreement dated February 22, 2000, between the Company and the Advisor is for a one-year term, subject to successive renewals. (See Note 9).

      The accompanying consolidated financial statements include the accounts of the Company, the Operating Partnership, and the wholly owned subsidiaries of the Operating Partnership and variable interest entities that the Company has concluded should be consolidated; all material intercompany transactions and account balances have been eliminated in consolidation. All references to the Company include the Operating Partnership and its subsidiaries.

      The accompanying interim financial statements have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes require by GAAP for complete financial statements. The accompanying financial information reflects all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2003 Annual Report on Form 10-K/ A as filed with the Securities and Exchange Commission.

      Marketable securities are carried at fair value and consist primarily of investments in marketable common stocks of public REIT’s. The Company classifies its marketable securities portfolio as available-for-sale. This portfolio is continually monitored for differences between the cost and estimated fair value of each security. If the Company believes that a decline in the value of a debt or equity security is temporary in nature, it records the decline as an unrealized loss in stockholders’ equity. If the decline is believed to be other than temporary, the debt or equity security is written down to the carrying value and a realized loss is recorded on the Company’s statement of income. Management’s assessment of a decline in value includes, among other things, its current judgment as to the financial position and future prospects of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the entity that issued the security. If that judgment changes in the future, the Company may ultimately record a realized loss after having initially concluded that the decline in value was temporary.

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

      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 for the year, as defined by the Code, to its shareholders, among other requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to Federal income tax on its taxable income at regular corporate tax rates. Although the Company qualifies as a REIT, the Company may be subject to certain state and local taxes on its income and property and Federal income and excise taxes on its undistributed income. The Company believes that it has met all of the REIT distribution and technical requirements for the six months ended June 30, 2004 and the year ended December 31, 2003 and was not subject to any Federal income taxes. Management intends to continue to adhere to these requirements and maintain the Company’s REIT status.

      The Company reports earnings per share pursuant to Statement of Financial Accounting Standards No. 128, “Earnings Per Share.” Basic earnings per share attributable for all periods presented is computed by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed based on the weighted average number of common shares and all potentially dilutive securities. The Company’s potentially dilutive securities consist of 101,000 warrants at June 30, 2004 and December 31, 2003 and 425,000 and 165,000 stock options which are accounted for under the treasury method and therefore, did not have a dilutive effect on earnings per share.

      The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of June 30, 2004 and December 31, 2003 and the revenues and expenses for each of the periods. Actual results could differ from those estimates.

      As permitted by FAS 123, “Accounting for Stock-Based Compensation,” and FAS 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options. Under APB 25, compensation expense is recorded when the exercise price of employee stock options is less than the fair value of the underlying stock on the date of grant. The Company has implemented the disclosure-only provisions of FAS 123 and FAS 148. Had the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company elected to adopt the expense recognition provisions of FAS 123, the impact on net income (loss) and earnings (loss) per share would have been as follows:

      This pro forma amount was determined by estimating the fair value of each option beginning June 28, 2003, when shareholder approval of the option plans was obtained, at $1.00 per option, using the Black-Scholes option-pricing model, assuming an 8.25% dividend yield, a 4.75% risk-free interest rate based on the 10-year U.S. Treasury Bond, an expected life of 9.0 years, and a 0% volatility rate.

      The weighted average remaining contractual life of all options outstanding at June 30, 2004, was 9.01 years.

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

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

      The Company’s investment in consolidated properties at June 30, 2004 and December 31, 2003 is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      On February 27, 2004, the Company purchased 43 acres of land, including 36 acres of land situated under Gateway Mall from an 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.

      On March 18, 2004, the Company sold Gateway Mall to an unaffiliated third party for a purchase price of $11,600,000. The sale of Gateway Mall included the underlying 36 acres of land. Net sales proceeds included cash of $2,452,000 and a note receivable in the amount of $8,700,000. The note is secured by a pledge agreement, bears interest at 6% per annum and is due June 14, 2004. The note was refinanced and the Company received $6,500,000 on July 9, 2004 and issued an adjustable note receivable for $2,200,000 (see Note 5). In connection with the sale of Gateway Mall, the Company repaid a note payable secured by the property with an outstanding balance of $4,876,000. At closing, the Company paid a real estate commission to Triple Net Properties, Realty, Inc. (“Realty”), an affiliate of the Advisor, of $339,000, or 2.9% of the selling price.

