Table of Contents





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|--------------------------------------------------------------------
|UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549
|                                                                    
|                                                                    
|                                                                    
|FORM 10-Q                                                           
|                                                                    
|                                                                    

|                                                                     
|---------------------------------------------------------------------
|(Mark
 One)                                                          
|xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  
|EXCHANGE ACT OF 1934                                                 
|                                                                     
|For
 the quarterly period ended March 31, 2009                       
|                                                                     
|or                                                                   
|                                                                     
|oTRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|EXCHANGE ACT OF 1934                                                 
|                                                                     
|For
 the transition period from _____ to _____                       
|                                                                     
|Commission
 File Number: 000-52619                                   
|                                                                     
|                                                                     
|                                                                     
|AmREIT MONTHLY INCOME & GROWTH FUND III, LTD.                        
|(Exact Name of
 Registrant as Specified in Its Charter)              

|                                                                                    |  |                                      
|----------------------------------------------------------------------------------- |  | -------------------------------------
|Texas                                                                               |  | 20-2964630                           
|(State or Other
 Jurisdiction of Incorporation or
 Organization)                    |  | (I.R.S. Employer
 Identification No.)
|                                                                                    |  |                                      
|8 Greenway Plaza, Suite 1000
 Houston, Texas                                        |  | 77046                                
|(Address of Principal
 Executive Offices)                                           |  | (Zip Code)                           
|                                                                                    |  |                                      
|713-850-1400                                                                       
|(Registrants Telephone
 Number, Including Area Code)                              
|                                                                                    |  |                                      
|Not Applicable                                                                     
|(Former Name, Former
 Address and Former Fiscal Year, if Changed Since Last Report)

---

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 registrant was
required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES x NO o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). o Yes o 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
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

|                          |                                              |                          |                            
|------------------------- | -------------------------------------------- | ------------------------ | ---------------------------
|Large accelerated filer  ̈ | Accelerated
 filer  ̈                         | Non-accelerated
 filer  ̈ | Smaller reporting company x
|                          | (Do
 not check if smaller reporting company)

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





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TABLE OF CONTENTS

|                                |                                                                                        |    |     
|------------------------------- | -------------------------------------------------------------------------------------- | -- | ----
|                                |                                                                                        |    | Page
|Part I  Financial
 Information |                                                                                        |   
|Item 1
 -                       | Financial
 Statements                                                                  |    | 1   
|Item 2
 -                       | Managements
 Discussion and Analysis of Financial Condition and Results of Operations |    | 15  
|Item 3
 -                       | Quantitative
 and Qualitative Disclosures About Market Risk                            |    | 18  
|Item 4T
 -                      | Controls
 and Procedures                                                               |    | 18  
|                                |                                                                                        |    |     
|Part II  Other
 Information    |                                                                                        |   
|Item 2
 -                       | Unregistered
 Sales of Equity Securities and Use of Proceeds                           |    | 19  
|Item 6
 -                       | Exhibits                                                                               |    | 19  
|Signatures                      |                                                                                        | 20
|Exhibit Index                   |                                                                                        | 21

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Table of Contents

PART I  FINANCIAL INFORMATION

|        |                     
|------- | --------------------
|ITEM 1. | FINANCIAL STATEMENTS

AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                |  |                 |        |                    |   |        |  
|----------------------------------------------- |  | --------------- | ------ | ------------------ | - | ------ | -
|                                                |  | March 31,
 2009 |        | December 31,
 2008 |  
|                                                |  | (unaudited)     |        |                    |   |       
|ASSETS                                          |  |                 |        |                    |   |        |  
|Real estate
 investments at cost:               |  |                 |        |                    |   |        |  
|Land                                            |  | $               | 18,446 |                    | $ | 18,446 |  
|Buildings                                       |  |                 | 47,265 |                    |   | 47,265 |  
|Tenant
 improvements                            |  |                 | 929    |                    |   | 1,020  |  
|                                                |  |                 | 66,640 |                    |   | 66,731 |  
|Less accumulated
 depreciation and amortization |  |                 | (5,345 | )                  |   | (4,917 | )
|                                                |  |                 | 61,295 |                    |   | 61,814 |  
|                                                |  |                 |        |                    |   |        |  
|Investment in
 non-consolidated entities        |  |                 | 26,540 |                    |   | 26,495 |  
|Acquired lease
 intangibles, net                |  |                 | 2,286  |                    |   | 2,488  |  
|Net real estate
 investments                    |  |                 | 90,121 |                    |   | 90,797 |  
|                                                |  |                 |        |                    |   |        |  
|Cash and cash
 equivalents                      |  |                 | 1,009  |                    |   | 918    |  
|Tenant
 receivables, net                        |  |                 | 618    |                    |   | 892    |  
|Accounts
 receivable                            |  |                 | 9      |                    |   | 8      |  
|Accounts
 receivable - related party            |  |                 | 391    |                    |   | 1,368  |  
|Notes receivable                                |  |                 | 334    |                    |   | 334    |  
|Deferred costs,
 net                            |  |                 | 546    |                    |   | 591    |  
|Other assets                                    |  |                 | 756    |                    |   | 830    |  
|TOTAL ASSETS                                    |  | $               | 93,784 |                    | $ | 95,738 |  
|                                                |  |                 |        |                    |   |        |  
|LIABILITIES
 AND CAPITAL                        |  |                 |        |                    |   |        |  
|Liabilities:                                    |  |                 |        |                    |   |        |  
|Notes payable                                   |  | $               | 50,652 |                    | $ | 50,693 |  
|Accounts payable
 and other liabilities         |  |                 | 786    |                    |   | 1,055  |  
|Accounts payable
 - related party               |  |                 | 109    |                    |   | 106    |  
|Acquired
 below-market lease intangibles, net   |  |                 | 460    |                    |   | 517    |  
|Security
 deposits                              |  |                 | 123    |                    |   | 133    |  
|TOTAL
 LIABILITIES                              |  |                 | 52,130 |                    |   | 52,504 |  
|                                                |  |                 |        |                    |   |        |  
|Capital:                                        |  |                 |        |                    |   |        |  
|MIG III
 Partners capital:                     |  |                 |        |                    |   |        |  
|General partner                                 |  |                 |       |                    |   |       |  
|Limited
 partners, 2,833 units outstanding      |  |                 | 40,438 |                    |   | 41,857 |  
|Accumulated
 other comprehensive loss           |  |                 | (228   | )                  |   | (253   | )
|TOTAL MIG III
 PARTNERS CAPITAL                |  |                 | 40,210 |                    |   | 41,604 |  
|                                                |  |                 |        |                    |   |        |  
|Non-controlling
 interest                       |  |                 | 1,444  |                    |   | 1,630  |  
|TOTAL CAPITAL                                   |  |                 | 41,654 |                    |   | 43,234 |  
|                                                |  |                 |        |                    |   |        |  
|TOTAL
 LIABILITIES AND CAPITAL                  |  | $               | 93,784 |                    | $ | 95,738 |  

