##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-52619
 AmREIT MONTHLY INCOME & GROWTH FUND III, LTD.
  Texas
    
    20-2964630(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 8 Greenway Plaza, Suite 1000Houston, Texas
    
    77046(Address of Principal Executive Offices)
    
    (Zip Code)
 713-850-1400
 þ o
  Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company
þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePart I  Financial InformationItem 1 - Financial Statements
    
    
    1Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14Item 3 - Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4T - Controls and Procedures
    
    
    18Part II  Other InformationItem 1 - Legal Proceedings
    
    
    18Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3 - Defaults Upon Senior Securities
    
    
    19Item 4 - Submission of Matters to a Vote of Security Holders
    
    
    19Item 5 - Other Information
    
    
    19Item 6 - Exhibits
    
    
    19Signatures
    
    
    20Exhibit Index
    
    
    21Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350




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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
 June 30, 2008 and December 31, 2007
 (in thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSReal estate investments at cost:Land
    
    $
    18,446
    
    
    $
    18,446Buildings
    
    
    47,125
    
    
    
    47,105Tenant improvements
    
    
    916
    
    
    
    88466,487
    
    
    
    66,435Less accumulated depreciation and amortization
    
    
    (4,012
    )
    
    
    (3,115
    )62,475
    
    
    
    63,320Investment in non-consolidated entities
    
    
    26,494
    
    
    
    22,449Intangible lease cost, net
    
    
    2,840
    
    
    
    3,246Net real estate investments
    
    
    91,809
    
    
    
    89,015Cash and cash equivalents
    
    
    2,064
    
    
    
    5,245Tenant receivables, net
    
    
    976
    
    
    
    630Accounts receivable
    
    
    118
    
    
    
    7Accounts receivable  related party
    
    
    1,789
    
    
    
    1,307Notes receivable
    
    
    2,089
    
    
    
    Notes receivable  related party
    
    
    544
    
    
    
    8,710Deferred costs, net
    
    
    630
    
    
    
    594Other assets
    
    
    972
    
    
    
    621TOTAL ASSETS
    
    $
    100,991
    
    
    $
    106,129LIABILITIES AND PARTNERS CAPITALLiabilities:Notes payable
    
    $
    50,766
    
    
    $
    50,838Accounts payable and other liabilities
    
    
    1,080
    
    
    
    1,278Accounts payable  related party
    
    
    92
    
    
    
    77Below market leases, net
    
    
    611
    
    
    
    706Security deposits
    
    
    122
    
    
    
    123TOTAL LIABILITIES
    
    
    52,671
    
    
    
    53,022Minority interest in consolidated subsidiaries
    
    
    1,877
    
    
    
    2,146Partners capital:General partner
    
    
    
    
    
    
    Limited partners, 2,843 units outstanding
    
    
    46,443
    
    
    
    50,961TOTAL PARTNERS CAPITAL
    
    
    46,443
    
    
    
    50,961TOTAL LIABILITIES AND PARTNERS CAPITAL
    
    $
    100,991
    
    
    $
    106,129
  1




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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 Three months ended June 30,
    
    
    Six months ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Rental income from operating leases
    
    $
    1,718
    
    
    $
    1,838
    
    
    $
    3,510
    
    
    $
    3,579Total revenues
    
    
    1,718
    
    
    
    1,838
    
    
    
    3,510
    
    
    
    3,579Expenses:General and administrative
    
    
    69
    
    
    
    30
    
    
    
    106
    
    
    
    51General and administrative  related party
    
    
    68
    
    
    
    34
    
    
    
    149
    
    
    
    34Asset management fees  related party
    
    
    154
    
    
    
    154
    
    
    
    309
    
    
    
    309Property expense
    
    
    461
    
    
    
    497
    
    
    
    895
    
    
    
    953Property management fees  related party
    
    
    61
    
    
    
    62
    
    
    
    123
    
    
    
    121Legal and professional
    
    
    84
    
    
    
    127
    
    
    
    287
    
    
    
    169Depreciation and amortization
    
    
    651
    
    
    
    633
    
    
    
    1,282
    
    
    
    1,303Total expenses
    
    
    1,548
    
    
    
    1,537
    
    
    
    3,151
    
    
    
    2,940Operating income
    
    
    170
    
    
    
    301
    
    
    
    359
    
    
    
    639Other income (expense):Interest income  related party
    
    
    7
    
    
    
    132
    
    
    
    18
    
    
    
    262Interest and other income
    
    
    99
    
    
    
    223
    
    
    
    240
    
    
    
    481Interest expense
    
    
    (777
    )
    
    
    (783
    )
    
