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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-77229
T REIT, INC.
Supplement No. 2, dated November 3, 2000
to the Prospectus, dated February 22, 2000
This Supplement No. 2 supplements, modifies and supercedes some of the
information contained in our prospectus, dated February 22, 2000, and
supercedes the information in Supplement No. 1, dated September 28, 2000, and
you should read it in conjunction with the prospectus. References in this
Supplement No. 2 to "the prospectus" mean the prospectus of T REIT, Inc., dated
February 22, 2000. Unless we define a term in this Supplement No. 2, you should
rely on the prospectus for the meaning of any defined terms. References in this
Supplement No. 2 to "us," "we," or "our company" mean T REIT, Inc. and T REIT,
L.P., our operating partnership, unless the context otherwise requires.
STATUS OF OUR OFFERING
General
On May 17, 2000, we commenced our offering of a maximum of 10 million shares
and a minimum of 100,000 shares of our common stock at an offering price of
$10.00 per share to the residents of the states listed in the prospectus and in
Supplement No. 1. We commenced operations on June 29, 2000, upon the acceptance
of subscriptions for the minimum offering amount of $1,000,000 and the escrow
of subscriptions (other than funds received from Pennsylvania investors)
terminated. Our offering will terminate on the earlier of February 22, 2002, or
the date on which we have sold the maximum offering.
As of October 25, 2000, we had sold 526,506 shares, including 22,090 shares
issued to our advisor, Triple Net Properties, LLC, and 1,229 shares issued to
current shareholders under our dividend reinvestment program, resulting in
gross proceeds of $5,240,842 (excluding funds from Pennsylvania investors).
After the acquisition of the Christie Street Office Building described in this
Supplement No. 2 and payment of selling commissions and marketing support and
due diligence reimbursement fees, we had approximately $3,443,466 to invest in
properties at October 25, 2000.
Subsequent State Registrations
After the date of the prospectus, we registered the offering in Louisiana
and Oklahoma. As a result, we now offer and sell shares of our common stock to
residents of these states in addition to those listed in the prospectus.
Fees and Expenses Paid in Connection with Our Offering
Selling Commissions
NNN Capital Corp., the dealer manager, will receive 8% of the gross proceeds
of this offering, or $0.80 for each share sold, and may reallow a portion of
the selling commissions to broker-dealers participating in this offering. The
dealer manager will not receive any selling commissions for shares sold under
our dividend reinvestment program. As of October 25, 2000, we had incurred
$395,479 in selling commissions due to the dealer manager, a portion of which
has been paid to participating broker-dealers as commissions.
The prospectus also provides that the dealer manager will receive one
warrant for every 40 shares of common stock sold in this offering in states
other than Arizona, Missouri, Ohio or Tennessee, and may reallow a portion of
the warrants to broker-dealers participating in this offering. The dealer
manager will not receive any warrants for shares sold under our dividend
reinvestment plan. Each warrant entitles the holder to purchase one share of
our common stock at a price of $12.00. As of October 25, 2000, 7,897 warrants
were outstanding. We are obligated to issue 2,920 warrants to the dealer
manager and participating broker-dealers prior to the end of the fourth quarter
of 2000 in connection with shares sold after September 30, 2000.
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Marketing Support and Due Diligence Reimbursement Fee
We will pay the dealer manager an amount up to 1.5% of the gross proceeds of
this offering, or up to $0.15 for each share sold, to pay expenses associated
with marketing fees, wholesaling fees, expense reimbursements, bonuses and
incentive compensation and volume discounts and generally to reimburse the
dealer manager for due diligence expenses. We will not require the dealer
manager to account for spending of amounts comprising this fee. The dealer
manager may reallow a portion of this fee to broker-dealers participating in
this offering. As of October 25, 2000, we had incurred $75,151 in marketing
support and due diligence reimbursement fees to the dealer manager, a portion
of which has been reallowed to participating broker-dealers.
Other Organizational and Offering Expenses
Our advisor may advance, and we will reimburse it for, organization and
offering expenses incurred on our behalf in connection with this offering,
including legal and accounting fees, filing fees, printing costs and selling
expenses. As of October 25, 2000, we had incurred $131,021 in other
organizational and offering expenses.
PROPERTY ACQUISITIONS
Christie Street Office Building, Lufkin, Texas
On September 26, 2000, we purchased the Christie Street Office Building, a
17,141 square foot Class C office building in Lufkin, Texas from Robert C.
