U.S. SECURITIES AND EXCHANGE
                                  COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

                                   (Mark One)
               [X] Annual Report Under Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 2003
                                       or
               [ ] Transition Report Under Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

                          Commission File No. 0-28378
                                     AMREIT
                 (Name of small business issuer in its charter)

         Texas                                       76-0410050
(State or other jurisdiction of                  (I.R.S. Employer
Incorporation or organization)                   Identification No.)

8 Greenway Plaza, Suite 824
Houston, Texas                                        77046
(Address of principal executive offices)            (Zip Code)

Issuer's telephone number, including area code:  (713) 850-1400

  Securities registered under
   Section 12(b)of the Exchange Act:                          NAME OF EXCHANGE
                                       TYPE OF CLASS        ON WHICH REGISTERED
                                   CLASS A COMMON SHARES      AMERICAN STOCK
                                                                 EXCHANGE

  Securities registered under Section 12(g) of the Exchange Act: NONE

Check  whether  the issuer (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports),  and (2) has
been subject to such filing requirements for the past 90 days: Yes X   No_____

Check if there is no disclosure of delinquent filers in response to Item 405 of
Registration  S-B is not  contained  in this form,  and no  disclosure  will be
contained,   to  the  best  of  issuer's  knowledge,  in  definitive  proxy  or
informative  statements  incorporated  by  reference  in Part III of this  Form
10-KSB or any amendment to this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year:    $13.6 Million

Aggregate market value of the voting stock
  held by non-affiliates of the issuer:               $42.1 Million

State the number of shares  outstanding of the issuer's common equity, as of the
latest practicable date: 2,939,404 class A shares, 2,362,522 class B shares, and
1,402,788 class C shares as of March 7, 2004

<PAGE>





                      DOCUMENTS INCORPORATED BY REFERENCE

Issuer  incorporates by reference into Part III portions of its Proxy Statement
for the 2004 Annual Meeting of Shareholders.

Transitional Small Business Disclosure Format(check one):Yes ____  No       X


                                       2

<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

AmREIT is a Texas real estate  investment  trust ("REIT") that has elected to be
taxed as a REIT for  federal  income  tax  purposes.  AmREIT is a  self-managed,
self-advised  REIT with,  along with its  predecessor,  a 19-year  history and a
record of investing in quality  income  producing  retail real estate.  AmREIT's
class A common shares are traded on the American Stock Exchange under the symbol
"AMY".  AmREIT directly owns over $100 million in assets,  up 37% from 2002, and
manages an additional $30 million through affiliated retail partnerships.  As of
December 31, 2003, AmREIT owned 51 properties located in 18 states.

AmREIT's initial predecessor, American Asset Advisers Trust, Inc., was formed as
a Maryland  corporation  in 1993.  Following the merger of our external  adviser
into the Company in June 1998, we changed our name to AmREIT,  Inc., which was a
Maryland  corporation.  In  December  2002,  we  reorganized  as a  real  estate
investment trust.

As of  December  31,  2003,  AmREIT  had 23 full  time  employees,  3 full  time
dedicated brokers and 4 independent trust managers.

Operating Strategy

Our  business  organization  consists  of a  portfolio  of  high-end  single and
multi-tenant   retail  centers,   a  full  service  real  estate  operating  and
development  subsidiary,  an NASD  registered  broker-dealer  subsidiary,  and a
retail  partnership  business.  This  unique  combination  provides  AmREIT  the
opportunity  to access  capital  through  both Wall  Street and the  independent
financial planning marketplace for flexibility and dependable growth. We finance
our growth and working capital needs with a combination of equity  offerings and
a  conservative  debt  philosophy.  Currently,  the  Company is raising  capital
through its class C common share offering, being offered exclusively through the
independent  financial planning community.  As of December 31, 2003, the Company
had raised  approximately $14 million through its class C offering.  Through its
by-laws,  the Company's  debt is limited to 55% recourse debt as compared to its
gross assets.  As of December 31, 2003,  the  Company's  debt to asset ratio was
approximately 51%.

Our operating strategy and investment  criteria discussed herein are reviewed by
our Board of Trust  Managers  on a regular  basis and may be modified or changed
without a vote of our shareholders.

Portfolio
We  focus  on  acquiring  "irreplaceable  corners"  -  premier  retail  frontage
properties in  high-traffic,  highly  populated areas - which create  dependable
income and long-lasting  value.  These premium  properties  provide high leasing
income and high occupancy  rates for a strong income stream.  As of December 31,
2003,  the  occupancy  rate was 92.4%.  Our  properties  attract a wide array of
established   commercial  tenants,   and  offer  attractive   opportunities  for
dependable monthly income and potential capital  appreciation.  These properties
are  typically  located in high traffic  areas  within a three-mile  radius of a
population of 100,000 with an average  household income of $70 thousand or more.
On average, more than 30,000 cars per day pass by these properties. In addition,
management  believes  that the  location  and design of its  properties  provide
flexibility  in  use  and  tenant  selection  and  an  increased  likelihood  of
advantageous re-lease terms.

                                       3

<PAGE>


Our revenues are  substantially  generated by corporate  retail  tenants such as
Starbucks,  Landry's,  CVS Pharmacy,  International  House of Pancakes ("IHOP"),
Eckerd,  Nextel,  Washington Mutual,  TGI Friday's,  and others. We own, and may
purchase in the future,  fee simple retail  properties  (we own the land and the
building),  ground lease  properties  (we own the land, but not the building and
receive  rental  income  from the owner of the  building)  or  leasehold  estate
properties  (we own the building,  but not the land, and therefore are obligated
to make a ground  lease  payment  to the  owner of the  land).  AmREIT  may also
develop properties for its portfolio or enter into joint ventures,  partnerships
or co-ownership for the development of retail properties.

AmREIT owns a real estate  portfolio  consisting of 51 properties  located in 18
states at December 31, 2003. Our  multi-tenant  shopping  center  properties are
primarily  located  throughout  Texas and are leased to  national,  regional and
local tenants.  Our single tenant  properties are located  throughout the United
States and are  generally  leased to  corporate  tenants  where the lease is the
direct  obligation of the parent company,  not just the local  operator,  and in
most other cases, our leases are guaranteed by the parent company.  In so doing,
the  dependability  of the lease payments is based on the strength and viability
of the entire company, not just the leased location.  Properties that we acquire
are  generally  newly  constructed  or  recently  constructed  at  the  time  of
acquisition.

As of December 31, 2003, no single  property  accounted for more than 10% of the
Company's total assets. As of December 31, 2003, IHOP accounted for 21.7% of the
Company's  total revenue and no other tenant  accounted for more than 10% of the
Company's rental and property income.

According to its fourth quarter 2003 earnings release  announced on February 26,
2004, IHOP was founded in July 1958 and operates over 1,100 restaurants in three
countries and forty-five states. IHOP is a family restaurant, serving breakfast,
lunch and dinner. IHOP is a New York Stock Exchange,  publicly-held company with
a current market  capitalization over $817 million.  For the twelve months ended
December 31, 2003,  comparable  store sales  increased by 4.8% compared to 2002,
and net income decreased 10% compared to 2002. The decrease in net income is due
to a $9.1 million  reorganization  charge to earnings.  Excluding this charge to
earnings, IHOP's net income increased 3.9% compared to 2002.

Real Estate Operating and Development Company AmREIT's real estate operating and
development  subsidiary AmREIT Realty Investment Corporation ("ARIC") is a fully
integrated  group  of  brokers  and  real  estate   professionals  that  provide
brokerage, leasing, construction management, development and property management
services to our tenants as well as third  parties.  This  operating  subsidiary,
which  is a  taxable  REIT  subsidiary,  compliments  our  portfolio  of  retail
properties  by  providing  a high level of service  to our  tenants,  as well as
maintaining our portfolio of properties to meet our standards.

Having  an  internal   real  estate  group  also  helps  secure   strong  tenant
relationships  for both us and our retail  partnerships.  Our growing  roster of
leases with well-known  national and regional tenants includes IHOP,  Washington
Mutual, Starbucks, TGI Friday's, CVS Pharmacy, and others. Equally important, we
have  affiliations with these parent company tenants that extend across multiple
sites.

Not only does our real estate  operating and  development  company  create value
through  relationships,  but it also provides an additional source of fee income
and profits.  Through the  development,  construction,  management,  leasing and
brokerage   services   provided  to  our  affiliated   actively  managed  retail
partnerships,  as well as for third  parties,  our real estate team continues to
generate  fees  and  profits  for us.  Through  ARIC,  we are  able to  generate
additional  profits  through the  selective  acquisitions  and  dispositions  of
properties within a short time period (twelve to eighteen months).  These assets
are listed as real estate assets acquired for sale on our  consolidated  balance
sheet, and at December 31, 2003, represented approximately $4.4 million.

                                       4

<PAGE>


Securities Company
The part of our business  structure and operating strategy that really separates
us from other publicly traded REITs is AmREIT Securities Company (ASC), a wholly
owned subsidiary of ARIC.  Through ASC, we are able to raise capital through the
National Association of Securities Dealers (NASD) independent financial planning
community.  Traditionally,  we have  raised  capital in two ways:  first for our
actively managed retail  partnerships,  and second,  directly for AmREIT through
non-traded classes of common shares.

During 2003,  ASC raised  approximately  $15 million for AmREIT Monthly Income &
Growth Fund, Ltd., an affiliated retail partnership  sponsored bya subsidiary of
AmREIT.  Additionally,  ASC raised approximately $14 million directly for the us
through a class C common share offering.  During 2004,  through a combination of
our actively managed retail  partnerships,  as well as direct equity for AmREIT,
ASC  projects  to raise  approximately  $60  million  directly  through the NASD
independent financial planning community.  Since capital is the lifeblood of any
real estate company, having the unique opportunity to raise capital through both
Wall Street and the  independent  financial  planning  community adds additional
financial flexibility and dependability to our income stream.

Retail Partnerships
AmREIT  has  retail  partnership  subsidiaries  that  sell  limited  partnership
interests to retail investors,  in which AmREIT indirectly  invests through both
the general  partner and as a limited  partner.  We wanted to create a structure
that aligns the  interest  of our  shareholders  with that of our unit  holders.
Through our  subsidiary  general  partners of the retail  partnerships  value is
created for AmREIT  through  managing  money from the  sponsored  funds,  and in
return, receiving management fees and profit participation interests.

AmREIT's retail  partnerships are structured so that an affiliate as the general
partner,  receives a significant  profit only after the limited  partners in the
funds have received their targeted  return,  again,  linking AmREIT's success to
that of its unit holders.

As of December 31, 2003,  AmREIT  directly  managed,  through its three actively
managed and previously sponsored retail partnerships,  a total of $30 million in
equity.  These  three  partnerships  will  enter  their  liquidation  phases  in
2003/2004,  2009/2010, and 2010/2011,  respectively. As these partnerships enter
into   liquidation,   we  will   receive   economic   benefit  from  our  profit
participation,   after  certain   preferred   returns  have  been  paid  to  the
partnership's limited partners. In accordance with generally accepted accounting
principles,   any  unrealized   gains  associated  with  this  potential  profit
participation  has not been  reflected  on our  balance  sheet or  statement  of
operations.


Financial Information

Additional   financial   information  related  to  AmREIT  is  included  in  the
Consolidated  Financial  Statements  located  on pages 28 through  49,  included
herein.


                                        5


<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTY

General

At December 31, 2003, we owned 51  properties.  The  properties are leased to 38
tenants  in 18  different  states.  Reference  is  made  to the  Schedule  III -
Consolidated Real Estate Owned and Accumulated Depreciation filed with this Form
10-KSB for a listing of the properties and their respective costs.

We have been developing and acquiring multi-tenant shopping centers for over ten
years in our retail partnership  business.  During that time, we believe we have
developed the ability to recognize the high-end multi-tenant properties that can
create  long-term  value,  and with the downward  pressure on single  tenant cap
rates,   resulting  in  higher  priced  real  estate,   management   anticipates
strategically increasing its holdings of multi-tenant shopping centers.

Land - Our  property  sites,  on which our  leased  buildings  sit,  range  from
approximately  34,000 to 125,000  square feet,  depending upon building size and
local  demographic  factors.  Sites purchased by the Company are in high traffic
corridors  and have been  reviewed  for  traffic  and  demographic  pattern  and
history.

Buildings - The buildings are single and multi-tenant properties and are located
at "main and main" locations  throughout the United States.  They are positioned
for good exposure to traffic flow and are constructed from various  combinations
of stucco,  steel,  wood,  brick and tile.  Single tenant  buildings  range from
approximately  2,000 to 20,000  square  feet,  and  multi-tenant  buildings  are
generally  15,000  square feet and greater.  Buildings are suitable for possible
conversion to various uses, although  modifications may be required prior to use
for other operations.

Leases - The primary term of the leases  ranges from ten to  twenty-five  years.
Generally,  leases also provide for one to four five-year  renewal options.  The
freestanding properties are primarily leased on a "triple-net" basis whereby the
tenants are responsible for the property taxes,  insurance and operating  costs.
Generally,  the leases  provide  for either  percentage  rents based on sales in
excess of certain  amounts,  periodic  escalations in the annual rental rates or
both.


LOCATION OF PROPERTIES

AmREIT's focus is on property investments in Texas. Of our 51 properties, 22 are
located in Texas,  with 16 being  located in the  greater  Houston  metropolitan
statistical  area.  Our portfolio of assets tends to be located in areas we know
well, and where we can keep an eye on them.  For that reason,  we believe AmREIT
delivers an extra degree of hands on management to our real estate  investments.
Because of our  investments in the greater  Houston area, and throughout  Texas,
the Houston and Texas economy have a  significant  impact on our business and on
the viability of our properties.  During 2003,  Houston ranked  nationally among
the 10 most populous metro areas, ranked fourth in nominal employment growth and
fifth in employment growth rate.

At December 31, 2003, we owned 51  properties  leased to 38 tenants in 18 states
(however,  20 states are shown in the below table due to income  being  received
during the year from  properties  located in Wisconsin and Indiana).  The rental
income by states is as follows:

<TABLE>
<CAPTION>
                                                                   Rental                           Rental
                                    State                          Income                       concentration
                           ------------------------ ------- ---------------------- -----------------------------------------
                           ------------------------ ------- ---------------------- -----------------------------------------
<S>                        <C>                                         <C>                         <C>

                           Texas                                       $3,001,731                   39.5%
                           Louisiana                                      711,545                    9.4%
                           Tennessee                                      507,410                    6.7%
                           Missouri                                       498,910                    6.6%
                           Kansas                                         453,884                    6.0%
                           Arizona                                        409,817                    5.4%
                           Minnesota                                      267,586                    3.5%
                           Colorado                                       246,423                    3.2%
                           Georgia                                        202,322                    2.7%
                           Oregon                                         182,717                    2.4%
                           Virginia                                       170,804                    2.3%
                           Utah                                           160,068                    2.1%
                           Mississippi                                    155,514                    2.1%
                           New York                                       123,619                    1.6%
                           Indiana                                        112,156                    1.5%
                           California                                     110,099                    1.5%
                           Oklahoma                                        92,612                    1.2%
                           New Mexico                                      85,606                    1.1%
                           Wisconsin                                       50,022                    0.7%
                           Maryland                                        41,321                    0.5%
                                                            ---------------------- -----------------------------------------
                                                            ---------------------- -----------------------------------------

                                    Total                              $7,584,166                  100.00%

</TABLE>


                                       6

<PAGE>

Multi-Tenant Properties

As of December 31, 2003, AmREIT owned five multi-tenant properties, representing
approximately  86,000  leaseable  square feet. Our  multi-tenant  properties are
primarily  neighborhood  and  community  strip  centers,  ranging from 16,000 to
20,000 square feet. None of the centers have internal common areas,  but instead
are designed for maximum  retail  visibility  and ease of access and parking for
the  consumer.  These  properties  have a mix of  national,  regional  and local
tenants,  leased in a manner to provide a  complimentary  array of  services  to
support the local retail  consumer.  All of our strip centers are located in the
greater Houston area, and are typically  located at an intersection  guided by a
traffic light, with high visibility,  significant  daily traffic counts,  and in
close proximity to neighborhoods  and communities  with household  incomes above
those of the national average.

All of our multi-tenant leases provide for the monthly payment of base rent plus
operating expenses.  This monthly operating expense payment is based an estimate
of the  tenant's  pro  rata  share  of  property  taxes,  insurance,  utilities,
maintenance and other common area maintenance charges.  Annually these operating
expenses are reconciled with any overage being  reimbursed to the tenants,  with
any underpayment being billed to the tenant.

Our multi-tenant  leases range from five to ten years and generally  include one
or more five-year renewal options. Annual rental income from these leases ranges
from $24 thousand to $310 thousand per year.

