##### 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 September 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 Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)8 Greenway Plaza, Suite 1000
    
    77046Houston, Texas
    
    (Zip Code)(Address of Principal Executive Offices)
 713-850-1400
 þ o
  Large accelerated filer  o
    
    Accelerated filer  o
    
    Non-accelerated filer  o
    
    Smaller reporting company  þ(Do not check if a smaller reporting company)
 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 303(a)(iv)  Off Balance Sheet Arrangements
    
    18Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    18Item 4T   Controls and Procedures
    
    18Part II  Other InformationItem 1  Legal Proceedings
    
    19Item 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
    
    21EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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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
September 30, 2008 and December 31, 2007
(in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSReal estate investments at cost:Land
    
    $
    18,446
    
    
    $
    18,446Buildings
    
    
    47,331
    
    
    
    47,105Tenant improvements
    
    
    921
    
    
    
    88466,698
    
    
    
    66,435Less accumulated depreciation and amortization
    
    
    (4,463
    )
    
    
    (3,115
    )62,235
    
    
    
    63,320Investment in non-consolidated entities
    
    
    26,210
    
    
    
    22,449Intangible lease cost, net
    
    
    2,664
    
    
    
    3,246Net real estate investments
    
    
    91,109
    
    
    
    89,015Cash and cash equivalents
    
    
    1,163
    
    
    
    5,245Tenant receivables, net
    
    
    600
    
    
    
    630Accounts receivable
    
    
    234
    
    
    
    7Accounts receivable  related party
    
    
    1,340
    
    
    
    1,307Notes receivable
    
    
    2,081
    
    
    
    Notes receivable  related party
    
    
    552
    
    
    
    8,710Deferred costs, net
    
    
    612
    
    
    
    594Other assets
    
    
    1,059
    
    
    
    621TOTAL ASSETS
    
    $
    98,750
    
    
    $
    106,129LIABILITIES AND PARTNERS CAPITALLiabilities:Notes payable
    
    $
    50,730
    
    
    $
    50,838Accounts payable and other liabilities
    
    
    1,236
    
    
    
    1,278Accounts payable  related party
    
    
    79
    
    
    
    77Below market leases, net
    
    
    564
    
    
    
    706Security deposits
    
    
    133
    
    
    
    123TOTAL LIABILITIES
    
    
    52,742
    
    
    
    53,022Minority interest in consolidated subsidiary
    
    
    1,725
    
    
    
    2,146Partners capital:General partner
    
    
    
    
    
    
    Limited partners, 2,842 units outstanding
    
    
    44,283
    
    
    
    50,961TOTAL PARTNERS CAPITAL
    
    
    44,283
    
    
    
    50,961TOTAL LIABILITIES AND PARTNERS CAPITAL
    
    $
    98,750
    
    
    $
    106,129
  1




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##### Table of Contents



AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Rental income from operating leases
    
    $
    1,685
    
    
    $
    1,706
    
    
    $
    5,195
    
    
    $
    5,285Total revenues
    
    
    1,685
    
    
    
    1,706
    
    
    
    5,195
    
    
    
    5,285Expenses:General and administrative
    
    
    51
    
    
    
    50
    
    
    
    157
    
    
    
    101General and administrative  related party
    
    
    79
    
    
    
    136
    
    
    
    228
    
    
    
    169Asset management fees  related party
    
    
    154
    
    
    
    154
    
    
    
    463
    
    
    
    463Property expense
    
    
    418
    
    
    
    519
    
    
    
    1,313
    
    
    
    1,472Property management fees  related party
    
    
    63
    
    
    
    62
    
    
    
    186
    
    
    
    183Legal and professional
    
    
    51
    
    
    
    250
    
    
    
    338
    
    
    
    418Depreciation and amortization
    
    
    611
    
    
    
    900
    
    
    
    1,893
    
    
    
    2,203Total operating expenses
    
    
    1,427
    
    
    
    2,071
    
    
    
    4,578
    
    
    
    5,009Operating income (loss)
    
    
    258
    
    
    
    (365
    )
    
    
    617
    
    
    
    276Other income (expense):Interest income  related party
    
    
    8
    
    
    
    133
    
    
    
    26
    
    
    
    393Interest and other income
    
    
    114
    
    
    
    225
    
    
    
    354
    
    
    
    708Interest expense
    
    
    (781
    )
    
    
    (783
    )
    
    
    (2,334
    )
    
    
    (2,341
    )Loss from non-consolidated entities
    
    
    (387
    )
    
    
    (131
    )
    
