UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549








FORM
10-Q





[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
quarterly period ended March 31, 2008





[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES


EXCHANGE
ACT OF 1934





For
      the transition period from _____  to _____Commission
      File
      Number:         000-52619AmREIT
      MONTHLY INCOME & GROWTH FUND III, LTD.
              (Exact
      Name of Registrant as Specified in its Charter)Texas
              (State
      or Other Jurisdiction of Incorporation or Organization)
            20-2964630
              (I.R.S.
      Employer Identification No.)8
      Greenway Plaza, Suite 1000
              Houston,
      Texas
              (Address
      of Principal Executive Offices)
            77046
              (Zip
      Code)713-850-1400
              (Registrant’s
      Telephone Number, Including Area Code)








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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  ̈





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
 See definition of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large
Accelerated Filer  ̈  Accelerated
Filer  ̈  Non-Accelerated
Filer  ̈  Smaller
Reporting Company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES  ̈  NO x















TABLE OF CONTENTS






Form
      10-Q
                Report
      PagePart I – Financial InformationItem 1 -
              Financial Statements
              1Item 2 -
              Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
              10Item 3 -
              Quantitative and Qualitative
      Disclosures about Market Risk
              11Item 4T -
              Controls and Procedures
              11Part II – Other InformationItem 1 -
              Legal Proceedings
              12Item 2 -
              Unregistered Sales of Equity Securities and Use
      of Proceeds
              12Item 3 -
              Defaults Upon Senior
    Securities
              12Item 4 -
              Submission of Matters to a Vote of Security
      Holders
              12Item 5 -
              Other Information
              12Item 6 -
              Exhibits
              12Signatures
              13Exhibit Index
              14




Table of Contents




PART I - FINANCIAL INFORMATION


FINANCIAL
STATEMENTS




AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


March
31, 2008 and December 31, 2007


(in
thousands)





March
      31,
            
            
            December
      31,2008
            
            
            2007ASSETS
            
            
            (unaudited)Real
      estate investments at cost:Land
            
            
            $
            18,446
            
            
            $
            18,446Buildings
            
            
            47,106
            
            
            
            47,105Tenant
      improvements
            
            
            890
            
            
            
            88466,442
            
            
            
            66,435Less
      accumulated depreciation and amortization
            
            
            (3,570
            )
            
            
            (3,115
            )62,872
            
            
            
            63,320Investment
      in non-consolidated entities
            
            
            25,165
            
            
            
            22,449Intangible
      lease cost, net
            
            
            3,054
            
            
            
            3,246Net
      real estate investments
            
            
            91,091
            
            
            
            89,015Cash
      and cash equivalents
            
            
            4,900
            
            
            
            5,245Tenant
      receivables, net
            
            
            808
            
            
            
            630Accounts
      receivable
            
            
            38
            
            
            
            7Accounts
      receivable - related party
            
            
            1,184
            
            
            
            1,307Notes
      receivable
            
            
            2,089
            
            
            
            -Notes
      receivable - related party
            
            
            2,073
            
            
            
            8,710Deferred
      costs, net
            
            
            600
            
            
            
            594Other
      assets
            
            
            819
            
            
            
            621TOTAL
      ASSETS
            
            $
            103,602
            
            
            $
            106,129LIABILITIES
      AND PARTNERS' CAPITALLiabilities:Notes
      payable
            
            $
            50,801
            
            
            $
            50,838Accounts
      payable
            
            
            1,128
            
            
            
            1,278Accounts
      payable - related party
            
            
            147
            
            
            
            77Below
      market leases, net
            
            
            658
            
            
            
            706Security
      deposits
            
            
            134
            
            
            
            123TOTAL
      LIABILITIES
            
            
            52,868
            
            
            
            53,022Minority
      interest
            
            
            2,137
            
            
            
            2,146Partners'
      capital:General
      partner
            
            
            -
            
            
            
            -Limited
      partners, 2,843 units outstanding
            
            
            48,597
            
            
            
            50,961TOTAL
      PARTNERS' CAPITAL
            
            
            48,597
            
            
            
            50,961TOTAL
      LIABILITIES AND PARTNERS' CAPITAL
            
            $
            103,602
            
            
            $
            106,129









~1~
 Table of Contents


AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands)


(unaudited)


Three
      months ended March 31,2008
            
            
            2007Revenues:Rental
      income from operating leases
            
            $
            1,792
            
            
            $
            1,741Total
      revenues
            
            
            1,792
            
            
            
            1,741Expenses:General
      and administrative
            
            
            38
            
            
            
            20General
      and administrative - related party
            
            
            81
            
            
            
            -Asset
      management fees - related party
            
            
            154
            
            
            
            154Property
      expense
            
            
            434
            
            
            
            456Property
      management fees - related party
            
            
            62
            
            
            
            59Legal
      and professional
            
            
            203
            
            
            
            43Depreciation
      and amortization
            
            
            631
            
            
            
            671Total
      expenses
            
            
            1,603
            
            
            
            1,403Operating
      income
            
            
            189
            
            
            
            338Other
      income (expense):Interest
      income - related party
            
            
            11
            
            
            
            130Interest
      and other income
            
            
            141
            
            
            
            258Interest
      expense
            
            
            (776
            )
            
            
            (775
            )Loss
      from non-consolidated entities
            
            
            (577
            )
            
            
            (110
            )Minority
      interest in loss of consolidated subsidiaries
            
            
            9
            
            
            
            29Income
      tax expense
            
            
            (15
            )
            
            
            (15
            )Total
      other income (expense)
            
            
            (1,207
            )
            
            
            (483
            )Net
      loss
            
            $
            (1,018
            )
            
            $
            (145
            )







~2~
 Table of Contents




AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF PARTNERS' CAPITAL


For the
three months ended March 31, 2008


(in
thousands)


(unaudited)


GP
            
            
            LP
            
            
            TotalBalance
      at December 31, 2007
            $
            -
            
            $
            50,961
            
            $
            50,961Contributions,
      net of offering costs
            
            -
            
            
            -
            
            
            -Net
      loss (1)
            
            14
            
            
            (1,032)
            
            
            (1,018)Distributions
            
            (14)
            
            
            (1,332)
            
            
            (1,346)Balance
      at March 31, 2008
            $
            -
            
            $
            48,597
            
            $
            48,597




(1)
            The allocation of
      net loss includes a curative allocation to increase the GP capital account
      by $141.  The partnership agreement provides that no partner shall be
      required to fund a deficit in their capital
account





See Notes to
      Consolidated Financial
Statements.