In December  2003, as part of the Uptown Plaza  purchase,  we purchased a 16,000
square foot strip center anchored by Grotto,  a Landry's  Restaurant  (NYSE:LNY)
concept.  This  "irreplaceable   corner"  is  located  at  the  intersection  of
Westheimer  and Loop 610 in the Houston,  Texas  Galleria area. The property was
built in 2002 and is 70% occupied.

In December  2003,  we purchased The Terrace  Shops,  a 16,395 square foot strip
center  anchored by  Starbucks  (Nasdaq:SBUX).  This  "irreplaceable  corner" is
located at the intersection of Buffalo Speedway and Westpark in Houston,  Texas,
the gateway to the  prestigious  West  University  residential  community,  Rice
University and the Texas Medical  Center.  The property was built in 2002 and is
93% occupied.

                                       7

<PAGE>


Single Tenant Properties

As of December 31, 2003, AmREIT owned 46 single tenant properties,  representing
approximately  322,000 leaseable square feet. Our single tenant leases typically
provide  that the tenant bears  responsibility  for  substantially  all property
costs and expenses  associated  with ongoing  maintenance  and  operation of the
property such as utilities,  property  taxes and  insurance.  Some of the leases
require that we will be responsible  for roof and structural  repairs.  In these
instances,  we normally require  warranties  and/or  guarantees from the related
vendors, suppliers and/or contractors to mitigate the potential costs of repairs
during the primary term of the lease.

Because our leases are entered into with or guaranteed by the corporate,  parent
tenant,  they typically do not limit the Company's  recourse  against the tenant
and any guarantor in the event of a default,  and for this reason are designated
by us to be "Credit Tenant Leases",  because they are supported by the assets of
the entire company, not just the individual store location.

The primary term of the leases ranges from ten to twenty-five  years. All of the
leases also provide for one to four  five-year  renewal  options.  Annual rental
income ranges from $59 thousand to $547 thousand per year.

In May 2003, we acquired four IHOP restaurants  located in Bridgeton,  Missouri,
Grand  Prairie,  Texas  (part  of the  Dallas  Metropolitan  Statistical  Area),
Wilwaukee, Wisconsin and Merrillville,  Indiana, each representing approximately
4,020  leaseable  square  feet and each are 100%  occupied.  The  Wisconsin  and
Indiana locations were both sold for a significant profit during 2003.

In September  2003,  we acquired a TGI Friday's  restaurant  located in Hanover,
Maryland. The property is approximately 6,800 square feet and is 100% occupied.

In December  2003,  as part of the Uptown  Plaza  purchase,  we  purchased a CVS
Pharmacy  at the corner of  Westheimer  and Loop 610,  located in the  Houston,
Texas Galleria area. The property is approximately  12,000 leaseable square feet
and is 100% occupied.

Land To be Developed

As part of our investment objectives,  we will invest in land to be developed on
"irreplaceable  corners"  across  Texas.  A  typical  investment  in  land to be
developed will result in a six to twelve month holding  period,  followed by the
execution of a ground lease with a national or regional  retail  tenant,  or the
development  of a single tenant  property or  multi-tenant  strip center.  As of
December 31, 2003, AmREIT held three sites to be developed.

Westheimer  and  Yorktown is an  approximately  one acre pad site located at the
intersection of Westheimer and Yorktown in the Galleria area of Houston,  Texas.
The  property  was  purchased in January of 2003.  Subsequent  to the  purchase,
AmREIT  entered  into a long-term  ground lease with Eckerd for the entire site.
Rental  income  under the ground  lease is  scheduled to commence on January 15,
2004.  AmREIT also provided the construction  management and development for the
Eckerd building.

San Felipe  and  Winrock is an  approximately  two acre pad site  located at the
intersection of San Felipe and Winrock in the prestigious Tanglewood residential
community  in Houston,  Texas.  The property  was  purchased  in November  2003.
Subsequent  to the  purchase,  AmREIT  entered  into a  long-term  lease  with a
national bank for approximately once acre, off the corner  intersection.  Rental
income under the ground lease is scheduled to commence in November 2004.  AmREIT
is holding the remaining one acre and is in discussion with a number of national
tenants.


                                       8

<PAGE>

I-45  and  West  Road is a .75 acre pad  site  located  at the  intersection  of
Interstate 45 and West Road in Houston,  Texas.  AmREIT,  as a 50% joint venture
partner,  purchased the land and  subsequently  entered into a long-term  ground
lease with YUM Brands (NYSE:YUM), which will construct a restaurant under one of
their  many  franchisee  concepts.  Rental  income  under  the  ground  lease is
scheduled to commence during the third quarter 2004.

ITEM 3.  LEGAL PROCEEDINGS

The Company does not have any material legal proceedings pending.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters  were  submitted  to  shareholders  during the fourth  quarter of the
fiscal year.


                                       9

<PAGE>


                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
         BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES

As of March 6,  2004,  there  were  approximately  794  holders  of  record  for
2,979,125 of the Company's  class A common shares  outstanding on such date, net
of 133,822 shares held in treasury. AmREIT's class A common shares are listed on
the American  Stock  Exchange  ("AMEX")  and traded under the symbol  "AMY." The
following table sets forth for the calendar periods  indicated high and low sale
prices per class A common share as reported on the AMEX and the  dividends  paid
per share for the corresponding period since the commencement of trading on July
23, 2002.


<TABLE>
<CAPTION>

Calendar Period
                                                                         High            Low          Dividends
2003
<S>  <C>                                                                 <C>            <C>             <C>

     First Quarter................................................       $6.80          $6.05           $.109
     Second Quarter...............................................       $6.80          $6.10           $.111
     Third Quarter ...............................................       $6.56          $6.15           $.112
     Fourth Quarter...............................................       $6.68          $6.30           $.114

2002
     Third Quarter (July 23 through September 30).................       $7.50          $6.20           $.095
     Fourth Quarter...............................................       $6.55          $6.15           $.100

</TABLE>


The payment of any future dividends by AmREIT is dependent upon applicable legal
and contractual restrictions,  including the provisions of the class B and class
C common shares, as well as its earnings and financial needs.

As of March 6,  2004,  there  were  approximately  1,108  holders  of record for
2,350,271 of the Company's class B common shares.  The class B common shares are
not listed on an exchange and there is currently no available trading market for
the  class B common  shares.  The  class B common  shares  have  voting  rights,
together  with the class A and C, as one class of  stock.  They  receive a fixed
8.0% cumulative and preferred  dividend,  and are  convertible  into the class A
common shares on a one-for-one basis at any time, at the holder's option.

As of March 6,  2004,  there  were  approximately  865  holders  of  record  for
2,316,744 of the Company's class C common shares.  The class C common shares are
not listed on an exchange and there is currently no available trading market for
the  class C common  shares.  The  class C common  shares  have  voting  rights,
together  with the  class A and B, as one  class of  stock.  The  class C common
shares  receive  a  fixed  7.0%  preferred  annual  dividend,  paid  in  monthly
installments,  and are convertible into the class A common shares after a 7-year
lock out period based on 110% of invested capital, at the holder's option.

For  the  year,  the  Company   repurchased,   primarily   through  open  market
transactions,  a total of 92,700  class A common  shares at an average  price of
$6.50 per share.  These  shares were  repurchased  through the share  repurchase
program authorized by the board of trust managers.


                                       10

<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Forward-Looking Statements

Certain  information  presented in this Form 10-KSB constitutes  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section  21E of the  Securities  Exchange  Act of  1934.  Although  the  Company
believes that the expectations reflected in such forward-looking  statements are
based upon  reasonable  assumptions,  the Company's  actual results could differ
materially  from  those set  forth in the  forward-looking  statements.  Certain
factors that might cause such a  difference  include the  following:  changes in
general economic conditions, changes in real estate market conditions, continued
availability of proceeds from the Company's debt or equity capital,  the ability
of the Company to locate suitable  tenants for its properties and the ability of
tenants to make payments under their respective leases.

The following  discussion  should be read in conjunction  with the  consolidated
financial  statements and notes thereto and the comparative  summary of selected
financial data appearing elsewhere in this report. Historical results and trends
which might appear should not be taken as indicative of future operations.

Executive Overview

AmREIT (AMEX:AMY) is a rapidly growing,  self-managed and self-advised REIT with
a 19-year  history of delivering  results to its  investors.  Its business model
consists of a portfolio of retail properties, including "irreplaceable corners",
single tenant properties and multi-tenant properties, a full service real estate
operating and development business, an NASD-registered  broker dealer securities
business and a retail partnership  business - a unique combination that provides
AmREIT the opportunity to access  multiple  sources of capital and generate fees
and profits from multiple sources,  resulting in added financial flexibility and
the opportunity for dependable growth and income.

AmREIT's  goal is to  deliver  increasing,  dependable,  monthly  income for its
shareholders.  In so doing,  AmREIT  strives to increase and maximize Funds from
Operations  by  issuing  long term  capital  through  both the NASD  independent
financial planning marketplace as well as through Wall Street, and investing the
capital  in  accretive  real  estate  properties,   acquired  or  developed,  on
irreplaceable  corners.  Additionally,  we strive  to  maintain  a  conservative
balance sheet. To that regard, we strive to maintain a debt to total asset ratio
of less than 55%. As of  December  31,  2003,  our debt to total asset ratio was
51%.

At December 31, 2003,  AmREIT owned a portfolio of 51  properties  located in 18
states,  subject to long term  leases with retail  tenants,  either  directly or
through  its  interests  in joint  ventures  or  partnerships.  Forty six of the
properties are single tenant  properties,  and represented  approximately 75% of
the annual rental  income as of December 31, 2003.  Five of the  properties  are
multi-tenant and represented approximately 25% of the annual rental income as of
December 31, 2003. In assessing  the  performance  of the Company's  properties,
management evaluates the occupancy of the Company's portfolio. Occupancy for the
total  portfolio  was 92.4% as of December 31, 2003.  Additionally,  the Company
anticipates that the majority of its rental income will consist of rental income
generated from  multi-tenant  shopping  centers by the end of 2004. We have been
developing and acquiring multi-tenant shopping centers for over ten years in our
retail partnership business.  During that time, we believe we have developed the
ability  to  recognize  the  high-end  multi-tenant  properties  that can create
long-term  value,  and with the  downward  pressure on single  tenant cap rates,
resulting in higher  priced real estate,  management  anticipates  strategically
increasing its holdings of multi-tenant shopping centers.  Management intends to
increase total assets from $101 million as of December 31, 2003 to approximately
$200 million at the end of 2004. Through its class C common share offering,  the
Company raised  approximately  $14 million in capital in 2003,  which along with
debt financing,  financed $27 million in property  acquisitions and developments
in 2003.


                                       11


<PAGE>


Management intends to fund future acquisitions and development  projects through
a combination of equity  offerings and debt financing.  During 2004, the Company
anticipates  raising  approximately  $60 million of equity from various  sources
including Wall Street and the independent financial planning community.  We have
already  raised an  additional  $14  million  through  our class C common  share
offering to date in 2004.

Management expects that single tenant,  credit leased properties,  will continue
to  experience  cap  rate  pressure  during  2004 due to the low  interest  rate
environment and increased buyer demand. Therefore, as it has been, our continued
strategy  will be to divest  of  properties  which  are no longer  meet our core
criteria,  and replace them with  multi-tenant  projects or the  development  of
single  tenant  properties  located on  irreplaceable  corners.  With respect to
additional growth opportunities,  we currently have over $50 million of projects
in our pipeline at various stages of evaluation.  Each potential  acquisition is
subjected to a rigorous due diligence  process that  includes site  inspections,
financial  underwriting,  credit  analysis and market and  demographic  studies.
Therefore,  there can be no  assurance  that any or all of these  projects  will
ultimately be purchased by AmREIT. Management anticipates, and has budgeted for,
an  increase  in  interest   rates  during  2004.   As  of  December  31,  2003,
approximately  47% of our  outstanding  debt had a long term fixed interest rate
with an average term of seven  years.  Our  philosophy  continues to be matching
long term leases with long term debt structures while keeping our debt to total
assets ratio less than 55%.

Summary of Critical Accounting Policies

The results of operations and financial  condition of the Company,  as reflected
in the accompanying  financial statements and related footnotes,  are subject to
management's  evaluation and  interpretation  of business  conditions,  retailer
performance,  changing capital market conditions and other factors,  which could
affect the ongoing viability of the Company's tenants.  Management  believes the
most critical  accounting  policies in this regard are the  accounting for lease
revenues  (including the straight line rent), the regular  evaluation of whether
the  value of a real  estate  asset  has been  impaired  and the  allowance  for
doubtful  accounts.  We evaluate our  assumptions  and  estimates on an on-going
basis.  We base our  estimates on  historical  experience  and on various  other
assumptions that we believe to be reasonable based on the circumstances.

Rental Income Recognition - In accordance with accounting  principles  generally
accepted in the United States of America, the Company accounts for rental income
under the straight  line method,  whereby we record  rental  income based on the
average of the total rent  obligation  due under the primary  term of the lease.
The Company  prepares a straight line rent schedule for each lease entered into.
Certain  leases  contain a provision for  percentage  rent.  Percentage  rent is
recorded in the period when the Company can  reasonably  calculate the amount of
percentage rent owed, if any. Generally,  the Company records percentage rent in
the period in which the  percentage  rent  payment is made,  and can  thereby be
calculated and verified.

Real Estate  Valuation - Real estate assets are stated at cost less  accumulated
depreciation,  which,  in the  opinion  of  management,  is not in excess of the
individual  property's  estimated  undiscounted  future  cash  flows,  including
estimated  proceeds  from  disposition.   Depreciation  is  computed  using  the
straight-line  method,  generally  over  estimated  useful lives of 39 years for
buildings and over the primary term of the lease for tenant improvements.  Major
replacements  that extend the life of the property,  or enhance the value of the
property are  capitalized and the replaced asset and  corresponding  accumulated
depreciation are removed.  All other maintenance items are charged to expense as
incurred.

Upon the  acquisition  of real estate  projects,  the Company  assesses the fair
value of the acquired assets (including land, building, acquired,  out-of-market
and in-place leases, as if vacant property value and tenant  relationships)  and
acquired   liabilities,   and  allocates  the  purchase  price  based  on  these
assessments.  The  Company  assesses  fair value  based on  estimated  cash flow
projections  that  utilize  appropriate  discount and  capitalization  rates and
available  market  information.  Estimates  of future  cash flows are based on a



                                       12


<PAGE>

number of factors including the historical operating results,  known trends, and
specific market and economic  conditions  that may affect the property.  Factors
considered  by  management  in our  analysis  of  determining  the as if  vacant
property  value  include an  estimate  of  carrying  costs  during the  expected
lease-up periods  considering  current market  conditions,  and costs to execute
similar leases. In estimating  carrying costs,  management  includes real estate
taxes,  insurance and other operating  expenses and estimates of lost rentals at
market rates during the expected lease-up periods,  up to 12 months depending on
the property location,  tenant demand and other economic conditions.  Management
also estimates costs to execute similar leases  including  leasing  commissions,
tenant improvements, legal and other related expenses.

Costs  incurred  in the  development  of  new  operating  properties,  including
preacquisition   costs  directly   identifiable   with  the  specific   project,
development  and  construction  costs,   interest  and  real  estate  taxes  are
capitalized  into the basis of the  project.  The  capitalization  of such costs
ceases when the  property,  or any  completed  portion,  becomes  available  for
occupancy.

AmREIT's  properties  are  reviewed  for  impairment  if  events or  changes  in
circumstances  indicate  that the  carrying  amount of the  property  may not be
recoverable. In such an event, a comparison is made of the current and projected
operating cash flows of each such property on an  undiscounted  basis,  plus the
residual value of the property upon  disposition,  to the carrying value of such
property.  The carrying value would then be adjusted, if needed, to estimate the
fair value to reflect an  impairment  in the value of the asset.  As of December
31, 2003, no impairment was identified for any of the Company's properties.

VALUATION OF RECEIVABLES - An allowance for the uncollectible portion of accrued
rents,  property receivables and accounts receivable is determined based upon an
analysis of balances  outstanding,  historical  payment  history,  tenant credit
worthiness,   additional   guarantees  and  other  economic   trends.   Balances
outstanding include base rents, tenant reimbursements and receivables attributed
to the accrual of straight line rents.  Additionally,  estimates of the expected
recovery of  pre-petition  and  post-petition  claims with respect TO tenants in
bankruptcy  is  considered  in  assessing  the  collectibility  of  the  related
receivables.  At December  31,  2003,  the  Company  wrote off a  receivable  of
approximately  $150 thousand related to the Wherehouse  bankruptcy.  The Company
maintains a receivable  related to  Wherehouse  of  approximately  $126 thousand
based on discussions with Wherehouse, Blockbuster Entertainment Corporation, the
guarantor  of  the  lease,  and  legal  proceedings   involving  Wherehouse  and
Blockbuster Entertainment Corporation.

