T REIT INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number 0-49782

T REIT, Inc.

(Exact name of registrant as specified in its charter)


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

1551 N. Tustin Avenue, Suite 200 Santa Ana, California 92705 (Address of principal executive offices)		(877) 888-7348 (Registrant’s telephone number, including area code)

N/A

(Former name)

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 November 15, 2004, there were 4,612,000 shares of common stock of T REIT, Inc. outstanding.

INDEX


		Page

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements		2
	Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 (Unaudited)		3
	Condensed Consolidated Statements of Operations and Comprehensive Operations for the three-month and nine-month periods ended September 30, 2004 and 2003 (Unaudited)		4
	Condensed Consolidated Statement of Shareholders’ Equity for the nine-month period ended September 30, 2004 (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2004 and 2003 (Unaudited)		6
	Notes to Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3.	Quantitative and Qualitative Disclosure About Market Risks		33
Item 4.	Controls and Procedures		34

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.	Defaults Upon Senior Securities		36
Item 4.	Submission of Matters to a Vote of Security Holders		36
Item 5.	Other Information		36
Item 6.	Exhibits and Reports on Form 8-K		36
Signatures			39
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

T REIT, INC

FORWARD-LOOKING STATEMENTS

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements*

The accompanying September 30, 2004 and 2003 interim financial statements of T REIT, Inc. (“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 to the condensed consolidated financial statements. 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 the Company’s Annual Report on Form 10-K/A previously filed with the Securities and Exchange Commission.

T REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		September 30,			December 31,
		2004			2003

ASSETS
Real estate investments:
	Operating properties, net	$	24,005,000		$	15,747,000
	Investments in unconsolidated real estate		20,798,000			19,331,000

			44,803,000			35,078,000
Cash and cash equivalents			6,729,000			12,189,000
Restricted cash			671,000			574,000
Investment in marketable securities			599,000			—
Accounts receivable, net			44,000			37,000
Accounts receivable from related parties			1,109,000			538,000
Real estate deposits			—			11,000
Other assets, net			4,476,000			296,000
Notes receivable			3,364,000			647,000

Total assets		$	61,795,000		$	49,370,000

LIABILITIES & SHAREHOLDERS’ EQUITY
Mortgages payable		$	19,301,000		$	9,250,000
Accounts payable and accrued liabilities			1,401,000			1,635,000
Accounts payable due to related parties			1,128,000			—
Distributions payable			319,000			318,000
Security deposits and prepaid rent			176,000			59,000

			22,325,000			11,262,000
Minority interests			1,921,000
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 4,720,000 shares issued; 4,612,000 and 4,646,000 shares outstanding at September 30, 2004 and December 31, 2003, respectively			47,000			47,000
Additional paid-in capital			41,501,000			41,265,000
Treasury stock, 108,000 and 74,000 shares at September 30, 2004 and December 31, 2003, respectively			(979,000	)		(675,000	)
Distributions in excess of earnings			(2,986,000	)		(2,529,000	)
Accumulated other comprehensive loss			(34,000	)		—

Total shareholders’ equity			37,549,000			38,108,000

Total liabilities and shareholders’ equity		$	61,795,000		$	49,370,000

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

T REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE OPERATIONS

(Unaudited)



		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2004			2003			2004			2003

					(As restated)						(As restated)
Revenues:
	Rental income	$	1,568,000		$	54,000		$	3,667,000		$	560,000
Expenses:
	Rental expenses		468,000			68,000			1,248,000			192,000
	General and administrative		458,000			228,000			822,000			563,000
	Depreciation and amortization		225,000			50,000			1,320,000			124,000
	Interest (including amortization of deferred financing costs)		347,000			65,000			836,000			190,000

			1,498,000			411,000			4,226,000			1,069,000

Income (loss) before other income, discontinued operations and minority interest expense			70,000			(357,000	)		(559,000	)		(509,000	)
Other income
	Interest and dividend income		82,000			11,000			323,000			76,000
	Gain on sale of marketable securities		82,000			—			132,000			—
	Equity in earnings of unconsolidated real estate		50,000			267,000			683,000			1,231,000

			214,000			278,000			1,138,000			1,307,000
Income (loss) from continuing operations before discontinued operations and minority interest expense			284,000			(79,000	)		579,000			798,000
Discontinued operations:
	Gain on sale on real estate dispositions		821,000			2,813,000			1,634,000			2,622,000
	Income (loss) from discontinued operations		(38,000	)		(38,000	)		63,000			731,000

			783,000			2,775,000			1,697,000			3,353,000
Income before minority interests			1,067,000			2,696,000			2,276,000			4,151,000
Minority interests			(26,000	)		—			(125,000	)		—

Net income		$	1,093,000		$	2,696,000		$	2,401,000		$	4,151,000

Comprehensive income:
	Net income	$	1,093,000		$	2,696,000		$	2,401,000		$	4,151,000
	Unrealized loss on marketable securities		(25,000	)		—			(34,000	)		—

Comprehensive income		$	1,068,000		$	2,696,000		$	2,367,000		$	4,151,000

Earnings (loss) per share — basic and diluted
	Continuing operations	$	0.07		$	(0.02	)	$	0.15		$	0.17
	Discontinued operations	$	0.17		$	0.59		$	0.37		$	0.72

Total earnings per share — basic and diluted		$	0.24		$	0.57		$	0.52		$	0.89

Weighted average shares of common stock outstanding — basic and diluted			4,620,000			4,696,000			4,636,000			4,685,000

Dividends declared per share		$	0.21		$	0.20		$	0.62		$	0.62

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

T REIT, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2004

(Unaudited)



	Common Stock
														Accumulated
						Additional					Distributions			Other
	Number of					Paid-In		Treasury			in Excess of			Comprehensive
	Shares			Par Value		Capital		Stock			Earnings			Loss			Total

BALANCE — December 31, 2003		4,646,000		$	47,000	$	41,265,000	$	(675,000	)	$	(2,529,000	)	$	—		$	38,108,000
Net income		—			—		—		—			2,401,000			—			2,401,000
Unrealized loss on marketable securities		—			—		—		—			—			(34,000	)		(34,000	)

Comprehensive income		—			—		—		—			—			—			2,367,000
Stock based compensation expense		—			—		236,000		—			—			—			236,000
Distributions		—			—		—		—			(2,858,000	)		—			(2,858,000	)
Repurchase of shares		(34,000	)		—		—		(304,000	)		—			—			(304,000	)

BALANCE — September 30, 2004		4,612,000		$	47,000	$	41,501,000	$	(979,000	)	$	(2,986,000	)	$	(34,000	)	$	37,549,000

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

T REIT, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)



			Nine Months Ended
			September 30,

			2004			2003

						(As restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income			$	2,401,000		$	4,151,000
Adjustments to reconcile net income to net cash provided by operating activities
	Distributions received in excess of equity in earnings of unconsolidated real estate			661,000			290,000
	Gain on sale of real estate investments			(1,634,000	)		(2,622,000	)
	Gain on sale of marketable securities			(132,000	)		—
	Depreciation and amortization — continuing and discontinued operations			1,738,000			501,000
	Stock based compensation expense			236,000			—
	Minority interests			(125,000	)		—
Change in operating assets and liabilities:
	Accounts receivable			(7,000	)		145,000
	Accounts receivable from related parties			99,000			93,000
	Other assets			446,000			544,000
	Accounts payable and accrued liabilities			(84,000	)		(280,000	)
	Security deposits and prepaid rent			117,000			(93,000	)

		Net cash provided by operating activities		3,716,000			2,729,000
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of marketable securities			(6,235,000	)		—
	Proceeds from sale of marketable securities			5,734,000			—
	Purchase of real estate operating properties			(6,462,000	)		(8,884,000	)
	Purchase of investments in unconsolidated real estate			(1,125,000	)		(5,126,000	)
	Restricted cash			(97,000	)		—
	Capital expenditures			(1,666,000	)		(156,000	)
	Proceeds from disposition of properties			3,239,000			36,164,000
	Collections of notes receivable			6,511,000			5,000
	Real estate deposits applied to purchases			11,000			3,821,000

		Net cash (used in) provided by investing activities		(90,000	)		25,824,000
CASH FLOWS FROM FINANCING ACTIVITIES
	Borrowings under notes payable			—			5,000,000
	Principal payments on mortgages payable			(4,949,000	)		(23,800,000	)
	Borrowings on line of credit			710,000			—
	Repayment on line of credit			(1,255,000	)		—
	Distributions paid			(2,858,000	)		(2,889,000	)
	Distributions to minority shareholders			(430,000	)		—
	Repurchase of shares			(304,000	)		(294,000	)

		Net cash used in financing activities		(9,086,000	)		(21,983,000	)

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



		Nine Months Ended
		September 30,

		2004			2003

					(As restated)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(5,460,000	)		6,570,000
CASH AND CASH EQUIVALENTS — beginning of period			12,189,000			6,129,000

CASH AND CASH EQUIVALENTS — end of period		$	6,729,000		$	12,699,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest	$	825,000		$	1,556,000

	Income taxes	$	13,000		$	30,000

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
	Note receivable due to sale of property	$	9,228,000		$	—

NONCASH INVESTING ACTIVITIES:
	Liabilities incurred acquisitions/dispositions	$	18,021,000		$	—

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

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	Organization and Description of Business

T REIT, Inc. (“Company”), was incorporated in December 1998 under the laws of the Commonwealth of Virginia. The Company has qualified and elected to be treated as a real estate investment trust, (“REIT”), for federal income tax purposes. The Company is in the business of acquiring existing office, industrial, retail and service properties located in several states. As of September 30, 2004, the Company owned real estate investments consisting of two consolidated properties and interests in ten unconsolidated properties. The Company acquires properties through its operating partnership, T REIT, L.P., (“Operating Partnership”), which is wholly owned by the Company.