See Notes to Consolidated Financial Statements.

1

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Table of Contents

AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)(unaudited)

|                                                       |  |                              |        |      |   |        |  
|------------------------------------------------------ |  | ---------------------------- | ------ | ---- | - | ------ | -
|                                                       |  | Three months ended March 31, |       
|                                                       |  | 2009                         |        | 2008 |  
|                                                       |  |                              |        |      |   |        |  
|Revenues:                                              |  |                              |        |      |   |        |  
|Rental income
 from operating leases                   |  | $                            | 1,826  |      | $ | 1,792  |  
|Total revenues                                         |  |                              | 1,826  |      |   | 1,792  |  
|                                                       |  |                              |        |      |   |        |  
|Expenses:                                              |  |                              |        |      |   |        |  
|General and
 administrative                            |  |                              | 17     |      |   | 24     |  
|General and
 administrative - related party            |  |                              | 98     |      |   | 81     |  
|Asset management
 fees - related party                 |  |                              | 154    |      |   | 154    |  
|Property expense                                       |  |                              | 502    |      |   | 440    |  
|Property
 management fees - related party              |  |                              | 91     |      |   | 62     |  
|Legal and
 professional                                |  |                              | 45     |      |   | 203    |  
|Depreciation and
 amortization                         |  |                              | 736    |      |   | 639    |  
|Total operating
 expenses                              |  |                              | 1,643  |      |   | 1,603  |  
|                                                       |  |                              |        |      |   |        |  
|Operating income                                       |  |                              | 183    |      |   | 189    |  
|                                                       |  |                              |        |      |   |        |  
|Other income
 (expense):                               |  |                              |        |      |   |        |  
|Interest income
 - related party                       |  |                              |       |      |   | 11     |  
|Interest and
 other income                             |  |                              | 14     |      |   | 141    |  
|Interest expense                                       |  |                              | (771   | )    |   | (776   | )
|Equity in losses
 from non-consolidated entities       |  |                              | (299   | )    |   | (577   | )
|Margin tax
 expense                                    |  |                              | (12    | )    |   | (15    | )
|Total other
 income (expense)                          |  |                              | (1,068 | )    |   | (1,216 | )
|                                                       |  |                              |        |      |   |        |  
|Net loss                                               |  |                              | (885   | )    |   | (1,027 | )
|                                                       |  |                              |        |      |   |        |  
|Add net loss
 attributable to non-controlling interest |  |                              | 31     |      |   | 9      |  
|Net loss
 attributable to MIG III                      |  | $                            | (854   | )    | $ | (1,018 | )

See Notes to Consolidated Financial Statements.

2

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Table of Contents

AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
For the three months ended March 31, 2009
(in thousands)(unaudited)

|                             |  |                           |    |                   |  |                                               |   |                          |      |       |  |       |   |  |        |  
|---------------------------- |  | ------------------------- | -- | ----------------- |  | --------------------------------------------- | - | ------------------------ | ---- | ----- |  | ----- | - |  | ------ | -
|                             |  | MIG III Partners Capital |    |                   |  |                                               |   |                          |     
|                             |  |                           |    |                   |  |                                               |   |                          |      |       |  |       |   |  |        |  
|                             |  | General
 Partner          |    | Limited
 Partners |  | Accumulated other
 comprehensive gain
 (loss) |   | Non-controlling interest |      | Total | 
|                             |  |                           |    |                   |  |                                               |   |                          |      |       |  |       |   |  |        |  
|Balance at December 31, 2008 |  |                           |   |                   |  | 41,857                                        |   |                          | (253 | )     |  | 1,630 |   |  | 43,234 |  
|                             |  |                           |    |                   |  |                                               |   |                          |      |       |  |       |   |  |        |  
|Redemptions                  |  |                           |   |                   |  | (28                                           | ) |                          |     |       |  |      |   |  | (28    | )
|Net loss (1)                 |  |                           | 6  |                   |  | (860                                          | ) |                          |     |       |  | (31   | ) |  | (885   | )
|Distributions                |  |                           | (6 | )                 |  | (531                                          | ) |                          |     |       |  | (155  | ) |  | (692   | )
|Gain from
 derivative        |  |                           |   |                   |  |                                              |   |                          | 25   |       |  |      |   |  | 25     |  
|                             |  |                           |    |                   |  |                                               |   |                          |      |       |  |       |   |  |        |  
|Balance at March 31, 2009    |  |                           |   |                   |  | 40,438                                        |   |                          | (228 | )     |  | 1,444 |   |  | 41,654 |  

|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The allocation of net loss includes a curative
 allocation to increase the GP capital account by $15 for the three months
 ended March 31, 2009. The cumulative curative allocation since inception of
 the partnership is $222. The Partnership agreement provides that no partner
 shall be required to fund a deficit balance in their capital account.

See Notes to Consolidated Financial Statements.