Liquidity and Capital Resources

Cash flow from  operating  activities  and  financing  activities  have been the
principal  sources of  capital  to fund the  Company's  ongoing  operations  and
dividends.  As AmREIT deploys the capital raised, and expected to be raised from
its equity offerings, into income producing real estate, we anticipate that cash
flow  from  operations  will  provide  adequate  resources  for  future  ongoing
operations and dividends. AmREIT's cash on hand, internally-generated cash flow,
borrowings under our existing credit facilities, issuance of equity securities ,
as well as the  placement of secured debt and other  equity  alternatives,  will
provide the necessary  capital to maintain and operate our properties as well as
execute and achieve our growth strategies.  Cash flows from operating activities
as reported in the  Consolidated  Statements of Cash Flows  decreased from $3.73
million  in  2002 to  $1.24  million  in  2003.  During  2003,  AmREIT  invested
approximately  $7.81  million in retail real estate  acquired  for resale.  This
consisted of four single tenant properties located in Texas, Missouri,  Indiana,
and Wisconsin. As of December 31, 2003, AmREIT had sold two of these properties,
located in Indiana and  Wisconsin,  resulting in net  proceeds  from the sale of
$6.18  million  and a gain on  sale  of real  estate  held  for  resale  of $787
thousand.

Cash  flows  used in  investing  activities  has been  primarily  related to the
acquisition or development of retail properties. During 2003, AmREIT acquired


                                       13


<PAGE>


or developed  $34.5  million in retail  projects,  which were funded  through a
combination  of the $12.2  million of capital  (net of $1.8  million in issuance
costs) raised through the class C common share offering,  the net sales proceeds
of properties  divested  during the year, and debt  financing . This  investment
consisted of two single tenant projects,  two multi-tenant  projects,  and three
land  acquisitions,  of which six are  located  in Texas,  and one is located in
Maryland.  The single tenant  projects are 100% occupied and  generating  rental
income.  The  multi-tenant  projects are 70% and 93% occupied  respectively  and
generating rental income. One of the land acquisitions is substantially complete
and rental income commenced in January 2004. The other two land acquisitions are
under  development,  and are  anticipated  to generate  rental income during the
fourth  quarter  2004.  These  acquisitions  were funded with  proceeds from the
Company's  class C common  share  offering  and through the  existing  revolving
credit facility. The Company also sold two non-core, underperforming properties,
an Office Max in Dover, Delaware and a Goodyear Tire Store in Houston, Texas.

Additionally,  as part of its investment  strategy,  AmREIT constantly evaluates
its   property   portfolio,   systematically   selling   off  any   non-core  or
underperforming  assets,  and replacing  them with  "irreplaceable  corners" and
other core  assets.  During  2003,  AmREIT  divested  of an Office Max  property
located in Dover, Delaware and a Goodyear Tire Store located in Houston,  Texas.
The  properties  generated net sales  proceeds of $3.5  million,  resulting in a
profit on disposition of approximately  $312 thousand.  During 2004, the Company
anticipates  continuing  this strategy of divesting of its non-core  properties,
which are estimated to generate  between $10 and $15 million in sales  proceeds.
Cash  flows  used  in  investing  activities  as  reported  in the  Consolidated
Statements of Cash Flows increased from $15.27 million in 2002 to $22.03 million
in 2003.

In addition,  capitalized  expenditures  for  improvements  and additions to our
existing properties were approximately $535 thousand,  which were funded through
excess cash flow and through the Company's revolving credit facility.

Cash flows  provided by financing  activities  increased  from $13.82 million in
2002 to $20.32 million in 2003. Cash flows provided by financing activities were
primarily  generated  from  our  existing  revolving  credit  facility,  secured
property level mortgage  financing or through our class C common share offering.
Through its class C common share offering,  the Company is averaging new capital
raised of between $2 and $4 million per month.  One advantage of raising capital
through the independent  financial  planning  marketplace is that the capital is
received on a monthly  basis,  allowing for a scaleable  matching of real estate
projects.  Our first  priority  is to deploy  the  capital  raised,  and then to
moderately  leverage  the  capital,   while  maintaining  our  philosophy  of  a
conservative balance sheet.

AmREIT has a $30 million unsecured revolving credit facility.  The facility will
mature on September 4, 2004. The facility bears interest at a rate of LIBOR plus
a range of 1.40 to 2.35,  depending on the  Company's  debt to asset ratio.  The
Credit Facility contains covenants which, among other restrictions,  require the
Company to maintain a minimum net worth,  a maximum  leverage  ratio,  specified
interest  coverage  and fixed  charge  coverage  ratios  and allow the lender to
approve  all   distributions.   Furthermore,   the  Credit   Facility   contains
concentration  covenants and limitations,  limiting property level net operating
income for any one tenant to no more than 15% (35% for IHOP) of total  property
net  operating   income.  At  December  31,  2003,  IHOP  net  operating  income
represented 34.7% of total property net operating income.  Management  estimates
that  as  of  March  31,  2004,   IHOP  net  operating   income  will  represent
approximately  32% of total  property net operating  income.  As of December 31,
2003, the spread over LIBOR was 2.00. At December 31, 2003, approximately $22.80
million was  outstanding  under the credit  facility.  In addition to the credit
facility,  AmREIT utilizes various permanent  mortgage  financing and other debt
instruments.  During the year ended  December  31,  2003,  approximately  $39.02
million  was  borrowed  under  the  credit  facility  and  other  mortgage  debt
instruments for the acquisition of properties,  tenant  improvements and capital
expenditures  as well as working  capital.  Additionally,  approximately  $24.12
million was paid down on the credit facility and other mortgage debt instruments
through out the year, primarily as a result of property sales and capital raised
through the class C common share offering.

                                       14

<PAGE>

As of December 31, 2003, the Company had the following contractual obligations:

<TABLE>
<CAPTION>


                                  2004        2005        2006        2007        2008     Thereafter      Total
<S>                             <C>         <C>         <C>         <C>         <C>         <C>           <C>

Unsecured debt:
 Revolving credit facility      $22,792     $     -     $     -     $     -     $     -     $     -       $22,792
 5.46% dissenter notes                -           -           -           -           -         760           760

Secured Debt                      3,557         490         530         573         620      19,163        24,933
                                _______     _______     _______     _______     _______     _______       _______

Total contractual obligation    $26,349     $   490     $   530     $   573     $   620     $19,923       $48,485

</TABLE>


In order to continue to expand and develop its portfolio of properties and other
investments,  the  Company  intends to finance  future  acquisitions  and growth
through the most  advantageous  sources of capital  available at the time.  Such
capital  sources may include  proceeds  from public or private  offerings of the
Company's debt or equity securities,  secured or unsecured borrowings from banks
or other lenders,  acquisitions  of the Company's  affiliated  entities or other
unrelated  companies,  or the  disposition of assets,  as well as  undistributed
funds from operations.

In August 2003, the Company  commenced the class C common share  offering.  This
offering  is being  exclusively  made  through  the NASD  independent  financial
planning community.  It is a $44 million offering,  of which $4 million has been
reserved  for the dividend  reinvestment  plan.  As of December  31,  2003,  1.4
million  shares had been  issued,  resulting  in  approximately  $14  million in
grossproceeds.  The  proceeds  are  being  and  will  be  used  to  finance  the
acquisition  and  development  of  retail  real  estate  projects,  pay down the
revolving credit facility and provide working capital for the on going operation
of the company and its properties.

During 2003,  the Company paid dividends to its  shareholders  of $3.19 million,
compared  with $1.73  million in 2002.  The class A and C  shareholders  receive
monthly dividends and the class B shareholders receive quarterly dividends.  All
dividends are declared on a quarterly  basis. The dividends by class follows (in
thousands):

<TABLE>
<CAPTION>


------------- ------------------------------- -------------------------- -------------------------- --------------------------
                                                        Class A                    Class B                    Class C
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
2003
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
<S>           <C>                                                 <C>                        <C>                        <C>

              Fourth Quarter                                      $320                       $437                       $156
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              Third Quarter                                       $308                       $443                        $15
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              Second Quarter                                      $310                       $439                        N/A
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              First Quarter                                       $307                       $453                        N/A
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
2002
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              Fourth Quarter                                      $277                       $456                        N/A
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              Third Quarter                                       $257                       $409                        N/A
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              Second Quarter                                      $170                        N/A                        N/A
------------- ------------------------------- -------------------------- -------------------------- --------------------------
------------- ------------------------------- -------------------------- -------------------------- --------------------------
              First Quarter                                       $162                        N/A                        N/A
------------- ------------------------------- -------------------------- -------------------------- --------------------------
</TABLE>


On July 23, 2002,  the Company  completed a merger with three of its  affiliated
partnerships,  which increased the Company's real estate assets by approximately
$24.3  million.  Pursuant to the merger,  the Company issued  approximately  2.6
million  class  B  common  shares  to the  limited  partners  in the  Affiliated
Partnerships,  of which,  approximately  2.36  million  were  outstanding  as of
December  31,  2003.  Approximately  $760  thousand  in 8 year,  interest  only,

                                       15

<PAGE>

subordinated   notes  were  issued  to  limited   partners  of  the   Affiliated
Partnerships  who  dissented  from  the  merger.  The  acquired  properties  are
unencumbered,  single tenant,  free standing properties on lease to national and
regional  tenants,  where  the  lease is the  direct  obligation  of the  parent
company.  A deferred merger expense  resulted from the shares payable to H. Kerr
Taylor,  our President and Chief Executive  Officer,  as a result of the merger,
which shares  represented a portion of consideration  payable to Mr. Taylor as a
result of the sale of his advisory  company to AmREIT in 1998. Mr. Taylor earned
approximately  143 thousand shares during 2003 as a result of our class C common
share offering, resulting in a non-cash charge to earnings of approximately $915
thousand.  As of December 31, 2003,  these shares were not issued to Mr.  Taylor
and were  accounted for as a liability in accounts  payable.  Mr. Taylor has the
ability  to  earn  an  additional   241  thousand   shares  under  the  deferred
consideration agreement.

Until  properties are acquired by the Company,  the Company's  funds are held in
short-term,  highly  liquid  investments  which  the  Company  believes  to have
appropriate  safety of  principal.  This  investment  strategy has allowed,  and
continues to allow,  high  liquidity to  facilitate  the  Company's use of these
funds to acquire properties at such time as properties  suitable for acquisition
are located.  At December  31, 2003,  the  Company's  cash and cash  equivalents
totaled $2.03 million.

Inflation  has had very  little  effect on income  from  operations.  Management
expects  that  increases  in store  sales  volumes due to  inflation  as well as
increases in the Consumer Price Index, may contribute to capital appreciation of
the Company properties.  These factors, however, also may have an adverse impact
on the operating margins of the tenants of the properties.


                                       16


<PAGE>


Results of Operations

Rental revenue and earned income from direct  financing leases increased by 46%,
or $2.39 million,  from $ 5.19 million in 2002 to $7.58 million in 2003. Of this
increase,  $1.96 million is related to a full year of rental  revenue and earned
income  recorded  during 2003 from the properties  acquired  either  directly or
through the affiliated  partnership merger in 2002, and $565 thousand is related
to  acquisitions  made during the year.  This is somewhat  offset by the loss of
rental income of $136 thousand due to property dispositions. Portfolio occupancy
at December  31,  2003 was 92.4%,  which is a slight  decrease  compared to 2002
occupancy  of 95.2%.  This  decrease  is mainly  due to a vacancy  at one of our
Wherehouse Entertainment properties.

On January 21, 2003, Wherehouse  Entertainment filed for a voluntary petition of
relief  under  Chapter  11 of the  federal  bankruptcy  code.  AmREIT  owns  two
Wherehouse Entertainment properties, one located in Independence,  Missouri, and
the other located in Wichita, Kansas. Through court proceedings,  Wherehouse has
affirmed  the  lease at the  Missouri  location,  and have  vacated  the  Kansas
location.

Securities  commission income increased by $2.11 million,  from $847 thousand in
2002 to $2.96 million in 2003. This increase in securities  commission income is
due to increased capital being raised through our broker dealer company,  AmREIT
Securities  Company  (ASC).  As ASC  raises  capital  for  either  AmREIT or its
affiliated retail partnerships,  ASC earns a securities commission of between 8%
and 10.5% of the money raised.  During 2003,  AmREIT and its  affiliated  retail
partnerships  raised  approximately  $28.4 million, as compared to approximately
$8.5  million  during  2002.  This  increase  in  commission  income is somewhat
mitigated by a corresponding  increase in commission expense paid to other third
party broker dealer firms.  Commission expense increased by $1.63 million,  from
$653 thousand in 2002 to $2.29 million in 2003.

General and operating  expense  increased  $1.14 million,  from $2.80 million in
2002 to $3.94 million in 2003. The increase in general and operating  expense is
primarily due to additional  personnel  and the  associated  salary and benefits
costs related to these  individuals.  During the year, the Company added members
to each of the operating  teams,  including one individual on the accounting and
finance  team,  four  on the  real  estate  team  (property  management,  legal,
acquisitions and leasing) one in corporate communications, one on the securities
team and two  clerical and  administrative  support  positions.  By building our
various  teams,  we have not only  been  able to grow  revenue  and  Funds  From
Operations,  but believe that we will be able to sustain and further enhance our
growth.  Compensation expense increased $941 thousand for the year. In addition,
property  expense  increased  $44 thousand and insurance  expense  increased $47
thousand compared to 2002.

General and  operating  expense  includes  bad debt  expense of $97 thousand and
property  expenses  of  $49  thousand,  which  are  related  to  the  Wherehouse
Entertainment  properties.  Both  of the  Wherehouse  Entertainment  leases  are
guaranteed by Blockbuster  Entertainment  Corporation.  We are in the process of
trying to collect from Blockbuster and are involved in litigation  regarding the
guarantee.  As a result,  we are uncertain as to the likelihood or the timing of
the collection  from  Blockbuster.  Based on our  negotiations  with  Wherehouse
Entertainment  and  Blockbuster  Entertainment  Corporation,   we  expensed  $97
thousand  of the  rent  that  we are  owed  from  the  Wherehouse  Entertainment
properties,  which  results in a net balance of $73 thousand  that is accrued as
rent income as of December  31, 2003.  In addition,  we expensed $49 thousand of
property expenses that we are owed from the Wherehouse properties, which results
in a net balance of $53 thousand  that is accrued as a receivable as of December
31, 2003. Based on discussions with  Blockbuster  Entertainment  Corporation and
pending  litigation  with  Blockbuster   Entertainment   Corporation,   the  net
receivable  remaining  of  approximately  $126  thousand  is  anticipated  to be
collected during 2004.

Deferred merger costs decreased by $990 thousand,  from $1.90 million in 2002 to
$915  thousand  in  2003.  The  deferred  merger  cost is  related  to  deferred
consideration  payable  to Mr.  Taylor  as a result  of the  acquisition  of our


                                       17


<PAGE>


advisor,  which  was  owned  by Mr.  Taylor  in  1998.  In  connection  with the
acquisition,  Mr. Taylor agreed to payment for this advisory company in the form
of common shares, paid as the Company increases its outstanding equity. To date,
Mr. Taylor has received approximately 659 thousand class A common shares, and is
eligible to receive an additional  241 thousand  shares as additional  equity in
the Company is raised by the Company.

Gain on real estate  acquired for re-sale  increased $787  thousand,  from $0 in
2002.  Gain on real  estate  acquired  for  resale  is a result of  selling  two
properties  acquired during 2003 with the intent to resell after a short holding
period.  Through a taxable REIT  subsidiary,  AmREIT  actively seeks  properties
where there is an opportunity to purchase  undervalued assets, and after a short
holding  period and value  creation,  dispose of the asset and capture the value
created.

Funds From Operations

AmREIT considers FFO to be an appropriate  measure of the operating  performance
of an equity REIT.  The National  Association of Real Estate  Investment  Trusts
(NAREIT)  defines funds from  operations  (FFO) as net income (loss) computed in
accordance with generally accepted accounting principles (GAAP), excluding gains
or losses from sales of  property,  plus real estate  related  depreciation  and
amortization,  and after adjustments for  unconsolidated  partnerships and joint
ventures.  In  addition,  NAREIT  recommends  that  extraordinary  items  not be
considered in arriving at FFO. AmREIT calculates its FFO in accordance with this
definition.  Most industry analysts and equity REITs, including AmREIT, consider
FFO to be an appropriate  supplemental measure of operating performance because,
by excluding gains or losses on dispositions and excluding depreciation,  FFO is
a helpful tool that can assist in the comparison of the operating performance of
a company's real estate between periods, or as compared to different  companies.
There  can be no  assurance  that FFO  presented  by  AmREIT  is  comparable  to
similarly  titled  measures of other REITs.  FFO should not be  considered as an
alternative  to net income or other  measurements  under GAAP as an indicator of
our  operating  performance  or to  cash  flows  from  operating,  investing  or
financing activities as a measure of liquidity.