The Company is externally advised by an affiliated company, Triple Net Properties, LLC, (“Advisor”),which is primarily responsible for managing the day-to-day operations and assets of the Company. The Company and the Advisor entered into an Advisory Agreement dated February 22, 2000, between the Company and the Advisor is for an initial one-year term, subject to successive renewals. The Advisor is affiliated with the Company in that the two entities have common officers and directors, some of whom also own an equity interest in the Advisor (See Note 9).


2.	Summary of Significant Accounting Policies


	*Principles of Consolidation*

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, the wholly owned subsidiaries of the Operating Partnership and all majority-owned subsidiaries and affiliates over which the Company has financial and operating control and variable interest entities (“VIE”s) in which the Company has determined it is the primary beneficiary are included in the condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation and all references to the Company include the Operating Partnership and its subsidiaries. The Company accounts for all other unconsolidated real estate investments using the equity method of accounting. Accordingly, the Company’s share of the earnings of these real estate investments is included in consolidated net income.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). In December 2003, the FASB issued FIN 46R, “Consolidation of Variable Interest Entities,” which amended FIN 46. FIN 46R was effective immediately for arrangements entered into after January 31, 2003, and became effective during the first quarter of 2004 for all arrangements entered into before February 1, 2003. FIN 46R requires existing unconsolidated VIEs to be consolidated by their primary beneficiaries. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses or receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership interests, contractual interests, or other pecuniary interests in an entity that change with changes in the fair value of the entity’s net assets excluding variable interests. Prior to FIN 46R, the Company included an entity in its consolidated financial statements only if it controlled the entity through voting interests. The adoption and application of FIN 46 and FIN 46R has not had a material impact on the Company’s condensed consolidated financial statements.


	*Interim Financial Data and Basis of Presentation*

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

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited financial statements reflect all adjustments, which are, in the opinion of the Company’s management, of a normal recurring nature and necessary for a fair presentation of the Company’s 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; such results may be less favorable. The accompanying unaudited condensed 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 SEC.


	*Restricted Cash*

Restricted cash is comprised of impound reserve accounts for property taxes, insurance and tenant improvements.


	*Investment in Marketable Securities*

Marketable securities are carried at fair value and consist primarily of investments in marketable equity securities of public REITs. 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 an equity security is temporary in nature, it records the change in other comprehensive income (loss) in shareholders’ equity. If the decline is believed to be other than temporary, the equity security is written down to the fair value and a realized loss is recorded on the Company’s statement of operations. There was no realized gain/loss recorded by the Company due to the write down in value for the periods ended September 30, 2004 and 2003. Management’s assessment of a decline in value includes, among other things, its current judgment as to the financial position and future prospects of 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.


	*Minority Interests*

Minority interests relate to the interests in the consolidated properties that are not owned by the Company, which, at September 30, 2004, amounted to a 25% interest in one of the consolidated properties.


	*Purchase Price Allocation*

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations, the Company, with the assistance from independent valuation specialists, allocates the purchase price of acquired properties to tangible and identified intangible assets based on their respective fair values. The allocation to tangible assets (building and land) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships.

The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in the intangible in-place lease asset and below market lease values are included in intangible

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

lease liability in the accompanying condensed consolidated financial statements and are amortized to rental income over the weighted average remaining term of the acquired leases with each property.

The total amount of other intangible assets acquired is further allocated to in-place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors.

These allocations are subject to change based on continuing due diligence, or other evidence, which may be obtained in the future to further substantiate these values.


	*Reclassifications*

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


	*Income Taxes*

The Company operates as a real estate investment trust for federal income tax purposes. As a REIT, the Company is generally not subject to income taxes. To maintain its REIT status, the Company is required to distribute annually as dividends at least 90% of its REIT taxable income for the year, as defined by the Internal Revenue Code, (“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 nine months ended September 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.


	*Comprehensive Income*

The Company reports comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income. This statement defines comprehensive income as the changes in equity of an enterprise except those resulting from stockholders’ transactions. Accordingly, comprehensive income includes certain changes in equity that are excluded from net income. The Company’s only comprehensive income items were net income and the unrealized change in fair value of marketable securities.


	*Per Share Data*

The Company reports earnings per share pursuant to SFAS No. 128, Earnings Per Share. Basic earnings (loss) per share attributable for all periods presented is computed by dividing the net income by the weighted average number of common shares of common stock 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 were stock warrants and stock options. As of September 30, 2004 and December 31, 2003, there were 101,000 stock warrants and 425,000 and 165,000 stock options, respectively, which were accounted for under the treasury stock method. The options and warrants did not have a dilutive effect on earnings per share.

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Use of Estimates*

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 and the revenues and expenses for the reporting period. Actual results could differ from those estimates, potentially in adverse ways.


	*Stock Based Compensation*

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, the Company has elected to follow Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options and warrants. Under APB No. 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 SFAS No. 123 and SFAS No. 148. If the Company had elected to adopt the expense recognition provisions of SFAS No. 123, the impact on net income and earnings per share of common stock would have been as follows:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2004			2003			2004			2003

Reported net income	$	1,093,000		$	2,696,000		$	2,401,000		$	4,151,000
Add: Stock based employee compensation expense included in reported net income		236,000			—			236,000			—
Less: Total stock based employee compensation expense determined under fair value based method for all awards		(280,000	)		(9,000	)		(344,000	)		(42,000	)

Pro forma net income	$	1,049,000		$	2,687,000		$	2,293,000		$	4,109,000

Reported net income per share — basic and diluted	$	0.24		$	0.57		$	0.52		$	0.89

Pro forma net income per share — basic and diluted	$	0.23		$	0.57		$	0.49		$	0.88

These pro forma amounts were determined by estimating the fair value of each option, using the Black-Scholes option-pricing model, assuming an 8.25% dividend yield, a 4.25% risk-free interest rate based on the 10-year U.S. Treasury Bond, an expected life of 8.8 years, and an expected volatility rate of 10%.


	*Segments*

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


3.	Real Estate Investments

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

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Consolidated Properties*

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


	September 30,			December 31,
	2004			2003

Buildings and tenant improvements	$	18,399,000		$	15,160,000
Land		6,318,000			1,012,000

		24,717,000			16,172,000
Less: accumulated depreciation		(712,000	)		(425,000	)

Operating properties, net	$	24,005,000		$	15,747,000


	*Acquisitions*

During the nine months ended September 30, 2004, the Company completed the following acquisitions:


	AmberOaks LP — Austin, Texas

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 this consolidated real estate property was $22,965,000. The purchase was financed by a $15,000,000 loan secured by the property from North Houston Bank. The mortgage requires interest only payments through February 15, 2006 and, thereafter, principal and interest payments through the maturity date of the loan on January 20, 2007, with an option to extend for up to 24 months until January 20, 2009. The interest rate on the mortgage loan is the prime rate plus 1.0% subject to a floor of 5.5%. The seller paid a sales commission to Triple Net Properties Realty, Inc. (“Realty”), which is solely owned by Anthony W. Thompson, the Company’s Chief Executive Officer and President until his resignation effective August 18, 2004, of $585,000, or 2.3% of the purchase price. AmberOaks is a three-building Class A office portfolio totaling 206,000 square feet and is part of an eight-building complex built during 1999-2001. An affiliate of the Advisor purchased the remaining five buildings. During the nine months ended September 30, 2004, the Company recorded approximately $5,085,000 in lease intangible assets related to its acquisition of AmberOaks.


	Gateway Mall Land — Bismarck, North Dakota

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.


	*Dispositions*


	Gateway Mall — Bismarck, North Dakota

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The note was refinanced by the buyer and the Company collected $6,500,000 on July 9, 2004 and received an adjustable note receivable for $2,200,000 (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 Realty of $339,000, or 2.9% of the selling price.


	Gateway Mall Land — Bismarck, North Dakota

On September 9, 2004, the Company sold the remaining seven acres of land to an unaffiliated third party for $1,385,000. Net sales proceeds included cash of $794,000 and a note receivable in the amount of $528,000. The note is secured by a pledge agreement, bears interest at 4% per annum and is due on March 7, 2005. At closing, the Company paid a real estate commission to Realty of $44,000, or 3.2% of the selling price.


	*Investments in Unconsolidated Real Estate*

During the nine months ended September 30, 2004, the Company invested in the following unconsolidated investments:

Oakey Building, LLC Las Vegas, Nevada — April 2, 2004 — 9.76%

Emerald Plaza, LLC, San Diego, CA — July 26, 2004 — 2.7%

The aggregate investment for the two investments in unconsolidated real estate was approximately $1.7 million.


	Oakey Building — Las Vegas, Nevada

On April 2, 2004, the Company, through its wholly-owned subsidiary, TREIT — NNN Oakey Building 2003, LLC, 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 initial investment was $670,000. The purchase was financed by $4,000,000 in borrowings secured by the property. The loan is payable to Ivan Halaj and Vilma Halaj Inter Vivos Trust. The loan requires principal and interest payments at a fixed interest rate of 10% per annum 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 Class A office building of approximately 104,000 square feet located in Las Vegas, Nevada.


	Emerald Plaza — San Diego, CA

On July 26, 2004, the Company, through its wholly-owned subsidiary, TREIT — NNN Emerald Plaza, LLC, purchased a 2.7% interest in the Emerald Plaza Building in San Diego, CA from an unaffiliated third party for $1,000,000. The total purchase price was $100,940,000 and was financed by $68,500,000 in borrowings under a secured loan from Citigroup Global Markets Realty Corp. The loan requires interest only payments through the maturity date of June 17, 2007 at a fixed interest rate of 3.83% per annum. The seller of the property paid a sales commission to Realty of $2,940,000, or 2.9% of the purchase price. Emerald Plaza is a Class A office tower of approximately 354,525 square feet located in downtown San Diego, California.