3

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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, |      
|                                                                                                                                                                               |  | 2009                         |       | 2008 |  
|Cash flows from
 operating activities:                                                                                                                                         |  |                              |       |      |   |        |  
|Net loss                                                                                                                                                                       |  | $                            | (854  | )    | $ | (1,018 | )
|Adjustments to
 reconcile net loss to net cash provided by (used in)
 operating activities:                                                                                    |  |                              |       |      |   |        |  
|Loss from
 non-consolidated entities                                                                                                                                           |  |                              | 299   |      |   | 577    |  
|Depreciation and
 amortization                                                                                                                                                 |  |                              | 755   |      |   | 658    |  
|Amortization of
 above and below market leases, net                                                                                                                            |  |                              | (42   | )    |   | (32    | )
|Bad Debt Expense                                                                                                                                                               |  |                              | 87    |      |   | 6      |  
|Net loss
 attributable to non-controlling interest                                                                                                                             |  |                              | (31   | )    |   | (9     | )
|Decrease
 (increase) in tenant receivables                                                                                                                                     |  |                              | 187   |      |   | (184   | )
|Increase in
 accounts receivable                                                                                                                                               |  |                              | (1    | )    |   | (31    | )
|Decrease in
 accounts receivable - related party                                                                                                                               |  |                              | 902   |      |   | 123    |  
|Increase in
 deferred costs                                                                                                                                                    |  |                              | (2    | )    |   | (33    | )
|Decrease
 (increase) in other assets                                                                                                                                           |  |                              | 74    |      |   | (198   | )
|Decrease in
 accounts payable and other liabilities                                                                                                                            |  |                              | (269  | )    |   | (150   | )
|Increase in
 accounts payable - related party                                                                                                                                  |  |                              | 3     |      |   | 70     |  
|Increase
 (decrease) in security deposits                                                                                                                                      |  |                              | (10   | )    |   | 11     |  
|Net cash provided by (used
 in) operating activities                                                                                                                           |  |                              | 1,098 |      |   | (210   | )
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|Cash flows from
 investing activities:                                                                                                                                         |  |                              |       |      |   |        |  
|Improvements to
 real estate                                                                                                                                                   |  |                              | (2    | )    |   | (7     | )
|Payments
 received on notes receivable                                                                                                                                         |  |                              |      |      |   | 1,429  |  
|Advances for
 notes receivable - related party                                                                                                                                 |  |                              |      |      |   | (398   | )
|Investment in
 non-consolidated entities                                                                                                                                       |  |                              | (313  | )    |   | (441   | )
|Distributions
 from non-consolidated entities                                                                                                                                  |  |                              | 69    |      |   | 665    |  
|Net cash
 provided by (used in) investing activities                                                                                                                           |  |                              | (246  | )    |   | 1,248  |  
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|Cash flows from
 financing activities:                                                                                                                                         |  |                              |       |      |   |        |  
|Payments on notes
 payable                                                                                                                                                     |  |                              | (41   | )    |   | (37    | )
|Optional
 redemptions                                                                                                                                                          |  |                              | (28   | )    |   |       |  
|Distributions                                                                                                                                                                  |  |                              | (537  | )    |   | (1,346 | )
|Distributions to
 non-controlling interest                                                                                                                                     |  |                              | (155  | )    |   |       |  
|Net cash used in
 financing activities                                                                                                                                         |  |                              | (761  | )    |   | (1,383 | )
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|Net increase
 (decrease) in cash and cash equivalents                                                                                                                          |  |                              | 91    |      |   | (345   | )
|Cash and cash
 equivalents, beginning of period                                                                                                                                |  |                              | 918   |      |   | 5,245  |  
|Cash and cash
 equivalents, end of period                                                                                                                                      |  | $                            | 1,009 |      | $ | 4,900  |  
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|Supplemental
 schedule of cash flow information:                                                                                                                               |  |                              |       |      |   |        |  
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|Cash paid during
 the period for interest                                                                                                                                      |  | $                            | 752   |      | $ | 759    |  
|Cash paid during
 the period for taxes                                                                                                                                         |  | $                            |      |      | $ |       |  
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|Supplemental
 schedule of noncash investing and financing activities:                                                                                                          |  |                              |       |      |   |        |  
|                                                                                                                                                                               |  |                              |       |      |   |        |  
|During the three months
 ended March 31, 2009, $75,000 of receivables from one of our non-consolidated
 entities were reclassified to investment in non-consolidated entities. | 

See Notes to Consolidated Financial Statements.

4

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Table of Contents

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009(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 acquire, develop and operate, directly or indirectly, a
portfolio of commercial real estate consisting primarily of multi-tenant shopping
centers and mixed-use developments. 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 non-traded Texas real
estate investment trust that files reports with the Securities and Exchange
Commission (SEC). The General Partner maintains its principal place of
business in Houston, Texas.

We commenced
our principal operations on June 30, 2005, when we accepted subscriptions for
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, 2009, 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 applicable securities laws
(such registration is not expected) or pursuant to an exemption under the
Securities Act of 1933, as amended, and applicable state securities laws. 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. As applicable,
we consolidate certain joint ventures and partnerships in which we own less
than a 100% equity interest if the entity is a variable interest entity and we
are the primary beneficiary (as defined in Financial Accounting Standards Board
(FASB) Interpretation No. (FIN) 46(R): Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51, as revised(FIN
46(R))). Following consideration under FIN 46(R), if required, we also
evaluate applicable partially-owned entities under Emerging Issues Task Force
(EITF) Issue No. 04-5: Determining Whether
a General Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity when the Limited Partners Have Certain Rights,
for consolidation considerations. 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,
2008 are derived from our audited financial statements as of 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.