Parker and Carolyn de la Fuente Parker under an agreement of sale and purchase.
The sellers are not affiliated with our company or our advisor. We paid a total
of $1,250,000 for the office building, and approximately $1,839 in additional
acquisition expenses such as attorneys' fees, recording fees and other closing
costs. Our acquisition cost represents approximately $73.00 per square foot of
leasable space.
As of September 26, 2000, this property was 100% occupied by the State of
Texas Department of Human Services, which provides welfare, child and family
protection services. The State has leased the property since 1984 on a short-
term lease (two years or less). The current lease commenced on September 1,
2000 and terminates on August 31, 2002. The current rent is $20,000 per month
during the lease term. The Department of Human Services is not empowered by the
State to execute a lease with a term exceeding two years.
The Department of Human Services may terminate the lease if it loses state
funding or if the landlord does not cure covenant defaults after 30 days notice
by the Department of Human Services or if the building does not conform to the
provisions of the Americans with Disabilities Act of 1990, which requirement we
believe has been met. The Department of Human Services pays for utilities and
janitorial services associated with the property.
Due to the short-term lease with the Department of Human Services, the
property cannot be readily financed with a traditional lender. The sellers
agreed to finance a portion of the purchase price by delivery to the sellers of
a note in the principal amount of $750,000. The note bears interest at 9%, is
fully amortized over 20 years and is secured by a first mortgage on the
property. There are no loan fees or similar costs attached with the loan. The
loan may not be assumed by any future owner and there is no discount for an
early payoff. The monthly payment is $6,748 with a late fee of 5% after 10
days. The payment includes escrows for taxes and insurance.
The purchase of the property was unanimously approved by our board of
directors, including our independent directors.
The Christie Street Office Building, which was built in 1984 for the State
of Texas, consists of a single one-story building containing approximately
20,000 gross square feet on two parcels of land totalling 1.78 acres.
Approximately 5,000 square feet were constructed by the State of Texas in 1990.
The building includes approximately 17,141 square feet of leasable space. The
property has approximately 95 parking stalls with 6 handicap-parking spaces and
is located in flood zone C, an area of minimal flooding. The office building is
located on the northwest corner of Christie Street and route 287, the major
business loop for Lufkin. The office building is located approximately .5 miles
from the major shopping area in Lufkin at the corner of route 287
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and highway 59. Adjoining land use consists of various commercial and service
users. A funeral home is located across the street, a medical clinic is next
door along with the police and fire departments.
Lufkin, Texas is the commercial hub of a 12 county rural market region,
serving over 300,000 residents. Lufkin has a population of 30,791 and is
located approximately 100 miles northeast of Houston and approximately 150
miles southeast of Dallas.
We have retained Triple Net Properties Realty, Inc., an affiliate of our
advisor, to manage and lease the property. We will pay Triple Net Properties
Realty a property management fee equal to 5% of the gross income from the
property (currently $1,000 per month) in addition to compensation for property-
level services, including leasing fees, loan origination and servicing fees and
property tax reduction fees.
Northstar Crossing Shopping Center, Garland, Texas
On October 26, 2000, we purchased the Northstar Crossing Shopping Center, a
shopping center in Garland, Texas containing 67,560 net rentable square feet,
from CMF Capital Company, LLC, under an agreement of sale and purchase. The
seller is not affiliated with our company or our advisor. We paid a total of
$3,930,000 for the shopping center, and approximately $8,570 in additional
acquisition expenses such as attorneys' fees, recording fees and other closing
costs. Our acquisition cost represents approximately $58.00 per square foot of
leasable space.
In connection with the purchase of the shopping center, Fair Oak, LLC, an
entity affiliated with GE Capital Realty Group, Inc., provided a short-term
acquisition loan in the amount of $2,695,000. The promissory note evidencing
the loan provides for monthly interest only payments commencing December 1,
2000 at a rate of 3.5% over the GECC Composite Commercial Paper Rate, currently
6.47%. The note is due and payable in July 2001 and is prepayable without
penalty in whole or in part upon 10 days prior written notice. The note is
secured by a first mortgage on the property. There are no loan fees or similar
costs attached with the loan.
Under the terms of the note, the GECC Composite Commercial Paper Rate is the
average interest expense on the principal amount of the GECC Composite
Commercial Paper outstanding for General Electric Capital Corporation's full
fiscal month preceding the interest billing month. Fair Oaks will determine the
GECC Composite Commercial Paper Rate and evidence the rate by a certificate
issued by an authorized employee of Fair Oak.