Investments in unconsolidated real estate consist of the Company’s investments in undivided tenant in common interests (“TIC”) and limited liability companies (“LLC”), which is accounted for under the

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

equity method. The Company had the following investments in unconsolidated real estate at September 30, 2004:


						Company’s
						Investment
			Percentage			September 30,
Property	Location		Owned			2004

City Center West “A” Building — TIC		Las Vegas, NV		89.13	%	$	7,987,000
Congress Center — LLC		Chicago, IL		10.22	%		4,322,000
Pacific Corporate Park — LLC		Lake Forest, CA		22.76	%		1,363,000
Titan Building and Titan Plaza — TIC		San Antonio, TX		48.50	%		2,088,000
Reno Trademark Building — TIC		Reno, NV		40.00	%		1,529,000
Saddleback Financial — TIC		Laguna Hills, CA		25.00	%		1,007,000
Oakey Building — LLC		Las Vegas, NV		9.76	%		630,000
Enclave — LLC		Houston, TX		3.26	%		454,000
County Center Building — TIC		Temecula, CA		16.00	%		439,000
Emerald Plaza — LLC		San Diego, CA		2.70	%		979,000

						$	20,798,000

The summarized unaudited condensed combined financial information in the Company’s unconsolidated real estate is as follows:


	As of		As of
	September 30,		December 31,
	2004		2003

Assets (primarily real estate)	$	361,552,000	$	246,975,000

Mortgages notes payable	$	232,061,000	$	159,962,000
Other liabilities		7,715,000		3,713,000
Equity		121,776,000		83,300,000

Total liabilities and equity	$	361,552,000	$	246,975,000

Company’s share of equity	$	20,798,000	$	19,331,000



	Three Months Ended					Nine Months Ended
	September 30,					September 30,

	2004			2003		2004		2003

Revenues	$	11,806,000		$	7,103,000	$	28,924,000	$	18,249,000
Rental and other Expenses		12,950,000			4,905,000		27,237,000		14,095,000

Net Income (loss)	$	(1,144,000	)	$	2,198,000	$	1,687,000	$	4,154,000

Company’s Equity in earnings	$	50,000		$	267,000	$	683,000	$	1,231,000

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	Other Assets

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


		September 30,		December 31,
		2004		2003

Deferred rent receivable		$	100,000	$	75,000
Lease commissions, net of accumulated amortization of $1,071,000 and $9,000 at September 30, 2004 and December 31, 2003, respectively			4,014,000		75,000
Loan fees, net of accumulated amortization of $101,000 and $48,000 at September 30, 2004 and December 31, 2003, respectively			266,000		145,000
Prepaid expenses			96,000		—
Other assets			—		1,000

	Total other assets	$	4,476,000	$	296,000


5.	Notes Receivable

The Company received a note for $8,700,000 from the purchaser in conjunction with the sale of Gateway Mall. The note was secured by a pledge agreement, bore interest at 6% per annum and was due June 14, 2004. The note was refinanced and the Company collected $6,500,000 in cash on July 9, 2004 and received 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 aggregate interest paid cannot exceed $522,000 annually on this note and the buyer’s first mortgage. The interest rate for the $2,200,000 note at September 30, 2004 was 8.6% per annum. The note is interest only with the balance, including all unpaid interest, due on August 1, 2006.

On September 3, 2004, the Company received a note for $528,000 from the purchaser in conjunction with the sale of Gateway Mall Land. The note is secured by a pledge agreement, bears interest at 4% per annum, is interest only, paid monthly, with the balance, including all unpaid interest due on March 7, 2005.

The Company also holds a note with a balance of $636,000 and $647,000 at September 30, 2004 and December 31, 2003, respectively. The note is secured by a first deed of trust on a real estate property, and bears interest at 8.5% per annum. All accrued, unpaid interest and principal is due in December 2006.


6.	Line of Credit

On September 3, 2003, the Company entered into an agreement with Fleet National Bank, (“Fleet”) for a line of credit in the amount of $1,000,000 which bears interest at Fleet’s prime rate plus 50 basis points. The applicable credit facility matured on September 2, 2004 and has two one-year extensions. On September 21, 2004, the Company extended the line of credit for one year until September 30, 2005. 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 September 30, 2004, the Company had no outstanding amount under the line of credit.


7.	Mortgage Loans Payable

In connection with the January 2004 acquisition of a 75% tenant in common interest in AmberOaks, an office portfolio located in Austin, Texas, the Company obtained a first mortgage in the amount of $15,000,000 from North Houston Bank. The loan 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 interest rate at September 30, 2004 was 5.75%.

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


8.	Shareholders’ Equity


	*Share Repurchase Program*

Effective May 24, 2001, the Company adopted the Share Repurchase Plan, (the “Repurchase Plan”), which provides eligible shareholders with limited liquidity by enabling them to request the repurchase of their common shares by the Company, subject to various limitations. Repurchases are made at the sole discretion of the Company’s Board of Directors. To be eligible to request a repurchase, a shareholder must offer for resale at least 25% of the total number of shares of common stock owned 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, if any, 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 31,000 and 34,000 shares of common stock for $272,000 and $304,000 during the three and nine months ended September 30, 2004, respectively.


	*Stock Option Plans*

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, 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 the Company’s stock owned by the Advisor, affiliates of the Advisor and the Company’s officers and directors to exceed 10.% 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 of common stock and 700,000 shares of common stock for issuance under the Director Plan and the Officer/ Employee Plan, respectively. Option 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.


		Number			Exercise		Weighted Average
Options Outstanding at		of Shares			Price		Exercise Price

December 31, 2003			165,000		$	9.05	$	9.05
	Granted		320,000			9.05		9.05
	Cancelled		(60,000	)		9.05		9.05

September 30, 2004			425,000		$	9.05	$	9.05

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

Weighted Average

Remaining

Exercise Price —

Options

Contractual Life

Outstanding

Options

Exercisable

Exercise Prices

Outstanding

(Years)

Options

Exercisable

Options

$9.05

425,000

8.8

9.05

160,000

9.05

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


9.	Related Party Transactions


	*Advisory Agreement*

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 nine months ended September 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 reimbursable 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 accrued quarterly, but will not be paid until the shareholders have received distributions equal to a cumulative non-compounded rate of 8% 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% return. There were no asset management fees incurred or paid to the Advisor during the three and six month periods ended September 30, 2004 and 2003. The Advisor is also entitled to receive property management fees for management and leasing services. Such fees may not exceed 5% of the gross revenue earned by the Company on properties managed.


	*Property Management Fees*

The Company pays Realty a property management fee equal to 5% of the gross revenue, as defined by the Advisory Agreement, from the properties. For the three and nine months ended September 30, 2004 and 2003, the Company incurred and paid property management fees to Realty of $82,000 and $226,000 and $17,000 and $198,000, respectively.


	*Incentive Distributions*

The Advisor owns 100 non-voting incentive performance units in T REIT, L.P., the Company’s Operating Partnership, and is entitled to incentive distributions of operating cash flow, as defined, after the Company’s shareholders have received an 8% annual return on their invested capital. No incentive distributions were made to the Advisor for the nine months ended September 30, 2004 and 2003.


	*Real Estate Commissions*

The total real estate sales commissions paid to Realty by the Company and unrelated third parties in connection with the Company’s real estate acquisitions and dispositions for the three and nine months ended September 30, 2004 and 2003 was $2,984,000 and $4,145,000 and $350,000 and $2,600,000,

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

respectively. Of the total real estate sales commission paid to Realty, the Company paid $44,000 and $383,000 and $350,000 and $350,000 for the three and nine months ended September 30, 2004 and 2003, respectively (Note 3).


	*Related Party Accounts Receivable/ Payable*

Related party accounts receivable/ payable consists primarily of amounts due from/to the Company for the investments in unconsolidated properties.


10.	Commitments and Contingencies


	*SEC Investigation*

On September 16, 2004, the Company’s Advisor, Triple Net Properties, LLC, or Triple Net, learned that the SEC is conducting an investigation captioned In the matter of Triple Net Properties, LLC. The SEC has requested information from Triple Net relating to disclosure in securities offerings (including offerings by G REIT, T REIT and A REIT) and information advising it which exemption from the registration requirements of the Securities Act of 1933, as amended, were being relied upon for the private offerings in which Triple Net and its affiliated entities were involved. In addition, the SEC has requested financial information regarding these REITs as well as the limited liability companies advised by Triple Net. The Company and Triple Net intend to cooperate fully with the SEC in its investigation.


	*Insurance Coverage*


	Property Damage, Business Interruption, Earthquake and Terrorism:

The insurance coverage provided through third-party insurance carriers is subject to coverage limitations. For each type of insurance coverage described below, should an uninsured or underinsured loss occur, the Company could lose all or a portion of its investment in, and anticipated cash flows from, one or more of the properties. In addition, there can be no assurance that third-party insurance carriers will be able to maintain reinsurance sufficient to cover any losses that may be incurred.


Type of Insurance Coverage		Loss Exposure/Deductible

Property Damage and Business Interruption		$200 million annual aggregate exposure, plus $10 thousand per occurrence deductible
Earthquake		$10 million annual aggregate exposure plus 5 percent ($100,000 minimum) per occurrence deductible
Earthquake (California Properties)		$50 million in excess of $10 million
Flood — Named Storm		$10 million annual aggregate exposure plus 5 percent ($100,000 minimum) per occurrence deductible
Flood — All Other		$10 million annual aggregate exposure plus 5 percent ($25,000 minimum/$100,000 maximum) per occurrence deductible
Liability		$2 million annual aggregate exposure plus $1 million each occurrence
Umbrella (Excess Liability)		$100 million aggregate exposure
Acts of Terrorism		$100 million annual aggregate exposure, plus $10,000 per occurrence deductible.

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	*Unconsolidated Debt*

The Company’s share of unconsolidated debt was approximately $32.3 million and $30.3 million at September 30, 2004 and December 31, 2003, respectively. The increase of approximately $2 million was due to the refinancing of Congress Center in September 2004 along with the purchase of interests in the unconsolidated investments of the Oakey Building and Emerald Plaza in April 2004 and July 2004, respectively.