Below is the calculation of FFO and the reconciliation to net income,  which the
Company  believes  is the most  comparable  GAAP  financial  measure to FFO,  in
thousands:


<TABLE>
<CAPTION>
                                                                                     2003                            2002
                                                                                -----------------             -------------------
                                                                                -----------------             -------------------
<S>                                                                                      <C>                          <C>

Income (loss) - before discontinued operations                                            $ 1,295                      $     (857)
Income  - from discontinued operations                                                        703                             198
Plus depreciation of real estate assets - from operations                                    829                             575
Plus depreciation of real estate assets - from discontinued operations                        30                              55
Less(gain)loss on sale of real estate assets acquired for investment                        (312)                             48
Less class B & C distributions                                                            (1,943)                           (865)
                                                                                -----------------             -------------------
Total Funds From Operations available to class A shareholders *                          $   602                      $     (846)

Cash dividends paid to class A shareholders                                              $ 1,245                      $      866
Dividends in excess of FFO  *                                                            $  (643)                     $   (1,712)


</TABLE>

* Based on the adherence to the NAREIT definition of FFO, we have not added back
the $915  thousand  or $1.9  million  charge to  earnings  during 2003 and 2002,

                                       18

<PAGE>


respectively,  resulting  from  shares  issued to Mr.  Taylor.  Adding this $915
thousand and $1.90 million  charge to earnings back to earnings  would result in
$1.52  million and $1.06 million  adjusted  funds from  operations  available to
class A  shareholders,  respectively,  and  class A  dividends  paid  less  than
adjusted  FFO  available  to  class A  shareholders  of $272  thousand  and $192
thousand, respectively.

Cash  flows from  operating  activities,  investing  activities,  and  financing
activities are presented below in thousands:

<TABLE>
<CAPTION>

                                           2003                          2002
                                 --------------------------      -----------------------
                                 --------------------------      -----------------------
<S>                                       <C>                            <C>

Operating activities                      $   1,237                      $  3,729
Investing activities                        (22,031)                      (15,268)
Financing activities                         20,319                        13,819


</TABLE>


ITEM 7.  FINANCIAL STATEMENTS

(a)    (1)    Financial Statements
              Independent Auditors' Report
              Consolidated Balance Sheet, December 31, 2003
              Consolidated Statements of Operations for the Years Ended
              December 31, 2003 and 2002 Consolidated Statements of
              Shareholders' Equity for the Years Ended December 31, 2003 and
              2002 Consolidated Statements of Cash Flows for the Years Ended
              December 31, 2003 and 2002 Notes to Consolidated Financial
              Statements for the Years Ended December 31, 2003 and 2002

       (2)    Financial Statement Schedules

              Schedule III - Consolidated Real Estate Owned and Accumulated
                             Depreciation


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.

ITEM 8a.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the  supervision  and with the  participation  of our Our Chief  Executive
Officer ("CEO") and Chief Financial Officer ("CFO") management has evaluated the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange
Act of 1934) as of December 31, 2003. Based on that evaluation,  the CEO and CFO
concluded  that our  disclosure  controls and  procedures  were  effective as of
December 31, 2003.

Changes in Internal Controls

There has been no change to our internal control over financial reporting during
the  quarter  ended  December  31,  2003  that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.



                                       19


<PAGE>


PART III
ITEM 9. DIRECTORS AND TRUST MANAGERS OF THE REGISTRANT

Information  with respect to this Item is  incorporated  by  reference  from our
Proxy  Statement,  which  we  intend  to file on or  before  April  30,  2004 in
connection with our Annual Meeting of Shareholders to be held on June 4, 2004.

ITEM 10.  EXECUTIVE COMPENSATION

Information  with respect to this Item is  incorporated  by  reference  from our
Proxy  Statement,  which  we  intend  to file on or  before  April  30,  2004 in
connection with our Annual Meeting of Shareholders to be held on June 4, 2004.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

We are authorized to grant stock options up to an aggregate of 394,254 shares of
common stock  outstanding  at any time as incentive  stock options  (intended to
qualify  under  Section 422 of the Code) or as options  that are not intended to
qualify as incentive stock options.  All of our equity  compensation  plans were
approved by security  holders.  Information  regarding  our equity  compensation
plans was as follows as December 31, 2003:

<TABLE>
<CAPTION>

----------------------------------- ---------------------------- --------------------------- ---------------------------------
                                                  (a)                         (b)                           (c)
----------------------------------- ---------------------------- --------------------------- ---------------------------------
----------------------------------- ---------------------------- --------------------------- ---------------------------------


                                                                                               Number of securities remaining
                                                                                                  remaining available for
                                                                                                future issuancesunder equity
                                       Number of securities to         Weighted average         compensation plans(excluding
               Plan                    be issued upon exercise         exercise price of           securities reflected in
             Category                   of outstanding options         outstanding options                column (a))
<S>                                                <C>                           <C>                       <C>

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

----------------------------------- ---------------------------- --------------------------- ---------------------------------
----------------------------------- ---------------------------- --------------------------- ---------------------------------
Equity compensation plans
approved by security holders.                      -                             -                         394,254

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

----------------------------------- ---------------------------- --------------------------- ---------------------------------
----------------------------------- ---------------------------- --------------------------- ---------------------------------
Equity compensation plans not
approved by security holders.
                                                   -                             -                            -
----------------------------------- ---------------------------- --------------------------- ---------------------------------
----------------------------------- ---------------------------- --------------------------- ---------------------------------

</TABLE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  with respect to this Item is  incorporated  by  reference  from our
Proxy  Statement,  which  we  intend  to file on or  before  April  30,  2004 in
connection with our Annual Meeting of Shareholders to be held on June 4, 2004.



                                       20


<PAGE>


                                    PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.

(a) Exhibits

 3.1           Amended and Restated Declaration of Trust (included as Exhibit
               3.1 of the Exhibits to the Company's Annual Report on Form
               10-KSB for the year ended December 31, 2002, and incorporated
               herein by reference).

 3.2           By-Laws, dated December 22, 2002 included as Exhibit 3.1 of the
               Exhibits to the Company's Annual Report on Form 10-KSB for the
               year ended December 31, 2002, and incorporated herein by
               reference).

 10.1          Revolving Credit Agreement, dated November 6, 1998, by and among
               AmREIT, Inc., certain lenders and Wells Fargo Bank, as the
               Agent, relating to a $30,000,000 loan (included as Exhibit 10.1
               of the Exhibits to the Company's Quarterly Report on Form 10-QSB
               for the quarter ended September 30, 1998 and incorporated herein
               by reference).

 10.2          Amended  and  Restated  Revolving  Credit  Agreement,
               effective  August 1, 2000,  by and among AmREIT,  Inc.,  certain
               lenders  and Wells  Fargo  Bank,  as the  Agent,  relating  to a
               $13,000,000  loan  (included  as Exhibit 10.1 of the Exhibits to
               the  Company's  Quarterly  Report on Form 10-QSB for the quarter
               ended September 30, 1998 and incorporated  herein by reference).

 10.3*         Revolving Credit Agreement,  effective September 4, 2003,
               by and among AmREIT and Wells Fargo Bank, as the Agent, relating
               to a $20,000,000 loan.

 10.4*         Amended and Restated Revolving Credit Agreement, effective
               December 8, 2003, by and among AmREIT and Wells Fargo Bank, as
               the Agent, relating to a $30,000,000 loan.

 21            Subsidiaries of the Company.

 31.1*         Certification pursuant to Rule 13a-14(a) of Chief Executive
               Officer dated March 30, 2004.

 31.2*         Certification pursuant to Rule 13a-14(a) of Chief Financial
               Officer dated March 30, 2004.

 32.1*         Chief Executive Officer certification pursuant to 18 U.S.C.
               Section 1350, adopted pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

 32.2*         Chief  Financial  Officer  certification  pursuant to 18 U.S.C.
               Section  1350,  adopted  pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.
______________________________________________________________________________

* Filed herewith

(b) Reports on Form 8-K

               Current report on Form 8-K dated and filed with the Commission on
               December  23,  2003  contained  information  under  Item 5 (Other
               Events),  Item  7  (Financial  Statements,  Pro  Forma  Financial
               Information and Exhibits), and Item 9 (Regulation FD Disclosure).

               Current report on Form 8-K dated and filed with the Commission on
               November 13, 2003 contained  information  under Item 7 (Financial
               Statements,  Pro Forma  Financial  Information  and Exhibits) and
               Item 9 (Regulation FD Disclosure).

                                       21


<PAGE>


               Current report on Form 8-K dated and filed with the Commission on
               October 10, 2003  contained  information  under Item 7 (Financial
               Statements,  Pro Forma  Financial  Information  and Exhibits) and
               Item 9 (Regulation FD Disclosure).


Items 5, 6 and 7 of Part II and Item 13 of Part IV of this Form  10-KSB  contain
the  financial  statements,  financial  statement  schedule and other  financial
information.  No  Annual  Report  or proxy  material  has yet been  provided  to
security holders with respect to 2004.


ITEM 14.  PRINCIPAL ACCOUNT FEES AND SERVICES

Information  with respect to this Item is  incorporated  by  reference  from our
Proxy  Statement,  which  we  intend  to file on or  before  April  30,  2004 in
connection with our Annual Meeting of Shareholders to be held on June 4, 2004.


                                       22

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
on the 30th of March 2004 by the undersigned, thereunto duly authorized.

                           AmREIT


                           /s/ H. Kerr Taylor
                           H. Kerr Taylor, President & Chief Executive Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed  below by the  following  persons on behalf of the Issuer and in
the capacities and on the dates indicated.


/s/ H. Kerr Taylor                                         March 30, 2004
H. KERR TAYLOR
President, Chairman of the Board, Chief Executive
Officer and Director (Principal Executive Officer)


/s/ Robert S. Cartwright, Jr.                              March 30, 2004
ROBERT S. CARTWRIGHT, JR., Trust Manager


/s/ G. Steven Dawson                                       March 30, 2004
G. STEVEN DAWSON, Trust Manager


/s/ Bryan L. Goolsby                                       March 30, 2004
BRYAN L. GOOLSBY, Trust Manager


/s/ Philip W. Taggart                                      March 30, 2004
PHILIP W. TAGGART, Trust Manager


/s/ Chad C. Braun                                          March 30, 2004
CHAD C. BRAUN, Chief Financial Officer,
Executive Vice President and Secretary
(Principal Accounting Officer)



                                       23





<PAGE>

                       CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


                        AND FINANCIAL STATEMENT SCHEDULE
                      FOR THE YEAR ENDED DECEMBER 31, 2003


                             AMREIT AND SUBSIDARIES










                                      F-1



<PAGE>


                            AMREIT AND SUBSIDIARIES
                         INDEX TO FINANCIAL STATEMENTS




                                                                    Page

FINANCIAL STATEMENTS:

Independent Auditors' Report                                        F-3
Consolidated Balance Sheet, December 31, 2003                       F-4
Consolidated Statements of Operations for the Years Ended
    December 31, 2003 and 2002                                      F-5
Consolidated Statements of Shareholders' Equity
    for the Years Ended December 31, 2003 and 2002                  F-6
Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2003 and 2002                                      F-7
Notes to Consolidated Financial Statements for the Years Ended
    December 31, 2003 and 2002                                      F-8 to F-23



FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
    Depreciation for the Year Ended December 31, 2003               F-24 to F-25


All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.



                                      F-2

<PAGE>


                          INDEPENDENT AUDITORS' REPORT
To the Board of Trust Managers
AmREIT:

We have  audited  the  accompanying  consolidated  balance  sheet of AmREIT and
subsidiaries  (the  "Company")  as  of  December  31,  2003,  and  the  related
consolidated statements of operations,  shareholders' equity and cash flows for
each of the years in the two-year period ended December 31, 2003. In connection
with our audit of the consolidated  financial statements,  we have also audited
the  related  financial  statement  schedule.   These  consolidated   financial
statements and the financial  statement  schedule are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an  opinion on the
financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  AmREIT  and
subsidiaries  as of December 31, 2003, and the results of their  operations and
their cash flows for each of the years in the two-year  period  ended  December
31, 2003 in conformity with  accounting  principles  generally  accepted in the
United States of America. Also, in our opinion, the related financial statement
schedule,  when  considered  in  relation to the basic  consolidated  financial
statements  taken as a whole,  presents  fairly in all  material  respects  the
information set forth therein.





                                    KPMG LLP

Houston, Texas
March 24, 2004



                                      F-3
<PAGE>


                         PART I - FINANCIAL INFORMATION
                          Item 1. Financial Statements
                            AMREIT AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               December 31, 2003



 ASSETS
 Property:
   Land                                                    $     36,242,482
   Buildings                                                     33,906,917
   Tenant improvements                                              389,657
                                                           ________________
                                                                 70,539,056
   Less accumulated depreciation                                 (2,520,633)
                                                           ________________
     Net real estate held for investment                         68,018,423

   Real estate held for sale, net                                 4,384,342

 Net investment in direct financing leases held for
  investment                                                     22,046,210

 Cash and cash equivalents                                        2,031,440
 Accounts receivable                                                575,841
 Accounts receivable - related party                                201,774
 Notes receivable                                                   999,777
 Escrow deposits                                                    331,239
 Prepaid expenses, net                                              291,109

 Other assets:
   Preacquisition costs                                              13,182
   Loan acquisition cost, net of $135,150 in accumulated
    amortization                                                    346,622
   Leasing costs, net of $59,942 in accumulated
    amortization                                                    325,656
   Furniture, fixtures and equipment, net of $149,014
    in accumulated depreciation                                     103,271
   Accrued rental income                                            499,658
   Intangible lease cost, net of $63,802 in accumulated
    amortization                                                    613,171
   Investment in non-consolidated affiliates                        544,892
                                                           ________________
     Total other assets                                           2,446,452
                                                           ________________
 TOTAL ASSETS                                              $    101,326,607
                                                           ================

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Liabilities:
   Notes payable                                           $     48,484,625
   Accounts payable                                               3,084,047
   Accounts payable - related party                                  11,440
   Security deposit                                                  97,040
   Prepaid rent                                                       6,561
                                                           ________________
     TOTAL LIABILITIES                                           51,683,713
                                                           ________________

 Minority interest                                                  846,895

 Shareholders' equity:
   Preferred shares, $.01 par value, 10,000,000 shares
    authorized, none issued                                               -
   Class A Common shares, $.01 par value, 50,000,000
    shares authorized, 2,939,404 shares issued                       29,394
   Class B Common shares, $.01 par value, 3,000,000
    shares authorized, 2,362,522 shares issued                       23,625
   Class C Common shares, $.01 par value, 4,400,000
    shares authorized, 1,402,788 shares issued                       14,028
   Capital in excess of par value                                59,350,988
   Accumulated distributions in excess of earnings               (9,616,551)
   Deferred compensation                                           (143,710)
   Cost of treasury shares, 133,822 shares                         (861,775)
                                                           ________________
     TOTAL SHAREHOLDERS' EQUITY                                  48,795,999
                                                           ________________
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $    101,326,607
                                                           ================


 See Notes to Condensed Consolidated Financial Statements.



                                      F-4



<PAGE>

                            AMREIT AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                                  2003                          2002
<S>             <C>                                          <C>                           <C>

 Revenues:
                Rental income from operating leases          $ 4,965,593                   $ 3,386,030
                Earned income from direct financing leases     2,618,573                     1,807,117
                Real estate fee income                         1,031,201                     1,222,944
                Gain on sales of real estate acquired for
                 resale                                          787,244                             -
                Securities commission income                   2,958,226                       846,893
                Asset management fee income                      240,465                       252,072
                Interest and other income                          7,938                         4,206
                                                             ___________                   ___________
                               Total revenues                 12,609,240                     7,519,262
                                                             ___________                   ___________

 Expenses:
                General operating and administrative           3,936,546                     2,801,946
                Legal and professional                           881,283                       679,154
                Securities commissions                         2,288,027                       653,034
                Depreciation and amortization                    835,987                       611,083
                Deferred merger costs                            914,688                     1,904,370
                                                             ___________                   ___________
                               Total expenses                  8,856,531                     6,649,587
                                                             ___________                   ___________

 Operating income                                              3,752,709                       869,675

 Income from non-consolidated affiliates                         312,147                       416,904
 Federal income tax expense for taxable REIT subsidiary         (236,990)                      (60,656)
 Interest expense                                             (2,354,159)                   (1,774,973)
 Minority interest in income of consolidated joint
  ventures                                                      (178,311)                     (308,010)
                                                             ___________                   ___________

 Income (loss) before discontinued operations                  1,295,396                      (857,060)

 Income from discontinued operations                             391,480                       245,840
 Gain (loss) on sales of real estate acquired for
  investment                                                     311,873                       (47,553)
                                                             ___________                   ___________
     Income from discontinued operations                         703,353                       198,287

 Net income (loss)                                             1,998,749                      (658,773)

 Distributions paid to class B and class C shareholders       (1,942,656)                     (865,293)
                                                             ___________                   ___________

 Net income (loss) available to class A shareholders         $    56,093                   $(1,524,066)
                                                             ___________                   ___________

 Net income per common share - basic and diluted
     Loss before discontinued operations                     $     (0.23)                  $     (0.70)
     Income from discontinued operations                            0.25                          0.08
                                                             ___________                   ___________
     Net income (loss)                                       $      0.02                   $     (0.62)
                                                             ===========                   ===========

 Weighted avergage common shares used to compute
  net income per share, basic and diluted                      2,792,190                     2,469,725
                                                             ===========                   ===========

</TABLE>

  See Notes to Condensed Consolidated Financial Statements.