    
    (1,283
    )
    
    
    (330
    )Minority
interest in loss of consolidated subsidiary
    
    
    12
    
    
    
    14
    
    
    
    41
    
    
    
    79Margin tax expense
    
    
    (15
    )
    
    
    (15
    )
    
    
    (39
    )
    
    
    (45
    )Total other income (expense)
    
    
    (1,049
    )
    
    
    (557
    )
    
    
    (3,235
    )
    
    
    (1,536
    )Net loss
    
    $
    (791
    )
    
    $
    (922
    )
    
    $
    (2,618
    )
    
    $
    (1,260
    )
  2




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AmREIT MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
For the nine months ended September 30, 2008
(in thousands)
 General
    
    
    LimitedPartner
    
    
    Partners
    
    
    TotalBalance at December 31, 2007
    
    $
    
    
    
    $
    50,961
    
    
    $
    50,961Redemptions
    
    
    
    
    
    
    (23
    )
    
    
    (23
    )Net loss (1)
    
    
    41
    
    
    
    (2,659
    )
    
    
    (2,618
    )Distributions
    
    
    (41
    )
    
    
    (3,996
    )
    
    
    (4,037
    )Balance at September 30, 2008
    
    $
    
    
    
    $
    44,283
    
    
    $
    44,283
 
 (1)
    
    The allocation of net loss includes a curative allocation to increase the GP capital account by $67. The
cumulative curative allocation since inception of the partnership is $185. 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 nine months ended September 30, 2008 and 2007
(in thousands)
 Nine months ended September 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (2,618
    )
    
    $
    (1,260
    )Adjustments to reconcile net loss to net cash
used in operating activities:Loss from non-consolidated entities
    
    
    1,283
    
    
    
    330Depreciation and amortization
    
    
    1,891
    
    
    
    2,129Minority
interest in loss of consolidated subsidiaries
    
    
    (41
    )
    
    
    (79
    )Decrease (increase) in tenant receivables
    
    
    30
    
    
    
    (268
    )Increase in accounts receivable
    
    
    (219
    )
    
    
    (51
    )Increase in
accounts receivable  related party
    
    
    (85
    )
    
    
    (1,631
    )Increase in deferred costs
    
    
    (102
    )
    
    
    (108
    )Increase in other assets
    
    
    (438
    )
    
    
    (337
    )Decrease in
accounts payable and other liabilities
    
    
    (42
    )
    
    
    (69
    )Decrease (increase) in accounts payable  related party
    
    
    (93
    )
    
    
    131Increase in security deposits
    
    
    10
    
    
    
    Net cash used in operating activities
    
    
    (424
    )
    
    
    (1,213
    )Cash flows from investing activities:Improvements to real estate
    
    
    (282
    )
    
    
    (685
    )Payments received on notes receivable
    
    
    1,428
    
    
    
    Advances for notes receivable
    
    
    
    
    
    
    (3,001
    )Payments received on notes receivable  related party
    
    
    1,653
    
    
    
    Advances for notes receivable  related party
    
    
    (530
    )
    
    
    Investment in non-consolidated entities
    
    
    (2,103
    )
    
    
    (4,083
    )Distributions from non-consolidated entities
    
    
    724
    
    
    
    Net cash provided by (used in) investing activities
    
    
    890
    
    
    
    (7,769
    )Cash flows from financing activities:Payments on notes payable
    
    
    (108
    )
    
    
    (103
    )Payments on notes payable  related party
    
    
    
    
    
    
    (1,144
    )Limited optional redemptions
    
    
    (23
    )
    
    
    Issuance costs
    
    
    
    
    
    
    (99
    )Loan acquisition costs
    
    
    
    
    
    
    (96
    )Distributions
    
    
    (4,037
    )
    
    
    (4,055
    )Distributions to minority interests
    
    
    (380
    )
    
    
    Net cash used in financing activities
    
    
    (4,548
    )
    
    
    (5,497
    )Net decrease in cash and cash equivalents
    
    
    (4,082
    )
    
    
    (14,479
    )Cash and cash equivalents, beginning of period
    
    
    5,245
    
    
    
    23,128Cash and cash equivalents, end of period
    
    $
    1,163
    
    
    $
    8,649Supplemental schedule of cash flow information:Cash paid during the period for interest
    
    $
    2,283
    
    
    $
    2,420Cash paid
during the period for taxes
    
    $
    65
    
    
    $
    Supplemental schedule of noncash investing and financing activities:During 2008, the $7.0 million note receivable from our 5433 Westheimer property was converted to equity. In conjunction with
the equity conversion, we obtained a $3.5 million note receivable from our joint venture partner in the 5433 Westheimer
property. See receivables and allowance for uncollectible accounts section of Note 2.
  4




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AmREIT
MONTHLY INCOME & GROWTH FUND III, LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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
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Statementsan amendment of ARB No. 51
 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 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.
 9




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##### Table of Contents




    
    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.
    
