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 June 30, 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 o | Accelerated
 filer o | Non-accelerated
 filer o                     | 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







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 |  | 16  
|Item 3 -                       | Quantitative and Qualitative
Disclosures About Market
 Risk                            |  | 20  
|Item 4T -                      | Controls and
Procedures                                                                |  | 20  
|                               |                                                                                        |  |     
|Part II  Other Information    |                                                                                        | 
|Item 6 -                       | Exhibits                                                                               |  | 21  
|Signatures                     |                                                                                        |  | 22  
|Exhibit Index                  |                                                                                        |  | 23  

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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)

|                                               |  |                |        |                    |   |        |  
|---------------------------------------------- |  | -------------- | ------ | ------------------ | - | ------ | -
|                                               |  | June 30,
 2009 |        | December 31,
 2008 |  
|                                               |  | (unaudited)    |        |                    |   |       
|ASSETS                                         |  |                |        |                    |   |        |  
|Real estate investments at cost:               |  |                |        |                    |   |        |  
|Land                                           |  | $              | 18,446 |                    | $ | 18,446 |  
|Buildings                                      |  |                | 47,273 |                    |   | 47,265 |  
|Tenant improvements                            |  |                | 935    |                    |   | 1,020  |  
|                                               |  |                | 66,654 |                    |   | 66,731 |  
|Less accumulated depreciation and
amortization |  |                | (5,799 | )                  |   | (4,917 | )
|                                               |  |                | 60,855 |                    |   | 61,814 |  
|                                               |  |                |        |                    |   |        |  
|Investment in non-consolidated entities        |  |                | 26,508 |                    |   | 26,495 |  
|Acquired lease intangibles, net                |  |                | 2,121  |                    |   | 2,488  |  
|Net real estate investments                    |  |                | 89,484 |                    |   | 90,797 |  
|                                               |  |                |        |                    |   |        |  
|Cash and cash equivalents                      |  |                | 585    |                    |   | 918    |  
|Tenant receivables, net                        |  |                | 512    |                    |   | 892    |  
|Accounts receivable                            |  |                | 8      |                    |   | 8      |  
|Accounts receivable - related party            |  |                | 236    |                    |   | 1,368  |  
|Notes receivable                               |  |                | 259    |                    |   | 334    |  
|Deferred costs, net                            |  |                | 527    |                    |   | 591    |  
|Other assets                                   |  |                | 646    |                    |   | 830    |  
|TOTAL ASSETS                                   |  | $              | 92,257 |                    | $ | 95,738 |  
|                                               |  |                |        |                    |   |        |  
|LIABILITIES AND CAPITAL                        |  |                |        |                    |   |        |  
|Liabilities:                                   |  |                |        |                    |   |        |  
|Notes payable                                  |  | $              | 50,615 |                    | $ | 50,693 |  
|Accounts payable and other liabilities         |  |                | 960    |                    |   | 1,055  |  
|Accounts payable - related party               |  |                | 124    |                    |   | 106    |  
|Acquired below-market lease intangibles,
net   |  |                | 414    |                    |   | 517    |  
|Security deposits                              |  |                | 115    |                    |   | 133    |  
|TOTAL LIABILITIES                              |  |                | 52,228 |                    |   | 52,504 |  
|                                               |  |                |        |                    |   |        |  
|Capital:                                       |  |                |        |                    |   |        |  
|Partners capital:                             |  |                |        |                    |   |        |  
|General partner                                |  |                |       |                    |   |       |  
|Limited partners, 2,833 units outstanding      |  |                | 38,854 |                    |   | 41,857 |  
|Accumulated other comprehensive loss           |  |                | (178   | )                  |   | (253   | )
|TOTAL PARTNERS CAPITAL                        |  |                | 38,676 |                    |   | 41,604 |  
|                                               |  |                |        |                    |   |        |  
|Non-controlling interest                       |  |                | 1,353  |                    |   | 1,630  |  
|TOTAL CAPITAL                                  |  |                | 40,029 |                    |   | 43,234 |  
|TOTAL LIABILITIES AND CAPITAL                  |  | $              | 92,257 |                    | $ | 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, except for per unit data)
(unaudited)