                                      F-5





<PAGE>

                             AMREIT AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 For the years ended December 31, 2003 and 2002

<TABLE>
<CAPTION>

                                                                                                 Accumulated
                                                                                Capital in      distributions
                                                               Common Shares     excess of      in excess of        Deferred
                                                                   Amount        par value        earnings        Compensation
<S>                                                              <C>           <C>              <C>                <C>


 BALANCE AT DECEMBER 31, 2001                                     $ 23,856     $21,655,852      $ (6,037,757)      $        -

  Net loss                                                               -               -          (658,773)               -

  Issuance of common shares, Class A                                 3,023       1,901,347                 -                -

  Issuance of common shares, Class A - for class B conversion        1,248               -                 -                -

  Issuance of common shares, Class B, net of 124,750
   that converted to Class A                                        24,642      23,468,401                 -                -

  Issuance of restricted shares, Class A                               250         157,017                 -         (256,877)

  Amortization of deferred compensation                                  -               -                 -           51,524

  Repurchase of common shares, Class A (46,069 shares)                   -               -                 -                -

  Distributions                                                          -               -        (1,730,316)               -
                                                                  ________    ____________      ____________       __________

  BALANCE AT DECEMBER 31, 2002                                    $ 53,019     $47,182,617      $ (8,426,846)      $ (205,353)
                                                                  ________    ____________      ____________       __________

  Net income                                                             -               -         1,998,749                -

  Issuance of common shares, Class A                                 1,017               -                 -                -

  Repurchase of common shares, Class B                              (1,017)              -                 -                -

  Issuance of restricted shares, Class A                                 -          15,184                 -         (152,819)

  Amortization of deferred compensation                                  -               -                 -          214,462

  Repurchase of common shares, Class A (92,700 shares)                   -               -                 -                -

  Issuance of common shares, Class C                                14,028      12,153,187                 -                -

  Distributions                                                          -               -         3,188,454                -
                                                                 _________     ___________      ____________       __________

 BALANCE AT DECEMBER 31, 2003                                    $  67,047     $59,350,988      $ (9,616,551)      $(143,710)
                                                                 _________     ___________      ____________       __________



</TABLE>

<TABLE>
<CAPTION>


                                                                       Cost of
                                                                       treasury
                                                                        shares           Total
<S>                                                                  <C>              <C>


 BALANCE AT DECEMBER 31, 2001                                        $ (288,170)      $15,353,781

  Net loss                                                                    -          (658,773)

  Issuance of common shares, Class A                                          -         1,904,370

  Issuance of common shares, Class A - for Class B conversion                 -                 -

  Issuance of common shares, Class B, net of 124,750
   that converted to Class A                                                  -        23,494,291

  Issuance of restricted shares, Class A                                185,119            85,509

  Amortization of deferred compensation                                       -            51,524

  Repurchase of common shares, Class A (46,069 shares)                 (294,138)         (294,138)

  Distributions                                                               -        (1,730,316)
                                                                     __________       ___________

BALANCE AT DECEMBER 31, 2002                                         $ (397,189)      $38,206,248
                                                                     __________       ___________

  Net income                                                                  -         1,998,749

  Issuance of common shares, Class A                                          -             1,017

  Repurchase of common shares, Class B                                        -            (1,017)

  Issuance of restricted shares, Class A                                137,635                 -

  Amortization of deferred compensation                                       -           214,462

  Repurchase of common shares, Class A (87,700 shares)                 (602,221)         (602,221)

  Issuance of common shares, Class C                                          -        12,167,215

  Distributions                                                               -        (3,188,454)
                                                                     __________       ___________

 BALANCE AT DECEMBER 31, 2003                                        $ (861,775)      $48,795,999
                                                                     __________       ___________


</TABLE>


  See Notes to Consolidated Financial Statements.


                                      F-6

<PAGE>

                             AMREIT AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                              Years ended December 31,
                                                                               2003               2002
<S>                                                                     <C>                <C>

 Cash flows from operating activities:
   Net income (loss)                                                    $    1,998,749     $    (658,773)
   Adjustments to reconcile net income to net cash
       provided by operating activities:
       Investment in real estate acquired for resale                        (7,807,597)                -
       Proceeds from sales of real estate acquired for resale                6,179,145                 -
       Gain on sales of real estate acquired for resale                       (787,244)                -
       (Gain) loss on sales of real estate acquired for investment            (311,873)           47,553
       Depreciation and amortization                                           942,326           723,607
       Amortization of (increase in) deferred compensation                     214,462            51,524
       Minority interest in net income of consolidated joint ventures          178,311           308,010
       Deferred merger costs                                                   914,688         1,904,370
       (Increase) decrease in accounts receivable                             (402,182)        1,056,265
       (Increase) decrease in accounts receivable- related party              (132,840)          378,494
       Increase in prepaid expenses, net                                      (121,411)         (170,028)
       Cash receipts from direct financing leases
         more than income recognized                                            24,854           282,805
       (Increase) decrease in accrued rental income                           (225,607)           32,095
       Increase in other assets                                               (318,539)          (49,114)
       Increase (decrease) in accounts payable                               1,022,674          (365,018)
       (Decrease) increase in accounts payable- related party                 (194,683)          181,123
       Increase in prepaid rent                                                    384             6,177
       Increase in security deposits                                            63,110                 -
                                                                        ______________     _____________
            Net cash provided by operating activities                        1,236,727         3,729,090
                                                                        ______________     _____________

 Cash flows from investing activities:
   Improvements to real estate                                                (534,554)         (623,124)
   Acquisition of investment properties                                    (23,922,118)      (18,951,523)
   Notes receivable advances                                                  (999,777)                -
   Additions to furniture, fixtures and equipment                              (64,859)          (25,131)
   Distributions from non-consolidating affiliates                               4,444           431,604
   Proceeds from sale of investment property                                 3,497,267         3,692,544
   (Increase) decrease in preacquisition costs                                 (11,417)          207,435
                                                                        ______________     _____________
     Net cash used in investing activities                                 (22,031,014)      (15,268,195)
                                                                        ______________     _____________

 Cash flows from financing activities:
   Proceeds from notes payable                                              36,203,535        19,253,403
   Payments of notes payable                                               (24,118,829)       (3,399,277)
   Loan acquisition costs                                                            -           (38,035)
   Purchase of treasury shares                                                (602,221)         (109,019)
   Issuance of common shares                                                14,012,572          (517,857)
   Retirement of common shares                                                                  (106,500)
   Issuance costs                                                           (1,845,357)                -
   Common dividends paid                                                    (3,188,454)       (1,730,316)
   Contributions from minority interests                                             -           809,971
   Distributions to minority interests                                        (142,387)         (343,514)
                                                                        ______________     _____________
     Net cash provided by financing activities                              20,318,859        13,818,856
                                                                        ______________     _____________

 Net (decrease) increase in cash and cash equivalents                         (475,428)        2,279,751
 Cash and cash equivalents, beginning of period                              2,506,868           227,117
                                                                        ______________     _____________
 Cash and cash equivalents, end of period                               $    2,031,440     $   2,506,868
                                                                        ==============     =============

</TABLE>

     In 2003 the Company issued 24,257 shares of restricted stock to
     employees and trust managers as part of their compensation plan.
     The restricted stock vests over a four and three year period
     respectively.  The Company recorded $152,819 in deferred
     compensation related to the issuance of the restricted stock.

     In 2003 the Company assumed $2.81 million of non-recourse debt in
     conjunction with a property acquisition.

     In 2002 the Company issued 35,732 shares of restricted stock to
     employees and trust managers as part of their compensation plan.
     The restricted stock vests over a four and three year period
     respectively.  The Company recorded $256,877 in deferred
     compensation related to the issuance of the restricted stock.

     On July 23, 2002, the Company merged with three of its affiliated
     partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund
     X, Ltd., and AAA Net Realty Fund XI, Ltd.  In conjunction with
     the merger, the Company acquired $23,890,318 worth of property
     and issued 2,589,179 shares of Class B common shares.

<TABLE>
<CAPTION>


     SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
     Cash paid during the year for:
<S>    <C>                                                             <C>               <C>

       Interest                                                        2,168,546         1,691,927
       Income taxes                                                       46,838           133,841

</TABLE>

 See Notes to Condensed Consolidated Financial Statements.


                                      F-7


<PAGE>



                            AMREIT AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

AmREIT is a Texas real estate  investment trust ("REIT") that has elected to be
taxed as a REIT for  federal  income tax  purposes.  AmREIT is a  self-managed,
self-advised  REIT with,  along with its  predecessor,  a 19-year history and a
record of investing in quality income  producing  retail real estate.  AmREIT's
class A common  shares  are traded on the  American  Stock  Exchange  under the
symbol "AMY".  AmREIT's business structure consists of the publicly traded REIT
and three synergistic businesses that support the Company's platform of growth:
a real estate operation and development  business,  a securities business and a
retail  partnership  business.  This  unique  combination  provides  AmREIT the
ability  to  access  capital  through  both  Wall  Street  and the  independent
financial  planning  marketplace and strategically  invest that capital in high
quality properties for flexibility and more dependable growth.

AmREIT's initial predecessor, American Asset Advisers Trust, Inc. was formed as
a Maryland  Corporation in 1993.  Following the merger of our external  adviser
into the Company in June 1998, we changed our name to AmREIT, Inc., which was a
Maryland  corporation.  In December 2002, we reorganized as a Texas real estate
investment trust.

AmREIT owns a real estate  portfolio that consists of 51 properties  located in
18 states.  Its properties  include  single tenant free standing  credit tenant
leased projects and multi-tenant  frontage shopping center projects.  Our focus
is  on   irreplaceable   corners:   premier  retail   frontage   properties  in
high-traffic,  highly  populated  areas - which  create  dependable  income and
long-lasting  value. The single tenant projects are located from coast to coast
and are  primarily  leased to corporate  tenants  where the lease is the direct
obligation of the parent companies. In so doing, the dependability of the lease
payments  are based on the strength and  viability of the entire  company,  not
just that location. The multi-tenant projects are situated primarily throughout
Texas. Our portfolio includes tenants such as Starbucks, Landry's CVS Pharmacy,
IHOP, Eckerd, Nextel, Washington Mutual, TGI Friday's and others.

On July 23, 2002,  the Company  completed a merger with three of its affiliated
partnerships,  AAA Net Realty Fund IX, Ltd.,  AAA Net Realty Fund X, Ltd.,  and
AAA Net Realty Fund XI, Ltd.  With the merger of the  affiliated  partnerships,
AmREIT  increased  its real estate  assets by  approximately  $24.3 million and
issued  approximately 2.6 million Class B common shares to the limited partners
in the affiliated partnerships. Approximately $760 thousand in 8 year, interest
only,  subordinated  notes were issued to limited  partners  of the  affiliated
partnerships  who dissented  against the merger.  The acquired  properties  are
unencumbered,  single tenant, free standing properties on lease to national and
regional  tenants,  where  the lease is the  direct  obligation  of the  parent
company.  A deferred merger expense resulted from the shares payable to H. Kerr
Taylor, our President and Chief Executive  Officer,  as a result of the merger,
which shares represented a portion of consideration  payable to Mr. Taylor as a
result  of the sale of his  advisory  company  to  AmREIT.  Mr.  Taylor  earned
approximately 143 thousand shares during 2003 as a result of our class C common
share  offering,  resulting in a non-cash  charge to earnings of  approximately
$915  thousand.  Mr. Taylor has the ability to earn an additional  241 thousand
shares under the  deferred  consideration  agreement,  in the event the Company
issues  additional  common shares prior to June 6, 2006, the expiration date of
the agreement.

                                      F-8

<PAGE>


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated  financial  statements include the accounts of AmREIT, and its
wholly or majority owned subsidiaries.  All significant  intercompany  accounts
and transactions have been eliminated in consolidation.

BASIS OF ACCOUNTING

The  financial  records of the Company are  maintained  on the accrual basis of
accounting  whereby  revenues  are  recognized  when  earned and  expenses  are
recorded when incurred.

CASH AND CASH EQUIVALENTS

For  purposes  of the  consolidated  statements  of  cash  flows,  the  Company
considers  all  highly  liquid  debt  instruments  purchased  with an  original
maturity  of  three  months  or less  to be cash  equivalents.  Cash  and  cash
equivalents  consist of demand  deposits at  commercial  banks and money market
funds.

PROPERTY

Property  is leased to others,  primarily  on a net lease  basis,  whereby  the
operating  expenses  related  to  the  properties,  including  property  taxes,
insurance and common area maintenance are the responsibility of the tenant. The
leases are  accounted for under the  operating  method or the direct  financing
method in accordance with generally accepted accounting  principles.  Under the
operating lease method,  the properties are recorded at cost.  Rental income is
recognized ratably over the life of the lease and depreciation is charged based
upon the  estimated  useful life of the  property.  Under the direct  financing
lease method, properties are recorded at their net investment.  Unearned income
is deferred and amortized to income over the life of the lease so as to produce
a constant periodic rate of return.

Expenditures  related to the  development  of real  estate are  carried at cost
which includes capitalized  carrying charges, acquisition costs and development
costs.  Carrying charges,  primarily  interest and loan acquisition  costs, and
direct and indirect  development costs related to buildings under  construction
are capitalized as part of construction  in progress.  The Company  capitalizes
acquisition costs once the acquisition of the property becomes probable.  Prior
to that time, the Company expenses these costs as acquisition expense.

Management reviews its properties for impairment  whenever events or changes in
circumstances  indicate  that the  carrying  amount  of the  assets,  including
accrued rental income, may not be recoverable  through  operations.  Management
determines  whether an impairment in value  occurred by comparing the estimated
future cash flows  (undiscounted and without interest  charges),  including the
residual  value of the  property,  with the  carrying  value of the  individual
property. If impairment is indicated, a loss will be recorded for the amount by
which the carrying value of the asset exceeds its fair value.

DEPRECIATION

Buildings  are  depreciated  using the  straight-line  method over an estimated
useful life of 39 years.  Leasehold estate  properties,  where the Company owns
the building and improvements but not the related ground, therefore there is no
residual value beyond the lease, are amortized over the life of the lease.

                                      F-9

<PAGE>


INVESTMENT IN NON-CONSOLIDATED AFFILIATES

AmREIT Opportunity  Corporation,  a wholly owned subsidiary of AmREIT, invested
$250  thousand as a limited  partner  and $1  thousand as a general  partner in
AmREIT  Opportunity Fund, Ltd.  ("AOF"),  the operations of which are accounted
for using the equity method.  The limited partners have the right to remove and
replace the general partner by a vote of the limited partners owning two-thirds
of the  outstanding  units.  AmREIT  currently  owns a  10.5%  limited  partner
interest  in AOF.  AOF was  formed  to  develop,  own,  manage,  and  hold  for
investment  and,  or  resell  property  and to make or  invest in loans for the
development or construction  of property.  Liquidation of AOF commenced in July
of 2002.

AmREIT  Income & Growth  Corporation,  a wholly  owned  subsidiary  of  AmREIT,
invested  $200  thousand  as a limited  partner  and $1  thousand  as a general
partner in AmREIT Income & Growth Fund, Ltd.  ("AIG"),  the operations of which
are accounted for using the equity method.  The limited partners have the right
to remove and  replace the  general  partner by a vote of the limited  partners
owning  a  majority  of  the  outstanding  units.   AmREIT  currently  owns  an
approximately  2.0% limited partner interest in AIG. AIG was formed to develop,
own,  manage,  and hold for investment  and, or resell  property and to make or
invest in loans for the development or construction of property.