5

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Table of Contents

REVENUE RECOGNITION

We lease space
to tenants under agreements with varying terms. All of the leases are accounted
for as operating leases and although certain leases of the properties provide
for tenant occupancy during periods for which no rent is due and/or increases
or decreases in the minimum lease payments over the terms of the leases,
revenue is recognized on a straight-line basis over the terms of the individual
leases. In most cases, revenue recognition under a lease begins when the lessee
takes possession of or controls the physical use of the leased asset.
Generally, this occurs on the lease commencement date. In all cases, we have
determined that we are the owner of any tenant improvements that we fund
pursuant to the lease terms. In cases where tenant improvements are made prior
to lease commencement, the leased asset is considered to be the finished space,
and revenue recognition therefore begins when the improvements are substantially
complete.

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 grant additional rents based on tenants sales volumes
(contingent or percentage rent). We defer the recognition of contingent or
percentage rental income until the specific targets as defined in lease
agreements that trigger the contingent or percentage rental income are
achieved. During the three months ended March 31, 2009 and 2008, there were no
percentage rents recognized. We recognize lease termination income if there is
a signed termination letter agreement, all of the conditions of the agreement
have been met and collectability is certain. Upon early lease termination, we
provide for losses related to unrecovered intangibles and other assets. During
the three months ended March 31, 2009 and 2008, we recognized no lease
termination fees.

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.

Acquired Properties and Acquired Lease
Intangibles - We account for real estate
acquisitions pursuant to Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations(SFAS
No. 141R). 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 above and below
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 above (and below)
market leases and in-place lease value are recorded as acquired lease
intangibles (liabilities) and are amortized as an adjustment to rental income
or amortization expense, as appropriate, over the remaining terms of the
underlying leases. Below market leases include fixed-rate renewal periods. Premiums
or discounts on acquired above and below market debt are amortized to interest
expense over the remaining term of such debt.

We expense
acquisition costs as incurred in accordance with SFAS No. 141R. Prior to
adoption of SFAS No. 141R, such costs were capitalized and expensed if and when
the acquisition became no longer probable. During the three months ended March
31, 2009 and 2008, we expensed acquisition costs of $3,000 and $0,
respectively. We did not capitalize any interest or taxes during the same
periods.

Depreciation -Depreciation
is computed using the straight-line method over an estimated useful life of up
to 39 years for buildings and site improvements and over the term of lease for
tenant improvements.

6

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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,
2009 and December 31, 2008, 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. Both the estimated
undiscounted cash flow analysis and fair value determination are based upon
various factors which require complex and subjective judgments to be made by
management. Such assumptions include projecting lease-up periods, holding
periods, cap rates, rental rates, operating expenses, lease terms, tenant
creditworthiness, tenant improvement allowances, terminal sales value and
certain macroeconomic factors among other assumptions to be made for each
property. No impairment charges were recognized during the three months ended
March 31, 2009 and 2008.

ENVIRONMENTAL
EXPOSURES

We are subject
to numerous environmental laws and regulations as they apply to real estate
including those addressing 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 occupying our properties 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 9). 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.

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 credit-worthiness (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 property expense. As of March 31, 2009
and December 31, 2008, our allowance for uncollectible accounts related to our
tenant receivables was $185,000 and $98,000, 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 42.5% interest in our 5433 Westheimer property. Interest accrues monthly
at a rate of 15% per annum. Interest payments are due monthly, and the balance
of the note and any unpaid interest is due in full on December 31, 2009.

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 depreciation expense on a straight-line basis over the lease term.
Accumulated amortization related to loan acquisition costs as of March 31, 2009
and December 31, 2008 totaled $216,000 and $197,000, respectively. Accumulated
amortization related to leasing costs as of March 31, 2009 and December 31,
2008, totaled $64,000 and $55,000, respectively.

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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 returns filed for tax years beginning on or after
January 1, 2007. 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. For each of the three month periods ended March 31,
2009 and 2008, we recorded a tax provision of approximately $12,000 and
$15,000, respectively, for the Texas Margin Tax.

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, accounts payable, accounts
payable-related party, and notes payable. The carrying value of all but the
notes receivable and notes payable are representative of their respective fair
values due to the short-term nature of these instruments. As of March 31, 2009
and December 31, 2008, the carrying value of debt obligations associated with
our consolidated entities was $50.7 million, all of which represents fixed-rate
obligations with an estimated fair value of $51.2 million and $52.8 million,
respectively, based on a discounted cash flow analysis using current market
rates of interest.

SFAS No. 157, Fair Value Measurements (SFAS No. 157)
defines a hierarchy of inputs to valuation techniques based upon whether those
inputs reflect assumptions other market participants would use based upon
market data obtained from independent sources (observable inputs). The
following summarizes the fair value hierarchy defined within SFAS No. 157:

| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1
 Inputs  Quoted market prices (unadjusted) for identical assets and
 liabilities in an active market that the Company has the ability to access at
 the measurement date.
| |   |                                                                                                                                                                                   
| |  | Level 2 Inputs
  Inputs, other than the quoted prices in active markets, that are observable
 either directly or indirectly.                                                     
| |   |                                                                                                                                                                                   
| |  | Level 3
 Inputs  Inputs based on prices or valuation techniques that are both
 unobservable and significant to the overall fair value measurements.                              

SFAS No. 157
requires the use of observable market data, when available, in making fair
value measurements. Observable inputs are inputs that the market participants
would use in pricing the asset or liability developed based on market data obtained
from sources independent of ours. Unobservable inputs are inputs that reflect
our assumptions about the assumptions market participants would use in pricing
the asset or liability developed based on the best information available in the
circumstances. When inputs used to measure fair value fall within different
levels of the hierarchy, the level within which the fair value measurement is
categorized is based on the lowest level input that is significant to the fair
value measurement.

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In determining
the value of our debt instruments, we determine the appropriate Treasury Bill
Rate based on the remaining time to maturity for each of the debt instruments.
We then add the appropriate yield spread to the Treasury Bill Rate. The yield
spread is a risk premium estimated by investors to account for credit risk
involved in debt financing. The spread is typically estimated based on the
property type and loan-to-value ratio of the debt instrument. The result is an
estimate of the market interest rate a typical investor would expect to receive
given the underlying subject asset (property type) and remaining time to
maturity.