~3~
 Table of Contents




AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)


Three
      months ended March 31,2008
            
            
            2007Cash
      flows from operating activities:Net
      loss
            
            $
            (1,018
            )
            
            $
            (145
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Loss
      from non-consolidated entities
            
            
            577
            
            
            
            110Depreciation
      and amortization
            
            
            626
            
            
            
            635Minority
      interest in loss of consolidated subsidiaries
            
            
            (9
            )
            
            
            (29
            )Increase
      in tenant receivables
            
            
            (178
            )
            
            
            (191
            )Increase
      in accounts receivable
            
            
            (31
            )
            
            
            (1
            )Decrease
      (increase) in accounts receivable - related party
            
            
            123
            
            
            
            (102
            )Increase
      in deferred costs
            
            
            (33
            )
            
            
            (86
            )(Increase)
      decrease in other assets
            
            
            (198
            )
            
            
            (129
            )Decrease
      in accounts payable
            
            
            (150
            )
            
            
            (532
            )Increase
      in accounts payable - related party
            
            
            70
            
            
            
            104Increase
      in security deposits
            
            
            11
            
            
            
            1Net
      cash used in operating activities
            
            
            (210
            )
            
            
            (365
            )Cash
      flows from investing activities:Improvements
      to real estate
            
            
            (7
            )
            
            
            (423
            )Payments
      received on notes receivable
            
            
            1,429
            
            
            
            -Increase
      in notes receivable - related party
            
            
            (398
            )
            
            
            (1,614
            )Investment
      in non-consolidated entities
            
            
            (441
            )
            
            
            -Distributions
      from non-consolidated entities
            
            
            665
            
            
            
            -Net
      cash provided by (used in) investing activities
            
            
            1,248
            
            
            
            (2,037
            )Cash
      flows from financing activities:Payments
      on notes payable
            
            
            (37
            )
            
            
            (36
            )Issuance
      costs
            
            
            -
            
            
            
            (14
            )Distributions
            
            
            (1,346
            )
            
            
            (1,337
            )Net
      cash used in financing activities
            
            
            (1,383
            )
            
            
            (1,387
            )Net
      decrease in cash and cash equivalents
            
            
            (345
            )
            
            
            (3,789
            )Cash
      and cash equivalents, beginning of period
            
            
            5,245
            
            
            
            23,128Cash
      and cash equivalents, end of period
            
            $
            4,900
            
            
            $
            19,339Supplemental
      schedule of cash flow information:Cash
      paid during the year for interest
            
            $
            759
            
            
            $
            757Supplemental
      schedule of noncash investing and financing activities:

