|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|-------------------------------------------------- |  | --------------------------- | ------- | ------------------------- | - | ------- | - | ---- | ------- | - | - | ------- | -
|                                                   |  | Three months ended June 30, |         | Six months ended June 30, |  
|                                                   |  | 2009                        |         | 2008                      |   | 2009    |   | 2008 |        
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Revenues:                                          |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Rental income
 from operating leases               |  | $                           | 1,650   |                           | $ | 1,718   |   | $    | 3,476   |   | $ | 3,510   |  
|Total revenues                                     |  |                             | 1,650   |                           |   | 1,718   |   |      | 3,476   |   |   | 3,510   |  
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Expenses:                                          |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|General and
 administrative                        |  |                             | 42      |                           |   | 55      |   |      | 59      |   |   | 85      |  
|General and
 administrative - related party        |  |                             | 164     |                           |   | 68      |   |      | 262     |   |   | 149     |  
|Asset management
 fees - related party             |  |                             | 155     |                           |   | 154     |   |      | 309     |   |   | 309     |  
|Property expense                                   |  |                             | 488     |                           |   | 466     |   |      | 990     |   |   | 899     |  
|Property
 management fees - related party          |  |                             | 62      |                           |   | 61      |   |      | 153     |   |   | 123     |  
|Legal and
 professional                            |  |                             | 59      |                           |   | 84      |   |      | 104     |   |   | 287     |  
|Depreciation and
 amortization                     |  |                             | 617     |                           |   | 660     |   |      | 1,353   |   |   | 1,299   |  
|Total operating
 expenses                          |  |                             | 1,587   |                           |   | 1,548   |   |      | 3,230   |   |   | 3,151   |  
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Operating income                                   |  |                             | 63      |                           |   | 170     |   |      | 246     |   |   | 359     |  
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Other income
 (expense):                           |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Interest income
 - related party                   |  |                             |        |                           |   | 7       |   |      |        |   |   | 18      |  
|Interest and
 other income                         |  |                             | 12      |                           |   | 99      |   |      | 26      |   |   | 240     |  
|Interest expense                                   |  |                             | (775    | )                         |   | (777    | ) |      | (1,546  | ) |   | (1,553  | )
|Equity in losses
 from non-consolidated entities   |  |                             | (362    | )                         |   | (319    | ) |      | (661    | ) |   | (896    | )
|Margin tax
 expense                                |  |                             | (14     | )                         |   | (9      | ) |      | (26     | ) |   | (24     | )
|Total other
 income (expense)                      |  |                             | (1,139  | )                         |   | (999    | ) |      | (2,207  | ) |   | (2,215  | )
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Net loss                                           |  |                             | (1,076  | )                         |   | (829    | ) |      | (1,961  | ) |   | (1,856  | )
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Net loss
 attributable to non-controlling interest |  |                             | 28      |                           |   | 20      |   |      | 59      |   |   | 29      |  
|Net loss
 attributable to controlling interests    |  | $                           | (1,048  | )                         | $ | (809    | ) | $    | (1,902  | ) | $ | (1,827  | )
|                                                   |  |                             |         |                           |   |         |   |      |         |   |   |         |  
|Weighted average
 units outstanding                |  |                             | 2,833   |                           |   | 2,843   |   |      | 2,834   |   |   | 2,843   |  
|Net loss per
 unit                                 |  | $                           | (369.87 | )                         | $ | (284.60 | ) | $    | (671.24 | ) | $ | (642.72 | )

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 six months ended June 30, 2009
(in thousands)
(unaudited)

|                             |  |                   |     |                   |   |                                                 |   |                            |      |       |   |       |   |   |        |  
|---------------------------- |  | ----------------- | --- | ----------------- | - | ----------------------------------------------- | - | -------------------------- | ---- | ----- | - | ----- | - | - | ------ | -
|                             |  | 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)                 |  |                   | 11  |                   |   | (1,913                                          | ) |                            |     |       |   | (59   | ) |   | (1,961 | )
|Distributions                |  |                   | (11 | )                 |   | (1,062                                          | ) |                            |     |       |   | (218  | ) |   | (1,291 | )
|Gain from
 derivative        |  |                   |    |                   |   |                                                |   |                            | 75   |       |   |      |   |   | 75     |  
|                             |  |                   |     |                   |   |                                                 |   |                            |      |       |   |       |   |   |        |  
|Balance at June 30, 2009     |  | $                 |    |                   | $ | 38,854                                          |   | $                          | (178 | )     | $ | 1,353 |   | $ | 40,029 |  

|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The allocation of net loss includes a curative
 allocation to increase the GP capital account by $30 for the six months ended
 June 30, 2009. The cumulative curative allocation since inception of the
 partnership is $237. 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)