AmREIT  Monthly  Income & & Growth  Corporation,  a wholly owned  subsidiary of
AmREIT,  invested  $200  thousand  as a limited  partner  and $1  thousand as a
general  partner in AmREIT  Monthly  Income & Growth Fund,  Ltd.  ("MIG"),  the
operations  of which are  accounted  for using the equity  method.  The limited
partners have the right to remove and replace the general  partner by a vote of
the  limited  partners  owning a  majority  of the  outstanding  units.  AmREIT
currently owns an  approximately  1.4% limited partner interest in AIG. AIG was
formed to develop, own, manage, and hold for investment and, or resell property
and to make or invest in loans for the development or construction of property.

AmREIT  invested $70 thousand as a limited  partner in AmREIT CDP #27, LP ("CDP
27"), the operations of which are accounted for using the equity method. CDP 27
was formed to acquire commercial real property and to develop,  operate, lease,
manage, and or sell real property. CDP 27 purchased two IHOP properties in 2001
located in Memphis, Tennessee and Tupelo,  Mississippi.  The Memphis, Tennessee
property  was sold for a profit  in the  first  quarter  of 2002.  The  Tupelo,
Mississippi property was sold for a profit in the first quarter of 2003. CDP 27
does not own any real property as of December 31, 2003.

AmREIT  Realty  Investment  Corporation  ("ARIC")  invested  $122 thousand as a
limited partner in AmREIT CDP SPE #33, Ltd. ("CDP 33"), the operations of which
are  accounted  for using  the  equity  method.  CDP 33 was  formed to  acquire
commercial real property and to develop,  operate,  lease,  manage, and or sell
real property.  In December 2001, CDP 33 purchased three IHOP leasehold  estate
properties located in Houston, Texas, Orem, Utah, and Hagerstown, Maryland. The
three  properties  were sold in the second quarter of 2003. CDP 33 does not own
any real property as of December 31, 2003.

LOAN ACQUISITION COSTS

Loan acquisitions  costs are incurred in obtaining  property  financing and are
amortized to interest expense on the effective interest method over the term of
the debt agreements. Accumulated amortization related to loan acquisition costs
as of December 31, 2003 totaled $135 thousand.

                                     F-10

<PAGE>



DEFERRED COMPENSATION

Our deferred  compensation  and long term incentive plan is designed to attract
and retain the services of our trust  managers and  employees  that we consider
essential  to our  long-term  growth and  success.  As such,  it is designed to
provide  them with the  opportunity  to own shares,  in the form of  restricted
shares, in AmREIT,  and provide key employees the opportunity to participate in
the success of our affiliated actively managed retail partnerships  through the
economic  participation  in  our  general  partner  companies.  All  long  term
compensation awards are designed to vest over a period of three to seven years,
and promote retention of our quality team.

Deferred  compensation includes share grants to employees and as a form of long
term compensation. The share grants vest over a period of time of three to four
years.  Additionally,  the Company assigns a portion,  up to 45 percent, of the
economic  interest in certain of its retail limited  partnerships to certain of
its key  employees.  This  economic  interest is  received,  as if and when the
Company receives economic benefit from its profit participation,  after certain
preferred  returns have been paid to the partnership's  limited partners.  This
assignment of economic interest  generally vests over a period of five to seven
years.  This allows the Company to align the interest of its employees with the
interest  of  our  shareholders.   The  Company  amortizes  the  market  value,
established  at the date of grant,  of the  restricted  shares ratably over the
vesting period. Because the future profits and earnings from the retail limited
partnerships  can not be reasonably  predicted or  estimated,  and any employee
benefit is  completely  contingent  upon the  benefit  received  by the general
partner  of  the  retail  limited   partnerships,   AmREIT  recognizes  expense
associated  with the  assignment  of economic  interest  in its retail  limited
partnerships  as the  Company  recognizes  the  corresponding  income  from the
associated retail limited partnerships.

AmREIT maintains a defined contribution 401K retirement plan for its employees.
This plan is available for all employees, immediately upon employment. The plan
allows  for two  open  enrollment  periods,  June  and  December.  The  plan is
administered by Benefit Systems, Inc. and allows for contributions to be either
invested  in an array of large,  mid and  small cap  mutual  funds  managed  by
Hartford,  or  directly  into  class A common  shares.  Employee  contributions
invested in Company  stock are limited to 50% of the  employees  contributions.
The Company matches 50% of the employees contribution, up to a maximum employee
contribution  of 4%. None of the  employer  contribution  is matched in Company
stock.  As of  December  31, 2003 and 2002,  there were 21 and 12  participants
enrolled in the plan,  with  employer  contributions  of $35  thousand  and $18
thousand, respectively.

STOCK ISSUANCE COSTS

Issuance  costs  incurred in the raising of capital  through the sale of common
shares are treated as a reduction of shareholders' equity.

REVENUE RECOGNITION

Properties are primarily leased on a net lease basis.  Revenue is recognized on
a straight-line basis over the terms of the individual leases. Service fees are
recognized when earned.

FEDERAL INCOME TAXES

AmREIT has elected to be taxed as a real estate investment trust ("REIT") under
the Internal  Revenue Code of 1986, and is,  therefore,  not subject to Federal

                                     F-11

<PAGE>


income taxes to the extent of dividends paid,  provided it meets all conditions
specified by the Internal Revenue Code for retaining its REIT status, including
the requirement  that at least 90% of its real estate  investment trust taxable
income be distributed to shareholders.

ARIC,  a wholly  owned  subsidiary  of AmREIT,  is  treated  as a taxable  REIT
subsidiary for Federal income tax purposes.  Federal income taxes are accounted
for under the asset and liability  method.  As such, ARIC and its  consolidated
subsidiaries  have recorded a Federal income tax expense of in 2003 and 2002 of
$237  thousand and $61 thousand,  respectively,  which  represents  the Federal
income tax obligations on the consolidated  taxable REIT  subsidiary's  taxable
net income. Additionally,  at December 31, 2003 a deferred tax liability of $28
thousand is  established  to record the taxes on certain real estate  assets of
ARIC.

EARNINGS PER SHARE

Basic  earnings  per share has been  computed  by  dividing  net income  (loss)
available  to class A common  shareholders  by the weighted  average  number of
class A common shares outstanding. Diluted earnings per share has been computed
by dividing net income (as adjusted) by the weighted  average  number of common
shares  outstanding  plus the  weighted  average  number of dilutive  potential
common shares.  Diluted earnings per share information is not applicable due to
the anti-dilutive nature of the common class B and class C shares.


The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:

<TABLE>
<CAPTION>

                                                                     For the Years Ended December 31,
  BASIC AND DILUTED EARNINGS PER SHARE                                    2003               2002
<S>                                                                      <C>              <C>

  Weighted average class A common shares outstanding (in
  thousands)                                                             2,792              2,470

  Basic and diluted earnings/(loss) per share *                          $0.02             $(0.62)
                                                                         =====             =======

  EARNINGS FOR BASIC AND DILUTED COMPUTATION

  Earnings (loss) to Class A common shareholders (in
  thousands) *                                                             $56            $(1,524)
                                                                           ===            ========

</TABLE>

* The operating results for 2003 and 2002 include a charge taken to earnings of
$915 thousand and $1.9 million, respectively, which was the market value of the
class A common shares issued to H. Kerr Taylor, President & CEO, related to the
sale of his advisory company to AmREIT in 1998. The charge was for the deferred
merger cost due from this sale that was triggered by the issuance of additional
common stock as part of the merger with AmREIT's affiliated partnerships during
2002, and the issuance of common C stock in 2003.

USE OF ESTIMATES

The  preparation  of  consolidated  financial  statements  in  conformity  with
generally accepted accounting  principles requires management to make estimates
and assumptions  that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial  statements and the reported  amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

                                     F-12

<PAGE>


The Company's consolidated financial instruments consist primarily of cash, cash
equivalents,  accounts  receivable and accounts and notes payable.  The carrying
value of cash, cash  equivalents,  accounts  receivable and accounts payable are
representative of their respective fair values due to the short-term maturity of
these instruments. As of December 31, 2003, the Company's total debt obligations
are $48.5 million, of which $25.9 million has variable rate terms and therefore,
the fair value is representative of its carry value. Approximately $22.6 million
has fixed rate terms,  of which  approximately  $2.8  million  was entered  into
during 2003 and $17.2  million was entered into during 2002.  Based on the dates
that the debt obligations were entered into, the pricing of the 10-year treasury
rate and the  corresponding  changes in the spreads  over the  10-year  treasury
rate,  the  Company  believes  that  the  fair  value  of its  fixed  rate  debt
obligations is materially representative of its carry value.


NEW ACCOUNTING STANDARDS


On January 1, 2002,  the  Company  adopted  SFAS No. 144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses accounting
and reporting for the  impairment or disposal of a segment of a business.  More
specifically,   this  statement   broadens  the  presentation  of  discontinued
operations to include a component of an entity whose  operations and cash flows
can  be  clearly  distinguished,  operationally  and  for  financial  reporting
purposes, from the rest of the entity.

In 2003,  we sold two  properties  that were  previously  held for  investment,
located in Delaware and Texas. Accordingly,  the operating results and the gain
on sale of the  disposed  properties  have been  reclassified  and  reported as
discontinued operations on the Consolidated Statement of Operations.

In November  2002, the Financial  Accounting  Standards  Board ("FASB")  issued
Interpretation No. 45, "Guarantor's  Accounting and Disclosure Requirements for
Guarantees,  Including  Indirect  Guarantees  of  Indebtedness  to  Others,  an
interpretation  of FASB  Statements  No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34". This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual  financial  statements  about its
obligations under guarantees issued.  The Interpretation  also clarifies that a
guarantor is required to  recognize,  at inception of a guarantee,  a liability
for the fair value of the obligation  undertaken.  The disclosure  requirements
are  effective for financial  statements  of interim or annual  periods  ending
after December 15, 2002. The initial recognition and measurement  provisions of
the  Interpretation  are  applicable  to  guarantees  issued or modified  after
December  31,  2002  and  did  not  have a  material  effect  on the  Company's
consolidated financial statements.

In December 2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  - Transition and  Disclosure,  an amendment of FASB Statement No.
123". This Statement amends FASB Statement No. 123,  Accounting for Stock-Based
Compensation,  to provide  alternative  methods of  transition  for a voluntary
change  to the  fair  value  method  of  accounting  for  stock-based  employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require  prominent  disclosures in both annual and interim
financial statements.  Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002, however, the Company does not have
stock based  compensation  that is applicable to SFAS No. 148 and therefore the
adoption  of SFAS  148 did  not  have a  material  impact  on our  consolidated
financial position, results of operations, or cash flows.

In May 2003,  the FASB issued  Statement No. 150 ("SFAS 150")  "Accounting  for
Certain  Financial  Instruments  with  Characteristics  of Both Liabilities and
Equity".   SFAS  150  requires   certain   financial   instruments   that  have
characteristics  of both liabilities and equity to be classified as a liability
on the balance sheet. Statement 150 was effective at the beginning of the first
interim period beginning after June 15, 2003. Statement 150 will be effected by

                                     F-13

<PAGE>


reporting  the  cumulative  effect  of a change  in  accounting  principle  for
contracts  created before the issuance date and still existing at the beginning
of that interim period. The adoption of Statement 150 did not have an impact on
our consolidated financial position, results of operations, or cash flows.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable   Interest   Entities,   an   interpretation   of  ARB  No.  51".  This
Interpretation,   as  amended,   requires  a  variable  interest  entity  to  be
consolidated  by a company if that  company is subject to a majority of the risk
of loss from the variable interest entity's  activities or entitled to receive a
majority  of  the  entity's   residual   returns  or  both.   As  amended,   the
interpretation  requires  disclosures  about variable  interest  entities that a
company  is not  required  to  consolidate,  but in which  it has a  significant
variable interest. The adoption of FIN 46 for small business filers is effective
no later than December 31, 2004.


REAL ESTATE HELD FOR SALE

Properties are  classified as real estate held for sale if the  properties  were
purchased  with  intent  to hold the  properties  for less than a year or if the
properties  are listed for sale.  At  December  31,  2003,  AmREIT  owned  three
properties  that  are  classified  as real  estate  held  for  sale.  The  three
properties have a combined carrying value of $4.4 million. Two of the properties
have separate notes payable,  which have a one year term and a combined  balance
of $3.11 million at December 31, 2003.

DISCONTINUED OPERATIONS

The  operations of two  properties  that were sold during 2003 were reported as
discontinued  operations.  The  following  is a  summary  of  our  discontinued
operations (in thousands, except for per share data):

                                                       2003            2002
                                                       ____            ____

     Rental revenue                                    $305            $301
     Other income                                       129               -
     Depreciation and amortization                      (30)            (55)
     Property expenses                                  (13)              -
                                                       _____           _____
     Income from discontinued operations               $391            $246
     Basic income from discontinued operations
           per common share                           $0.25           $0.08

RECLASSIFICATION

Certain  amounts  in  the  2002  consolidated  financial  statements  have  been
reclassified  to  conform  to the  presentation  used in the  2003  consolidated
financial statements.  Such reclassifications had no effect on net income (loss)
or shareholders' equity as previously reported.

                                     F-14


<PAGE>



3. OPERATING LEASES

A summary of minimum future rentals to be received, exclusive of any renewals,
under noncancellable operating leases in existence at December 31, 2003 is as
follows (in thousands):
              2004                                   5,689
              2005                                   5,382
              2006                                   5,299
              2007                                   5,044
              2008                                   3,967
              2009-thereafter                       25,016
                                                 _________
                                                 $  50,397
                                                 =========


4. NET INVESTMENT IN DIRECT FINANCING LEASES

The Company's net  investment  in its direct  financing  leases at December 31,
2003 included (in thousands):

 Minimum lease payments receivable                 $55,094
 Unguaranteed residual value                         3,378
 Less: Unearned income                             (36,426)
                                                  _________
                                                  $ 22,046
                                                  =========

A summary of minimum  future  rentals,  exclusive  of any  renewals,  under the
noncancellable direct financing leases follows (in thousands):
              2004                                   2,321
              2005                                   2,330
              2006                                   2,338
              2007                                   2,460
              2008                                   2,540
              2009 - thereafter                     43,104
                                                   _______

                                    Total          $55,093
                                                   =======

5. INVESTMENT IN NON-CONSOLIDATED AFFILIATES

As of December 31, 2003, AmREIT,  indirectly through wholly owned subsidiaries,
owned  interests in three limited  partnerships,  which are accounted for under
the equity method since AmREIT exercises significant  influence.  Our interests
in these limited partnerships range from 1.4% to 10.5%. These partnerships were
formed to develop,  own,  manage,  and hold for investment and resell property.
During 2003, the Company owned interests in two additional limited partnerships
that were  liquidated  after  completion of their purpose.  Combined  condensed
financial information of these ventures (at 100%) is summarized as follows:

                                     F-15


<PAGE>




               Combined Balance Sheet (in thousands)          December 31, 2003
Assets
          Property, net                                              $10,682
          Cash                                                         4,667
          Notes receivable                                             4,173
          Other assets                                                 5,739
                                                                     _______
          TOTAL ASSETS                                               $25,261
                                                                     =======

Liabilities and partners' capital
          Notes payable                                              $ 1,228
          Other liabilities                                              979
          Partners capital                                            23,054
                                                                     _______
          TOTAL LIABILITIES AND PARTNERS' CAPITAL                    $25,261
                                                                     =======

                  Combined Statement of Operations (in thousands)


                                                    2003               2002

Total Revenue                                     $ 3,501            $ 2,625

Expense
          Interest                                    113                359
          Depreciation and amortization               168                189
          Other                                       405                189
                                                  _______            _______
          TOTAL EXPENSE                               686                737
                                                  _______            _______

          NET INCOME                              $ 2,815            $ 1,888
                                                  =======            =======


6. NOTES PAYABLE

In September 2003, the Company renewed an unsecured credit facility (the "Credit
Facility"),  which  is  being  used to  provide  funds  for the  acquisition  of
properties and working capital.  Under the Credit Facility,  which has a term of
one year,  the  Company  may  borrow up to $30  million  subject to the value of
unencumbered  assets.  The Credit Facility contains covenants which, among other
restrictions,  require the  Company to  maintain a minimum net worth,  a maximum
leverage ratio, specified interest coverage and fixed charge coverage ratios and
allow the lender to approve all distributions.  Furthermore, the Credit Facility
contains  concentration  covenants and limitations,  limiting property level net
operating  income for any one tenant to no more than 15% (35% for IHOP) of total
property net operating  income.  At December 31, 2003, IHOP net operating income
represented  34.7% of total property net operating income. At December 31, 2003,
the  Company  was  in  compliance  with  all  financial  covenants.  The  Credit
Facility's  annual  interest rate varies,  depending  upon the Company's debt to
asset  ratio,  from  LIBOR  plus a spread of 1.40% to LIBOR  plus  2.35%.  As of
December 31, 2003,  the interest rate was 3.19%,  which was  calculated as LIBOR
plus 2.0%.  As of December 31, 2003,  $22.8  million was  outstanding  under the
Credit  Facility.  Thus, the Company has  approximately  $7.2 million  available
under its line of credit, subject to lender approval of the use of the proceeds.