On September 3, 2004, the Advisor refinanced Congress Center with three loans totaling $97,500,000, through Principal Commercial Funding and Principal Life Insurance. While the Company owns a 10.22% interest in Congress Center, it is jointly and severally liable with the other owners for payment of the three loans. In connection with the Congress Center refinancing, the unamortized portion of the capitalized loan costs of $580,000 was expensed in September 2004.

Note A is in the amount of $80,000,000 and bears interest at a fixed rate of 5.635% per annum. The Property is required to make monthly interest only payments until the due date of October 1, 2014. No payments of principal is permitted until July 1, 2014.

Note B is in the amount of $15,000,000 and bears interest at a fixed rate of 5.635% per annum. The Property is required to make monthly interest only payments until the due date of October 1, 2014. No payments of principal is permitted until July 1, 2014.

Note C is in the amount of $2,500,000 and bears interest at a fixed rate of 7.0% per annum. The Property is required to make monthly interest only payments until October 1, 2006. Thereafter, the Property is required to make monthly principal and interest payments based on a 30-year amortization schedule until the due date of October 1, 2014. No prepayments of principal is permitted until July 1, 2014.


	*Litigation*

On February 11, 2004, Clearview Properties (“Clearview”) filed a petition in the District Court of the 270th Judicial District, Harris County, Texas against Property Texas SC One Corporation (“Property Texas”), 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 the Company’s 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. In depositions made on October 20, 2004, an officer of Clearview testified that he had no evidence of interference by the Company. As such, the Company intends to file a motion for summary judgment in its favor. 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.

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

that Sellers misrepresented and/or failed to disclose that they did not own and could not convey the property in its entirety to the Purchasers. The Company believes that there is no substantive merit to the claims made by the Purchaser and intends to vigorously defend the action. If the Purchasers prevails in this action, it could have a material adverse effect upon the Company’s financial condition, results of operations and cash flows.

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


	*Environmental Matters*

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


	*Other*

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


11.	Discontinued Operations — Property Held for Sale

In accordance with SFAS No. 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 condensed consolidated statement of operations as discontinued operations for all periods presented. For the three and nine months ended September 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 nine months ended September 30, 2004 and 2003:



		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2004			2003			2004		2003

Revenues
	Rental income	$	—		$	1,024,000		$	350,000	$	3,749,000
	Interest income		—			1,000			26,000		2,000

			—			1,025,000			376,000		3,751,000
Expenses
	Rental expenses		38,000			464,000			100,000		1,199,000
	General and administrative		—			(4,000	)		—		54,000
	Depreciation and amortization		—			48,000			19,000		294,000
	Interest (including amortization of deferred financing fees)		—			555,000			194,000		1,473,000

			38,000			1,063,000			313,000		3,020,000

Net income (loss)		$	(38,000	)	$	(38,000	)	$	63,000	$	731,000

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


12.	Restatement

Subsequent to the issuance of the Company’s interim condensed consolidated financial statements for the quarter ended September 30, 2003, the Company determined that it should have reported the gain (loss) on sale of real estate investments in certain real estate properties previously reported in income from continuing operations in the periods ended September 30, 2003 as discontinued operations and that the gain (loss) on sale of certain real estate reported in the periods ended September 30, 2003 contained an error because the final allocation of the property basis had not been taken into account in the proper period. As a result, the accompanying condensed consolidated financial statements for the three and nine months ended September 30, 2003 have been restated from the amounts previously reported to correct the accounting for the transactions discussed herein and to reclassify the operating results of properties disposed subsequent to September 30, 2003 as discontinued operations. A summary of the significant effects of the restatement on the condensed consolidated financial statements is as follows:



		Three Months Ended September 30, 2003

								Reclassification
		As Previously			Correction			of Discontinued
		Reported			of Errors			Operations			As Restated

Revenues		$	548,000		$	—		$	(494,000	)	$	54,000
Operating expenses			824,000			—			(413,000	)		411,000
Other income			278,000			—			—			278,000
Gain (loss) on sale of real estate investments			2,814,000			(2,814,000	)		—			—

Income (loss) from continuing operations			2,816,000			(2,814,000	)		(81,000	)		(79,000	)
Gain (loss) on sale of real estate investments			—			2,814,000			(1,000	)		2,813,000
Income from discontinued operations — property held for sale			(120,000	)		—			82,000			(38,000	)

Net income		$	2,696,000		$	—		$	—		$	2,696,000

Net income (loss) per common share — basic and diluted
	Continuing operations	$	0.60								$	(0.02	)
	Discontinued operations	$	(0.03	)							$	0.59

Total net income per common share		$	0.57								$	0.57



	Nine Months Ended September 30, 2003

					Reclassification
	As Previously		Correction		of Discontinued
	Reported		of Errors		Operations			As Restated

Revenues	$	1,676,000	$	—	$	(1,116,000	)	$	560,000
Operating expenses		1,986,000		—		(917,000	)		1,069,000

T REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



		Nine Months Ended September 30, 2003

							Reclassification
		As Previously		Correction			of Discontinued
		Reported		of Errors			Operations			As Restated

Other income			1,308,000		—			(1,000	)		1,307,000
Gain (loss) on sale of real estate investments			2,837,000		(2,837,000	)		—			—

Income (loss) from continuing operations			3,835,000		(2,837,000	)		(200,000	)		798,000
Gain (loss) on sale of real estate investments			—		2,622,000			—			2,622,000
Income from discontinued operations — property held for sale			531,000		—			200,000			731,000

Net income		$	4,366,000	$	(215,000	)	$	—		$	4,151,000

Net income (loss) per common share — basic and diluted
	Continuing operations	$	0.82							$	0.17
	Discontinued operations	$	0.11 $0.93							$	0.72 $0.89
Total net income per common share


13.	Subsequent Events

Subsequent to September 30, 2004 the Company has listed certain unconsolidated properties with a real estate broker.


Item 2.	*Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations*

The following discussion should be read in conjunction with the Company’s financial statements and notes appearing elsewhere in this Form 10-Q. Such financial statements and information have been prepared to reflect the Company’s financial position as of September 30, 2004 and December 31, 2003, together with results of operations and cash flows for the three and nine month periods ended September 30, 2004 and 2003, respectively.

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

Overview and Background

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. To maintain the REIT status, the Company is required to distribute annually as dividends at least 90% of its REIT taxable income, as defined by the Internal Revenue Code, to the shareholders, among other requirements. If the Company fails to qualify as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates. As of September 30, 2004, the Company believes it is in compliance with all relevant REIT requirements.

The Company was incorporated to acquire ownership interests in office, industrial and service real estate properties. The Company completed its first property acquisition in September 2001. As of September 30, 2004, it has purchased interests in 12 properties, including two consolidated office properties and ten unconsolidated interests in office/industrial properties.

The Company is externally advised by Triple Net Properties, LLC. (the “Advisor”). The Advisor is primarily responsible for managing the day-to-day operations and assets of the Company. The advisory agreement between the Company and its Advisor has a one year term, and is subject to successive

renewals with the written consent of the parties including a majority of the Company’s independent directors. The Company’s Advisor is affiliated with the Company in that the two entities have common officers and directors, some of whom also own an equity interest in the Advisor.

Business Strategy

The Company’s primary business strategy is to actively manage its property portfolio to seek to achieve gains in rental rates and occupancy, control operating expenses and maximize income from ancillary operations and services. The Company may also sell existing properties and place the net proceeds therefrom into new investment properties it believes will generate long-term value.


	*Acquisitions During the Nine Months Ended September 30, 2004*

During the nine months ended September 30, 2004, the Company completed the following acquisitions:


	AmberOaks LP — Austin, Texas

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 purchase was financed by a $15,000,000 loan secured by the property from North Houston Bank. The mortgage requires interest only payments through February 15, 2006 and, thereafter, principal and interest payments through the maturity date of the loan on January 20, 2007, with an option to extend for up to 24 months until January 20, 2009. The interest rate on the mortgage loan is the prime rate plus 1.0% subject to a floor of 5.5%. The seller paid a sales commission to Triple Net Properties Realty, Inc. (“Realty”), which is solely owned by Anthony W. Thompson, the Company’s Chief Executive Officer and President until his resignation effective August 18, 2004, of $585,000, or 2.3% of the purchase price. AmberOaks is a three-building Class A office portfolio totaling 206,000 square feet and is part of an eight-building complex built during 1999-2001. An affiliate of the Advisor purchased the remaining five buildings. During the nine months ended September 30, 2004, the Company recorded approximately $5,085,000 in lease intangible assets related to its acquisition of AmberOaks.


	Gateway Mall Land — Bismarck, North Dakota

During the nine months ended September 30, 2004, the Company invested in the following unconsolidated investments:

Oakey Building, LLC, Las Vegas, Nevada — April 2, 2004 — 9.76%

Emerald Plaza, LLC, San Diego, CA — July 26, 2004 — 2.7%

The aggregate investment for the two unconsolidated investments was approximately $1.7 million.


	Oakey Building — Las Vegas, Nevada

On April 2, 2004, the Company, through its wholly-owned subsidiary, TREIT — NNN Oakey Building 2003, LLC, 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 initial 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.


	Emerald Plaza — San Diego, CA

On July 26, 2004, the Company, through its wholly-owned subsidiary, TREIT — NNN Emerald Plaza, LLC, purchased a 2.7% interest in the Emerald Plaza Building in San Diego, CA from an unaffiliated third party for $1,000,000. The total purchase price was $100,940,000 and was financed by $68,500,000 in borrowings under a secured mortgage with Citigroup Global Markets Realty Corp. The mortgage requires interest only payments through the maturity date of June 17, 2007 at an interest rate of 3.83%. The seller of the property paid a sales commission to Realty of $2,940,000, or 2.9% of the purchase price. Emerald Plaza is a 354,525 square foot Class A office tower located in downtown San Diego, California.