|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ---- | - | ------ | -
|                                                                                                                                                                                    |  | Six months ended June 30, |       
|                                                                                                                                                                                    |  | 2009                      |        | 2008 |  
|Cash flows from
 operating activities:                                                                                                                                              |  |                           |        |      |   |        |  
|Net loss                                                                                                                                                                            |  | $                         | (1,961 | )    | $ | (1,856 | )
|Adjustments to
 reconcile net loss to net cash provided by (used in) operating activities:                                                                                          |  |                           |        |      |   |        |  
|Loss from
 non-consolidated entities                                                                                                                                                |  |                           | 661    |      |   | 896    |  
|Depreciation and
 amortization                                                                                                                                                      |  |                           | 1,353  |      |   | 1,299  |  
|Amortization of
 above and below market leases, net                                                                                                                                 |  |                           | (74    | )    |   | (55    | )
|Amortization of
 loan acquisition costs                                                                                                                                             |  |                           | 38     |      |   | 37     |  
|Bad debt expense                                                                                                                                                                    |  |                           | 129    |      |   | 2      |  
|Decrease
 (increase) in tenant receivables                                                                                                                                          |  |                           | 251    |      |   | (348   | )
|Increase in
 accounts receivable                                                                                                                                                    |  |                           |       |      |   | (111   | )
|Decrease
 (increase) in accounts receivable - related party                                                                                                                         |  |                           | 1,057  |      |   | (534   | )
|Increase in
 deferred costs                                                                                                                                                         |  |                           | (14    | )    |   | (90    | )
|Decrease
 (increase) in other assets                                                                                                                                                |  |                           | 184    |      |   | (351   | )
|Decrease in
 accounts payable and other liabilities                                                                                                                                 |  |                           | (95    | )    |   | (293   | )
|Increase in
 accounts payable - related party                                                                                                                                       |  |                           | 18     |      |   | 15     |  
|Decrease in
 security deposits                                                                                                                                                      |  |                           | (18    | )    |   | (1     | )
|Net cash provided by
 (used in) operating activities                                                                                                                                |  |                           | 1,529  |      |   | (1,390 | )
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|Cash flows from
 investing activities:                                                                                                                                              |  |                           |        |      |   |        |  
|Improvements to
 real estate                                                                                                                                                        |  |                           | (16    | )    |   | (71    | )
|Payments received
 on notes receivable                                                                                                                                              |  |                           | 75     |      |   | 1,428  |  
|Payments
 received on notes receivable - related party                                                                                                                              |  |                           |       |      |   | 1,661  |  
|Advances for
 notes receivable - related party                                                                                                                                      |  |                           |       |      |   | (530   | )
|Investments in
 non-consolidated entities                                                                                                                                           |  |                           | (638   | )    |   | (2,000 | )
|Distributions
 from non-consolidated entities                                                                                                                                       |  |                           | 114    |      |   | 724    |  
|Net cash
 (used in) provided by  investing activities                                                                                                                               |  |                           | (465   | )    |   | 1,212  |  
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|Cash flows from
 financing activities:                                                                                                                                              |  |                           |        |      |   |        |  
|Payments on
 notes payable                                                                                                                                                          |  |                           | (78    | )    |   | (72    | )
|Optional
 redemptions                                                                                                                                                               |  |                           | (28    | )    |   |       |  
|Distributions                                                                                                                                                                       |  |                           | (1,073 | )    |   | (2,691 | )
|Distributions to
 non-controlling interest                                                                                                                                          |  |                           | (218   | )    |   | (240   | )
|Net cash used in
 financing activities                                                                                                                                              |  |                           | (1,397 | )    |   | (3,003 | )
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|Net decrease in
 cash and cash equivalents                                                                                                                                          |  |                           | (333   | )    |   | (3,181 | )
|Cash and cash
 equivalents, beginning of period                                                                                                                                     |  |                           | 918    |      |   | 5,245  |  
|Cash and cash
 equivalents, end of period                                                                                                                                           |  | $                         | 585    |      | $ | 2,064  |  
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|Supplemental
 schedule of cash flow information:                                                                                                                                    |  |                           |        |      |   |        |  
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|Cash paid during
 the period for interest                                                                                                                                           |  | $                         | 1,513  |      | $ | 1,521  |  
|Cash paid during
 the period for taxes                                                                                                                                              |  | $                         | 41     |      | $ | 65     |  
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|Supplemental
 schedule of noncash investing and financing activities:                                                                                                               |  |                           |        |      |   |        |  
|                                                                                                                                                                                    |  |                           |        |      |   |        |  
|During the six months
 ended June 30, 2009, $75,000 of accounts receivable from one of our
 non-consolidated entities was 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

June 30, 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 through
joint venture arrangements, 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 Maryland
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 June 30, 2009, our investments include three wholly-owned properties
comprising approximately 225,000 square feet of gross leasable area, one
property in which we own a controlling interest comprising approximately
102,000 square feet of gross leasable area and seven properties in which we own
a non-controlling interest through joint ventures comprising approximately
1,141,000 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.

During the
past 18 months, the United States has experienced an unprecedented business
downturn, coupled with a substantial curtailment of available debt financing
and a virtual shutdown of equity capital markets, particularly in the real
estate sector. While we expect to generate sufficient cash flow from operations
in 2009 to meet our contractual obligations, a significant additional
deterioration in the national economy, the bankruptcy or insolvency of one or
more of our large tenants could cause our 2009 cash resources to be
insufficient to meet our obligations. If necessary, we have the ability to
defer capital improvements and to defer payment of certain operating costs,
including property taxes, until cash resources are available. Effective July
15, 2009, we have suspended all distributions in an effort to conserve cash and
to protect investors principal. As we have numerous projects that are
mid-stream in redevelopment, we are conserving cash from operations to ensure
that we have the ability to fund capital improvements, tenant improvements and
leasing commissions, and to meet our obligations, including debt service.

|   |                                           
|-- | ------------------------------------------
|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 (see Note 9). 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 (see
Note 3). The significant accounting policies of our non-consolidated entities
are consistent with those of our subsidiaries in which we have a controlling
financial interest. 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 (EITF 04-5), for consolidation
considerations. All significant inter-company accounts and transactions have
been eliminated in consolidation.

5

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Table of Contents

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.