~4~
 Table of Contents




AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  March
31, 2008
  (unaudited)
  1.  DESCRIPTION OF BUSINESS AND NATURE OF
OPERATIONS
  AmREIT
Monthly Income & Growth Fund III, Ltd., a Texas limited partnership
(hereinafter referred to as the “Partnership,” “MIG III,” “we,” “us” or “our”),
was formed on April 19, 2005 to directly or indirectly acquire, develop and hold
for lease primarily commercial retail real estate net leased to high quality
tenants. The General Partner of the Partnership is AmREIT Monthly Income &
Growth III Corporation, a Texas corporation (the “General Partner”), which is a
subsidiary of AmREIT, a Texas real estate investment trust. The General Partner
maintains its principal place of business in Houston, Texas.
  We
commenced our principal operations on June 30, 2005 when we raised the minimum
offering of $2.0 million pursuant to the terms of our Offering Memorandum dated
April 19, 2005 (the “Offering Memorandum”) and issued the initial 80 limited
partnership units (the “Units”). As of October 31, 2006, we had received $71.1
million for the sale of 2,844 Units and closed the Offering. At March 31, 2008,
we directly owned three properties comprising 225,000 square feet of gross
leasable area and owned an investment interest in eight other properties
comprising 1,243,000 square feet of gross leasable area.
  Our Units
were sold pursuant to exemptions from registration under the Securities Act of
1933, as amended, and are not currently listed on a national exchange. These
Units will be transferable only if we register them under such laws, and such
registration is not expected. We do not anticipate that any public market for
the Units will develop.
  2.  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
  BASIS
OF PRESENTATION
  Our
financial records are maintained on the accrual basis of accounting whereby
revenues are recognized when earned and expenses are recorded when incurred. The
consolidated financial statements include our accounts as well as the accounts
of any wholly- or majority-owned subsidiaries in which we have a controlling
financial interest. Investments in joint ventures and partnerships where we have
the ability to exercise significant influence but do not exercise financial and
operating control, are accounted for using the equity method. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
  The
consolidated financial statements included in this report are unaudited;
however, amounts presented in the consolidated balance sheet as of December 31,
2007 are derived from our audited financial statements at that
date.  In our opinion, all adjustments necessary for a fair
presentation of such financial statements have been included.  Such
adjustments consisted of normal recurring items.
  REVENUE
RECOGNITION
  We lease
space to tenants under agreements with varying terms. Our leases are accounted
for as operating leases with revenue being recognized on a straight-line basis
over the terms of the individual leases. Accrued rents are included in tenant
receivables. Revenue from tenant reimbursements of taxes, maintenance expenses
and insurance is recognized in the period the related expense is recorded.
Additionally, certain of the lease agreements contain provisions that provide
for additional rents based on tenants’ sales volumes (contingent or percentage
rent). Percentage rents are recognized when the tenants achieve the specified
targets as defined in their lease agreements. During the three months ended
March 31, 2008 and 2007, there were no percentage rents recognized. We recognize
lease termination fees in the period that the lease is terminated and collection
of the fees is reasonably assured. During the three months ended March 31, 2008
and 2007, there were no lease termination fees recognized.
  REAL
ESTATE INVESTMENTS
  Development
Properties-Land, buildings and improvements are recorded at cost. 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, real estate taxes and loan acquisition costs, and
direct and indirect development costs related to buildings under construction,
are capitalized as part of construction in progress. The capitalization of such
costs ceases at the earlier of one year from the date of completion of major
construction or when the property, or any completed portion, becomes available
for occupancy. We capitalize acquisition costs as incurred. Such costs are
expensed if and when the acquisition becomes no longer probable. During the
three months ended March 31, 2008 and 2007, we did not capitalize any interest
or taxes on properties under development.
  Acquired
Properties and Acquired Lease Intangibles - We account for real estate
acquisitions pursuant to Statement of Financial Accounting Standards No. 141,
Business Combinations(SFAS No. 141). Accordingly, we allocate the purchase price of the
acquired properties to land, building and improvements, identifiable intangible
assets and to the acquired liabilities based on their respective fair values.
Identifiable intangibles include amounts allocated to acquired out-of-market
leases, the value of in-place leases and customer relationship value, if any. We
determine 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 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 market
conditions, and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and estimates of lost rentals
at market rates during the expected lease-up periods, tenant demand and other
economic conditions. Management also estimates costs to execute similar leases
including leasing commissions, tenant improvements, legal and other related
expenses. Intangibles related to out-of-market leases and in-place lease value
are recorded as acquired lease intangibles and are amortized as an adjustment to
rental revenue or amortization expense, as appropriate, over the remaining terms
of the underlying leases. Premiums or discounts on acquired out-of-market debt
are amortized to interest expense over the remaining term of such
debt.
  Depreciation-Depreciation is computed
using the straight-line method over an estimated useful life of up to 50 years
for buildings, up to 20 years for site improvements and over the term of lease
for tenant improvements.
  Properties
Held for Sale-Properties are classified as held for sale if we have decided to market
the property for immediate sale in its present condition with the belief that
the sale will be completed within one year. Operating properties held for sale
are carried at the lower of cost or fair value less cost to sell. Depreciation
and amortization are suspended during the held for sale period. As of March 31,
2008 and December 31, 2007, we had no properties held for sale.
  Impairment-We review our 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. We determine 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. No impairment charges were recognized during three months ended
March 31, 2008 and 2007.
  ENVIRONMENTAL
EXPOSURES
  We are
subject to numerous environmental laws and regulations as they apply to real
estate pertaining to chemicals used by the dry cleaning industry, the existence
of asbestos in older shopping centers, and underground petroleum storage tanks.
We believe that the tenants who currently operate dry cleaning plants or gas
stations do so in accordance with current laws and regulations. We believe that
the ultimate disposition of currently known environmental matters will not have
a material affect on our financial position, liquidity, or operations (See Note
10). However, we can give no assurance that existing environmental studies with
respect to the shopping centers have revealed all potential environmental
liabilities; that any previous owner, occupant or tenant did not create any
material environmental condition not known to it; that the current environmental
condition of the shopping centers will not be affected by tenants and occupants,
by the condition of nearby properties, or by unrelated third parties; or that
changes in applicable environmental laws and regulations or their interpretation
will not result in additional environmental liability to the
Partnership.
  ~5~
 Table of Contents
  RECEIVABLES
AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
  Tenant
Receivables-included in tenant receivables are base rents, tenant reimbursements and
receivables attributable to recording rents on a straight-line basis. An
allowance for the uncollectible portion of accrued rents and accounts receivable
is determined based upon customer creditworthiness (including expected recovery
of our claim with respect to any tenants in bankruptcy), historical bad debt
levels, and current economic trends. Bad debt expenses and any related
recoveries are included in general and administrative expense. As of March 31,
2008 and December 31, 2007, our allowance for uncollectible accounts related to
our tenant receivables was $25,000 and $34,000, respectively.
  Accounts
Receivable Related Party- included in accounts
receivable related party are short-term cash advances provided to certain of our
affiliated investment entities primarily for their development needs. These cash
advances are due upon demand.
  Notes
Receivable - included in notes receivable is a loan made to our joint
venture partner that owns a 50% interest in our 5433 Westheimer
property.  During 2008 the $7.0 million note receivable from the 5433
Westheimer property was converted to equity.  In conjunction with the
equity conversion, we obtained a $3.5 million note receivable from our joint
venture partner. As of March 31, 2008, $1.4 million of the note had been paid
down.
  Notes
Receivable Related Party- included in notes
receivable related party are cash advances provided to certain of our investment
entities, primarily for their short-term working capital needs.
  DEFERRED
COSTS
  Deferred
costs include deferred leasing costs and loan acquisition costs, net of
amortization. Loan acquisition costs are incurred in obtaining financing and are
amortized to interest expense over the term of the debt agreements. Deferred
leasing costs consist of external commissions associated with leasing our
properties and are amortized to expense over the lease term. Accumulated
amortization related to loan acquisition costs as of March 31, 2008 and December
31, 2007 totaled $140,000 and $211,000, respectively. During the first quarter
of 2008, we reduced accumulated amortization by $90,000 related to deferred loan
acquisition costs that were fully amortized as of December 31, 2007. Accumulated
amortization related to leasing costs as of March 31, 2008 and December 31,
2007, totaled $26,000 and $18,000, respectively.
  INCOME
TAXES
  Federal-No provision for U.S.
federal income taxes is included in the accompanying consolidated financial
statements. As a partnership, we are not subject to federal income tax, and the
federal tax effect of our activities is passed through to our
partners.
  State-In May 2006, the State of
Texas adopted House Bill 3, which modified the state’s franchise tax structure,
replacing the previous tax based on capital or earned surplus with one based on
margin (often referred to as the “Texas Margin Tax”) effective with franchise
tax reports filed on or after January 1, 2008. The Texas Margin Tax is computed
by applying the applicable tax rate (1% for the Partnership) to the profit
margin, which, generally, will be determined for us as total revenue less a 30%
standard deduction. Although House Bill 3 states that the Texas Margin Tax is
not an income tax, the Partnership believes that SFAS No. 109, Accounting for Income Taxes,applies to the Texas Margin Tax. We have recorded a tax provision of
approximately $15,000 for the Texas Margin Tax for each three month period ended
March 31, 2008 and 2007.
  USE
OF ESTIMATES
  The
preparation of consolidated financial statements in conformity with U.S.
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
  Our
consolidated financial instruments consist primarily of cash and cash
equivalents, tenant receivables, accounts receivable, accounts receivable
related party, notes receivable, notes receivable related party, accounts
payable, accounts payable related party, and notes payable. The carrying value
of cash and cash equivalents, tenant receivables, accounts receivable, accounts
receivable related party, notes receivable, notes receivable related party,
accounts payable, and accounts payable related party, are representative of
their respective fair values due to the short-term nature of these instruments.
As of March 31, 2008 and December 31, 2007, the carrying value of our total debt
obligations was $50.8 and $50.8 million, respectively, all of which represent
fixed-rate obligations with an estimated fair value of $56.4 million and $53.6
million, respectively, based on a discounted cash flow analysis using current
market rates of interest.
  CONSOLIDATION
OF VARIABLE INTEREST ENTITIES
 