The following
table presents our assets and liabilities and related valuation inputs within
the fair value hierarchy utilized to measure fair value as of March 31, 2009
(in thousands):

|               |  |         |   |         |   |         |  |   |        | 
|-------------- |  | ------- | - | ------- | - | ------- |  | - | ------ | 
|               |  | Level 1 |   | Level 2 |   | Level 3 | 
|Notes
 Payable |  | $       |  |         | $ |        |  | $ | 51,240 | 

NEW ACCOUNTING
STANDARDS

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. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We did not elect the fair value option for any eligible
financial assets and liabilities under the provisions of SFAS No. 159.

In December
2007, the FASB issued SFAS No. 141R, which 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 adopted the provisions of
SFAS No. 141R on January 1, 2009. Such adoption did not have a material impact
on our results of operations, cash flows or financial condition as we did not
acquire any properties or entities during the three months ended March 31,
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 non-controlling interest in a subsidiary and for the deconsolidation of
a subsidiary. It clarifies that a non-controlling 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 non-controlling
interests. All other requirements of SFAS No. 160 shall be applied
prospectively. Our adoption of SFAS No. 160 caused our partners capital to
increase as a result of transferring the minority interest in our consolidated
subsidiary from the mezzanine section of our balance sheet into equity.

In March 2008,
the FASB issued SFAS No. 161: Disclosures
about Derivative Instruments and Hedging Activities (SFAS No.
161). SFAS No. 161 requires enhanced disclosures about an entitys derivative
and hedging activities. Under SFAS No. 161, entities are required to provide
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities and its related interpretations,
and how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. We adopted the provisions of SFAS No. 161 on January 1, 2009, and there
was no material impact on the results of our operations or financial position.

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CASH AND CASH
EQUIVALENTS

For the
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.

RECLASSIFICATIONS

Certain prior
period amounts in the consolidated financial statements have been reclassified
to conform to the presentation used in the current period consolidated
financial statements.

|   |                                         
|-- | ----------------------------------------
|3. | INVESTMENTS IN NON-CONSOLIDATED ENTITIES

Since
inception, we have made the following investments in five entities through
which we own an interest in seven properties:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
 As noted below, we have since acquired an additional 7.5% interest. The
 remaining 42.5% is owned by a third party. We are currently constructing a
 hotel on the property and plan to construct additional retail space in the
 future.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | 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 396,000 square feet. The remaining 80% is owned by a
 third party.                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | 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., an affiliate of our General
 Partner.                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | 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 entities, AmREIT Monthly Income & Growth Fund IV, L.P.
 and AmREIT Realty Investment Company.                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | 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 entities, AmREIT Monthly Income & Growth Fund IV, L.P. and AmREIT
 Realty Investment Company.                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In May 2008,
 we acquired a 30% interest in a land tract adjacent to AmREIT Westheimer
 Gessner, LP for $1.3 million. The acquisition is accounted for as a part of
 AmREIT Westheimer Gessner, LP. The remaining 70% is owned by affiliated
 AmREIT entities, AmREIT Monthly Income & Growth Fund IV, L.P. and AmREIT
 Realty Investment Company.                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | In November
 2008, we acquired an additional 7.5% interest in 5433 Westheimer, LP from our
 third party, joint-venture partner for $800,000. The remaining 42.5% is owned
 by that same party. The property is not consolidated into our financial
 statements as it does not meet all conditions for consolidation outlined in
 FASB Interpretation 46R, Consolidation of
 Variable Interest Entities (as amended) or EITF 04-5, Determining Whether a General Partner, or the
 General Partners as a Group, Controls a Limited Partnership or Similar Entity
 When the Limited Partners Have Certain Rights.

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, 2009 and 2008 as follows (in
thousands):

|                               |  |                               |        |      |   |        |  
|------------------------------ |  | ----------------------------- | ------ | ---- | - | ------ | -
|                               |  | Three months ended
 March 31, |       
|                               |  | 2009                          |        | 2008 |  
|Revenue                        |  | $                             | 4,623  |      | $ | 4,898  |  
|Depreciation
 and amortization |  |                               | (2,309 | )    |   | (3,758 | )
|Interest
 expense              |  |                               | (1,457 | )    |   | (1,472 | )
|Net loss                       |  |                               | (891   | )    |   | (1,931 | )

DERIVATIVE FINANCIAL
INSTRUMENTS

In December
2007, one of our non-consolidated investment properties entered into an
interest rate swap with a notional amount of $23.8 million and a fixed rate of
5.465% in order to manage the volatility inherent in its variable-rate
mortgage. On October 1, 2008, that interest rate swap was designated a hedge
for financial reporting purposes. In accordance with SFAS No. 133 and SFAS No.
149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, changes in fair value
of derivatives that qualify as cash flow hedges are recognized in other
comprehensive income (OCI). Prior to October 1, 2008, such changes in fair
value were recorded as a loss from derivative on the propertys statement of
operations. For the three months ended March 31, 2008, our portion of the loss
totaled $288,000 and is included in loss from non-consolidated entities in our
consolidated statements of operations. For the three months ended March 31,
2009, our portion of the increase in fair value totaled $25,000 and is included
in accumulated other comprehensive gain (loss) on our consolidated statements
of partners capital.

|   |                           
|-- | --------------------------
|4. | ACQUIRED LEASE INTANGIBLES

In
accordance with SFAS No. 141R, we have identified and recorded the value of
acquired lease intangibles at the property acquisition date. Such intangibles
include the value of acquired in-place leases and above and below market
leases. Acquired lease intangible assets (in-place leases and above-market
leases) are amortized over the leases remaining terms, which range from 1 year
to 14 years. Acquired lease intangible liabilities (below-market leases) are
accreted over the leases remaining non-cancelable lease term, plus any
fixed-rate renewal options, if any, which range from 1 year to 14 years. The
amortization of above (and below) market leases is recorded as a reduction of
(increase in) rental income, and the amortization of in-place leases is included
in amortization expense. The amortization expense related to in-place leases
was approximately $187,000 and $176,000 for the three months ended March 31,
2009 and 2008, respectively. The amortization of above-market leases, which was
recorded as a reduction of rental income, was approximately $15,000 and $16,000
during the three months ended March 31, 2009 and 2008, respectively. Accretion
of below market leases was approximately $57,000 and $48,000 during the three
months ended March 31, 2009 and 2008, respectively.