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, possession or control 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 significant 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). Percentage rents are recognized when the
tenants achieve the specified targets as defined in their lease agreements.
During the six months ended June 30, 2009 and 2008, there were no percentage
rents recognized. We recognize lease termination fees in the period that the
lease is terminated and collection of the fees is reasonably assured. Upon
early lease termination, we provide for losses related to unrecovered
intangibles and other assets. During the six months ended June 30, 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 acquisitions of operating properties 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 operating
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.

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We expense acquisition costs associated with operating properties 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 six months ended
June 30, 2009 and 2008, we expensed acquisition costs of $6,000 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.

Properties Held for Sale
-Properties will be 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. Properties held for sale will be 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 June 30, 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 six months ended June 30, 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 10). However, we can give no assurance that existing environmental studies with respect to the
shopping centers have revealed all potential environmental liabilities; that any previous owner, occupant or
tenant did not create any material environmental condition not known to it;
that the current environmental condition of the shopping centers will not be
affected by tenants and occupants, by the condition of nearby
properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations
or their interpretation will not result in additional environmental liability
to the Partnership.

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 June 30, 2009 and December
31, 2008, our allowance for uncollectible accounts related to our tenant
receivables was $225,000 and $98,000, respectively.

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Accounts Receivable
- Related Party - Included in accounts receivable - related party
are short-term cash advances provided to certain of our affiliated
investment entities primarily to cover operating expenses. 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 using a method that approximates the effective interest
method. Deferred leasing costs consist of
external commissions associated with leasing our properties and are
amortized to depreciation and amortization expense on a straight-line basis
over the lease term. Accumulated amortization related to loan acquisition costs as of June 30, 2009 and December
31, 2008 totaled $235,000 and $197,000, respectively. Accumulated amortization
related to leasing costs as of June 30, 2009 and December 31, 2008,
totaled $75,000 and $55,000, respectively.

INCOME TAXES

Federal -No
provision for U.S. federal income taxes is included in the accompanying
consolidated financial statements. As a
partnership, we are not subject to federal income tax, and the federal tax
effect of our activities is passed through to our partners.

State -In
May 2006, the State of Texas adopted House Bill 3, which modified the states
franchise tax structure, replacing
the previous tax based on capital or earned surplus with one based on margin
(often referred to as the Texas
Margin Tax) effective with franchise tax 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 the six months ended June 30, 2009 and 2008, we
recorded tax provisions of approximately $26,000 and $24,000, 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 and other
liabilities, accounts payable-related party, and notes payable. The carrying
value of all but the notes payable are
representative of their respective fair values due to the short-term nature of
these instruments. As of June 30, 2009 and December 31, 2008, the carrying
value of debt obligations associated with our consolidated entities was $50.6
million, all of which represents fixed-rate obligations with an estimated fair
value of $48.9 million and $52.8 million, respectively, based on a
discounted cash flow analysis using current market rates of interest.

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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 Partnership 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.

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. As the spread is neither a quoted market price nor an observable
input, we feel it is properly classified as a level 3 input.

The following table presents our assets and
liabilities and related valuation inputs within the fair value hierarchy
utilized to measure fair value as of June 30, 2009 (in thousands):

|              |  |         |   |         |   |         |  |   |        | 
|------------- |  | ------- | - | ------- | - | ------- |  | - | ------ | 
|              |  | Level 1 |   | Level 2 |   | Level 3 | 
|Notes Payable |  | $       |  |         | $ |        |  | $ | 48,887 | 

NEW ACCOUNTING
STANDARDS

In December 2007, the FASB
issued SFAS No. 141R, which changes the accounting for business combinations.
Under SFAS No. 141R, an acquiring entity is 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 six months ended
June 30, 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.

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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 (SFAS No. 133) 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.

In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165). SFAS No. 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued
or are available to be issued. We adopted SFAS No. 165 in the second
quarter of 2009 and evaluated all events or transactions through August 14,
2009. During this period, we did not have any material subsequent events that
impacted our consolidated financial statements.

In June 2009, the FASB
issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R) (SFAS No. 167), which amends
the consolidation guidance applicable to variable interest entities. The
amendments will significantly affect the overall consolidation analysis under
FASB Interpretation No. 46(R), Consolidation
of Variable Interest Entitiesan interpretation of ARB No. 51
and changes the way entities account for securitizations and special purpose
entities as a result of the elimination of the QSPE concept in SFAS No.166. SFAS
No. 167 is effective as of the beginning of the first fiscal year that
begins after November 15, 2009 and early adoption is prohibited.
Management is currently evaluating the impact on our consolidated financial
statements of adopting SFAS No. 167.

In June 2009, the FASB
issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (SFAS No.
168). SFAS No. 168 will become the single source of authoritative
nongovernmental U.S. generally accepted accounting principles, superseding
existing FASB, American Institute of Certified Public Accountants, EITF, and
related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included is relevant Securities and Exchange
Commission guidance organized using the same topical structure in separate
sections. SFAS No. 168 will be effective for financial statements issued for
reporting periods that end after September 15, 2009 and is not expected to have
a significant impact on our consolidated financial statements.