    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
    
    Nine months endedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Revenue
    
    $
    1,299
    
    
    $
    1,307
    
    
    $
    3,376
    
    
    $
    3,848Depreciation and amortization
    
    
    (536
    )
    
    
    (497
    )
    
    
    (1,640
    )
    
    
    (1,476
    )Net loss
    
    
    (219
    )
    
    
    (110
    )
    
    
    (1,028
    )
    
    
    (408
    )
 4. ACQUIRED LEASE INTANGIBLES
  10




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September 30, 2008
    
    
    December 31, 2007In-Place
    
    
    Above-market
    
    
    In-Place
    
    
    Above-marketleases
    
    
    leases
    
    
    leases
    
    
    leasesCost
    
    $
    4,586
    
    
    $
    278
    
    
    $
    4,635
    
    
    $
    293Accumulated amortization
    
    
    (2,072
    )
    
    
    (128
    )
    
    
    (1,595
    )
    
    
    (87
    )Intangible lease cost, net
    
    $
    2,514
    
    
    $
    150
    
    
    $
    3,040
    
    
    $
    206
  5. NOTES PAYABLE
   ScheduledPrincipal
    
    
    Term-Loan
    
    
    TotalScheduled Payments by Year
    
    Payments
    
    
    Maturities
    
    
    Payments2008
    
    $
    38
    
    
    $
    
    
    
    $
    382009
    
    
    156
    
    
    
    
    
    
    
    1562010
    
    
    165
    
    
    
    
    
    
    
    1652011
    
    
    334
    
    
    
    24,455
    
    
    
    24,7892012
    
    
    183
    
    
    
    
    
    
    
    183Thereafter
    
    
    495
    
    
    
    24,904
    
    
    
    25,399Total
    
    $
    1,371
    
    
    $
    49,359
    
    
    $
    50,730
 6. CONCENTRATIONS
   11




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For the nine months endedSeptember 30,Tenant
    
    2008
    
    
    2007H-E-B Grocery
    
    $
    1,069
    
    
    $
    1,223Designer Shoe Warehouse
    
    
    413
    
    
    
    574Rice Food Markets, Inc.
    
    
    219
    
    
    
    219Blockbuster Video
    
    
    168
    
    
    
    215Fidelity Investments
    
    
    158
    
    
    
    217$
    2,027
    
    
    $
    2,448
 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 
 12




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8. RELATED PARTY TRANSACTIONS
  Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,Type of Service
    
    2008
    
    2007
    
    2008
    
    2007Organizational and Offering Cost Reimbursements
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    99Asset Management Fees
    
    
    154
    
    
    
    154
    
    
    
    463
    
    
    
    463Property Management and Leasing
    
    
    75
    
    
    
    68
    
    
    
    288
    
    
    
    289Administrative Costs Reimbursements
    
    
    79
    
    
    
    142
    
    
    
    228
    
    
    
    176$
    308
    
    
    $
    364
    
    
    $
    979
    
    
    $
    1,027
  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 September 30, 2008 versus Three Months Ended September 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.
 Nine months ended September 30, 2008 versus Nine months ended September 30, 2007
 Revenue.
 General & Administrative.
 General & Administrative  Related Party.
 Asset Management Fees  Related Party.
 16




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Property Expense.
 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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Nine months endedSeptember 30,2008
    
    2007Operating activities
    
    $
    (424
    )
    
    $
    (1,213
    )Investing activities
    
    
    890
    
    
    
    (7,769
    )Financing activities
    
    
    (4,548
    )
    
    
    (5,497
    )
    
 ITEM 303(a)(iv) OFF BALANCE SHEET ARRANGEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Controls
  18




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 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
  19




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SIGNATURES
  AmREIT Monthly Income & Growth Fund III, Ltd.By:
    
    AmREIT Monthly Income & Growth IIICorporation, its General PartnerDate: November 13, 2008By:
    
    /s/ H. Kerr TaylorH. Kerr TaylorPresident, Chief Executive Officer, and DirectorBy:
    
    /s/ Chad C. BraunChad C. BraunExecutive Vice President, Chief Financial Officer, Treasurerand Secretary
 20




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