Investments in unconsolidated real estate consist of the Company’s investments in undivided tenant in common interests (“TIC”) and limited liability companies (“LLC”). The Company had the following investments in unconsolidated real estate at September 30, 2004:


					Company’s
			Percentage		Investment
Property	Location		Owned		9/30/2004

City Center West “A” Building — TIC		Las Vegas, NV		89.13%	$	7,987,000
Congress Center — LLC		Chicago, IL		10.22%		4,322,000
Pacific Corporate Park — LLC		Lake Forest, CA		22.76%		1,363,000
Titan Building and Titan Plaza — TIC		San Antonio, TX		48.50%		2,088,000
Reno Trademark Building — TIC		Reno, NV		40.00%		1,529,000
Saddleback Financial — TIC		Laguna Hills, CA		25.00%		1,007,000
Oakey Building — LLC		Las Vegas, NV		9.76%		630,000
Enclave — LLC		Houston, TX		3.26%		454,000
County Center Building — TIC		Temecula, CA		16.00%		439,000
Emerald Plaza — LLC		San Diego, CA		2.70%		979,000

					$	20,798,000


	*Dispositions During the Nine Months Ended September 30, 2004*


	Gateway Mall — Bismarck, North Dakota

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 was secured by a pledge agreement, bore interest at 6% per annum and matured June 14, 2004. The note was refinanced by the buyer and the Company received $6,500,000 on July 9, 2004 and was issued an adjustable note receivable for $2,200,000. 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 Realty of $339,000, or 2.9% of the selling price.


	Gateway Mall Land — Bismarck, North Dakota

On September 9, 2004, the Company sold the remaining seven acres of land to an unaffiliated third party for $1,385,000. Net sales proceeds included cash of $794,000 and a note receivable in the amount of $528,000. The note is secured by a pledge agreement, bears interest at 4% per annum and is due March 7, 2005. At closing, the Company paid a real estate commission to Realty of $44,000, or 3.2% of the selling price.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), requires the Company 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 and intangible 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, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions. A summary of these policies can be found in “Management’s Discussion and Analysis” in the Company’s Annual Report on Form 10-K/ A for the year ended December 31, 2003. There have been no material changes to these policies in 2004.

Factors Which May Influence Results of Operations


	*Rental Income*

The amount of rental income generated by the Company’s properties depends principally on the Company’s ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from unscheduled lease terminations at the existing rental rates. Negative trends in one or more of these factors could adversely affect the Company’s rental income in future periods.


	*Scheduled Lease Expirations*

As of September 30, 2004, the Company’s portfolio was 91% leased to 23 tenants. There are no leases expiring during the remainder of 2004 and 21% of the leased square footage expires during 2005. The Company’s leasing strategy for 2005 focuses on negotiating renewals for leases scheduled to expire during the year and identifying new tenants or existing tenants seeking additional space to occupy the square footage for which the Company is unable to negotiate such renewals. Of the leases expiring in 2005, the Company anticipates, but cannot assure, that approximately 84% of the tenants will renew for another term.

Public Offering of Equity Securities

On February 22, 2000, the Company commenced its initial public offering of up to 10,000,000 shares of common stock at $10.00 per share pursuant to a registration statement on Form S-11 filed under the Securities Act of 1933, as amended. The Company commenced its active operations on September 26, 2000 when it completed its first property acquisition. The Company terminated its initial public offering on May 31, 2002 for which it received gross proceeds of approximately $46,395,000 from the sale of 4,720,000 shares of common stock. For the nine months ended September 30, 2004 and 2003, the Company had repurchased 34,000 and 32,000 shares of common stocks pursuant to its Repurchase Plan, respectively.

Restatement

As discussed in Note 12 to the condensed consolidated financial statements included in Item 1, the Company’s financial statements for the three and nine month periods ended September 30, 2003 have been restated. The accompanying MD&A give effect to the restatement.

Results of Operations

Operating results are primarily comprised of income derived from the Company’s portfolio of properties. Because of the significant property acquisitions and dispositions throughout the three and nine months ended September 30, 2004 and 2003, respectively, the comparability of financial data from period to period is limited. Certain 2003 amounts have been restated to reflect the effects of discontinued operations adjustments for properties disposed of in 2004. See Note 11 to the condensed consolidated financial statements for additional information.


	*Comparison of the Three and Nine Months Ended September 30, 2004 to the Three and Nine Months Ended September 30, 2003*



		Three Months Ended September 30,												Nine Months Ended September 30,

											Percent												Percent
		2004			2003			Change			Change			2004			2003			Change			Change

Revenues:
	Rental income	$	1,568,000		$	54,000		$	1,514,000			2803.70	%	$	3,667,000		$	560,000		$	3,107,000			554.82	%
Expenses:
	Rental expenses		468,000			68,000			400,000			588.24	%		1,248,000			192,000			1,056,000			550.00	%
	General and administrative		458,000			228,000			230,000			100.88	%		822,000			563,000			259,000			46.00	%
	Depreciation and amortization		225,000			50,000			175,000			350.00	%		1,320,000			124,000			1,196,000			964.52	%
	Interest (including amortization of deferred financing costs)		347,000			65,000			282,000			433.85	%		836,000			190,000			646,000			340.00	%

			1,498,000			411,000			1,087,000			264.48	%		4,226,000			1,069,000			3,157,000			295.32	%

Income (loss) before other income, discontinued operations and minority interests			70,000			(357,000	)		427,000			(119.61	)%		(559,000	)		(509,000	)		(50,000	)		9.82	%
Other income:
	Interest and dividend income		82,000			11,000			71,000			645.45	%		323,000			76,000			247,000			325.00	%
	Gain on sale of marketable securities		82,000			—			82,000			0.00	%		132,000			—			132,000			0.00	%
	Equity in earnings of unconsolidated real estate		50,000			267,000			(217,000	)		(81.27	)%		683,000			1,231,000			(548,000	)		(44.52	)%

			214,000			278,000			(64,000	)		(23.02	)%		1,138,000			1,307,000			(169,000	)		(12.93	)%
Income (loss) from continuing operations before discontinued operations and minority interests			284,000			(79,000	)		363,000			(459.49	)%		579,000			798,000			(219,000	)		(27.44	)%
Discontinued operations:
	Gain on sale on real estate dispositions		821,000			2,813,000			(1,992,000	)		(70.81	)%		1,634,000			2,622,000			(988,000	)		(37.70	)%
	Income (loss) from discontinued operations		(38,000	)		(38,000	)		—			0.00	%		63,000			731,000			(668,000	)		(91.38	)%

			783,000			2,775,000			(1,992,000	)		(71.78	)%		1,697,000			3,353,000			(1,656,000	)		(49.40	)%
Income before minority interests			1,067,000			2,696,000			(1,629,000	)		(60.42	)%		2,276,000			4,151,000			(1,875,000	)		(45.17	)%
Minority interests			(26,000	)		—			(26,000	)		0.00	%		(125,000	)		—			(125,000	)		0.00	%

Net income		$	1,093,000		$	2,696,000		$	(1,603,000	)		(59.46	)%	$	2,401,000		$	4,151,000		$	(1,750,000	)		(42.16	)%

Rental income increased $1,514,000, or 2,804%, to $1,568,000 and $3,107,000, or 555%, to $3,667,000 during the three and nine months ended September 30, 2004, respectively, when compared with the same periods of the prior year. $1,080,000 and $2,695,000 of these increases for the three and nine months ended September 30, 2004, respectively, were attributable to the acquisition of AmberOaks in January 2004.

Rental expenses increased $400,000, or 588%, to $468,000 and $1,056,000, or 550%, to $1,248,000 during the three and nine months ended September 30, 2004, respectively, when compared with the same periods of the prior year. $374,000 and $1,021,000 of these increases for the three and nine months ended September 30, 2004, respectively, were attributable to the acquisition of AmberOaks in January 2004. The increases were also attributable to an increase in property taxes, administration fees, ground maintenance expenses, offset by a decrease in management fees for University Heights.

General and administrative expenses increased $230,000, or 101%, to $458,000 and $259,000, or 46%, to $822,000 during the three and nine months ended September 30, 2004, respectively, when compared with the same periods of the prior year due to the increase in accounting and legal fees due to regulatory filings.

Interest expense increased $282,000, or 434%, to $347,000 and $646,000, or 340%, to $836,000 during the three and nine months ended September 30, 2004, respectively, when compared to the same periods of the prior year. $211,000 and $548,000 of these increases for the three and nine months ended September 30, 2004, respectively, were attributable to the interest on the mortgage note for AmberOaks. The increases were also attributable to the Christie Street Indemnification and draws under the line of credit in 2004.

Depreciation and amortization increased $175,000, or 350%, to $225,000 and $1,196,000, or 965%, to $1,320,000 during the three and nine months ended September 30, 2004, respectively, when compared with the same periods of the prior year. $215,000 and $1,235,000 of these increases for the three and nine months ended September 30, 2004, respectively, were attributable to the acquisition of AmberOaks in January 2004.

Interest and dividend income increased $71,000, or 645%, to $82,000 and $247,000, or 325%, to $323,000 during the three and nine months ended September 30, 2004, respectively, when compared with the same periods of the prior year. This increase was primarily due to the interest earned on the notes receivable for the sale of Gateway Mall and dividends on investments in marketable securities.

Gain on sale of marketable securities was due to the purchase and sale of REIT investment securities for the three and nine months ended September 30, 2004, respectively.

Equity in earnings of unconsolidated real estate decreased by $217,000, or 81%, to $50,000 and $548,000, or 45%, to $683,000 for the three and nine months ended September 30, 2004, respectively, compared with the same periods of the prior year. The decrease was primarily due to the write off of prepaid loan costs due to the refinancing of the Congress Center property as well as the increase in depreciation and amortization as a result of finalization of purchase price allocations of the acquired unconsolidated real estate assets.