CASH AND CASH
EQUIVALENTS

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 on any wholly owned properties 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.

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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 approximately
 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 are evaluating opportunities
 to further develop the property.                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | 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 approximately 396,000 square feet. The remaining 80%
 is owned by an unaffiliated 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 approximately 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 approximately 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
 Woodlake Pointe a multi-tenant retail property located in Houston, Texas with
 a combined gross leasable area of approximately 82,000 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 May 2008,
 AmREIT Westheimer Gessner, LP acquired an additional tract of land adjacent
 to Woodlake Pointe for $1.3 million.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | 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
 FIN 46(R) or EITF 04-5.                                                                                                                                                                    

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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 June 30, 2009 and 2008, and six months
ended June 30, 2009 and 2008, as follows (in thousands):

|                               |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|------------------------------ |  | --------------------------- | ------ | ------------------------- | - | ------ | - | ---- | ------ | - | - | ------ | -
|                               |  | Three months ended June 30, |        | Six months ended June 30, |  
|                               |  | 2009                        |        | 2008                      |   | 2009   |   | 2008 |       
|Revenue                        |  | $                           | 4,595  |                           | $ | 4,695  |   | $    | 9,217  |   | $ | 9,593  |  
|Depreciation
 and amortization |  |                             | (2,180 | )                         |   | (1,281 | ) |      | (4,489 | ) |   | (5,058 | )
|Interest
 expense              |  |                             | (1,464 | )                         |   | (1,548 | ) |      | (2,921 | ) |   | (3,020 | )
|Net loss                       |  |                             | (814   | )                         |   | (420   | ) |      | (1,705 | ) |   | (2,454 | )

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. 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 six months ended June 30, 2008, our portion of the loss totaled
$113,000 and is included in loss from non-consolidated entities in our
consolidated statements of operations. For the three and six month periods
ended June 30, 2009, our portion of the increase in fair value totaled $50,000
and $75,000 respectively, 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. 141 (SFAS No.141R will be applied to operating properties
acquired subsequent to its adoption), 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 $338,000 and $366,000 for the six
months ended June 30, 2009 and 2008, respectively. The amortization of
above-market leases, which was recorded as a reduction of rental income, was
approximately $29,000 and $41,000 during the six months ended June 30, 2009 and
2008, respectively. Accretion of below market leases was approximately $103,000
and $95,000 during the six months ended June 30, 2009 and 2008, respectively.

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

|                                                |  |               |        |                   |   |        |  
|----------------------------------------------- |  | ------------- | ------ | ----------------- | - | ------ | -
|                                                |  | June 30, 2009 |        | December 31, 2008 |  
|Acquired lease intangible
 assets:              |  |               |        |                   |   |        |  
|In-place leases                                 |  | $             | 4,505  |                   | $ | 4,585  |  
|In-place leases - accumulated amortization      |  |               | (2,490 | )                 |   | (2,232 | )
|Above-market leases                             |  |               | 269    |                   |   | 278    |  
|Above-market leases - accumulated
 amortization |  |               | (163   | )                 |   | (143   | )
|Acquired lease intangibles, net                 |  | $             | 2,121  |                   | $ | 2,488  |  
|                                                |  |               |        |                   |   |        |  
|Acquired lease intangible liabilities:          |  |               |        |                   |   |        |  
|Below-market leases                             |  | $             | 1,140  |                   | $ | 1,161  |  
|Below-market leases - accumulated
 amortization |  |               | (726   | )                 |   | (644   | )
|Acquired below-market lease intangibles,
 net   |  | $             | 414    |                   | $ | 517    |  

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

Our
outstanding debt consisted entirely of fixed-rate mortgage loans of
approximately $50.6 million at June 30, 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 June 30,
2009, the weighted-average interest rate on our fixed-rate debt is 5.9%, and
the weighted average remaining life of such debt is 11.6 years. As of June 30,
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                        |  | $ | 78                             |  | $                     |       |                 | $ | 78     | 
|2010                        |  |   | 165                            |  |                       |       |                 |   | 165    | 
|2011                        |  |   | 335                            |  |                       | 24,455 |                 |   | 24,790 | 
|2012                        |  |   | 183                            |  |                       |       |                 |   | 183    | 
|2013                        |  |   | 196                            |  |                       |       |                 |   | 196    | 
|Thereafter                  |  |   | 299                            |  |                       | 24,904 |                 |   | 25,203 | 
|Total                       |  | $ | 1,256                          |  | $                     | 49,359 |                 | $ | 50,615 | 

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 June 30,
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 82% of our rental income for the six months ended June 30,
2009 and 2008. Houston is Texas largest city and the fourth largest city in
the United States.