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Acquired
in-place and above and below market lease amounts and their respective
accumulated amortization are as follows (in thousands):

|                                    |  |                |        |                           |   |        |   |                           |        |   |   |        |  
|----------------------------------- |  | -------------- | ------ | ------------------------- | - | ------ | - | ------------------------- | ------ | - | - | ------ | -
|                                    |  | March 31, 2009 |        | December 31, 2008         |  
|                                    |  |                |        |                           |   |        |   |                           |       
|                                    |  | Cost           |        | Accumulated
 Amortization |   | Cost   |   | Accumulated
 Amortization |       
|In-place
 leases                    |  | $              | 4,505  |                           | $ | (2,338 | ) | $                         | 4,585  |   | $ | (2,232 | )
|Above-market
 leases                |  |                | 269    |                           |   | (150   | ) |                           | 278    |   |   | (143   | )
|Below-market
 leases                |  |                | (1,140 | )                         |   | 680    |   |                           | (1,161 | ) |   | 644    |  
|Acquired intangible lease cost, net |  | $              | 3,634  |                           | $ | (1,808 | ) | $                         | 3,702  |   | $ | (1,731 | )

|   |              
|-- | -------------
|5. | NOTES PAYABLE

Our
outstanding debt consisted entirely of fixed-rate mortgage loans of
approximately $50.7 million at March 31, 2009 and December 31, 2008. Our
mortgage loans are secured by our 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, 2009, the weighted-average interest rate on our fixed-rate debt is 5.9%,
and the weighted average remaining life of such debt is 11.9 years. As of March
31, 2009, scheduled principal repayments on notes payable were as follows (in
thousands):

|                            |  |   |                                |  |                       |        |                 |   |        |  | 
|--------------------------- |  | - | ------------------------------ |  | --------------------- | ------ | --------------- | - | ------ |  | 
|Scheduled
 Payments by Year |  |   | Scheduled
 Principal
 Payments |  | Term-Loan
 Maturities |        | Total
 Payments |  
|2009                        |  | $ | 115                            |  | $                     |       |                 | $ | 115    | 
|2010                        |  |   | 165                            |  |                       |       |                 |   | 165    | 
|2011                        |  |   | 335                            |  |                       | 24,455 |                 |   | 24,790 | 
|2012                        |  |   | 183                            |  |                       |       |                 |   | 183    | 
|2013                        |  |   | 196                            |  |                       |       |                 |   | 196    | 
|Thereafter                  |  |   | 299                            |  |                       | 24,904 |                 |   | 25,203 | 
|Total                       |  | $ | 1,293                          |  | $                     | 49,359 |                 | $ | 50,652 | 

We
serve as guarantor on debt in the amount of $21.5 million that is the primary
obligation of our wholly-owned subsidiaries. Additionally, we serve as
guarantor on debt in the amount of $44.0 million that is the primary obligation
of our joint ventures.

|   |               
|-- | --------------
|6. | CONCENTRATIONS

As of March
31, 2009 and December 31, 2008, each of our four consolidated properties
individually comprised greater than 10% 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 83% and 82% of our rental income for the three months
ended March 31, 2009 and 2008, respectively. Houston is Texas largest city and
the fourth largest city in the United States.

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Table of Contents

Following are
the base rents generated by our top tenants during the three months ended March
31, 2009 and 2008 (in thousands):

|                         |      |   |                                       |  |   |     |  | 
|------------------------ | ---- | - | ------------------------------------- |  | - | --- |  | 
|Tenant                   |      |   | For the three months
 ended March 31, | 
|                         | 2009 |   | 2008                                  | 
|H-E-B
 Grocery           |      | $ | 356                                   |  | $ | 356 | 
|Designer
 Shoe Warehouse |      |   | 138                                   |  |   | 138 | 
|Rice Food
 Markets, Inc. |      |   | 73                                    |  |   | 73  | 
|Blockbuster
 Video       |      |   | 56                                    |  |   | 56  | 
|Fidelity
 Investments    |      |   | 53                                    |  |   | 53  | 
|                         |      | $ | 676                                   |  | $ | 676 | 

|   |                                               
|-- | ----------------------------------------------
|7. | PARTNERS CAPITAL AND NON-CONTROLLING INTEREST

Our General
Partner invested $800,000 as a limited partner and $1,000 as a general partner.
We began raising capital in June 2005 and 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, as amended, and are not currently listed on a national
exchange or otherwise traded in an organized securities market. These Units may
be transferred only with consent of the General Partner after delivery of
required documents, and in any event, only if we register the offer and sale of
the Units under applicable securities laws or if an exemption from such
registration is available. We do not expect to register the offer and sale of
Units. Moreover, 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 Units 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 redeemed 1.2
Units during the three months ended March 31, 2009 for $27,600 and 0 Units
during the three months ended March 31, 2008.