GECC Composite Commercial Paper is General Electric Capital Corporation's
outstanding commercial paper for terms of 12 months or less from sources within
the United States but excluding the current portion of General Electric Capital
Corporation's long term debt and its borrowings and interest expense. Average
interest expense is the percentage obtained by dividing the interest expense on
the GECC Composite Commercial Paper for the current fiscal month by the average
daily principal amount of GECC Composite Commercial Paper outstanding during
that fiscal month divided by the actual number of days in the fiscal month and
multiplied by the actual number of days in the calendar year.
The purchase of the property was unanimously approved by our board of
directors, including our independent directors.
The Northstar Crossing Shopping Center was built in 1986 and consists of
three one-story brick and glass buildings containing 67,560 rentable square
feet. Two of the buildings adjoin either side of a United Artists Cinema. The
third building is a 32,383 square foot free standing facility currently
occupied by Gold's Gym. CMF Capital Company does not own or operate the
building in which the United Artists Cinema is located, and we did not acquire
it as part of our purchase of the shopping center.
The shopping center is situated on 6.8 acres inclusive of the site that the
United Artists Cinema building occupies. It has surface parking for
approximately 855 cars and is located on the southeast corner of Belt Line Road
and North Garland Road just south of the George W. Bush Tollway, also known as
State Highway 190, which is the outer loop tollway system connecting all of the
major suburbs in the northern areas of the Dallas/Ft. Worth metroplex.
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Garland, Texas is a rapidly growing community located approximately 15 miles
northeast of downtown Dallas. Garland is the ninth largest city in Texas with a
population of over 200,000.
The property has 18 tenant spaces and is anchored by Gold's Gym, which is
the only tenant occupying more than 10% of the total rentable square footage.
With exception of Nationwide Insurance, the remaining tenants of the shopping
center are local tenants. As of October 26, 2000, the shopping center was 82.5%
occupied. The following table shows the shopping center's occupancy rate for
each of the last five years.
<TABLE>
<CAPTION>
Year Ending Occupancy
December 31, Rate (%)
------------ ---------
<S> <C>
1999............................................................. 82%
1998............................................................. 86%
1997............................................................. (1)
1996............................................................. (1)
1995............................................................. (1)
</TABLE>
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(1) Not available.
A total of 55,743 square feet was leased to 11 tenants at this property as
of October 26, 2000. The following table provides certain information with
respect to the leases at this property with these tenants.
<TABLE>
<CAPTION>
Rentable Current Base Rent per
Lessee Square Feet Lease Ends Renewal Options Annual Rent Square Foot
------ ----------- -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Express Personnel....... 1,920 January 2003 1-5 yrs. $ 21,120 $11.00
LA Hair Studio.......... 1,455 September 2003 1-5 yrs. $ 14,550 $10.00
Family Practice......... 1,800 Month-to-month none $ 14,760 $ 8.20
Vision Source........... 1,384 May 2006 1-5 yrs. $ 17,992 $13.00
Nickelrama.............. 6,250 November 2001 2-5 yrs. $ 50,000 $ 8.00
Sal's Pizza & Pasta..... 1,500 April 2005 1-5 yrs. $ 15,000 $10.00
Sal's Pizza & Pasta
(expansion)............ 900 April 2005 1-5 yrs. $ 9,000 $10.00
Nationwide Insurance.... 1,500 July 2003 none $ 16,275 $10.85
Baber Printing.......... 1,500 September 2001 1-3 yrs. $ 19,200 $ 8.00
All American Driving.... 1,230 July 2002 1-5 yrs. $ 11,070 $ 9.00
Northstar Animal
Clinic................. 3,020 January 2007 1-5 yrs. $ 33,280 $11.02
Gold's Gym.............. 32,383 August 2015 2-5 yrs. $242,873 $ 7.50
</TABLE>
The following table provides certain information with respect to lease
expirations over the next 10 years at this shopping center.