Following are
the base rents generated by our top five tenants during the six months ended June
30, 2009 and 2008 (in thousands):

|                         |  |                           |       |  |      |       |  | 
|------------------------ |  | ------------------------- | ----- |  | ---- | ----- |  | 
|                         |  | Six months ended June 30, |      
|Tenant                   |  |                           | 2009  |  | 2008 |      
|H-E B
 Grocery           |  | $                         | 713   |  | $    | 713   | 
|Designer
 Shoe Warehouse |  |                           | 275   |  |      | 275   | 
|Rice Food
 Markets, Inc. |  |                           | 146   |  |      | 146   | 
|Blockbuster
 Video       |  |                           | 112   |  |      | 112   | 
|Fidelity Investments     |  |                           | 105   |  |      | 105   | 
|                         |  | $                         | 1,351 |  | $    | 1,351 | 

13

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|   |                                               
|-- | ----------------------------------------------
|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. During the six
months ended June 30, 2009, we received three redemption requests, two of which
were denied in the aggregate amount of $74,000 and one of which was granted in
the amount of $28,000. We received no redemption requests during the six months
ended June 30, 2008. All redemption requests that have been granted were paid
with cash flows from operations. As of June 30, 2009, we have suspended the
optional redemption due to macro economic conditions and the need to preserve
cash.

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. Our
distributions were paid at a rate of 3.0% per annum on invested capital through
June 30, 2009. Beginning July 1, 2009, we will cease payment of distributions
until improvements in the real estate and liquidity markets warrant such
payment. During the liquidation stage of the Partnership (anticipated to
commence 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.                                                                                                                                                                                                                                                                                                                   

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.

14

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Table of Contents

|   |                           
|-- | --------------------------
|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 and six
month periods ended June 30, 2009 and 2008 (in thousands):

|                                            |  |                             |      |                           |      |     |      |   |      |  |   |     |  | 
|------------------------------------------- |  | --------------------------- | ---- | ------------------------- | ---- | --- | ---- | - | ---- |  | - | --- |  | 
|                                            |  | Three months ended June 30, |      | Six months ended June 30, |     
|Type of
 service                            |  |                             | 2009 |                           | 2008 |     | 2009 |   | 2008 | 
|Asset
 management fees                      |  | $                           | 155  |                           | $    | 154 |      | $ | 309  |  | $ | 309 | 
|Property
 management fees and leasing costs |  |                             | 74   |                           |      | 117 |      |   | 167  |  |   | 212 | 
|Administrative
 costs reimbursements        |  |                             | 164  |                           |      | 68  |      |   | 262  |  |   | 149 | 
|                                            |  | $                           | 393  |                           | $    | 339 |      | $ | 738  |  | $ | 670 | 

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 six months ended June 30, 2009 and 2008, such fees totaled
$414,000 and $430,000, respectively.

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

We did not
have any real estate acquisitions or dispositions during the six months ended
June 30, 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 appropriate 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.

Certain information
presented in this Quarterly Report constitutes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although we believe that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, our actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include the following: changes in general economic
conditions, changes in real estate market conditions, continued availability of
proceeds from our debt or equity capital, our ability to locate suitable
tenants for our properties, the ability of tenants to make payments under their
respective leases, timing of acquisitions, development starts and sales of
properties, the ability to meet development schedules and the other risks,
uncertainties and assumptions. Any forward-looking statement speaks only as of
the date on which it was made, and the Partnership undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operation results over
time.

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
Maryland real estate investment trust that files reports with the SEC. We qualify as a partnership for federal
income tax purposes.

As of June 30, 2009, our investments include three
wholly-owned properties comprising approximately 225,000 square feet of gross
leasable area, one property in which we own a controlling interest
comprising approximately 102,000 square feet of gross leasable area and seven
properties in which we own a non-controlling interest through joint ventures
comprising approximately 1,141,000 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 six months ended June 30, 2009 and 2008. As of June
30, 2009, our properties had an average occupancy rate of approximately 79% and the average debt
leverage ratio of the properties in which we have an investment interest was
approximately 57%, 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.

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Table of Contents

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 June
30, 2009, there have been no material changes to this information.

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 June
30, 2009, our investments include three wholly-owned properties comprising
approximately 225,000 square feet of gross leasable area, one property
in which we own a controlling interest comprising approximately 102,000 square
feet of gross leasable area and seven properties in which we own a
non-controlling interest through joint ventures comprising approximately
1,141,000 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 June 30, 2009 versus Three Months Ended
June 30, 2008

Revenue.Revenue
stayed relatively constant at approximately $1.7 million for the three months
ended June 30, 2009 and 2008. An increase in the number of tenants and
therefore rental income at Olmos Creek offset reductions in rental income at
various other properties due to decreased occupancy resulting from the general
downturn in the economy.

General & Administrative.General
and administrative expenses decreased approximately $13,000 to approximately
$42,000 for the three months ended June 30, 2009 compared to approximately
$55,000 for the three months ended June 30, 2008. This decrease was primarily
due to a reduction in marketing costs, which were incurred during the second
quarter of 2008 but not incurred in 2009.

General & Administrative  Related Party.General and administrative expenses paid to our
affiliate increased approximately $96,000 to approximately $164,000 during the
three months ended June 30, 2009 compared to approximately $68,000 for the
three months ended June 30, 2008. This increase was due to an increase in the compensation pool and to an increase in the
allocation of those 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 $22,000 to approximately $488,000
during the three months ended June 30, 2009 compared to approximately $466,000
for the three months ended June 30, 2008. This increase was primarily due to an
increase in bad debt expense associated with the expected uncollectability of
certain tenant receivables.