 In
December 2003, the Financial Accounting Standards Board (“FASB”) reissued
Interpretation No. 46, Consolidation of Variable Interest
Entities(FIN No. 46R),as revised.  FIN No. 46R addresses how a business enterprise
should evaluate whether it has a controlling financial interest in an entity
through means other than voting rights.  FIN No. 46R requires a
variable interest entity to be consolidated by a company that 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.  Disclosures are also required about variable interest entities
in which a company has a significant variable interest but that it is not
required to consolidate.  As of March 31, 2008 and December 31, 2007,
we were not invested in any entities that qualify as variable interest entities
pursuant to FIN No. 46R.
  NEW
ACCOUNTING STANDARDS
  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring
fair value and requires enhanced disclosures about fair value measurements. SFAS
No. 157 requires companies to disclose the fair value of its financial
instruments according to a fair value hierarchy. Additionally, companies are
required to provide certain disclosures regarding instruments within the
hierarchy, including a reconciliation of the beginning and ending balances for
each major category of assets and liabilities. SFAS No. 157 is effective for our
fiscal year beginning January 1, 2008. The adoption of SFAS No. 157 is not
expected to have a material effect on our results of operations or financial
position.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities(SFAS No. 159). SFAS No. 159 expands
opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair value. This Statement is effective for fiscal years beginning after
November 15, 2007. We currently do not plan to measure any eligible financial
assets and liabilities at fair value under the provisions of SFAS No.
159.
 
 In
December 2007, the FASB revised SFAS No. 141 (Revised 2007),Business Combinations (SFAS
No. 141R). SFAS
No. 141R will change the accounting for business combinations. Under SFAS No.
141R, an acquiring entity will be required to recognize all the assets acquired
and liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions.  SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.  We
are currently evaluating the potential impact of SFAS No. 141R on our financial
position and results of operations beginning for fiscal year 2009.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB
No. 51 (SFAS No. 160). SFAS No. 160 establishes accounting
and reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest
in a subsidiary is an ownership interest in the consolidated entity that should
be reported as equity in the consolidated financial statements. SFAS No.
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. SFAS No. 160 requires
retroactive adoption of the presentation and disclosure requirements for
existing minority interests. All other requirements of SFAS No. 160 shall
be applied prospectively. We are currently evaluating the potential impact of
the adoption of SFAS No. 160 on our consolidated financial
statements.
 
 ~6~
 Table of Contents
  OFFERING
COSTS
 
 The
General Partner funded all of the organization and offering costs on the
Partnership’s behalf. As of March 31, 2008, we had reimbursed the General
Partner for approximately $418,000 of organization and offering costs. The
offering costs, which include items such as legal and accounting fees,
marketing, and promotional printing costs are treated as a reduction of
partners’ capital along with sales commissions and dealer manager fees of 7.75%
and 2.5%, respectively. (See Note 8.)
  CASH
AND CASH EQUIVALENTS
  For
purposes of the consolidated statements of cash flows, we consider 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.
  INTEREST
  Interest
is charged to interest expense as it accrues. No interest has been capitalized
since inception of the partnership.
  SEGMENT
REPORTING
  The FASB
issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information,which establishes standards for
reporting financial and descriptive information about an enterprise’s reportable
segments. We determined that we have one reportable segment, with activities
related to investing in real estate. Our investments in real estate generate
rental revenue and other income through the leasing of multi-tenant retail
properties, which comprised 100% of our total consolidated revenues for all
periods presented. We evaluate operating performance on an individual property
level. However, as each of our properties have similar economic characteristics,
tenants and products and services, our properties have been aggregated into one
reportable segment.
  3.           INVESTMENTS IN NON-CONSOLIDATED
ENTITIES
 
 Since
inception, we made the following investments in five entities through which we
own an interest in seven properties:
  •
              In
      November 2007, we acquired a 30% interest in AmREIT Westheimer Gessner, LP
      which owns a multi-tenant retail property located in Houston, Texas with a
      combined gross leasable area of 82,120 square feet. The remaining 70% is
      owned by affiliated AmREIT entites, AmREIT Monthly Income & Growth
      Fund IV, L.P. and AmREIT Realty Investment
  Company.
  •
              In
      August 2007, we acquired a 30% interest in AmREIT Woodlake Square, LP
      which owns a multi-tenant retail property located in Houston, Texas with a
      combined gross leasable area of 206,000 square feet. The remaining 70% is
      owned by affiliated AmREIT entites, AmREIT Monthly Income & Growth
      Fund IV, L.P. and AmREIT Realty Investment
  Company.
  •
              In
      December 2006, we acquired a 50% interest in AmREIT Casa Linda, LP which
      owns a multi-tenant retail property located in Dallas, Texas with a
      combined gross leasable area of 325,000 square feet.  The
      remaining 50% is owned by AmREIT Monthly Income & Growth Fund IV,
      L.P.
  •
              In
      December 2006, we acquired a 20% interest in PTC/BSQ Holding Company, LLC
      which owns three multi-tenant retail properties located in Plano, Texas
      with a combined gross leasable area of 395,000 square
      feet.   The remaining 80% is owned by a third
      party.
  •
              In
      March 2006, we acquired a 50% interest in 5433 Westheimer, LP which owns
      an office building in Houston, Texas with a gross leasable area of 134,000
      square feet.  The remaining 50% is owned by a third
      party.
  We report
our investments in these entities using the equity method of accounting due to
our ability to exercise significant influence over them. Combined condensed
financial information for our non-consolidated entities (at 100%) is summarized
as of and for the three months ended March 31, 2008 and 2007 as follows (in
thousands):
  Three
      months ended
                March
      31,2008
              
              
              2007Revenue
              
              $
              4,898
              
              
              $
              3,736Loss
      from continuing operations
              
              
              (1,931
              )
              