    
    (1,553
    )
    
    
    (1,558
    )Loss from non-consolidated entities
    
    
    (319
    )
    
    
    (90
    )
    
    
    (896
    )
    
    
    (198
    )Minority interest in loss of
consolidated subsidiaries
    
    
    20
    
    
    
    37
    
    
    
    29
    
    
    
    65Margin tax expense
    
    
    (9
    )
    
    
    (15
    )
    
    
    (24
    )
    
    
    (30
    )Total other income (expense)
    
    
    (979
    )
    
    
    (496
    )
    
    
    (2,186
    )
    
    
    (978
    )Net loss
    
    $
    (809
    )
    
    $
    (195
    )
    
    $
    (1,827
    )
    
    $
    (339
    )
  2




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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
For the six months ended June 30, 2008
(in thousands)
 GP
    
    
    LP
    
    
    TotalBalance at December 31, 2007
    
    $
    
    
    
    $
    50,961
    
    
    $
    50,961Net loss (1)
    
    
    27
    
    
    
    (1,854
    )
    
    
    (1,827
    )Distributions
    
    
    (27
    )
    
    
    (2,664
    )
    
    
    (2,691
    )Balance at June 30, 2008
    
    $
    
    
    
    $
    46,443
    
    
    $
    46,443
 
 (1)
    
    The allocation of net loss includes a curative allocation to
increase the GP capital account by $45. The cumulative
curative allocation since inception is $163. The partnership
agreement provides that no partner shall be required to fund
a deficit balance in their capital account.  3




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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2008 and 2007
(in thousands)
 Six months ended June 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (1,827
    )
    
    $
    (339
    )Adjustments to reconcile net loss to net cash
used in operating activities:Loss from non-consolidated entities
    
    
    896
    
    
    
    198Depreciation and amortization
    
    
    1,281
    
    
    
    1,246Minority interest in loss of consolidated
subsidiaries
    
    
    (29
    )
    
    
    (65
    )Increase in tenant receivables
    
    
    (346
    )
    
    
    (471
    )Increase in accounts receivable
    
    
    (111
    )
    
    
    Decrease
(increase) in accounts receivable  related party
    
    
    (534
    )
    
    
    (1,426
    )Increase in deferred costs
    
    
    (90
    )
    
    
    (99
    )Increase in other assets
    
    
    (351
    )
    
    
    (235
    )Decrease in accounts payable and other
liabilities
    
    
    (293
    )
    
    
    (458
    )Increase in accounts payable    related party
    
    
    15
    
    
    
    7Decrease in security deposits
    
    
    (1
    )
    
    
    Net cash used in operating activities
    
    
    (1,390
    )
    
    
    (1,642
    )Cash flows from investing activities:Improvements to real estate
    
    
    (71
    )
    
    
    (651
    )Payments received on notes receivable
    
    
    1,428
    
    
    
    Payments received on notes receivable  related party
    
    
    1,661
    
    
    
    Advances for notes receivable  related party
    
    
    (530
    )
    
    
    Investment in non-consolidated entities
    
    
    (2,000
    )
    
    
    (105
    )Distributions from non-consolidated entities
    
    
    724
    
    
    
    Net cash provided by (used in) investing activities
    
    
    1,212
    
    
    
    (756
    )Cash flows from financing activities:Payments on notes payable
    
    
    (72
    )
    
    
    (69
    )Payments on notes payable  related party
    
    
    
    
    
    
    (1,144
    )Issuance costs
    
    
    
    
    
    
    (96
    )Loan acquisition costs
    
    
    
    
    
    
    (6
    )Distributions
    
    
    (2,691
    )
    
    
    (2,684
    )Distributions to minority interests
    
    
    (240
    )
    
    
    Net cash used in financing activities
    
    
    (3,003
    )
    
    
    (3,999
    )Net decrease in cash and cash equivalents
    
    
    (3,181
    )
    
    
    (6,397
    )Cash and cash equivalents, beginning of period
    
    
    5,245
    
    
    
    23,128Cash and cash equivalents, end of period
    
    $
    2,064
    
    
    $
    16,731Supplemental schedule of cash flow information:Cash paid during the period for interest
    
    $
    1,521
    
    
    $
    1,656Supplemental schedule of noncash investing and financing activities:
   4




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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2008
  1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
    2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
   REVENUE RECOGNITION
  5




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REAL ESTATE INVESTMENTS
 Development Properties
 Acquired Properties and Acquired Lease Intangibles Business Combinations
 Depreciation
 Properties Held for Sale
 Impairment
 ENVIRONMENTAL EXPOSURES
  6