                                     F-16

<PAGE>


In March 1999, the Company  entered into a ten-year  mortgage  note,  amortized
over 30 years, for $1 million with $958 thousand being  outstanding at December
31, 2003.  The interest  rate is fixed at 8.375% with payments of principal and
interest  due monthly.  The note  matures  April 1, 2009 and as of December 31,
2003 the Company is in compliance with all terms of the agreement.  The note is
collateralized by a first lien mortgage on property with an aggregate  carrying
value of $1.16 million, net of $129 thousand of accumulated depreciation.

In February 2001, the Company entered into a ten-year mortgage note,  amortized
over 20 years,  for $1.35  million  with $1.27  million  being  outstanding  at
December  31,  2003.  The  interest  rate is fixed at 8.25%  with  payments  of
principal and interest due monthly.  The note matures  February 28, 2011 and as
of  December  31,  2003 the  Company  is in  compliance  with all  terms of the
agreement.  The note is  collateralized  by a first lien  mortgage on property,
which is accounted  for as a direct  financing  lease with a net  investment in
direct financing lease of $1.01 million and land of $741 thousand.

In October 2001,  the Company  entered into a ten-year  mortgage note amortized
over 30 years,  for $2.40  million  with $2.36  million  being  outstanding  at
December  31,  2003.  The  interest  rate is fixed at 7.60%  with  payments  of
principal and interest due monthly. The note matures November 1, 2011 and as of
December 31, 2003 the Company is in compliance with all terms of the agreement.
The  note is  collateralized  by a first  lien  mortgage  on  property  with an
aggregate carrying value of $3.88 million,  net of $416 thousand of accumulated
depreciation.

In April 2003,  the Company  entered into a note payable for $1.73  million with
$1.73 million being  outstanding at December 31, 2003. At December 31, 2003, the
interest  rate was 3.99%,  which was  calculated  as LIBOR  plus 2.8%.  The note
matures  April 1, 2004 and as of December 31, 2003 the Company is in  compliance
with all terms of the  agreement.  The note is  collateralized  by a first  lien
mortgage on the  property,  which is accounted for as a direct  financing  lease
with a net  investment  in direct  financing  lease of $1.37 million and land of
$573 thousand.  Subsequent to December 31, 2003, the property was sold, the note
payable  was  paid  in  full,  and an  estimated  profit  of $500  thousand  was
generated.

In May 2003,  the Company  entered  into a note  payable for $1.65  million with
$1.38 million being  outstanding at December 31, 2003. At December 31, 2003, the
interest  rate was 3.99%,  which was  calculated  as LIBOR  plus 2.8%.  The note
matures  April 1, 2004 and as of December 31, 2003 the Company is in  compliance
with all terms of the  agreement.  The note is  collateralized  by a first  lien
mortgage on the  property,  which is accounted for as a direct  financing  lease
with a net  investment  in direct  financing  lease of $1.31 million and land of
$547 thousand.  Management is working with the lender and anticipates  extending
the loan term for six months, or paying off the note payable prior to maturity.

In conjunction with a property  acquisition  completed during December 2003, we
assumed $2.81 million of non-recourse debt secured by the related property. The
interest  rate is fixed at 7.58% with  payments of  principal  and interest due
monthly.  The note matures May 11, 2012 and as of December 31, 2003 the Company
is in compliance with all terms of the agreement. The note is collateralized by
a first lien  mortgage on property  with an aggregate  carrying  value of $4.75
million, net of $3 thousand of accumulated depreciation.

Beginning in April 2002, AAA CTL Notes,  Ltd., a majority  owned  subsidiary of
AmREIT, began entering into non-recourse ten-year mortgages,  amortized over 20
years, related to the purchase of seventeen IHOP properties. The balance of the
loans at December 31, 2003 totaled  $14.43 million with fixed interest rates of
7.82% on 9 properties and 7.89% on eight  properties.  The maturity dates range
from May 1, 2012 to September 1, 2012. The notes are  collateralized by a first
lien mortgage on the  properties,  which are accounted for as direct  financing
leases with a net investment in direct  financing lease at December 31, 2003 of
$17.20  million.  As of December 31, 2003 the Company is in compliance with all
terms of the agreements.  The non-recourse  notes have  cross-collateralization
and default provisions with each other.

                                     F-17

<PAGE>


In  July  of  2002,  the  Company  issued  13,  8  year   subordinated,   5.47%
interest-only  notes  with an  aggregate  principal  amount  of $760  thousand,
maturing  July 2010.  The notes,  which are callable by the Company at par plus
accrued  interest,  were issued to partners who dissented against the Company's
merger with three affiliated public partnerships.

Aggregate  annual  maturity of the notes payable for each of the following five
years ending December 31 are as follows:
          (in thousands)
                2004                                            $ 26,349
                2005                                                 490
                2006                                                 530
                2007                                                 573
                2008                                                 620
             Thereafter                                           19,923
                                                                ________
                                                                $ 48,485
                                                                ========

7. MAJOR TENANTS

The  following  schedule  summarizes  rental  income by  lessee  for our top 15
tenants for 2003 and 2002 (in thousands):
                                                2003                   2002
                                              _______                _______

International House of Pancakes               $ 2,731                $ 1,784
Footstar, Inc.                                    740                    735
Golden Corral(1)                                  430                    167
Wherehouse Entertainment                          386                    381
Hollywood Entertainment Corp.                     312                    273
Texas Children's Pediatrics (2)                   286                    137
River Oaks Imaging                                280                    264
Comp USA (1)                                      268                    123
OfficeMax, Inc.                                   256                    509
TGI Friday's (1)                                  240                     83
Baptist Memorial Hospital (1)                     223                    102
Dr. Pucilllo (1)                                  189                     87
Mattress Giant, Inc.                              179                    168
Washington Mutual                                 159                    158
Pier 1                                            135                     62
                                              _______                _______
Total                                         $ 6,814                $ 5,033
                                              =======                =======

(1)      Properties were purchased from three affiliated partnerships in July
         2002.
(2)      Texas Children's Pediatrics entered into a long-term lease with
         AmREIT, beginning in May 2002, at Copperfield Medical Plaza. The lease
         was entered into as a result of the negotiated lease buy out by AmREIT
         and One Care Health Industries, Inc.


                                     F-18
<PAGE>



8. FEDERAL INCOME TAXES

The differences between net income for financial reporting purposes and taxable
income   before   distribution   deductions   relate   primarily  to  temporary
differences,  merger costs and potential  acquisition  costs which are expensed
for financial reporting purposes.

For income tax purposes, distributions paid to shareholders consist of ordinary
income, capital gains and return of capital as follows (in thousands):
                                                2003                   2002
                                              _______                _______
Ordinary income                               $ 1,684                $     -
Return of capital                               1,014                  1,730
Capital gain                                      490                      -
                                              _______                _______
                                              $ 3,188                $ 1,730
                                              =======                =======

9. RELATED PARTY TRANSACTIONS

See Note 4 regarding investments in non-consolidated affiliates.

On July 23, 2002,  the Company  completed a merger with three of its affiliated
partnerships,  AAA Net Realty Fund IX, Ltd.,  AAA Net Realty Fund X, Ltd.,  and
AAA Net Realty Fund XI, Ltd.  AmREIT  accounted  for this merger as a purchase,
whereby the assets of the partnerships have been recorded at fair market value.
AmREIT  increased  its real estate  assets by  approximately  $24.3 million and
issued  approximately 2.6 million shares of Class B common stock to the limited
partners  in  the   affiliated   partnerships   as  a  result  of  the  merger.
Approximately $760 thousand in 8 year, 5.47% interest only,  subordinated notes
were issued to limited partners of the affiliated partnerships who dissented to
the merger.  The acquired  properties are  unencumbered,  single  tenant,  free
standing properties on lease to national and regional tenants,  where the lease
is the direct  obligation  of the parent  company.  A deferred  merger  expense
resulted  from the shares  payable to H. Kerr Taylor,  our  President and Chief
Executive  Officer,  as a result of the  merger,  which  shares  represented  a
portion of the sale of  consideration  payable to Mr. Taylor as a result of the
sale of his advisory  company to AmREIT.  Mr. Taylor earned  approximately  143
thousand  shares during 2003 as a result of our class C common share  offering,
resulting in a non-cash charge to earnings of approximately $915 thousand.  Mr.
Taylor has the ability to earn an  additional  241  thousand  shares  under the
deferred consideration agreement.

The Company  earns real estate fee income by  providing  property  acquisition,
leasing,  property  management and construction  management services for eleven
affiliated real estate limited  partnerships  that are under common  management
(the "Partnerships").  Mr. Taylor, the President and Chief Executive Officer of
the Company owns between 45% and 100% of the stock of the companies  that serve
as the general partner for eight of the Partnerships.  The Company owns 100% of
the stock of the companies  that serve as the general  partner for three of the
Partnerships.  Real estate fee income of $455  thousand and $606  thousand were
paid by the Partnerships to the Company for 2003 and 2002, respectively.

The Company earns asset  management  fees from the  Partnerships  for providing
accounting related services, investor relations, facilitating the deployment of
capital,  and  other  services  provided  in  conjunction  with  operating  the
Partnership. Asset management fees of $240 thousand and $252 thousand were paid
by the Partnerships to the Company for 2003 and 2002, respectively.


                                 F-19

<PAGE>


As a sponsor of real  estate  investment  opportunities  to the NASD  financial
planning broker dealer community,  the Company maintains an indirect 1% general
partner  interest  in the  investment  funds  that it  sponsors.  The funds are
typically  structured  such  that  the  limited  partners  receive  99%  of the
available  cash flow until 100% of their  original  invested  capital  has been
returned and a preferred return has been met. Once this has happened,  then the
general  partner begins sharing in the available cash flow at various  promoted
levels.  The Company also assigns a portion of this general partner interest in
these investment funds to its employees as long term, contingent  compensation.
In so doing, the Company believes that it will align the interest of management
with  that  of  the  shareholders,  while  at  the  same  time  allowing  for a
competitive   compensation  structure  in  order  to  attract  and  retain  key
management positions without increasing the overhead burden.

On March 20, 2002, the Company formed AAA CTL Notes, Ltd.  ("AAA"),  a majority
owned subsidiary  which is consolidated in the financial  statements of AmREIT,
through which the Company  purchased  fifteen IHOP leasehold estate  properties
and two IHOP fee simple properties.

Locke Liddell & Sapp,  LLP acts as the  Company's  corporate  attorneys.  Bryan
Goolsby is the managing director of Locke Liddell & Sapp LLP and is a member of
the Company's board of trust managers.

10. PROPERTY ACQUISITIONS AND DISPOSITIONS

During 2003, AmREIT invested $34.5 million through the acquisition of 10 retail
properties,   which  consisted  of  single  tenant   properties,   multi-tenant
properties and land to be developed.

AmREIT  acquired five single  tenant  properties  during the year.  The Company
purchased four IHOP properties, which are located in Wisconsin, Texas, Missouri
and Indiana. Two of the IHOP properties, located in Wisconsin and Indiana, were
sold for a profit  during  2003.  The  Company  also  acquired a  single-tenant
property in Maryland that is ground leased to TGI Friday's.

The Company acquired two multi-tenant properties during 2003. Uptown Plaza is a
28,000  square  foot retail  complex  located in  Houston,  Texas,  including a
free-standing  CVS drugstore and a retail shopping center anchored by Grotto, a
new concept of Landry's  Restaurant,  Inc. The Terrace Shops is a 16,395 square
foot center  located  near the West  University  area of Houston,  Texas at the
prestigious  corner of Buffalo  Speedway  and West Park.  It is anchored by the
national coffee chain Starbucks.

During  2003,  we acquired  three  parcels of land to be  developed,  which are
located in Houston,  Texas.  One of the sites,  located in the Galleria area of
Houston,  has  been  ground  leased  to  Eckerd.  Another  site  is  an  infill
development project in the prestigious Tanglewood area of Houston.  AmREIT also
acquired a one-acre parcel at the  intersection of Interstate 45 and West Road.
AmREIT  sold  four  properties  during  2003.  The  two  IHOP  properties  were
classified as held for resale since we intended to hold the properties for less
than a year.  The two  properties  were  sold  for a  combined  profit  of $787
thousand,  which is  recorded as a gain on sale of real estate held for resale.
In addition,  we sold two investment  properties during 2003. We sold an Office
Max, located in Delaware, and a Goodyear Tire, located in Houston, Texas. These
two  properties  were sold for a  combined  profit of $312  thousand,  which is
recorded as a gain on sale of real estate acquired for investment. Accordingly,
the operating  results and the gain on sale of these two  properties  have been
reclassified  and  reported  as  discontinued  operations  on the  Consolidated
Statement of Operations.

                                     F-20

<PAGE>


The following selected unaudited pro forma consolidated statement of operations
for AmREIT and  subsidiaries  gives effect to the  acquisition of Uptown Plaza,
which assumes that the  acquisition  occurred on January 1, 2003 and January 1,
2002,  respectively.  The pro forma statement also assumes that the merger with
its three affiliated partnership occurred on January 1, 2002. Additionally, the
Company has presented a summary of assets acquired and  liabilities  assumed as
of the date of the Uptown Plaza acquisition, December 10, 2003.


                 Pro Forma Consolidated Statement of Operations
                    For the Twelve Months Ended December 31,
                  (Unaudited) (in thousands, except shares and
                                per share data)
<TABLE>
<CAPTION>

                                                                   2003                         2002
<S>                                                                 <C>                    <C>

 Revenues
      Rental income and earned income                               $    8,715             $    6,388
      Other income                                                       5,025                  2,126
                                                                    ___________             __________
      Total Revenues                                                    13,740                  8,514


 Total Expenses                                                          9,110                  7,022
                                                                    ___________            ___________

 Operating income                                                        4,630                  1,492

 Income before discontinued operations                                   2,173                     67

     Income from discontinued operations                                   703                    198

 Pro forma net income                                               $    2,876             $      265

 Distributions paid to class B and class C shareholders                 (1,943)                (1,822)
                                                                    ___________            ___________

 Net income (loss) available to class A shareholders                $      933             $   (1,557)
                                                                    ===========            ===========

 Net income per common share - basic and diluted
      Loss before discontinued operations                                 0.08                  (0.65)
      Income from discontinued operations                                 0.25                   0.07
                                                                    ___________            ___________
      Net income (loss)                                                   0.33                  (0.58)

 Weighted average common shares used to compute
      net income per share, basic and diluted                        2,792,190              2,691,580
                                                                    ==========             ==========

</TABLE>

                                     F-21

<PAGE>


               Summary of Assets Acquired and Liabilities Assumed
                            as of December 10, 2003
                               (In Thousands)
Assets
     Buildings                                               $ 4,880
     Land                                                      7,784
     Intangible lease costs                                      348
                                                             _______

     TOTAL ASSETS                                            $13,012
                                                             =======

Liabilities                                                  $   147

Net assets acquired                                          $12,865
                                                             _______


11. COMMITMENT

The Company's lease agreement for its office  facilities  expired  December 31,
2003. The Company is currently on a month to month basis for its current office
facilities,  and is in  negotiations  to sign a lease for a new  office  space.
Rental  expense for the years ended December 31, 2003 and 2002 was $92 thousand
and $77 thousand, respectively.

12. SEGMENT REPORTING

In 2003,  the Company  began  evaluating  and managing the  operations in a more
comprehensive  manner,  focusing on the  specific  aspects of the  Company,  and
measuring their performance.

The operating  segments  presented are the segments of AmREIT for which separate
financial  information  is available,  and revenue and operating  performance is
evaluated  regularly by senior management in deciding how to allocate  resources
and in assessing  performance.  The 2002 information has been  reclassified into
these segments to provide comparable information.

AmREIT evaluates the performance of its operating segments primarily on revenue.
Because the real estate  development  and operating  segment and  securities and
retail  partnership  segment  are both  revenue  and fee  intensive,  management
considers revenue the primary  indicator in allocating  resources and evaluating
performance.

The  portfolio  segment  consists  of our  portfolio  of singe and  multi-tenant
shopping center projects.  This segment consists of 51 properties  located in 18
states.  Expenses  for this segment  include  depreciation,  interest,  minority
interest,  legal cost directly  related to the  portfolio of properties  and the
property level expenses. The consolidated assets of AmREIT are substantially all
in this segment.

Included in Corporate and Other are those costs and expenses related to general
overhead and personnel that are not solely responsible for one of the reporting
segments.