<TABLE>
<CAPTION>
Rentable Sq. Percent of Total Percent of Gross
Number of Ft. of Base Annual Building Rentable Sq. Annual Base Rent
Leases Expiring Rent of Ft. Represented by Represented by
Year Ending December 31, Expiring Leases Expiring Leases(1) Expiring Leases (%) Expiring Leases (%)(1)
------------------------ --------- ------------ ------------------ --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
2001.................... 3 10,450 $83,960 15.5 17.90
2002.................... 1 1,230 $11,070 1.2 2.36
2003.................... 3 4,875 $51,945 7.2 11.07
2004.................... 0 0 $ 0 0.0 0.00
2005.................... 1 2,400 $24,000 3.6 5.12
2006.................... 1 1,384 $17,992 2.0 3.84
2007.................... 1 3,020 $33,280 4.5 7.10
2008.................... 0 0 $ 0 0.0 0.00
2009.................... 0 0 $ 0 0.0 0.00
2010.................... 0 0 $ 0 0.0 0.00
</TABLE>
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(1) These amounts are based on the respective property's current base annual
rent, which may increase under the terms of the lease applicable to the
respective property.
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The following table shows the shopping center's average annual rent per
square foot for each of the last five years.
<TABLE>
<CAPTION>
Average
Year Ending Annual Rent
December 31, per Sq. Ft.
------------ -----------
<S> <C>
1999........................................................... $7.10
1998........................................................... $8.65
1997........................................................... (1)
1996........................................................... (1)
1995........................................................... (1)
</TABLE>
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(1) Not available.
At the time we purchased the shopping center, the building that Gold's Gym
currently occupies was in the process of being remodeled. The cost for this
remodeling is anticipated to be approximately $958,724 with $201,638 already
disbursed before our purchase of the property. In connection with this
remodeling, we received at closing a credit in the amount of $787,322 from the
seller. This amount represents the remaining tenant improvement balance of
$757,086 for the building in which Gold's Gym is located plus a construction
supervision management fee of approximately $30,000 payable to Trammell Crow
Company, the property manager for the seller. Under the terms of its lease,
Gold's Gym is responsible for any cost of overruns related to parking lot
modifications and tenant improvements. We do not anticipate making any
additional significant repairs or improvements to this property over the next
few years. However, if we were to make any repairs, the majority of the tenants
would be obligated to pay a substantial portion of any monies spent under the
provisions of their respective leases.
For federal income tax purposes, our depreciable basis in this property will
be approximately $3,144,000. When we calculate depreciation expense for tax
purposes, we will use the straight-line method. We depreciate buildings and
improvements on estimated useful lives of 40 and 15 years, respectively. The
real estate tax rate for the year ended December 31, 1999 was approximately
2.54% and real estate taxes on the property were approximately $58,108.
We have retained Triple Net Properties Realty to provide supervisory
management services at the property. We will pay Triple Net Properties Realty a
property management fee equal to 5% of gross income from the property
(currently $2,575 per month based on current gross income at the property).
Under the terms of a submanagement agreement, Triple Net Properties Realty has
retained Trammell Crow Company to provide local management services, including
leasing and managing the property. Triple Net Properties Realty will pay
Trammell Crow a property management fee equal to 3% of gross income from the
property plus an amount not to exceed $1,000 per month for accounting and
reporting charges. Trammell Crow is not affiliated with our company or our
advisor.
Potential Property Acquisitions
We currently are considering several potential property acquisitions. Our
decision to acquire one or more of these properties will generally depend upon:
. our receipt of a satisfactory environmental survey and property appraisal
for each property;
. no material adverse change occurring in the properties, the tenants or in
the local economic conditions; and
. our receipt of sufficient financing, either through the net proceeds from
this offering or satisfactory debt financing.
There can be no assurance that any or all of the conditions will be
satisfied or, if satisfied, that we will acquire any additional properties.
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FEES PAID IN CONNECTION WITH THE ACQUISITION OF PROPERTIES
Fees Related to Acquisition of Christie Street Office Building, Lufkin, Texas
Acquisition Expenses
We will reimburse our advisor for costs and expenses of selecting,
evaluating and acquiring properties, whether or not actually acquired,
including surveys, appraisals, title insurance and escrow fees, legal and
accounting fees and expenses, architectural and engineering reports,
environmental and asbestos audits, travel and communication expenses,
nonrefundable option payments on properties not acquired and other related
expenses payable to our advisor and its affiliates. As of September 26, 2000,
we had incurred $2,857 in acquisition fees payable to our advisor.
Property Management Fee
We will pay Triple Net Properties Realty a property management fee equal to
5% of the gross income from the Christie Street Office Building. This fee will
be paid monthly. As of September 26, 2000, we had not incurred any property
management fees.