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RECEIVABLES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
 Tenant Receivables
 Accounts Receivable  Related Party
 Notes Receivable
 Notes Receivable  Related Party
 DEFERRED COSTS
  INCOME TAXES
 Federal
 State Accounting for Income Taxes,
 7




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USE OF ESTIMATES
  FAIR VALUE OF FINANCIAL INSTRUMENTS
  CONSOLIDATION OF VARIABLE INTEREST ENTITIES
 Consolidation of Variable Interest Entities ,
 NEW ACCOUNTING STANDARDS
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities .
 Business Combinations .
 Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51
 8




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OFFERING COSTS
  CASH AND CASH EQUIVALENTS
  INTEREST
  SEGMENT REPORTING
 Disclosures about Segments of an Enterprise and Related
Information,
 RECLASSIFICATIONS
  3. INVESTMENTS IN NON-CONSOLIDATED ENTITIES
  
    
    In May 2008, we acquired a 30% interest in the purchase of United
Methodist Church for $1.3 million. The acquisition is accounted for within AmREIT
Westheimer Gessner, LP as the two properties are located adjacent to one another.
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,
 9




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AmREIT Monthly Income & Growth Fund IV, L.P. and AmREIT Realty Investment
Company.
    
    In August 2007, we acquired a 30% interest in AmREIT Woodlake Square, LP
which owns a multi-tenant retail property located in Houston, Texas with a
combined gross leasable area of 206,000 square feet. The remaining 70% is owned by
affiliated AmREIT entities, AmREIT Monthly Income & Growth Fund IV, L.P. and
AmREIT Realty Investment Company.
    
    In December 2006, we acquired a 50% interest in AmREIT Casa Linda, LP
which owns a multi-tenant retail property located in Dallas, Texas with a combined
gross leasable area of 325,000 square feet. The remaining 50% is owned by AmREIT
Monthly Income & Growth Fund IV, L.P.
    
    In December 2006, we acquired a 20% interest in PTC/BSQ Holding Company,
LLC which owns three multi-tenant retail properties located in Plano, Texas with a
combined gross leasable area of 395,000 square feet. The remaining 80% is owned
by a third party.
    
    In March 2006, we acquired a 50% interest in 5433 Westheimer, LP which
owns an office building in Houston, Texas with a gross leasable area of 134,000
square feet. The remaining 50% is owned by a third party.
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Revenue
    
    $
    4,361
    
    
    $
    3,350
    
    
    $
    8,971
    
    
    $
    6,564Depreciation and amortization
    
    
    (1,038
    )
    
    
    (1,172
    )
    
    
    (4,613
    )
    
    
    (2,355
    )Net income (loss)
    
    $
    53
    
    
    $
    130
    
    
    $
    (1,747
    )
    
    $
    200
 4. ACQUIRED LEASE INTANGIBLES
   June 30, 2008
    
    
    December 31, 2007Above-market
    
    
    In-Place
    
    
    Above-marketIn-Place leases
    
    
    leases
    
    
    leases
    
    
    leasesCost
    
    $
    4,585
    
    
    $
    278
    
    
    $
    4,635
    
    
    $
    293Accumulated
amortization
    
    
    (1,911
    )
    
    
    (112
    )
    
    
    (1,595
    )
    
    
    (87
    )Intangible
lease cost, net
    
    $
    2,674
    
    
    $
    166
    
    
    $
    3,040
    
    
    $
    206
 10




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5. NOTES PAYABLE
   ScheduledPrincipal
    
    
    Term-Loan
    
    
    TotalScheduled Payments by Year
    
    Payments
    
    
    Maturities
    
    
    Payments2008
    
    $
    73
    
    
    $
    
    
    
    $
    732009
    
    
    156
    
    
    
    
    
    
    
    1562010
    
    
    165
    
    
    
    
    
    
    
    1652011
    
    
    335
    
    
    
    24,455
    
    
    
    24,7902012
    
    
    183
    
    
    
    
    
    
    
    183Thereafter
    
    
    495
    
    
    
    24,904
    
    
    
    25,399Total
    
    $
    1,407
    
    
    $
    49,359
    
    
    $
    50,766
 6. CONCENTRATIONS
   Tenant
    
    2008
    
    
    2007H-E-B Grocery
    
    $
    713
    
    
    $
    713Designer Shoe Warehouse
    
    
    275
    
    
    
    275Rice Food Markets, Inc.
    