Income (loss) from continuing operations increased by $363,000, or 459% to $284,000 or $0.07 per basic and diluted share and decreased $219,000, or 27%, to $579,000, or $0.15 per basic and diluted share for the three and nine months ended September 30, 2004, respectively, when compared with the same periods of the prior year.

Income from discontinued operations for the nine months ended September 30, 2004 represents the net operating results of one consolidated property that was sold during the nine months ended September 30, 2004, including interest expense and depreciation related to this property through the date of sale. Income from discontinued operations for the nine months ended September 30, 2003 represents the net operating results of the three properties sold in 2003 and the one property sold in 2004. Gain (loss) on sale of real estate dispositions was $1,634,000 for the nine months ended September 30, 2004 and was due to the sale of Gateway Mall on March 18, 2004 and Gateway Mall Land on September 9, 2004. Gain on the sale of real estate dispositions for the nine months ended September 30, 2003 was $2,622,000 and was due to the sales of North Star Shopping Center, Thousand Oaks, and Pahrump.

Net income was $1,093,000, or $0.24, per basic and dilutive share and $2,401,000, or $0.52, per basic and dilutive share, for the three and nine months ended September 30, 2004, respectively, compared with net income of $2,696,000, or $0.57 per basic and dilutive share, and $4,151,000, or $0.89 per basic and dilutive share, for the three and nine months ended September 30, 2003, respectively.

Liquidity and Capital Resources


	*Liquidity*


	Cash Flows

Net cash provided by operating activities was $3,716,000 for the nine months ended September 30, 2004 compared to net cash provided by operating activities of $2,729,000 for the nine months ended September 30, 2003. The increase was primarily contributed by an increase in accounts payable, an increase in depreciation for AmberOaks which was acquired in 2004, and an increase in amortization, compared to the prior period.

Net cash used in investing activities was $90,000 for the nine months ended September 30, 2004, a decrease from net cash provided by investing activities of $25,824,000 for the nine months ended September 30, 2003. The decrease from the prior period is primarily attributed to the $32,925,000 decrease in net proceeds from real estate dispositions, partially offset by the collection of notes receivable of $6,500,000 in 2004.

Net cash used in financing activities was $9,086,000 for the nine months ended September 30, 2004 compared to $21,983,000 for the nine months ended September 30, 2003. Cash was used primarily for the payment of debt and shareholder distributions.

As a result of the above, cash and cash equivalents decreased $5,460,000 for the nine months ended September 30, 2004 to $6,729,000.

During the nine months ended September 30, 2004 and 2003, the Company generated cash from operations of $3,716,000 and $2,729,000, respectively. During the nine months ended September 30, 2004 and 2003, the Company declared and paid distributions to our stockholders of $2,858,000 and $2,889,000 respectively. Cash used in financing activities during the nine months ended September 30, 2004 and 2003, was $9,086,000 (including a debt repayment of $6,204,000) and $21,983,000 (including debt repayments of $23,800,000), respectively. Cash flows from investing activities during the nine months ended September 30, 2004 and 2003, was $(90,000) and $25,824,000 (primarily from property dispositions), respectively. The Company currently has no principal debt repayments until February 2006; however, it continues to pay monthly interest payments on such debt. As there is no maturing debt coming due through the end of 2004 and 2005, the Company believes that its net cash provided by operating activities, availability under the line of credit, proceeds from other financing sources that are expected to be available and proceeds from anticipated asset sales will together provide sufficient liquidity to meet its cash needs during the next twelve months.

If the Company experiences lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If our Board of Directors continues to declare distributions for the shareholders at current levels, the Company expects a cash flow deficit in subsequent periods. This estimate is based on various assumptions which are difficult to predict, including the levels of leasing activity at year end and related leasing costs. Any changes in these assumptions could impact the financial results. To the extent any distributions are made to the shareholders in excess of accumulated earnings, the excess distributions are considered a return of capital to shareholders for Federal income tax purposes.

A material adverse change in the net cash provided by operating activities may affect the Company’s ability to fund these items and may affect the financial performance covenants under its line of credit and unsecured notes. If the Company fails to meet its financial performance covenants and are unable to reach a satisfactory resolution with the lenders, the maturity dates for the unsecured notes could be accelerated, and the line of credit could become unavailable to the Company or the interest charged on the line of credit could increase. Any of these circumstances could adversely affect the Company’s ability to fund working capital and unanticipated cash needs, acquisitions and development costs.

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


	Financing

Notes and contracts payable as a percentage of total capitalization increased to 67% at September 30, 2004 from 20% at December 31, 2003. This increase was due to the issuance of the mortgage with the acquisition of AmberOaks offset in part by the sale of Gateway Mall and subsequent payment of the note related to the property.


	Line of Credit


	*Unconsolidated Debt*

The Company’s share of unconsolidated debt was approximately $32.3 million and $30.3 million at September 30, 2004 and December 31, 2003, respectively. The increase of approximately $2 million was due to the refinancing of Congress Center in September 2004 along with the purchase of interests in the unconsolidated investments of Oakey Building and Emerald Plaza in April 2004 and July 2004, respectively.

On September 3, 2004, the Advisor refinanced Congress Center with three loans totaling $97,500,000, through Principal Commercial Funding and Principal Life Insurance. While the Company owns a 10.22% interest in Congress Center, it is jointly and severally liable with the other owners for payment of the three loans. In connection with the Congress Center refinancing, the total unamortized portion of the capitalized loan costs of $580,000 was expensed in September 2004.


	REIT Requirements

In order to qualify as a REIT for federal income tax purposes, the Company is required to make distributions to its shareholders of at least 90% of REIT taxable income. Cash flow from operating activities is expected to be used for distributions to shareholders.


	*Commitment and Contingencies*

Insurance Coverage


	Property Damage, Business Interruption, Earthquake and Terrorism

The insurance coverage provided through third-party insurance carriers is subject to coverage limitations. For each type of insurance coverage described below, should an uninsured or underinsured loss occur, the Company could lose all or a portion of our investment in, and anticipated cash flows from, one or more of the Properties. In addition, there can be no assurance that third-party insurance carriers will be able to maintain reinsurance sufficient to cover any losses that may be incurred.


Type of Insurance Coverage		Loss Exposure/Deductible

Property damage and business interruption		$200 million annual aggregate exposure, plus $10 thousand per occurrence deductible
Earthquake		$10 million annual aggregate exposure plus 5 percent ($100,000 minimum) per occurrence deductible
Earthquake (California Properties)		$50 million in excess of $10 million
Flood — Named Storm		$10 million annual aggregate exposure plus 5 percent ($100,000 minimum) per occurrence deductible
Flood — All Other		$10 million annual aggregate exposure plus 5 percent ($25,000 minimum/$100,000 maximum) per occurrence deductible
Liability		$2 million annual aggregate exposure plus $1 million each occurrence
Umbrella (excess liability)		$100 million aggregate exposure
Acts of terrorism		$100 million annual aggregate exposure, plus $10,000 per occurrence deductible.


	*Contractual Obligations*

The following table provides information with respect to the maturities, scheduled principal payments of secured debt and line of credit as well as scheduled interest payments of the fixed rate debt at September 30, 2004. The table does not reflect available extension options.


	Less Than						More Than
	1 Year		1-3 Years		4-5 Years		5 Years
	(2004)		(2005-2007)		(2008-2009)		(After 2009)		Total

Principal payments — fixed rate debt	$	16,000	$	206,000	$	4,079,000	$	—	$	4,301,000
Interest payments — fixed rate debt		57,000		669,000		—		—		726,000
Principal payments — variable rate debt		—		15,000,000		—		—		15,000,000
Interest payments — variable rate debt		216,000		1,767,000		—		—		1,983,000

Total	$	289,000	$	17,642,000	$	4,079,000	$	—	$	22,010,000


	*Off-Balance Sheet Arrangements*

There are no off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


	*SEC Investigation*

On September 16, 2004, the Company’s Advisor, Triple Net Properties, LLC, or Triple Net, learned that the SEC is conducting an investigation captioned In the matter of Triple Net Properties, LLC. The SEC has requested information from Triple Net relating to disclosure in securities offerings (including offerings by G REIT, T REIT and A REIT) and information advising it which exemption from the registration requirements of the Securities Act of 1933,as amended, were being relied upon for the private offerings in which Triple Net and its affiliated entities were involved. In addition, the SEC has requested financial information regarding these REITs as well as the limited liability companies advised by Triple Net. The Company and Triple Net intend to cooperate fully with the SEC in its investigation.


	*Inflation*

The Company will be exposed to inflation risk as income from long-term leases is expected to be the primary source of its cash flows from operations. The Company expects that there will be provisions in the majority of its tenant leases that would protect the Company from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.


	Funds from Operations

The Company defines Funds from Operations (“FFO”), a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trust (“NAREIT”), as revised in February 2004. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO.

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.

The Company’s FFO reporting complies with NAREIT’s policy described above.

Following is the calculation of FFO for the nine months ended September 30, 2004 and 2003:


		Nine Months Ended			Nine Months Ended
		September 30,			September 30,
		2004			2003

Net income		$	2,401,000		$	4,151,000
Add:
	Depreciation and amortization — continuing operations		1,320,000			124,000
	Depreciation and amortization — discontinued operations		17,000			263,000
	Depreciation and amortization — unconsolidated real estate operating properties		1,041,000			782,000
Less:
	(Gain)/ loss on sale of property		(1,634,000	)		(2,622,000	)

Funds from operations		$	3,145,000		$	2,698,000

Weighted average common shares outstanding — basic and diluted			4,636,000			4,685,000


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

The Company is exposed to interest rate changes primarily as a result of its long-term debt used to maintain liquidity and fund capital expenditures and expansion of its real estate investment portfolio and operations. Management’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 these objectives the Company borrows primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rate debt to fixed rate debt. 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, as of September 30, 2004, the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.