                                     F-22

<PAGE>

<TABLE>
<CAPTION>



--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
                                            Real Estate       Securities &
                                            Operating &       Retail            Corporate
                             Portfolio      Development       Partnerships      and Other      Total
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
2003
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
<S>       <C>                <C>            <C>                <C>              <C>            <C>

          Revenue            $   7,584      $    1,818         $   3,199        $       8      $  12,609
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Income from
          non-consolidated
          affiliates
                                     -               -               312                -            312
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Expenses              (3,796)           (447)           (2,909)          (3,557)       (10,698)
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Deferred merger
          cost                       -               -                 -             (915)          (915)
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Net income
          (loss) before
          discontinued
          operations             3,788           1,371               600           (4,464)         1,295
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------

--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
2002
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Revenue            $   5,193      $    1,223        $    1,099        $       4      $   7,519
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Income from
          non-consolidated
          affiliates                 -             417                 -                -            417
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Expenses              (3,052)           (307)             (881)          (2,649)        (6,889)
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Deferred merger
          cost                       -               -                 -           (1,904)        (1,904)
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
          Net income
          (loss) before
          discontinued
          operations             2,141           1,333               218           (4,549)          (857)
--------- ------------------ -------------- ----------------- ----------------- -------------- -------------
</TABLE>


13. SUBSEQUENT EVENTS

On March 2, 2004,  Footstar  (the  parent  company of Just For Feet) filed for a
voluntary petition of relief under Chapter 11 of the federal bankruptcy code. On
March 3, 2004,  the Footstar  announced  that they had  negotiated  and obtained
approval to use a $300 million debtor-in-possession  financing facility in order
to satisfy their current operating obligations during the reorganization period.
AmREIT owns two Just For Feet  properties,  one  located in Tucson,  Arizona and
another in Baton Rouge,  Louisiana.  Footstar has indicated  that both locations
are in the top 40  percent  of the  Just  For  Feet  chain,  and it has not been
identified whether the leases will be affirmed or rejected. Annual rental income
from both properties for the 2003 fiscal year is approximately $740 thousand, or
5.6% of total 2003  revenue.  AmREIT is working  with  Footstar  in an effort to
cooperate  with their  plan of  reorganization,  as well as  working  with local
retailers,  brokers and leasing agents on alternative  options for the property.
As of December  31, 2003 and as of the date of March 30,  2004  (unaudited)  the
Company does not have a material receivable due from Footstar.


                                     F-23

<PAGE>


                            AmREIT and subsidiaries
  SCHEDULE III - Consolidated Real Estate Owned and Accumulated Depreciation
                     For the year ended December 31, 2003

<TABLE>
<CAPTION>

                                                                                                                  Cost at
                    Property                      Encum-                                     Improve-          Close of Year
                  Description                     brances      Building          Land         ments      Building         Land

Properties Invested in
Under Operating Leases
<S>                                              <C>        <C>             <C>              <C>      <C>             <C>


Radio Shack Retail Store, Texas                  $  -       $   788,330     $    337,856     $  -     $   788,330     $   337,856
Blockbuster Music Store, Missouri                $  -       $ 1,247,461          534,483     $  -     $ 1,247,461     $   534,483
OneCare Health Industries, Inc., Texas           $  -       $ 1,455,030     $    534,086     $  -     $ 1,455,030     $   534,086
Blockbuster Music Store, Kansas                  $  -       $ 1,382,846     $    592,648     $  -     $ 1,382,846     $   592,648
Just For Feet Store, Arizona                     $  -       $       -       $  1,214,046     $  -     $       -       $ 1,214,046
Bank United, Woodlands, Texas                    $  -       $       -       $    562,846     $  -     $       -       $   562,846
Bank United, Houston, Texas                      $  -       $       -       $    851,973     $  -     $       -       $   851,973
Just For Feet Store, Louisiana                   $  -       $ 2,254,537     $    966,230     $  -     $ 2,254,537     $   966,230
Hollywood Video Store, Louisiana                 $  -       $   784,123     $    443,544     $  -     $   784,123     $   443,544
Hollywood Video Store, Mississippi               $  -       $   835,854     $    450,000     $  -     $   835,854     $   450,000
Lake Woodlands Plaza                             $  -       $ 2,987,700     $  1,369,065     $  -     $ 2,987,700     $ 1,369,065
Sugar Land Plaza                                 $  -       $ 2,902,157     $  1,280,043     $  -     $ 2,902,157     $ 1,280,043
Don Pablo's, Georgia                             $  -       $       -       $    773,800     $  -     $       -       $   773,800
IHOP, Topeka                                     $  -       $       -       $    450,984     $  -     $       -       $   450,984
IHOP, Sugarland                                  $  -       $       -       $    740,882     $  -     $       -       $   740,882
Jack in the Box                                  $  -       $   504,230     $    216,099     $  -     $   504,230     $   216,099
Baptist Memorial Health                          $  -       $ 1,456,017     $    624,006     $  -     $ 1,456,017     $   624,006
Payless Shoe Source                              $  -       $   498,098     $    212,907     $  -     $   498,098     $   212,907
Golden Corral                                    $  -       $ 1,099,817     $    722,949     $  -     $ 1,099,817     $   722,949
Golden Corral                                    $  -       $ 1,297,850     $    556,221     $  -     $ 1,297,850     $   556,221
TGI Friday's, Houston                            $  -       $ 1,453,769     $    623,043     $  -     $ 1,453,769     $   623,043
Guitar Center                                    $  -       $ 1,782,470     $    763,917     $  -     $ 1,782,470     $   763,917
Popeye's                                         $  -       $   778,772     $    333,758     $  -     $   778,772     $   333,758
Dr. Pucillo                                      $  -       $ 1,276,836     $    547,214     $  -     $ 1,276,836     $   547,214
Blockbuster Video                                $  -       $   688,090     $    294,896     $  -     $   688,090     $   294,896
Pier One Imports                                 $  -       $ 1,000,563     $    422,722     $  -     $ 1,000,563     $   422,722
IHOP, Memphis                                    $  -       $       -       $    469,502     $  -     $       -       $   469,502
IHOP, Centerville                                $  -       $       -       $    457,492     $  -     $       -       $   457,492
Uptown Plaza                                     $  -       $ 4,887,774     $  7,796,383     $  -     $ 4,887,774     $ 7,796,383
Terrace Shops                                    $  -       $ 2,544,593     $  2,212,278     $  -     $ 2,544,593     $ 2,212,278
San Felipe @ Winrock                             $  -       $       -       $  4,723,140     $  -     $       -       $ 4,723,140
TGI Friday's, Hanover                            $  -       $       -       $  1,474,473     $  -     $       -       $ 1,474,473
Westheimer & Yorktown                            $  -       $       -       $  2,688,996     $  -     $       -       $ 2,688,996

I-45 @ West Rd.                                  $  -       $       -       $    584,877     $  -     $       -       $   584,877
IHOP, Grand Prairie                              $  -       $       -       $    572,711     $  -     $       -       $   572,711
IHOP, Bridgeton                                  $  -       $       -       $    546,623     $  -     $       -       $   546,623
                                                 ____       ___________     ____________     ____     ___________     ___________

                     TOTAL                       $  -       $33,906,917     $ 37,946,693     $  -     $33,906,917     $37,946,693
                                                 ====       ===========     ============     ====     ===========     ===========


</TABLE>

<TABLE>
<CAPTION>
                                                                                            Life on Which
                                                                                             Depreciation
                                                                                           in Latest Income
                                                  Accumulated       Date of       Date        Statement
                                                  Depreciation    Construction  Acquired     is Computed
Properties Invested in
Under Operating Leases
<S>                                             <C>               <C>           <C>        <C>

Radio Shack Retail Store, Texas                 $    192,820          N/A       06-15-94       39 Years
Blockbuster Music Store, Missouri               $    170,630          N/A       11-14-94       39 Years
OneCare Health Industries, Inc., Texas          $    263,658          N/A       09-26-95       39 Years
Blockbuster Music Store, Kansas                 $    164,427          N/A       09-12-95       39 Years
Just For Feet Store, Arizona                             N/A          N/A       09-11-96         N/A
Bank United, Woodlands, Texas                            N/A          N/A       09-23-96         N/A
Bank United, Houston, Texas                              N/A          N/A       12-11-96         N/A
Just For Feet Store, Louisiana                  $    223,168          N/A       06-09-97       39 Years
Hollywood Video Store, Louisiana                $     95,741          N/A       10-31-97       39 Years
Hollywood Video Store, Mississippi              $    128,593          N/A       12-30-97       39 Years
Lake Woodlands Plaza                            $    342,258          N/A         6-3-98       39 Years
Sugar Land Plaza                                $    416,081          N/A         7-1-98       39 Years
Don Pablo's, Georgia                                     N/A          N/A       12-18-98         N/A
IHOP, Topeka                                             N/A          N/A        9-30-99         N/A
IHOP, Sugarland                                          N/A          N/A        9-22-99         N/A
Jack in the Box                                 $     18,855          N/A        7-23-02       39 Years
Baptist Memorial Health                         $     54,445          N/A        7-23-02       39 Years
Payless Shoe Source                             $     18,625          N/A        7-23-02       39 Years
Golden Corral                                   $     41,126          N/A        7-23-02       39 Years
Golden Corral                                   $     48,531          N/A        7-23-02       39 Years
TGI Friday's, Houston                           $     54,361          N/A        7-23-02       39 Years
Guitar Center                                   $     66,653          N/A        7-23-02       39 Years
Popeye's                                        $     29,121          N/A        7-23-02       39 Years
Dr. Pucillo                                     $     47,745          N/A        7-23-02       39 Years
Blockbuster Video                               $     25,730          N/A        7-23-02       39 Years
Pier One Imports                                $     37,414          N/A        7-23-02       39 Years
IHOP, Memphis                                            N/A          N/A        7-26-02         N/A
IHOP, Centerville                                        N/A          N/A        7-25-02         N/A
Uptown Plaza                                    $      6,860          N/A       12-10-03       39 Years
Terrace Shops                                   $      2,719          N/A       12-15-03       39 Years
San Felipe @ Winrock                                     N/A          N/A       11-17-03         N/A
TGI Friday's, Hanover                                    N/A          N/A        9-16-03         N/A
Westheimer & Yorktown                                    N/A          N/A        1-10-03         N/A

I-45 @ West Rd.                                          N/A          N/A       10-14-03         N/A
IHOP, Grand Prairie                                      N/A          N/A        4-29-03         N/A
IHOP, Bridgeton                                          N/A          N/A         5-8-03         N/A
                                                ____________

                     TOTAL                      $  2,449,561
                                                ============

</TABLE>




<TABLE>
<CAPTION>

                                                                                                                  Cost at
          Property                                Encum-                                     Improve-          Close of Year
         Description                              brances     Building         Land           ments      Building         Land

Properties Invested in Under
Direct Financing Lease
<S>                                              <C>        <C>             <C>              <C>      <C>             <C>

Just For Feet Store, Arizona                     $  -       $ 2,828,744     $        -       $  -     $ 2,828,744     $       -
IHOP, Topeka                                     $  -       $ 1,004,323     $        -       $  -     $ 1,004,323     $       -
IHOP, Sugarland                                  $  -       $ 1,010,880     $        -       $  -     $ 1,010,880     $       -
IHOP, Albuquerque                                $  -       $   878,115     $        -       $  -     $   878,115     $       -
IHOP, Baton Rouge                                $  -       $ 1,436,863     $        -       $  -     $ 1,436,863     $       -
IHOP, Beaverton                                  $  -       $ 1,048,473     $        -       $  -     $ 1,048,473     $       -
IHOP, Charlottesville                            $  -       $   749,809     $        -       $  -     $   749,809     $       -
IHOP, El Paso #1934                              $  -       $   900,268     $        -       $  -     $   900,268     $       -
IHOP, Roanoke                                    $  -       $   846,641     $        -       $  -     $   846,641     $       -
IHOP, Rochester                                  $  -       $ 1,140,349     $        -       $  -     $ 1,140,349     $       -
IHOP, Salem                                      $  -       $   722,522     $        -       $  -     $   722,522     $       -
IHOP, Shawnee                                    $  -       $   890,283     $        -       $  -     $   890,283     $       -
IHOP, Springfield                                $  -       $ 1,194,802     $        -       $  -     $ 1,194,802     $       -
IHOP, Alexandria                                 $  -       $   856,187     $        -       $  -     $   856,187     $       -
IHOP, Centerville                                $  -       $ 1,085,738     $        -       $  -     $ 1,085,738     $       -
IHOP, Memphis #4462                              $  -       $ 1,118,073     $        -       $  -     $ 1,118,073     $       -
IHOP, La Verne                                   $  -       $ 1,002,167     $        -       $  -     $ 1,002,167     $       -
IHOP, El Paso #1938                              $  -       $ 1,161,863     $        -       $  -     $ 1,161,863     $       -
IHOP, Memphis #4482                              $  -       $ 1,066,055     $        -       $  -     $ 1,066,055     $       -
IHOP, Parker                                     $  -       $ 1,104,056     $        -       $  -     $ 1,104,056     $       -
IHOP, Grand Prairie                              $  -       $ 1,372,806     $        -       $  -     $ 1,372,806     $       -
IHOP, Bridgeton                                  $  -       $ 1,307,324     $        -       $  -     $ 1,307,324     $       -
                                                 ____       ___________     __________       ____     ___________     ____________

              TOTAL                              $  -       $24,726,340     $        -       $  -     $24,726,340     $       -
                                                 ====       ===========     ==========       ====     ===========     ============

</TABLE>



<TABLE>
<CAPTION>
                                                                                            Life on Which
                                                                                             Depreciation
                                                                                           in Latest Income
                                                  Accumulated       Date of       Date        Statement
                                                  Depreciation    Construction  Acquired     is Computed


Properties Invested in Under
Direct Financing Lease
<S>                                                   <C>             <C>       <C>              <C>

Just For Feet Store, Arizona                          (1)             N/A       9-11-96          N/A
IHOP, Topeka                                          (1)             N/A       9-30-99          N/A
IHOP, Sugarland                                       (1)             N/A       9-22-99          N/A
IHOP, Albuquerque                                     (1)             N/A       4-23-02          N/A
IHOP, Baton Rouge                                     (1)             N/A       4-23-02          N/A
IHOP, Beaverton                                       (1)             N/A       4-16-02          N/A
IHOP, Charlottesville                                 (1)             N/A       4-23-02          N/A
IHOP, El Paso #1934                                   (1)             N/A       4-16-02          N/A
IHOP, Roanoke                                         (1)             N/A       6-21-02          N/A
IHOP, Rochester                                       (1)             N/A       4-16-02          N/A
IHOP, Salem                                           (1)             N/A       5-17-02          N/A
IHOP, Shawnee                                         (1)             N/A       4-16-02          N/A
IHOP, Springfield                                     (1)             N/A       5-17-02          N/A
IHOP, Alexandria                                      (1)             N/A       7-18-02          N/A
IHOP, Centerville                                     (1)             N/A       7-25-02          N/A
IHOP, Memphis #4462                                   (1)             N/A       7-26-02          N/A
IHOP, La Verne                                        (1)             N/A       8-23-02          N/A
IHOP, El Paso #1938                                   (1)             N/A       8-23-02          N/A
IHOP, Memphis #4482                                   (1)             N/A       8-23-02          N/A
IHOP, Parker                                          (1)             N/A       8-23-02          N/A
IHOP, Grand Prairie                                   (1)             N/A       4-29-03          N/A
IHOP, Bridgeton                                       (1)             N/A        5-8-03          N/A


              TOTAL                                   (1)

</TABLE>



                                     F-24

<PAGE>


(1) The portion of the lease relating to the building of this property has
    been recorded as a direct financing lease for financial reporting purposes.
    Consequently, depreciation is not applicable.

(2) Transactions in real estate and accumulated depreciation during 2003, 2002
    and 2001 for operating lease properties are summarized as follows:


                                                                Accumulated
                                                   Cost         Depreciation

Balance at December 31, 2000                    29,895,108        1,559,049
Acquisitions / additions                         1,351,201                -
Disposals                                         (797,237)               -
Depreciation expense                                     -          439,652
                                               ___________      ___________
Balance at December 31, 2001                   $30,449,072      $ 1,998,701
Acquisitions / additions                       $20,024,562      $         -
Disposals                                      $(2,875,168)     $  (238,591)
Depreciation expense                           $         -      $   262,042
                                               ___________      ___________
Balance at December 31, 2002                   $47,598,466      $ 2,022,152
Acquisitions / additions                       $29,239,727      $         -
Disposals                                      $(4,984,583)     $  (267,016)
Depreciation expense                           $         -      $   694,425
                                               ___________      ___________
Balance at December 31, 2003                   $71,853,610      $ 2,449,561


(3) The aggregate cost of all properties for Federal Income
    Tax purposes is $97,256,924 at December 31, 2003.


                                     F-25