    
    146
    
    
    
    137Blockbuster Video
    
    
    112
    
    
    
    120Fidelity Investments
    
    
    105
    
    
    
    105$
    1,351
    
    
    $
    1,350
 11




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7. PARTNERS CAPITAL AND MINORITY INTEREST
  Limited Optional Redemption
 Distributions
 
    
    First  99% to the limited partners and 1% to the General Partner until such time
as the limited partners have received cumulative distributions from all sources
(including monthly cash distributions during the operating stage of the Partnership)
equal to 100% of their unreturned invested capital plus an amount equal to 10% per
annum uncompounded on their invested capital.
    
    Second  100% to the General Partner until it has received cumulative distributions
from all sources (other than with respect to its limited partner units it purchased) in
an amount equal to 40% of the net cash flow paid to date to the limited partners in
excess of their adjusted capital.
    
    Thereafter  60% to the limited partners and 40% to the General Partner.
 Minority Interest
 8. RELATED PARTY TRANSACTIONS
  12




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Three months ended
    
    Six months endedJune 30,
    
    June 30,Type of Service
    
    2008
    
    2007
    
    2008
    
    2007Organizational and Offering Cost
Reimbursements
    
    $
    
    
    
    $
    82
    
    
    $
    
    
    
    $
    96Asset Management Fees
    
    
    154
    
    
    
    154
    
    
    
    309
    
    
    
    309Property Management and Leasing
    
    
    117
    
    
    
    77
    
    
    
    212
    
    
    
    221Administrative Costs Reimbursements
    
    
    68
    
    
    
    34
    
    
    
    149
    
    
    
    34$
    339
    
    
    $
    347
    
    
    $
    670
    
    
    $
    660
  9. COMMITMENTS AND CONTINGENCIES
 Litigation
 Environmental matters
  13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
    Summary of Critical Accounting Policies
   14




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Results of Operations
   Three Months Ended June 30, 2008 versus Three Months Ended June 30, 2007
 Revenue.
 General & Administrative.
 General & Administrative  Related Party.
 Asset Management Fees  Related Party.
 Property Expense.
 Property Management Fees  Related Party.
 Legal and Professional Fees.
 15




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Depreciation and Amortization Expense.
 Interest Income  Related Party.
 Interest and Other Income.
 Interest Expense.
 Loss From Non-Consolidated Entities.
 Six Months Ended June 30, 2008 versus Six Months Ended June 30, 2007
 Revenue.
 General & Administrative.
 General & Administrative  Related Party.
 Asset Management Fees  Related Party.
 Property Expense.
 16




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Property Management Fees  Related Party.
 Legal and Professional Fees.
 Depreciation and Amortization Expense.
 Interest Income  Related Party.
 Interest and Other Income.
 Interest Expense.
 Loss From Non-Consolidated Entities.
 Liquidity and Capital Resources
   17




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Six months endedJune 30,2008
    
    2007Operating activities
    
    $
    (1,390
    )
    
    $
    (1,642
    )Investing activities
    
    $
    1,212
    
    
    $
    (756
    )Financing activities
    
    $
    (3,003
    )
    
    $
    (3,999
    )
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Controls
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 18




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (a)
    
    The following exhibits are filed or furnished as part of this report:
 Exhibit 3.1
    
    Certificate of Limited Partnership of AmREIT Monthly Income &
Growth Fund III, Ltd., dated April 19, 2005 (incorporated
herein by reference from Exhibit 3.1 to the Partnerships
Registration Statement on Form 10-SB dated April 30, 2007).Exhibit 3.2
    
    Agreement of Limited Partnership of AmREIT Monthly & Income
Growth Fund III, Ltd., dated April 19, 2005 (incorporated
herein by reference from Exhibit 3.2 to the Partnerships
Registration Statement on Form 10-SB dated April 30, 2007).Exhibit 31.1
    
    Certification pursuant to Rule 13a-14(a) of Chief Executive
Officer dated August 14, 2008 (filed herewith).Exhibit 31.2
    
    Certification pursuant to Rule 13a-14(a) of Chief Financial
Officer dated August 14, 2008 (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).
 19




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SIGNATURES
  AmREIT
    
    Monthly Income & Growth Fund III, Ltd.By: AmREIT Monthly Income & Growth IIICorporation, its General PartnerDate: August 14, 2008By: /s/ H. Kerr TaylorH. Kerr TaylorPresident, Chief Executive Officer, and DirectorBy: /s/ Chad C. BraunChad C. BraunExecutive Vice President, Chief Financial Officer,Treasurer and Secretary
 20




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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 August 14, 2008 (filed herewith).Exhibit 31.2
    
    Certification pursuant to Rule 13a-14(a) of Chief Financial
Officer dated August 14, 2008 (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).
 21