              
              (44
              )Net
      loss
              
              
              (1,931
              )
              
              
              (44
              )
    ~7~
 Table of Contents
  4.           ACQUIRED LEASE INTANGIBLES
  In
accordance with SFAS No. 141, we have identified and recorded the value of
intangibles at the property acquisition date. Such intangibles include the value
of in-place leases and out-of-market leases. Acquired lease intangible assets
(in-place leases and above-market leases) are amortized over the leases’
remaining terms, which range from 2 years to 25 years. The amortization of
above-market leases is recorded as a reduction of rental income and the
amortization of in-place leases is recorded to amortization expense. The
amortization expense related to in-place leases was approximately $176,000 and
$260,000 for the three months ended March 31, 2008 and 2007, respectively. The
amortization of above-market leases, which was recorded as a reduction of rental
income, was approximately $16,000 and $18,000 during the three months ended
March 31, 2008 and 2007, respectively.
  In-place
and above-market lease amounts and their respective accumulated amortization are
as follows (in thousands):
  March
      31, 2008
                  
                  December
      31, 2007In-Place
      leases
                  
                  Above-market
      leases
                  
                  In-Place
      leases
                  
                  Above-market
      leasesCost
                  
                  $
                  4,635
                  
                  
                  $
                  293
                  
                  
                  $
                  4,635
                  
                  
                  $
                  293Accumulated
      amortization
                  
                  
                  (1,771
                  )
                  
                  
                  (103
                  )
                  
                  
                  (1,595
                  )
                  
                  
                  (87
                  )Intangible
      lease cost, net
                  
                  $
                  2,864
                  
                  
                  $
                  190
                  
                  
                  $
                  3,040
                  
                  
                  $
                  206
 Acquired
lease intangible liabilities (below-market leases) of $1.2 million as of March
31, 2008 and December 31, 2007 are net of previously accreted minimum rent of
approximately $503,000 and $455,000 at March 31, 2008 and December 31, 2007,
respectively. Below-market leases are accreted over the leases’ remaining terms,
which range from 2 to 25 years. Accretion of below market leases was
approximately $48,000 and $75,000 during the three months ended March 31, 2008
and 2007, respectively.  Such accretion is recorded as an increase to
rental income.
  5.           NOTES PAYABLE
  Our
outstanding debt at March 31, 2008 and December 31, 2007, consisted entirely of
fixed-rate mortgage loans of approximately $50.8 million. Our mortgage loans are
secured by certain real estate properties and may be prepaid, but could be
subject to a yield-maintenance premium or prepayment penalty. Mortgage loans are
generally due in monthly installments of interest and principal and mature over
various terms ranging from September 2011 through January 2036.
  As of
March 31, 2008, the weighted-average interest rate on our fixed-rate debt is
5.9%, and the weighted average remaining life of such debt is 12.9 years. As of
March 31, 2008, scheduled principal repayments on notes payable were as follows
(in thousands):
  Scheduled Payments by Year
              
              Scheduled
                Principal
                Payments
              
              
              Term-Loan
                Maturities
              
              
              Total
                Payments2008
              
              $
              109
              
              
              $
              -
              
              
              $
              1092009
              
              
              156
              
              
              
              -
              
              
              
              1562010
              
              
              165
              
              
              
              -
              
              
              
              1652011
              
              
              174
              
              
              
              24,615
              
              
              
              24,7892012
              
              
              183
              
              
              
              -
              
              
              
              183Thereafter
              
              
              495
              
              
              
              24,904
              
              
              
              25,399Total
              
              $
              1,282
              
              
              $
              49,519
              
              
              $
              50,801
   
 ~8~
 Table of Contents
  6.           CONCENTRATIONS
 
 As of
March 31, 2008 and December 31, 2007, each of our four consolidated properties
individually comprised greater than 12% of our consolidated total assets.
Consistent with our strategy of investing in areas that we know well, three of
our four properties are located in the Houston metropolitan area. These Houston
properties represent 82% and 79% of our rental income for the three months
ended March 31, 2008 and 2007.  Houston is Texas’ largest city and the
fourth largest city in the United States.
  Following
are the revenues generated by our top tenants during the three months ended
March 31, 2008 and 2007 (in thousands):
  Tenant
              
              2008
              
              
              2007H-E-B
      Grocery
              
              $
              491
              
              
              $
              422Designer
      Shoe Warehouse
              
              
              191
              
              
              
              193Rice
      Food Markets, Inc.
              
              
              117
              
              
              
              109Blockbuster
      Video
              
              
              75
              
              
              
              79Fidelity
      Investments
              
              
              73
              
              
              
              73$
              947
              
              
              $
              876
 
  7.           PARTNERS’ CAPITAL AND MINORITY INTEREST
  The
General Partner invested $800,000 as a limited partner and $1,000 as a general
partner. We began raising capital in June 2005 and had raised approximately $71
million at the time of the offering’s closing in October 2006. The General
Partner’s $800,000 investment represents a 1.1% limited partner interest in the
Partnership.
  Limited
Optional Redemption— Our Units were sold
pursuant to exemptions from registration under the Securities Act of 1933 and
are not currently listed on a national exchange. These Units will be
transferable only if we register them under such laws, and such registration is
not expected. We do not anticipate that any public market for the Units will
develop. In order to provide limited partners with the possibility of liquidity,
limited partners who have held their shares for at least three years may receive
the benefit of interim liquidity by presenting all of those units to the
Partnership for redemption. At that time, we may, at our sole election and
subject to the conditions and limitations described below, redeem the Units
presented for cash to the extent that we have sufficient funds available to us
to fund such redemption. The redemption price to be paid will be 92% of the
limited partner’s unreturned invested capital. At no time during a 12-month
period, however, may the number of Units redeemed by us exceed 2% of the number
of Units outstanding at the beginning of that 12-month period. We had no
redemptions during the 2007 or 2006 periods.
  Distributions— During the operating
stage of the Partnership, net cash flow, as defined, will be distributed 99% to
the limited partners and 1% to the General Partner. A current distribution of
7.5% per annum on invested capital has been paid to date during the operating
stage. During the liquidation stage of the Partnership (commencing in October
2012) net cash flow, as defined, will be distributed among the limited partners
and the General Partner in the following manner:
  ·
              First
      - 99% to the limited partners and 1% to the General Partner until such
      time as the limited partners have received cumulative distributions from
      all sources (including monthly cash distributions during the operating
      stage of the Partnership) equal to 100% of their unreturned invested
      capital plus an amount equal to 10% per annum uncompounded on their
      invested capital.
  ·
              Second
      - 100% to the General Partner until it has received cumulative
      distributions from all sources (other than with respect to its limited
      partner units it purchased) in an amount equal to 40% of the net cash flow
      paid to date to the limited partners in excess of their adjusted
      capital.
  ·
              Thereafter
      - 60% to the limited partners and 40% to the General
    Partner.
  Minority
Interest-Minority interest represents a 40% ownership interest that one of our
affiliate investment funds has in a real estate partnership that we consolidate
as a result of our 60% controlling financial interest in such
partnership.
  8.           RELATED PARTY TRANSACTIONS
  Certain
of our affiliates received fees and compensation during the organizational stage
of the Partnership, including securities commissions and due diligence
reimbursements, marketing reimbursements and reimbursement of organizational and
offering expenses. In the event that these companies are unable to provide us
with the respective services, we would be required to find alternative providers
of these services. The following table summarizes the amount of such
compensation paid to our affiliates during the three months ended March 31, 2008
and 2007 (in thousands):
  Three
      months ended
                March
      31,Type of Service
              