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. We
currently pay distributions of 3.0% per annum on invested capital. During the
liquidation stage of the Partnership (commencing in October 2012, unless
extended), 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; and                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Thereafter -
 60% to the limited partners and 40% to the General Partner.                                                                                                                                                                                                                                                                                                                   

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Table of Contents

Non-controlling Interest
Non-controlling 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. These affiliates also receive fees for ongoing property
management and administrative services. 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, 2009 and 2008 (in thousands):

|                                            |  |   |                               |  |      |     |  | 
|------------------------------------------- |  | - | ----------------------------- |  | ---- | --- |  | 
|                                            |  |   | Three months ended
 March 31, | 
|Type of
 Service                            |  |   | 2009                          |  | 2008 |    
|                                            |  |   |                               |  |      |     | 
|Asset
 Management Fees                      |  | $ | 154                           |  | $    | 154 | 
|Property
 Management Fees and Leasing Costs |  |   | 93                            |  |      | 95  | 
|Administrative
 Costs Reimbursements        |  |   | 98                            |  |      | 81  | 
|                                            |  | $ | 345                           |  | $    | 330 | 

In addition to
the above fees paid by us, the non-consolidated entities in which we have
investments pay property management and leasing fees to one of our affiliated entities.
During the three-months ended March 31, 2009 and 2008, such fees totaled $240,000 and
$257,000 respectively.

|   |                                          
|-- | -----------------------------------------
|9. | REAL ESTATE ACQUISITIONS AND DISPOSITIONS

We did not
have any real estate acquisitions or dispositions during the three months ended
March 31, 2009 and 2008.

|    |                              
|--- | -----------------------------
|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 provide satisfactory 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.

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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 based
on 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 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 non-traded Texas real estate investment
trust that files reports with the SEC. We qualify as a partnership for federal
income tax purposes.

As of March
31, 2009, 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, primarily from net leasing arrangements, where most of the
operating expenses of the properties are absorbed by our tenants. 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, 2009 and 2008. As of March 31, 2009, our
properties had an average occupancy rate of 79% and the average debt leverage
ratio of the properties in which we have an investment was approximately 59%,
with 86% of such debt carrying a fixed rate of interest.

Summary of Critical Accounting Policies

The
preparation of the 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-K for the
fiscal year ended December 31, 2008. Management believes that as of March 31,
2009, there have been no material changes to this information.

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Table of Contents

Results of Operations

We commenced
our principal operations on June 30, 2005, when we accepted subscriptions for
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. During
2008, we made an investment in one additional property through an existing
joint venture and acquired an additional equity interest in another existing
joint venture. As of March 31, 2009, 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, 2009 versus
Three Months Ended March 31, 2008

Revenue.Revenue
stayed relatively constant at approximately $1.8 million for the three months
ended March 31, 2009 and 2008. An increase in the number of tenants at Olmos
Creek offset reductions in rental income due to the general downturn in the
economy.

General & Administrative.General
and administrative expenses decreased approximately $7,000 to approximately
$17,000 for the three months ended March 31, 2009 compared to approximately
$24,000 for the three months ended March 31, 2008. This decrease was primarily
due to a reduction in insurance costs for directors and officers.

General & Administrative  Related Party.General and administrative expenses paid to our
affiliate increased approximately $17,000 to approximately $98,000 during the
three months ended March 31, 2009 compared to approximately $81,000 for the
three months ended March 31, 2008. This increase was due to an increase in the
allocation of compensation costs during the period to better reflect the level
of effort expended by our affiliates financial personnel in providing
accounting and financial reporting services to us.

Property Expense.Property
operating expenses increased approximately $62,000 to approximately $502,000
during the three months ended March 31, 2009 compared to approximately $440,000
for the three months ended March 31, 2008. This increase was primarily due to
an increase in bad debt expense associated with the potential uncollectability
of certain tenant receivables.

Property Management Fees  Related Party.
Property management fees to our affiliate increased approximately $29,000 to
approximately $91,000 for the three months ended March 31, 2009 compared to
approximately $62,000 for the three months ended March 31, 2008. This increase
is primarily due to property management fees related to 2008 expense recoveries
billed to tenants during the first quarter of 2009.

Legal and Professional Fees.Legal
and professional fees decreased approximately $158,000 to approximately $45,000
during the three months ended March 31, 2009 compared to approximately $203,000
for the three months ended March 31, 2008. This decrease is primarily due to
fees incurred in the first quarter of 2008 related to an audit of one of our
subsidiaries that was required for the year ended December 31, 2007. This audit
was not required for the year ended December 31, 2008.

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Table of Contents

Depreciation and Amortization Expense.Depreciation
and amortization expensed increase approximately $97,000 to approximately
$736,000 during the three months ended March 31, 2009 compared to approximately
$639,000 for the three months ended March 31, 2008. This increase was primarily
due to write-offs of tenant improvements and acquired lease intangibles due to
tenant vacancies.

Interest Income  Related Party.Interest
income  related party recorded during the three months ended March 31, 2008
relates to a note receivable from one of our investment properties. The note
was paid in full during 2008, and we had no related party notes receivable
outstanding during the first quarter of 2009.

Interest and Other Income.
Interest and other income decreased approximately $127,000 to approximately
$14,000 during the three months ended March 31, 2009 compared to approximately
$141,000 for the three months ended March 31, 2008. This decrease was the
result of a combination of lower interest rates during the first quarter of
2009 as well as a reduced balance of invested funds.

Interest Expense.Interest
expense remained relatively consistent at approximately $771,000 for the three
months ended March 31, 2009 compared to approximately $776,000 for the three
months ended March 31, 2008. We had no significant changes to our debt balances
during the three months ended March 31, 2009 and 2008.

Equity in Losses From Non-Consolidated
Entities.Equity in losses from non-consolidated
entities decreased approximately $278,000 to approximately $299,000 for the
three months ended March 31, 2009 compared to approximately $577,000 for the
three months ended March 31, 2008. These amounts represent our ownership
portion of our joint ventures net income or loss for the period. The decreased
loss is due primarily to an adjustment to amortization of acquired lease
intangibles at our Berkeley Square and Preston Towne Crossing properties which
was recorded during the first quarter of 2008.

Net Loss Attributable to Non-controlling
Interest. Net loss attributable to non-controlling
interest increased approximately $22,000 to approximately $31,000 for the three
months ended March 31, 2009 compared to approximately $9,000 for the three
months ended March 31, 2008. This increase was primarily due to an increase in
the loss recorded at our Lake Houston property resulting from increased repair
and maintenance costs as well as a write-off of intangible costs related to a
tenant that vacated during the first quarter of 2009.