Legal and Professional Fees.Legal
and professional fees decreased approximately $25,000 to approximately $59,000
during the three months ended June 30, 2009 compared to approximately $84,000
for the three months ended June 30, 2008. This decrease is primarily due to a
reduction in legal fees associated with the review of our first annual report
to the SEC, filed in 2008. Such fees were billed during the second quarter of
2008, but not incurred during 2009.

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Depreciation and Amortization Expense.Depreciation
and amortization expense decreased approximately $43,000 to approximately
$617,000 during the three months ended June 30, 2009 compared to approximately
$660,000 for the three months ended June 30, 2008. This decrease was primarily
due to write-offs of tenant improvements and acquired lease intangibles
resulting from tenant vacancies in the first quarter of 2009.

Interest Income  Related Party.Interest
income  related party recorded during the three months ended June 30, 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 and therefore no related party interest income during the second
quarter of 2009.

Interest and Other Income.
Interest and other income decreased approximately $87,000 to approximately
$12,000 during the three months ended June 30, 2009 compared to approximately
$99,000 for the three months ended June 30, 2008. This decrease was the result
of a combination of lower interest rates during the second quarter of 2009 as
well as a reduced balance of invested funds.

Equity in Losses From Non-Consolidated
Entities.Equity in losses from non-consolidated
entities increased approximately $43,000 to approximately $362,000 for the three
months ended June 30, 2009 compared to approximately $319,000 for the three
months ended June 30, 2008. These amounts represent our ownership portion of
our joint ventures net income or loss for the period. The increased loss is
due to an adjustment to amortization of acquired lease intangibles at Preston
Towne Crossing which had the effect of reducing expense during the second
quarter of 2008. This increased loss was partially offset by an increase in
revenues from our 5433 Westheimer property due to additional rental income from
tenants as well as a decrease in amortization of acquired lease intangibles at
Woodlake Square due to those intangibles becoming fully amortized during 2008.

Net Loss Attributable to Non-controlling
Interest. Net loss attributable to non-controlling
interest increased approximately $8,000 to approximately $28,000 for the three
months ended June 30, 2009 compared to approximately $20,000 for the three
months ended June 30, 2008. This increase was primarily due to an increase in
the loss recorded at our Lake Houston property resulting from decreased
revenues related to a tenant that vacated during the first quarter of 2009.

Six Months Ended June 30, 2009 versus Six Months Ended June
30, 2008

Revenue.Revenue
stayed relatively constant at approximately $3.5 million for the six months
ended June 30, 2009 and 2008. An increase in the number of tenants and
therefore rental income at Olmos Creek offset reductions in rental income at
various other properties due to decreased occupancy resulting from the general
downturn in the economy.

General & Administrative.General
and administrative expenses decreased approximately $26,000 to approximately
$59,000 for the six months ended June 30, 2009 compared to approximately
$85,000 for the six months ended June 30, 2008. This decrease was due to a
reduction in insurance costs for directors and officers and a reduction in
marketing costs which were incurred during the second quarter of 2008 but not
incurred in 2009.

General & Administrative  Related Party.General and administrative expenses paid to our
affiliate increased approximately $113,000 to approximately $262,000 during the
six months ended June 30, 2009 compared to approximately $149,000 for the six
months ended June 30, 2008. This increase was due to an increase in the compensation pool and to an increase in the
allocation of those 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 $91,000 to approximately $990,000
during the six months ended June 30, 2009 compared to approximately $899,000
for the six months ended June 30, 2008. This increase was primarily due to an
increase in bad debt expense associated with the expected uncollectability of
certain tenant receivables.

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Property Management Fees  Related Party.
Property management fees to our affiliate increased approximately $30,000 to
approximately $153,000 for the six months ended June 30, 2009 compared to
approximately $123,000 for the six months ended June 30, 2008. Property
management fees are calculated based on tenant billings. This increase is
primarily due to 2008 expense recoveries that were billed to tenants during the
first quarter of 2009.

Legal and Professional Fees.Legal
and professional fees decreased approximately $183,000 to approximately
$104,000 during the six months ended June 30, 2009 compared to approximately
$287,000 for the six months ended June 30, 2008. This decrease is primarily due
to fees incurred in the first quarter of 2008 related to an audit of one of our
investment properties that was required for the year ended December 31, 2007.
This audit was not required for the year ended December 31, 2008.

Depreciation and Amortization Expense.Depreciation
and amortization expense increased approximately $54,000 to approximately
$1,353,000 during the six months ended June 30, 2009 compared to approximately
$1,299,000 for the six months ended June 30, 2008. This increase was primarily
due to write-offs of tenant improvements and acquired lease intangibles due to
tenant vacancies during the first quarter of 2009.

Interest Income  Related Party.Interest
income  related party recorded during the six months ended June 30, 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 and therefore no related party interest income during 2009.