              2008
              
              
              2007Organizational
      and Offering Cost Reimbursements
              
              $
              -
              
              
              $
              14Asset
      Management Fees
              
              
              154
              
              
              
              154Property
      Management and Leasing
              
              
              95
              
              
              
              144Administrative
      Costs Reimbursements
              
              
              81
              
              
              
              -$
              330
              
              
              $
              312
 
 
  
 9.           REAL ESTATE ACQUISITIONS AND
DISPOSITIONS
  We did
not make any property acquisitions or dispositions during the three months ended
March 31, 2008 and 2007.
  During
2006, we invested approximately $33.5 million through the acquisition of two
properties. On June 30, 2006, we acquired Olmos Creek, a multi-tenant retail
property in San Antonio, Texas with a gross leasable area of 102,000 square
feet. On September 29, 2006, we acquired Lantern Lane, a shopping center in
Houston, Texas anchored by Rice Food Markets. The center has a gross leasable
area of 79,000 square feet. These acquisitions were accounted for as purchases
and the results of their operations are included in the accompanying
consolidated financial statements from the respective dates of
acquisition.
  Additionally,
during 2006, we generated proceeds of $775,000 from the sale to a third party of
a ground-leased parcel of land on the Olmos Creek property.
  See Note
3 for a discussion of our investment activity since our inception with respect
to our non-consolidated entities.
  10.           COMMITMENTS AND
CONTINGENCIES
  Litigation
- In the ordinary course of business, we may become subject to litigation or
claims. There are no material pending legal proceedings known to be contemplated
against us.
  Environmental
matters - In connection with the ownership and operation of real estate,
we may be potentially liable for costs and damages related to environmental
matters. We have not been notified by any governmental authority of any
non-compliance, liability or other claim.
  In
conjunction with our acquisition of the Lantern Lane Shopping Center in
September 2006, we identified an environmental exposure caused by a dry cleaning
business that operated on the property prior to our ownership. Our agreement
with the seller provides that, if the seller cannot satisfactorily evidence that
they have performed such remediation, we can reduce our note payable to them by
the lesser of the actual costs to remediate or $1.0 million. We believe that the
remediation costs will not exceed $1.0 million based on our environmental
investigation. We have not recorded a separate liability for this exposure as we
believe that we are fully indemnified by the seller pursuant to this
arrangement. To the extent that we are required to fund a portion of the
remediation, such amount will be financed through the reduction of the note
payable to the seller. We believe that this matter will not have an adverse
effect on our consolidated financial position or results of operations, and we
are aware of no other environmental exposures.
   ~9~
 Table of Contents
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  The
following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
  Our
disclosure and analysis in this Quarterly Report contain forward-looking
statements, which provide our current expectations or forecasts of future
events.  Words such as “believe,” “anticipate,” “expect,” and “intend”
and similar expressions may identify forward-looking statements, but the absence
of these words does not necessarily mean that a statement is not
forward-looking. Forward-looking statements are subject to known and unknown
risks and uncertainties and are based on potentially inaccurate assumptions that
could cause actual results to differ materially from those expected or implied
by the forward-looking statements. Our actual results could differ materially
from those anticipated in the forward-looking statements for many
reasons.   You should not unduly rely on these forward-looking
statements, which speak only as of the date of this Quarterly Report. We
undertake no obligation to publicly revise any forward-looking statement to
reflect circumstances or events after the date of this Quarterly Report or to
reflect the occurrence of unanticipated events, except as may be required by
law. You should, however, review the factors and risks we describe in the
reports we file from time to time with the Securities and Exchange Commission,
or SEC, after the date of this Quarterly Report.
 
 Overview
  We are a
Texas limited partnership formed on April 19, 2005 to acquire, develop and
operate, directly or indirectly through joint venture or other
arrangements, commercial retail real estate consisting of single-tenant and
multi-tenant properties net leased to investment grade and other creditworthy
tenants throughout the United States.  We focus on properties
characterized by high automobile traffic counts, high populations, high
household incomes and limited opportunities for competition.
  We have
no employees and are managed by AmREIT Monthly & Income III Corporation, our
General Partner, pursuant to our Partnership Agreement.  Our General
Partner is a wholly owned subsidiary of AmREIT, a Texas real estate investment
trust with shares of common stock traded on the American Stock Exchange (AMEX:
AMY).  We qualify as a partnership for federal income tax
purposes.
  As of
March 31, 2008, we directly owned three properties comprising 225,000 square
feet of gross leasable area and owned an investment interest in eight other
properties comprising 1,243,000 square feet of gross leasable area. A majority
of our properties are located in highly populated, suburban communities in
Texas.  We derive a substantial portion of our revenue from rental
income from these properties.  As a result, our operating results and
cash flows are primarily influenced by rental income from our properties and
interest expense on our property acquisition indebtedness.  Rental
income accounted for 100% of our total revenue during the three months ended
March 31, 2008 and 2007. As of March 31, 2008, our properties were 82% leased
and the average debt leverage ratio of the properties in which we have an
investment was approximately 51%, with 85% of such debt carrying a fixed rate of
interest.
 