      Investments in unconsolidated real estate consist of the Company’s investments in undivided tenant in common interests and limited liability companies. The Company had the following investments in unconsolidated real estate at June 30, 2004:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Condensed combined historical financial information of investments in unconsolidated real estate as of June 30, 2004 is as follows:

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

      On April 2, 2004, through its wholly-owned subsidiary, TREIT — NNN Oakey Building 2003, LLC, the Company purchased a 9.761% interest in the Oakey Building in Las Vegas, Nevada from an unaffiliated third party. The total purchase price for the Oakey Building was $8,137,000. The Company’s total investment was $670,000. The purchase was financed by $4,000,000 in borrowings under a secured mortgage with Ivan Halaj and Vilma Halaj Inter Vivos Trust. The mortgage requires principal and interest payments at a fixed interest rate of 10% until the due date of April 1, 2005. The seller of the property paid a sales commission to Realty of $237,000, or 2.9% of the purchase price. The Oakey Building is a 104,000 square foot Class A office building located in Las Vegas, Nevada.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Other assets as of June 30, 2004 and December 31, 2003 consisted of the following:

5.     Notes Receivable

      The Company issued a note for $8,700,000 in conjunction with the sale of Gateway Mall. The note is secured by a pledge agreement, bears interest at 6% per annum and was due June 14, 2004. The note was refinanced and the Company received $6,500,000 on July 9, 2004 and issued a new note for $2,200,000. The new note is an adjustable rate note with interest calculated at a blended rate in which the borrower’s interest paid cannot exceed a total of $522,000 annually between the borrower’s two notes. The interest rate for the $2,200,000 note at July 9, 2004 was 8.6%. The new note is interest only with the balance, including all unpaid interest, due on August 1, 2006.

      Additionally, the Company also holds an existing note with a balance of $640,000 and $647,000 at June 30, 2004 and December 31, 2003, respectively. The note is secured by a first deed of trust on a real estate property, with interest at 8.5% per annum. All accrued, unpaid interest and principal is due December 2006.

6.     Line of Credit

      On September 3, 2003, the Company entered into an agreement with Fleet National Bank for a line of credit in the amount of $1,000,000 which bears interest at Fleet’s prime rate plus fifty basis points (4.5% at June 30, 2004 and December 31, 2003). The credit facility matures on September 2, 2004 and has two one-year extensions. The credit facility is subject to a fee of 1% to be paid one-third on each of the effective date, the first anniversary and the second anniversary. As of June 30, 2004, the Company had $755,000 outstanding under the line of credit.

7.     Notes Payable

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

8.     Shareholder’s Equity

      Effective May 24, 2001 the Company adopted the Share Repurchase Plan (the “Repurchase Plan”), which provides eligible shareholders with limited liquidity by enabling them to request the repurchase of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

their common stock by the Company subject to various limitations. Repurchases are made at the sole discretion of the Board of Directors. To be eligible to request a repurchase, a shareholder must offer for resale at least 25% of the total number of his shares of common stock and must have owned the shares for at least one year.

      The price paid by the Company per repurchased share of common stock varies in accordance with the terms of the Repurchase Plan. Repurchases are effected by the Company on or about the last day of each calendar quarter. Funding for the Repurchase Plan comes from the Company’s operations. The Company repurchased 3,000 shares for $32,000 during the six months ended June 30, 2004 and repurchased 50,000 shares of common stock for $455,000 during the year ended December 31, 2003.

      As permitted by FAS 123, “Accounting for Stock-Based Compensation,” and FAS 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options. Under APB 25, compensation expense is recorded when the exercise price of employee stock options is less than the fair value of the underlying stock on the date of grant. The Company has implemented the disclosure-only provisions of FAS 123 and FAS 148.