	2004			2005			2006			2007			2008			Thereafter		Total

Fixed rate debt	$	16,000		$	65,000		$	69,000		$	72,000		$	4,079,000		$	—	$	4,301,000
Average interest rate on maturing debt		5.25	%		5.25	%		5.25	%		5.25	%		5.25	%		—		5.25	%
Variable rate debt	$	—		$	—		$	197,000		$	14,803,000		$	—		$	—	$	15,000,000
Average interest rate on maturing debt		—			—			5.75	%		5.75	%		—			—		5.75	%

The fair estimated value of the Company’s debt approximates its September 30, 2004 carrying amount.

The weighted average interest rate of mortgage debt as of September 30, 2004 was approximately 5.64% per annum. At September 30, 2004, the Company’s mortgage debt consisted of $4,301,000 or 22% of the total debt at a fixed interest rate of 5.25% per annum and $15,000,000 or 78% of the total debt at a weighted average variable interest rate of 5.75% per annum. An increase in the variable interest rate on certain mortgages payable constitutes a market risk. As of September 30, 2004, for example, a .25% increase in LIBOR would have increased the overall annual interest expense by approximately $38,000 or less than 4.35%.


Item 4.	*Controls and Procedures*

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

Following the signatures section of this Quarterly Report are certifications of the company’s CEO and the CFO required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as amended (the “Section 302 Certification”). This portion of our Quarterly Report on Form 10-Q is our disclosure of the results of our controls evaluation referred to in paragraphs (4) and (5) of the Section 302 Certification and should be read in conjunction with the Section 302 Certification for a more complete understanding of the topics presented.

As of the end of the period covered by this report, the Company completed an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, Chief Financial Officer and third-party consultants (the “Evaluation”) of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). Effective February 8, 2004, our Board of Directors retained Deloitte & Touche, LLP (“Deloitte”) as our new independent registered public accounting firm based on the recommendation of the audit committee. As a result of Deloitte’s audit of the Company’s consolidated financial statements for the year ended December 31, 2003, the Company received certain recommendations from Deloitte concerning certain matters related to the Company’s internal controls and certain observations and recommendations on other accounting, administrative and operating matters (the “Deloitte recommendations”).

As a result of the Evaluation and the Deloitte recommendations, we are (1) designing improved internal control procedures to address a number of financial reporting issues and disclosure controls by developing formal policies and procedures and (2) developing policies and procedures to (i) mitigate the disruptive effect of the recent turn-over in senior management, including senior financial management personnel, and (ii) train the appropriate personnel to undertake their assignments more effectively. The Evaluation also concluded that a significant portion of the financial reporting issues were derived from staff turn-over and the corresponding need for training and education of new personnel.

During the quarterly review process for the period ended September 30, 2004, the Company concluded that its previously filed financial statements for the quarters ended March 31, 2004 and June 30, 2004 and March 31, 2003 and June 30, 2003 should no longer be relied upon. The Company has restated the relevant financial statements to reflect the fact that one of the Company’s real estate properties should have been recorded on the purchase date on a consolidated basis and not as an unconsolidated investment and the reclassification of discontinued operations and loss on sale of real estate. The Company believes that adequate controls and procedures have been implemented or are currently being implemented to mitigate the risk of similar occurrences in the future, including the development and implementation of internal testing and oversight procedures and policies.

The Company has implemented and continues to implement improvements in the Company’s internal controls, including, among others, devising, standardizing and promulgating new policies and procedures to ensure consistent and improved financial reporting, and to mitigate the possible risks of any material misstatements regarding financial reporting matters.

The Company has also employed a new Chief Financial Officer with considerable experience in public company financial reporting, GAAP and REIT compliance and added the position of Chief Accounting Officer.

The Company is assigning a high priority to its financial reporting and internal control issues. We will continue to evaluate the effectiveness of our internal controls and procedures on an on-going basis and will take further action as appropriate.

Pursuant to the Evaluation, after taking into account the above information, the Company’s Chief Executive Officer and Chief Financial Officer concluded as of the end of the period covered in this report that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the company in its reports that it files or submits under the Exchange Act is recorded, processes, summarized and reported within the applicable time periods specified in the SEC and forms.

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings*


	*SEC Investigation*

On September 16, 2004, the Company’s Advisor, Triple Net Properties, LLC, or Triple Net, learned that the SEC is conducting an investigation captioned In the matter of Triple Net Properties, LLC. The SEC has requested information from Triple Net relating to disclosure in securities offerings (including offerings by G REIT, T REIT and A REIT) and information advising it which exemption from the registration requirements of the Securities Act of 1933, as amended, were being relied upon for the private offerings in which Triple Net and its affiliated entities were involved. In addition, the SEC has requested financial information regarding these REITs as well as the limited liability companies advised by Triple Net. The Company and Triple Net intend to cooperate fully with the SEC in its investigation.


	*Litigation*

On February 11, 2004, Clearview Properties (“Clearview”) filed a petition in the District Court of the 270th Judicial District, Harris County, Texas against Property Texas SC One Corporation (“Property Texas”), 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.

In depositions made on October 20, 2004, an Officer of Clearview testified that he had no evidence of interference by the Company. As such, the Company intends to file a motion for summary judgment in its favor. 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 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. The Company believes there is no substantive merit to the claims made by the Sellers with respect to the Company and it intents to vigorously defend the action. If the

Purchasers 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.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

None.


Item 3.	*Defaults Upon Senior Securities*

None.


Item 4.	*Submission of Matters to a Vote of Security Holders*

None.


Item 5.	*Other Information*

In connection with the review process for the quarterly period ended September 30, 2004, the Company’s audit committee determined on November 2, 2004 that the accounting treatment for one of the Company’s real estate properties inaccurately reflected the property as an investment in unconsolidated real estate under the equity method rather than as a consolidated tenant-in-common interest in the Company’s financial statements included in the Form 10-Q filings for the respective quarterly periods ending March 31, 2004 and June 30, 2004, and that, therefore, a restatement of the Company’s financial statements for the periods referenced above should be made to prevent future reliance on those filings.

Concurrent with this filing, the Company has filed amended Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2004 and June 30, 2004 that include restated financial statements and amendments to related disclosures.

The Company’s management and audit committee have discussed the matters disclosed in this item with Deloitte.


Item 6.	*Exhibits*

(a) The following documents are filed as part of this report:


3	.1	Articles of Incorporation of the Company (included as Exhibit 3.1 to the Company’s Registration Statement on Form S-11 filed on April 28, 1999 (File No. 333-77229) and incorporated herein by this reference)
3	.2	Form of Amended and Restated Articles of Incorporation of the Company (included as Exhibit 3.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed on November 22, 1999 (File No. 333-77229) and incorporated herein by this reference)
3	.3	Form of By-Laws of the Company (included as Exhibit 3.3 to the Company’s Registration Statement on Form S-11 filed on April 28, 1999 (File No. 333-77229) and incorporated herein by this reference)
3	.4	Form of Amended By-Laws of the Company (included as Exhibit 3.4 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on July 17, 2001 (File No. 333-77229) and incorporated herein by reference.)
4	.1	Form of Share Certificate (included as Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-11 filed on February 3, 2000 (File No. 333-77229) and incorporated herein by this reference)


10	.1	Form of Agreement of Limited Partnership of T REIT, L.P. (included as Exhibit 10.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on October 13, 1999 (File No. 333-77229) and incorporated herein by this reference)
10	.2	Dividend Reinvestment Program (included as Exhibit C to the Company’s Prospectus filed as part of the Company’s Registration Statement on Form S-11 on April 28, 1999 (File No. 333-77229) and incorporated herein by this reference)
10	.3	Independent Director Stock Option Plan (included as Exhibit 10.3 to Amendment No. 4 to the Company’s Registration Statement on Form S-11 filed on February 3, 2000 (File No. 333-77229) and incorporated herein by this reference)
10	.4	Employee and Officer Stock Option Plan (included as Exhibit 10.4 to Amendment No. 4 to the Company’s Registration Statement on Form S-11 filed on February 3, 2000 (File No. 333-77229) and incorporated herein by this reference)
10	.5	Advisory Agreement between the Company and the Advisor (included as Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on October 13, 1999 (File No. 333-77229) and incorporated herein by this reference)
10	.6	Purchase and Sale Agreement, dated June 5, 2000, by and between Robert C. Parker and Carolyn De La Fuente Parker and Triple Net Properties, LLC (included as Exhibit 10.1 to Form 10-Q filed by the Registrant with the SEC on November 14, 2000 and incorporated herein by this reference)
10	.7	Purchase and Sale Agreement, dated October 25, 2000, by and between CMF Capital Company LLC and T REIT, L.P. (included as Exhibit 10.1 to Form 8-K filed by the Registrant with the SEC on November 13, 2000 and incorporated herein by this reference)
10	.8	Purchase and Sale Agreement, dated October 26, 2000, by and between CMF Capital Company LLC and T REIT L.P. (included as exhibit 10.1 to Form 8-K filed by the Registrant with the SEC on December 20, 2000 and incorporated herein by this reference)
10	.9	Purchase and Sale Agreement, dated August 24, 2000, as amended, by and between Drummer Boy Holdings, LLC and Triple Net Properties, LLC (included as Exhibit 10.9 to Post Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on July 17, 2001 (File No. 333-772229) and incorporated herein by this reference)
10	.10	First Amendment to Advisory Agreement between the Company and the Advisor (included as Exhibit 10.10 to Post-Effective Amendment No. 1 to the Company’s Registration Statement filed on Form S-11 on July 17, 2001 (File No. 333-772229) and incorporated herein by this reference).
10	.11	Purchase and Sale Agreement, dated April 16, 2001, by and between Kilroy Realty, L.P. and Triple Net Properties LLC (included as Exhibit 10.11 to Post Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed on October 19, 2001 (File No. 333-772229) and incorporated herein by reference).
10	.12	Purchase and Sale Agreement dated October 30, 2001, by and between Triple Net Properties, LLC and City Center West Development, LLC (included as Exhibit 10.1 to Form 8-K/A filed by the Company on May 14, 2003 and incorporated herein by reference).
10	.13	Purchase and Sale Agreement dated November 9, 2001, by and between Triple Net Properties, LLC and United States Fidelity and Guaranty Company (included as Exhibit 10.1 to Form 8-K/A filed by the Company on May 14, 2003 and incorporated herein by reference).
10	.14	Amended and Restated Real Estate Purchase and Sale Agreement dated as of July 24, 2002 by and between Transwestern Heights, L.P. as seller and Triple Net Properties, LLC, as assigned to T REIT — University Heights, LP, a Texas limited partnership (included as Exhibit 10.14 to the Form 8-K filed by the Company on September 5, 2002 and incorporated herein by reference).
10	.15	Purchase Agreement dated October 10, 2002 between Congress Center, LLC and Triple Net Properties, LLC as assigned to NNN Congress Center, LLC, G REIT — Congress Center, LLC, and W REIT — Congress Center, LLC (included as Exhibit 10.14 to the Form 8-K filed by the Company on January 24, 2003 and incorporated herein by reference).
10	.16	Operating Agreement of NNN Congress Center Member, LLC dated January 1, 2003 (included as Exhibit 10.15 to the Form 8-K filed by the Company on January 24, 2003 and incorporated herein by reference).