 Summary
of Critical Accounting Policies
 
 The
preparation of the condensed consolidated financial statement information
contained herein requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, net sales and expenses, and
related disclosure of contingent assets and liabilities. Management bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
 
 An
accounting policy is deemed to be critical if it requires an accounting estimate
to be made based on assumptions about matters that are highly uncertain at the
time the estimate is made, and if different estimates that reasonably could have
been used, or changes in the accounting estimates that are reasonably likely to
occur periodically, could materially impact the financial statements.
Information with respect to the Partnership’s critical accounting policies that
the Partnership believes could have the most significant effect on the
Partnership’s reported results and require subjective or complex judgments by
management is contained in “Item 6. Management’s Discussion and Analysis or
Plan of Operation” of the Partnership’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2007. Management believes that as of
March 31, 2008, there have been no material changes to this
information.
 
 Results
of Operations
  We
commenced our principal operations on June 30, 2005, when we raised the minimum
offering of $2.0 million pursuant to the terms of our Offering Memorandum and
issued the initial 80 Units to investors.  During 2005, we acquired a
direct interest in a property on September 30, 2005 and acquired an interest in
another property on December 12, 2005 through a consolidated joint
venture.  During 2006, we acquired direct interests in two more
properties, one on June 30, 2006 and the other on September 29,
2006.  In 2006, we also made investments in three joint ventures
through which we obtained an ownership interest in five other properties. In
2007, we made investments in two more joint ventures through which we obtained
an ownership interest in two other properties. As of March 31, 2008, we
directly owned three properties comprising 225,000 square feet of gross leasable
area and owned an investment interest in eight other properties comprising
1,243,000 square feet of gross leasable area.
 
 Our
direct property acquisitions were accounted for as purchases and the results of
their operations are included in our consolidated financial statements from
their respective dates of acquisition. We report our investments in joint
ventures under the equity method of accounting given our ability to exercise
significant influence over them.
 
 Three
Months Ended March 31, 2008 versus Three Months Ended March 31,
2007
 
 Revenue.Revenue
increased approximately $51,000 to approximately $1.8 million during the three
months ended March 31, 2008 compared to approximately $1.7 million for the three
months ended March 31, 2007.   This increase was primarily due to
an increase in the number of tenants at Westside Plaza.
 
 General & Administrative.General and administrative expenses increased approximately $18,000 to
approximately $38,000 during the three months ended March 31, 2008 compared to
approximately $20,000 for the three months ended March 31, 2007.  This
increase was primarily due to an increase in leasing cost amortization and bad
debt expense.
 
 General &
Administrative–
Related Party. General and
administrative expenses paid to our affiliate increased $81,000 to approximately
$81,000 during the three months ended March 31, 2008 compared to $0 for the
three months ended March 31, 2007.  This increase is due to
administrative cost reimbursements that were recorded during the first quarter
of 2008; whereas administrative cost reimbursements for the first three months
of 2007 were not recorded until the second quarter of 2007.
 
 Asset Management
Fees.Asset management fees stayed relatively the same at
approximately $154,000 during the three months ended March 31, 2008 compared to
approximately $154,000 for the three months ended March 31, 2007.  The
capital raising close date was October 31, 2006; thus, asset management fees
should remain consistent each month.
 
 Property
Expenses.Property operating expenses decreased approximately
$22,000 to approximately $434,000 during the three months ended March 31, 2008
compared to approximately $456,000 for the three months ended March 31,
2007.  This decrease was primarily due to a decrease in the property
tax accrual on Olmos Creek .
 
 Property Management Fees – Related
Party.  Property management fees to our affiliate increased
approximately $3,000 to approximately $62,000 during the three months ended
March 31, 2008 compared to approximately $59,000 for the three months ended
March 31, 2007.  This increase was primarily due to an increase in the
number of tenants at Westside Plaza.
 
 Legal and Professional
Fees.Legal and professional fees increased approximately
$160,000 to approximately $203,000 during the three months ended March 31, 2008
compared to approximately $43,000 for the three months ended March 31,
2007.  The additional costs are attributable to the increased
financial reporting requirements associated with being a public
registrant.
 
 Depreciation and Amortization
Expense.Depreciation and amortization expense decreased
approximately $40,000 to approximately $631,000 during the three months ended
March 31, 2008 compared to approximately $671,000 for the three months ended
March 31, 2007. This decrease was primarily due to a decrease in
amortization of in-place leases, which is attributable to a majority of the
in-places leases becoming fully amortized during 2007.
 
 Interest Income – Related
Party.Interest income – related party is primarily related to
a loan made to 5433 Westheimer, LP, of which we own a 50%
interest.  The amount decreased approximately $119,000 to
approximately $11,000 during the three months ended March 31, 2008 compared to
approximately $130,000 during the three months ended March 31,
2007.  The decrease is attributable to the conversion of the loan (to
5433 Westheimer) into an equity investment in 5433 Westheimer, which occurred
during January 2008.
 
 Interest and Other
Income.  Interest and other income decreased approximately
$117,000 to approximately $141,000 during the three months ended March 31, 2008
compared to approximately $258,000 for the three months ended March 31,
2007.  This decrease was primarily due to earning interest on a lower
balance of investable funds during the first quarter of 2008 as compared to the
first quarter of 2007.  We invested approximately $8.3 million in the
Woodlake Square and Westheimer Gessner properties during August and November
2007, respectively.
 
 Interest
Expense.Interest expense remained relatively contant at
$776,000 for the three months ended March 31, 2008 as compared to
approximately $775,000 for the three months ended March 31, 2007.
 