      In February 2000, the Company adopted stock option plans (the “Plans”) for (1) independent and outside directors and (2) its officers and employees. Shares of common stock issued upon the exercise of such options will have certain transferability restrictions. The unregistered public sale of restricted stock, which is governed by Rule 144 of the Securities Act of 1933, as amended, is prohibited during the first year of ownership and limited as set forth in such rule during the second year of ownership.

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

      As of June 30, 2004, options for a total of 425,000 shares are outstanding under the Officer and Employee Stock Option Plan and Independent Director Stock Option Plan.

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

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      The fair value of the options outstanding are calculated using the Black-Scholes option-pricing model. Assumptions used in the calculation included a 8.25% dividend yield, a 4.75% risk-free interest rate based on the 10-year U.S. Treasury Bond, an expected life of 9.0 years, and a 0% volatility rate. The fair value at June 30, 2004 was $1.00.

      The weighted average remaining contractual life of all options outstanding at June 30, 2004, was approximately 9.01 years.

9.     Advisory Agreement and Related Party Transactions

      The Advisory Agreement between the Company and the Advisor, as amended, was renewed by the Board of Directors on May 8, 2004 for an additional one-year term effective February 22, 2004. The Company compensates the Advisor for its services through a series of fees pursuant to the Advisory Agreement. No amounts are currently due the Advisor under this agreement. As described below, there were no amounts paid to the Advisor for services provided during the three and six months ended June 30, 2004 and 2003.

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

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

      The Company pays Realty property management fees, per the Advisory agreement, for each property managed by Realty. All of the Company’s properties are managed by Realty. The Company incurred $30,000 and $181,000 in property management fees for the six months ended June 30, 2004 and June 30, 2003, respectively.

      The Advisor owns 100 non-voting incentive performance units in T REIT, L.P., the Company’s Operating Partnership and is entitled to incentive distributions of operating cash flow after the Company’s

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shareholders have received an 8.00% annual return on their invested capital. No incentive distributions were made to the Advisor for the six months ended June 30, 2004 and 2003.

      As discussed in Note 3, the Company paid Realty real estate sales commissions of $1,161,000 and $2,000,000 in connection with the Company’s real estate acquisitions and dispositions during the six months ended June 30, 2004 and June 30, 2003, respectively.

10.     Commitments and Contingencies

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

      On July 19, 2004, Michael R. and Patricia C. Long, as Trustees of the Michael R. and Patricia C. Long 2001 Trust (the “Purchasers”) filed a petition in the District Court of the 25th Judicial District Guadalupe County, Texas against T REIT-Seguin, LLC, Peck-Seguin, LLC, Lake Air Mall-Seguin, LLC, Chicago Title Company and Triple Net Properties, LLC (collectively, the “Sellers”). The Company, through its wholly owned subsidiary T REIT-Seguin, LLC purchased a 26% interest in the Seguin Corners Shopping Center in November 2000 which was sold to the Purchasers in August 2002. The petition alleges that Sellers misrepresented and/or failed to disclose that they did not own and could not convey the property in its entirety to Purchasers. Management strongly disagrees with the points outlined in the suit and intends to vigorously defend the action. While management believes that its exposure should be limited by its title insurance coverage with Chicago Title Company, if Purchasers 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.

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

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respect to an environmental liability that the Company believes would require additional disclosure or the recording of a loss contingency.

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

11.     Discontinued Operations — Property Held for Sale

      In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” the net income and the net gain on dispositions of operating properties sold subsequent to December 31, 2001 or classified as held for sale are reflected in the consolidated statement of operations as discontinued operations for all periods presented. For the three and six months ended June 30, 2004 and 2003, discontinued operations included the net income of one property sold in 2004 and three properties sold in 2003. The following table summarizes the income and expense components that comprise discontinued operations for the three and six months ended June 30:

12.     Restatement

      As noted in the Company’s 2003 annual report on Form 10K/ A, certain 2003 amounts have been restated to reflect the reclassification of discontinued operations and the loss on sale of real estate due to the reallocation of the property basis.

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T REIT, Inc.

Statement of Operations