10	.17	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of May 14, 2003 by and between T REIT — Thousand Oaks, LP and Weingarten Realty Investors (included as Exhibit 10.01 to the Form 8-K filed by the Company on August 26, 2003 and incorporated herein by reference).
10	.18	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of May 15, 2003 by and between T REIT — Pahrump, LLC and Pacific Home Equities, LLC (included as Exhibit 10.01 to the Form 8-K filed by the Company on October 9, 2003 and incorporated herein by reference).
10	.19	Purchase and Sale Agreement dated as of October 17, 2003 by and between Austin Jack, L.L.C. and Triple Net Properties, LLC (included as Exhibit 10.01 to the Form 8-K filed by the Company on February 4, 2004 and incorporated herein by reference).
10	.20	First Amendment and Restatement of Purchase and Sale Agreement dated as of December 8, 2003 by and between Austin Jack, L.L.C. and Triple Net Properties, LLC (included as Exhibit 10.02 to the Form 8-K filed by the Company on February 4, 2004 and incorporated herein by reference).
10	.21	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of March 15, 2004 by and between T REIT — Gateway Mall ND Fee, LLC and VP Investments, L.L.C. (included as Exhibit 10.01 to the Form 8-K filed by the Company on March 29, 2004 and incorporated herein by reference).
10	.22	First Amendment to Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of March 9, 2004 by and between T REIT — Gateway Mall ND Fee, LLC and VP Investments, L.L.C. (included as Exhibit 10.02 to the Form 8-K filed by the Company on March 29, 2004 and incorporated herein by reference).
31	.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

T REIT, INC.

(Registrant)

By: /s/ JACK R. MAURER

Jack R. Maurer

Chief Executive Officer

By: /s/ SCOTT D. PETERS

Scott D. Peters

Chief Financial Officer

By: /s/ KELLY J. CASKEY

Kelly J. Caskey

Chief Accounting Officer

Date: November 22, 2004

EXHIBIT INDEX


3	.1	Articles of Incorporation of the Company (included as Exhibit 3.1 to the Company’s Registration Statement on Form S-11 filed on April 28, 1999 (File No. 333-77229) and incorporated herein by this reference).
3	.2	Form of Amended and Restated Articles of Incorporation of the Company (included as Exhibit 3.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed on November 22, 1999 (File No. 333-77229) and incorporated herein by this reference).
3	.3	Form of By-Laws of the Company (included as Exhibit 3.3 to the Company’s Registration Statement on Form S-11 filed on April 28, 1999 (File No. 333-77229) and incorporated herein by this reference).
3	.4	Form of Amended By-Laws of the Company (included as Exhibit 3.4 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on July 17, 2001 (File No. 333-77229) and incorporated herein by reference).
4	.1	Form of Share Certificate (included as Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-11 filed on February 3, 2000 (File No. 333-77229) and incorporated herein by this reference).
10	.1	Form of Agreement of Limited Partnership of T REIT, L.P. (included as Exhibit 10.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on October 13, 1999 (File No. 333-77229) and incorporated herein by this reference).
10	.2	Dividend Reinvestment Program (included as Exhibit C to the Company’s Prospectus filed as part of the Company’s Registration Statement on Form S-11 on April 28, 1999 (File No. 333-77229) and incorporated herein by this reference).
10	.3	Independent Director Stock Option Plan (included as Exhibit 10.3 to Amendment No. 4 to the Company’s Registration Statement on Form S-11 filed on February 3, 2000 (File No. 333-77229) and incorporated herein by this reference).
10	.4	Employee and Officer Stock Option Plan (included as Exhibit 10.4 to Amendment No. 4 to the Company’s Registration Statement on Form S-11 filed on February 3, 2000 (File No. 333-77229) and incorporated herein by this reference).
10	.5	Advisory Agreement between the Company and the Advisor (included as Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on October 13, 1999 (File No. 333-77229) and incorporated herein by this reference).
10	.6	Purchase and Sale Agreement, dated June 5, 2000, by and between Robert C. Parker and Carolyn De La Fuente Parker and Triple Net Properties, LLC (included as Exhibit 10.1 to Form 10-Q filed by the Registrant with the SEC on November 14, 2000 and incorporated herein by this reference).
10	.7	Purchase and Sale Agreement, dated October 25, 2000, by and between CMF Capital Company LLC and T REIT, L.P. (included as Exhibit 10.1 to Form 8-K filed by the Registrant with the SEC on November 13, 2000 and incorporated herein by this reference).
10	.8	Purchase and Sale Agreement, dated October 26, 2000, by and between CMF Capital Company LLC and T REIT L.P. (included as exhibit 10.1 to Form 8-K filed by the Registrant with the SEC on December 20, 2000 and incorporated herein by this reference).
10	.9	Purchase and Sale Agreement, dated August 24, 2000, as amended, by and between Drummer Boy Holdings, LLC and Triple Net Properties, LLC (included as Exhibit 10.9 to Post Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11 filed on July 17, 2001 (File No. 333-772229) and incorporated herein by this reference).
10	.10	First Amendment to Advisory Agreement between the Company and the Advisor (included as Exhibit 10.10 to Post-Effective Amendment No. 1 to the Company’s Registration Statement filed on Form S-11 on July 17, 2001 (File No. 333-772229) and incorporated herein by this reference).
10	.11	Purchase and Sale Agreement, dated April 16, 2001, by and between Kilroy Realty, L.P. and Triple Net Properties LLC (included as Exhibit 10.11 to Post Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 filed on October 19, 2001 (File No. 333-772229) and incorporated herein by reference).


10	.12	Purchase and Sale Agreement dated October 30, 2001, by and between Triple Net Properties, LLC and City Center West Development, LLC (included as Exhibit 10.1 to Form 8-K/A filed by the Company on May 14, 2003 and incorporated herein by reference).
10	.13	Purchase and Sale Agreement dated November 9, 2001, by and between Triple Net Properties, LLC and United States Fidelity and Guaranty Company (included as Exhibit 10.1 to Form 8-K/A filed by the Company on May 14, 2003 and incorporated herein by reference).
10	.14	Amended and Restated Real Estate Purchase and Sale Agreement dated as of July 24, 2002 by and between Transwestern Heights, L.P. as seller and Triple Net Properties, LLC, as assigned to T REIT — University Heights, LP, a Texas limited partnership (included as Exhibit 10.14 to the Form 8-K filed by the Company on September 5, 2002 and incorporated herein by reference).
10	.15	Purchase Agreement dated October 10, 2002 between Congress Center, LLC and Triple Net Properties, LLC as assigned to NNN Congress Center, LLC, G REIT — Congress Center, LLC, and W REIT — Congress Center, LLC (included as Exhibit 10.14 to the Form 8-K filed by the Company on January 24, 2003 and incorporated herein by reference).
10	.16	Operating Agreement of NNN Congress Center Member, LLC dated January 1, 2003 (included as Exhibit 10.15 to the Form 8-K filed by the Company on January 24, 2003 and incorporated herein by reference).
10	.17	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of May 14, 2003 by and between T REIT — Thousand Oaks, LP and Weingarten Realty Investors (included as Exhibit 10.01 to the Form 8-K filed by the Company on August 26, 2003 and incorporated herein by reference).
10	.18	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of May 15, 2003 by and between T REIT — Pahrump, LLC and Pacific Home Equities, LLC (included as Exhibit 10.01 to the Form 8-K filed by the Company on October 9, 2003 and incorporated herein by reference).
10	.19	Purchase and Sale Agreement dated as of October 17, 2003 by and between Austin Jack, L.L.C. and Triple Net Properties, LLC (included as Exhibit 10.01 to the Form 8-K filed by the Company on February 4, 2004 and incorporated herein by reference).
10	.20	First Amendment and Restatement of Purchase and Sale Agreement dated as of December 8, 2003 by and between Austin Jack, L.L.C. and Triple Net Properties, LLC (included as Exhibit 10.02 to the Form 8-K filed by the Company on February 4, 2004 and incorporated herein by reference).
10	.21	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of March 15, 2004 by and between T REIT — Gateway Mall ND Fee, LLC and VP Investments, L.L.C. (included as Exhibit 10.01 to the Form 8-K filed by the Company on March 29, 2004 and incorporated herein by reference).
10	.22	First Amendment to Agreement for Purchase and Sale of Real Property and Escrow Instructions dated as of March 9, 2004 by and between T REIT — Gateway Mall ND Fee, LLC and VP Investments, L.L.C. (included as Exhibit 10.02 to the Form 8-K filed by the Company on March 29, 2004 and incorporated herein by reference).
31	.1	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.