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. We have no material refinancing obligations
over the next twelve months.

As of March
31, 2009 and December 31, 2008, our cash and cash equivalents totaled
approximately $1.0 million and $918,000, respectively. Cash flows provided by
(used in) operating activities, investing activities and financing activities
for the three months ended March 31, 2009 and 2008 are as follows (in
thousands):

|                      |  |                               |       |      |   |        |  
|--------------------- |  | ----------------------------- | ----- | ---- | - | ------ | -
|                      |  | Three months ended
 March 31, |      
|                      |  | 2009                          |       | 2008 |  
|Operating
 activities |  | $                             | 1,098 |      | $ | (210   | )
|Investing
 activities |  |                               | (246  | )    |   | 1,248  |  
|Financing
 activities |  |                               | (761  | )    |   | (1,383 | )

Net cash flows
provided by operating activities increased approximately $1.3 million to
inflows of approximately $1.1 million for the three months ended March 31, 2009
compared to outflows of approximately $210,000 for the three months ended March
31, 2008. This increase in cash flows provided by operating activities was
primarily due to an increase in working capital cash flows of approximately
$1.3 million which was driven by an increase in cash received from tenants and
payments received on accounts receivable  related party. The increase in
working capital inflows was partially offset by a decrease of $32,000 in income
before the effects of depreciation and amortization, losses from
non-consolidated subsidiaries, and non-controlling interest in consolidated
subsidiaries.

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Table of Contents

Net cash flows
provided by investing activities decreased approximately $1.5 million to net
cash outflows of approximately $246,000 for the three months ended March 31,
2009 compared to net cash inflows of approximately $1.2 million for the three
months ended March 31, 2008. This decrease is primarily due to a decrease in
payments received on notes receivable of approximately $1.4 million and a
decrease in distributions received from non-consolidated entities of
approximately $596,000. These decreases were offset by a reduction in advances
on notes receivable  related party of approximately $398,000 and a reduction
in investments in non-consolidated entities of approximately $128,000.

Net cash flows
used in financing activities decreased approximately $622,000 to approximately
$761,000 for the three months ended March 31, 2009 compared to approximately
$1.4 million for the three months ended March 31, 2008. This decrease was
primarily due to a reduction of distributions of approximately $809,000 offset
by an increase in distributions to non-controlling interest of approximately
$155,000.

|        |                                                            
|------- | -----------------------------------------------------------
|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 (CEO) and Chief Financial Officer (CFO), 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, 2009. Based on that
evaluation, our General Partners CEO and CFO concluded that, as of March 31,
2009, our disclosure controls and procedures were effective in causing material
information relating to us to be recorded, processed, summarized, and reported
by management on a timely basis and to ensure the quality and timeliness of our
public disclosures in accordance with SEC disclosure obligations.

Changes in Internal Controls

There has been
no change to our internal control over financial reporting during the quarter
ended March 31, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

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Table of Contents

PART II  OTHER INFORMATION

|        |                                                             
|------- | ------------------------------------------------------------
|ITEM 2. | UNREGISTERED SALES OF EQUITY
 SECURITIES AND USE OF PROCEEDS

During the
three months ended March 31, 2009, we redeemed 1.2 Units. The following chart
summarizes the redemption of the Units.

|                     |  |                                                    |  |                                           |   |                                                                                                  |  |                                                                                                                              |  |  |   |  | 
|-------------------- |  | -------------------------------------------------- |  | ----------------------------------------- | - | ------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------- |  |  | - |  | 
|Period               |  | Total Number
 of Shares (or
 Units)
 Purchased (1) |  | Average
 Price Paid
 Per Share
 (or Unit) |   | Total Number of
 Shares (or Units)
 Purchased as Part
 of Publicly
 Announced Plans
 or Programs |  | Maximum Number (or
 Approximate Dollar
 Value) of Shares (or
 Units) that May Yet
 Be Purchased Under
 the Plans or Programs | 
|January
 1-31, 2009  |  | 1.2                                                |  |                                           | $ | 27,600                                                                                           |  |                                                                                                                             |  |  |  |  | 
|February
 1-28, 2009 |  |                                                   |  |                                           |   |                                                                                                 |  |                                                                                                                             |  |  |  |  | 
|March 1-31,
 2009    |  |                                                   |  |                                           |   |                                                                                                 |  |                                                                                                                             |  |  |  |  | 
|Total                |  | 1.2                                                |  |                                           | $ | 27,600                                                                                           |  |                                                                                                                             |  |  |  |  | 

(1) Our Agreement
of Limited Partnership contemplates that, at any time after September 30, 2008
and prior to September 30, 2012, any limited partner who has held Units for at
least three years shall have the right to request that we redeem all of such
Units. We redeemed 1.2 Units pursuant to the hardship provisions as outlined in
the Offering Memorandum.

|        |         
|------- | --------
|ITEM 6. | EXHIBITS

The exhibits
listed on the accompanying Exhibit Index are filed, furnished, or incorporated
by reference (as stated therein) as part of this Quarterly Report on Form 10-Q

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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, 2009 |  |                                                                             |                                    
|                    |  |                                                                             |                                    
|                    |  | 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

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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
 pursuant to Rule 13a-14(a) of Chief Executive Officer dated May 15, 2009
 (filed herewith).                                                                                                                                      
|             |                                                                                                                                                                                                                                                 
|Exhibit 31.2 | Certification
 pursuant to Rule 13a-14(a) of Chief Financial Officer dated May 15, 2009
 (filed herewith).                                                                                                                                      
|             |                                                                                                                                                                                                                                                 
|Exhibit 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 (furnished
 herewith).                                                                            
|             |                                                                                                                                                                                                                                                 
|Exhibit 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 (furnished
 herewith).                                                                            

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