 Loss From Non-Consolidated
Entities.Loss from non-consolidated entities increased
approximately $467,000 to approximately $577,000 for the three months ended
March 31, 2008 compared to approximately $110,000 for the three months
ended March 31, 2007.   These amounts represent our ownership
portion of our joint ventures’ net income or loss for the period.  The
increased loss is primarily attributable to our 20% ownership interest in
Berkeley Square and Preston Towne Crossing, both of which were acquired in
December 2006, our 30% ownership interest in Woodlake Square, which was acquired
in August 2007, and our 50% ownership interest in 5433 Westheimer.
   ~10~
 Table of Contents
 
 Liquidity
and Capital Resources
  We expect
to meet our short-term liquidity requirements with cash on hand as well as
through net cash provided by property operations.  We expect to meet
our long-term liquidity requirements through proceeds from secured or unsecured
financings from banks and other lenders, the selective and strategic sale of
properties and net cash flows from operations.
  As of
March 31, 2008 and December 31, 2007, our cash and cash equivalents totaled
approximately $4.9 million and approximately $5.2 million, respectively. Cash
flows provided by (used in) operating activities, investing activities and
financing activities for the three months ended March 31, 2008 and 2007 are as
follows (in thousands):
 
 Three
      months ended
                March
      31,2008
              
              
              2007Operating
      activities
              
              $
              (210
              )
              
              $
              (365
              )Investing
      activities
              
              $
              1,248
              
              
              $
              (2,037
              )Financing
      activities
              
              $
              (1,383
              )
              
              $
              (1,387
              )
 
 Net cash
flows used in operating activities decreased approximately $155 thousand to
approximately $210 thousand for the three months ended March 31, 2008 compared
to approximately $365 thousand for the three months ended March 31,
2007.  This decrease in operating outflows is primarily the result of
reduced outflows on accounts payable of $382 thousand during the period, driven
by the timing of our property tax payments in 2007 versus 2008.  Also,
we had increased collections on related party receivables during the period of
approximately $225 thousand due simply to the timing of those
payments.  These outflow decreases were partially offset by an
increase in net loss before the effect of losses from non-consolidated entities
of $406 thousand as further described above in Results of
Operations.
 
 Net cash
flows from investing activities increased approximately $3.2 million to net cash
inflows of approximately $1.2 million for the three months ended March 31, 2008
compared to net cash outflows of approximately $2.0 million for the three months
ended March 31, 2007.  This increase was primarily due to cash
collections of approximately $1.4 million on notes receivable from a joint
venture partner during the three months ended March 31, 2008, coupled with a
$1.2 million reduction in the amount of advances made on related party notes
receivable during the 2008 period.  Additionally, we received
distributions in the amount of $665 thousand from our investee entities, $519
thousand of which represents a return of our investment in the 5433 Westheimer
property.
  Net cash
flows used in financing activities remained constant at $1.4 million for both
periods and was comprised almost entirely of distributions to our
partners.
 
 ITEM 3.                     QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
  Not
applicable.
  ITEM 4T.                      CONTROLS AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures.
 
 Under the
supervision and with the participation of our General Partner’s Chief Executive
Officer and Chief Financial Officer, our General Partner’s 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 March 31, 2008.  Based on that
evaluation, our General Partner’s CEO and CFO concluded that our disclosure
controls and procedures were effective as of March 31, 2008.
 
 Changes
in Internal Controls
 
 There has
been no change to our internal control over financial reporting during the
quarter ended March 31, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
   ~11~
 Table of Contents
  PART II – OTHER INFORMATION
  ITEM 1.                      LEGAL
PROCEEDINGS
  In the
ordinary course of business, we may become subject to litigation or
claims.  There are no material pending legal proceedings or
proceedings known to be contemplated against us.
  ITEM 2.                      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  None.
  ITEM 3.                      DEFAULTS
UPON SENIOR SECURITIES
  None.
  ITEM 4.                      SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
  None.
  ITEM
5.                      OTHER INFORMATION
  None.
  ITEM
6.                      EXHIBITS
  (a)           The
following exhibits are filed or furnished as part of this report:
 
 Exhibit
      3.1
              Certificate
      of Limited Partnership of AmREIT Monthly Income & Growth Fund III,
      Ltd., dated April 19, 2005 (incorporated herein by reference from Exhibit
      3.1 to the Partnership’s Registration Statement on Form 10-SB dated April
      30, 2007).
 
 Exhibit
      3.2
              Agreement
      of Limited Partnership of AmREIT Monthly & Income Growth Fund III,
      Ltd., dated April 19, 2005 (incorporated herein by reference from Exhibit
      3.2 to the Partnership’s Registration Statement on Form 10-SB dated April
      30, 2007).
 
 Exhibit
      31.1
              Certification
      signed by the Chief Executive Officer of the Partnership’s General Partner
      pursuant to SEC Rule 13a-14(a) — filed
herewith.
 
 Exhibit
      31.2
              Certification
      signed by the Chief Financial Officer of the Partnership’s General Partner
      pursuant to SEC Rule 13a-14(a) — filed
herewith.
 
 Exhibit
      32.1
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer of
      the Partnership’s General Partner — furnished
  herewith.
 
 Exhibit
      32.2
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer of
      the Partnership’s General Partner — furnished
  herewith.
 
  
   ~12~
 Table of Contents
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
  AmREIT
      Monthly Income & Growth Fund III,
Ltd.
 
 By:
      AmREIT Monthly Income & Growth III Corporation, its General
      Partner
 Date: May
15, 2008
 
 By: /s/ H. Kerr
Taylor
 H. Kerr
Taylor
 President,
Chief Executive Officer, and Director
 
 By: /s/ Chad C.
Braun
 Chad C.
Braun
 Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
 
 
  ~13~
 Table of Contents
  EXHIBIT INDEX
 
 Exhibit
      3.1
              Certificate
      of Limited Partnership of AmREIT Monthly Income & Growth Fund III,
      Ltd., dated April 19, 2005 (incorporated herein by reference from Exhibit
      3.1 to the Partnership’s Registration Statement on Form 10-SB dated April
      30, 2007).
 
 Exhibit
      3.2
              Agreement
      of Limited Partnership of AmREIT Monthly & Income Growth Fund III,
      Ltd., dated April 19, 2005 (incorporated herein by reference from Exhibit
      3.2 to the Partnership’s Registration Statement on Form 10-SB dated April
      30, 2007).
 
 Exhibit
      31.1
              Certification
      signed by the Chief Executive Officer of the Partnership’s General Partner
      pursuant to SEC Rule 13a-14(a) — filed
herewith.
 
 Exhibit
      31.2
              Certification
      signed by the Chief Financial Officer of the Partnership’s General Partner
      pursuant to SEC Rule 13a-14(a) — filed
herewith.
 
 Exhibit
      32.1
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, signed by the Chief Executive Officer of
      the Partnership’s General Partner — furnished
  herewith.
 
 Exhibit
      32.2
              Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, signed by the Chief Financial Officer of
      the Partnership’s General Partner — furnished
  herewith.
  ~14~