Real Estate Commission
The seller of the Christie Street Office Building paid a real estate
commission of $50,000 to Triple Net Properties Realty.
Compensation for Services
We will pay our advisor or an affiliate of our advisor for other property-
level services, including leasing fees, construction management fees, loan
origination and servicing fees, property tax reduction fees and risk management
fees. Such compensation will not exceed the amount which would be paid to
unaffiliated third parties providing such services. As of September 26, 2000 we
had not incurred any fees for such services.
Reimbursable Expenses
We will reimburse our advisor for:
. the cost to our advisor or its affiliates of goods and services used for
and by us and obtained from unaffiliated parties; and
. administrative services related to such goods and services limited to
ministerial services such as typing, record keeping, preparing and
disseminating company reports, preparing and maintaining records
regarding shareholders, record keeping and administration of our dividend
reinvestment program, preparing and disseminating responses to
shareholder inquiries and other communications with shareholders and any
other record keeping required.
As of September 26, 2000, we had incurred $645 in reimbursable expenses
payable to our advisor.
Fees Related to Acquisition of Northstar Crossing Shopping Center, Garland,
Texas
Acquisition Expenses
We will reimburse our advisor for costs and expenses of selecting,
evaluating and acquiring properties, whether or not actually acquired,
including surveys, appraisals, title insurance and escrow fees, legal and
accounting fees and expenses, architectural and engineering reports,
environmental and asbestos audits, travel and communication expenses,
nonrefundable option payments on properties not acquired and other related
expenses payable to our advisor and its affiliates. As of October 26, 2000, we
had incurred $1,048 in acquisition expenses payable to our advisor.
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Property Management Fee
We will pay Triple Net Properties Realty a property management fee equal to
5% of the gross income from the Northstar Shopping Center. This fee will be
paid monthly. As of October 26, 2000, we had incurred $496 in property
management fees payable to Triple Net Properties Realty.
Real Estate Commission
The seller of the Northstar Shopping Center paid a real estate commission of
$80,000 to Triple Net Properties Realty.
Compensation for Services
We will pay our advisor or an affiliate of our advisor for other property-
level services, including leasing fees, construction management fees, loan
origination and servicing fees, property tax reduction fees and risk management
fees. Such compensation will not exceed the amount which would be paid to
unaffiliated third parties providing such services. As of October 26, 2000, we
had not incurred any fees for such services payable to our advisor.
Reimbursable Expenses
We will reimburse our advisor for:
. the cost to our advisor or its affiliates of goods and services used for
and by us and obtained from unaffiliated parties; and
. administrative services related to such goods and services limited to
ministerial services such as typing, record keeping, preparing and
disseminating company reports, preparing and maintaining records
regarding shareholders, record keeping and administration of our dividend
reinvestment program, preparing and disseminating responses to
shareholder inquiries and other communications with shareholders and any
other record keeping required.
As of October 26, 2000, we had not incurred any reimbursable expenses
payable to our advisor.
DISTRIBUTION POLICY
Our board of directors approved payment of monthly distributions to our
shareholders, with the first distribution paid on August 1, 2000. The current
monthly distribution rate is $.667 per share, which is equivalent to an annual
rate of $.80 per share or 8% of the offering price of $10.00 per share.
The continuation of distributions and the distribution rate will depend upon
several factors, including:
. our cash available for distributions;
. our overall financial condition;
. our capital requirements;
. the annual distribution requirements applicable to REITs under the
federal income tax laws; and
. such other considerations as our board of directors deems relevant.
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INDEPENDENT ACCOUNTANTS
We were notified on July 11, 2000, by Haskell & White, LLP, our independent
accountant, that it had resigned as our independent accountant. Haskell & White
provided an independent auditors report on our balance sheet dated as of
December 31, 1999, and Haskell & White's report is included in our registration
statement on Form S-11 declared effective by the Securities & Exchange
Commission on February 22, 2000. Haskell & White's report on that balance sheet
did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
We do not have, and have not had, any disagreements with Haskell & White on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. In addition, Haskell & White has informed us in
writing they did not have any disagreements with us on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure.
On September 18, 2000, we engaged Squar, Milner, Reehl & Williamson, LLP as
our independent accountant and Squar Milner accepted such appointment. The
decision to engage Squar Milner was approved by our board of directors on the
recommendation of its audit committee.
We had no relationship with Squar Milner during the two years ended December
31, 1999 and 1998, or the subsequent interim periods prior to and including
September 18, 2000.
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