Interest and Other Income.
Interest and other income decreased approximately $214,000 to approximately
$26,000 during the six months ended June 30, 2009 compared to approximately
$240,000 for the six months ended June 30, 2008. This decrease was the result
of a combination of lower interest rates during 2009 as well as a reduced
balance of invested funds.

Equity in Losses From Non-Consolidated
Entities.Equity in losses from non-consolidated
entities decreased approximately $235,000 to approximately $661,000 for the six
months ended June 30, 2009 compared to approximately $896,000 for the six
months ended June 30, 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 a loss recorded by our Woodlake Square property during the
first half of 2008 due to changes in fair value of its interest rate swap. The
interest rate swap was designated as a hedge on October 1, 2008. The net change
in fair value subsequent to October 1, 2008 is reported through accumulated
other comprehensive income.

Net Loss Attributable to Non-controlling
Interest. Net loss attributable to non-controlling
interest increased approximately $30,000 to approximately $59,000 for the six
months ended June 30, 2009 compared to approximately $29,000 for the six months
ended June 30, 2008. This increase was primarily due to an increase in the loss
recorded at our Lake Houston property resulting from decreased revenues and
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 June 30,
2009 and December 31, 2008, our cash and cash equivalents totaled approximately
$585,000 and $918,000, respectively. Cash flows provided by (used in) operating
activities, investing activities and financing activities for the six months
ended June 30, 2009 and 2008 are as follows (in thousands):

|                      |  |                           |        |      |   |        |  
|--------------------- |  | ------------------------- | ------ | ---- | - | ------ | -
|                      |  | Six months ended June 30, |       
|                      |  | 2009                      |        | 2008 |  
|Operating
 activities |  | $                         | 1,529  |      | $ | (1,390 | )
|Investing
 activities |  |                           | (465   | )    |   | 1,212  |  
|Financing
 activities |  |                           | (1,397 | )    |   | (3,003 | )

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Net cash flows
provided by operating activities increased approximately $2.9 million to
inflows of approximately $1.5 million for the six months ended June 30, 2009
compared to outflows of approximately $1.4 million for the six months ended
June 30, 2008. This increase in cash flows provided by operating activities was
primarily due to an increase in working capital cash flows of approximately
$3.1 million which was driven by an increase in cash received from tenants,
payments received on accounts receivable  related party and a decrease in cash
paid for escrow deposits.

Net cash flows
provided by investing activities decreased approximately $1.7 million to net
cash outflows of approximately $465,000 for the six months ended June 30, 2009
compared to net cash inflows of approximately $1.2 million for the six months
ended June 30, 2008. This decrease is primarily due to a decrease in payments
received on notes receivable  related party of approximately $1.7 million.
Also, a reduction in payments received on notes receivable of approximately
$1.4 million was offset by a reduction in cash invested in non-consolidated
entities of approximately $1.4 million.

Net cash flows
used in financing activities decreased approximately $1.6 million to
approximately $1.4 million for the six months ended June 30, 2009 compared to
approximately $3.0 million for the six months ended June 30, 2008. This
decrease was primarily due to a reduction in distributions of approximately
$1.6 million as we reduced our distribution rate from 7.0% per annum in 2008 to
3.0% per annum during the first half of 2009, and have now suspended
distributions, effective July 1, 2009.

During the
past 18 months, the United States has experienced an unprecedented business
downturn, coupled with a substantial curtailment of available debt financing
and a virtual shutdown of equity capital markets, particularly in the real
estate sector. While we expect to generate sufficient cash flow from operations
in 2009 to meet our contractual obligations, a significant additional
deterioration in the national economy, the bankruptcy or insolvency of one or
more of our large tenants could cause our 2009 cash resources to be
insufficient to meet our obligations. If necessary, we have the ability to
defer capital improvements and to defer payment of certain operating costs,
including property taxes, until cash resources are available. Effective July
15, 2009, we have suspended all distributions in an effort to conserve cash and
to protect investors invested capital. As we have numerous projects that are
mid-stream in redevelopment, we are conserving cash from operations to improve
our ability to fund capital improvements, tenant improvements and leasing
commissions, and to meet our obligations, including debt service.

|        |                                                            
|------- | -----------------------------------------------------------
|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 June 30, 2009. Based on that
evaluation, our General Partners CEO and CFO concluded that, as of June 30,
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.

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Changes in Internal Controls

There has been
no change to our internal control over financial reporting during the quarter
ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

|        |         
|------- | --------
|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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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: August
 14, 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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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 of our General Partner
 dated August 14, 2009 (filed herewith).                                                                                                            
|             |  |                                                                                                                                                                                                                                                 
|Exhibit 31.2 |  | Certification
 pursuant to Rule 13a-14(a) of Chief Financial Officer of our General Partner
 dated August 14, 2009 (filed herewith).                                                                                                            
|             |  |                                                                                                                                                                                                                                                 
|Exhibit 32.1 |  | Chief
 Executive Officer of our General Partner 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 of our General Partner certification pursuant to 18 U.S.C.
 Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
 2002 (furnished herewith).                                                     

23

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