Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q

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☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

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

EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 000-53841



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AmREIT, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Maryland
     20-8857707(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)


Registrants telephone number, including area code:(713) 850-1400



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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☒NO☐



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).  Yes☐No☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer☐
     Accelerated filerNon-accelerated filer☐
     Smaller reporting company☒(Do not check if a 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☐NO☒



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:



Class
     
     Outstanding as of May 6, 2011AmREIT, Inc. Common Stock, $0.01 par value
     
     23,186,107 shares






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AmREIT, Inc. Quarterly Report on Form 10-Q Quarter Ended March 31, 2011  Table of Contents  Item No.
 
 PagePART I - Financial Information1
 Financial
  Statements
 12
 Management’s
  Discussion and Analysis of Financial Condition and Results of Operations
 213
 Quantitative
  and Qualitative Disclosures About Market Risk
 274
 Controls
  and Procedures
 27PART II - Other Information1
 Legal
  Proceedings
 282
 Unregistered
  Sales of Equity Securities and Use of Proceeds
 283
 Defaults
  Upon Senior Securities
 284
 [Removed
  and Reserved]
 285
 Other
  Information
 286
 Exhibits
 28Signatures
 29Exhibit Index
 30


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Table of Contents  Part I – Financial
Information Item 1.
 Financial Statements.  AMREIT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except share data)  March 31,
  2011
 
 December 31,
  2010(unaudited)ASSETSReal
  estate investments at cost:Land
 
 $
 131,435
 
 $
 127,699Buildings
 
 
 153,603
 
 
 140,532Tenant improvements
 
 
 11,659
 
 
 11,083296,697
 
 
 279,314Less accumulated depreciation
  and amortization
 
 
 (29,815
 )
 
 (28,620
 )266,882
 
 
 250,694Acquired lease intangibles,
  net
 
 
 9,065
 
 
 5,975Investments in advised funds
  and other affiliates
 
 
 7,964
 
 
 8,036Net real estate investments
 
 
 283,911
 
 
 264,705Cash
  and cash equivalents
 
 
 709
 
 
 655Cash
  on deposit with qualified intermediary
 
 
 ―
 
 
 9,370Tenant
  receivables, net
 
 
 2,498
 
 
 3,058Accounts
  receivable, net
 
 
 1,241
 
 
 2,206Accounts
  receivable - related party, net
 
 
 668
 
 
 521Notes
  receivable, net
 
 
 3,390
 
 
 3,375Notes
  receivable - related party, net
 
 
 5,053
 
 
 4,860Deferred
  costs, net
 
 
 2,818
 
 
 2,869Other
  assets
 
 
 2,176
 
 
 2,229TOTAL ASSETS
 
 $
 302,464
 
 $
 293,848LIABILITIES
  AND STOCKHOLDERS’ EQUITYLiabilities:Notes payable
 
 $
 173,527
 
 $
 161,848Accounts payable and other
  liabilities
 
 
 4,385
 
 
 6,670Acquired below market lease
  intangibles, net
 
 
 1,496
 
 
 1,485Security deposits
 
 
 763
 
 
 778TOTAL LIABILITIES
 
 
 180,171
 
 
 170,781Stockholders’
  equity:Preferred stock, $0.01 par
  value, 50,000,000 shares authorized, none issued
 
 
 ―
 
 
 ―Common stock, $0.01 par value,
  1,000,000,000 shares authorized, 23,186,107 and 23,118,133 shares issued and
  outstanding as of March 31, 2011 and December 31, 2010,
  respectively
 
 
 233
 
 
 232Capital in excess of par value
 
 
 191,521
 
 
 191,369Accumulated distributions in
  excess of earnings
 
 
 (69,143
 )
 
 (68,160
 )Accumulated other
  comprehensive loss
 
 
 (266
 )
 
 (346
 )Cost of treasury stock, 7,144
  and 4,217 shares as of March 31, 2011 and December 31, 2010,
  respectively
 
 
 (52
 )
 
 (28
 )TOTAL STOCKHOLDERS’ EQUITY
 
 
 122,293
 
 
 123,067TOTAL LIABILITIES AND
  STOCKHOLDERS’ EQUITY
 
 $
 302,464
 
 $
 293,848
  See
Notes to Consolidated Financial Statements.   1


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Table of Contents  AMREIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands except per share
data) (unaudited)  Three months ended March 31,2011
 
 2010Revenues:Rental income from operating
  leases
 
 $
 7,533
 
 $
 7,094Real estate fee income -
  related party
 
 
 559
 
 
 423Construction management fee
  income - related party
 
 
 72
 
 
 77Asset management fee income -
  related party
 
 
 370
 
 
 370Total revenues
 
 
 8,534
 
 
 7,964Expenses:General and administrative
 
 
 1,352
 
 
 1,287Property expense
 
 
 1,728
 
 
 1,693Legal and professional
 
 
 274
 
 
 244Real estate commissions
 
 
 1
 
 
 1Depreciation and amortization
 
 
 1,647
 
 
 1,716Total expenses
 
 
 5,002
 
 
 4,941Operating
  income
 
 
 3,532
 
 
 3,023Other
  income (expense):Interest and other income
 
 
 132
 
 
 151Interest and other income -
  related party
 
 
 30
 
 
 62Loss from advised funds and
  other affiliates
 
 
 (104
 )
 
 (541
 )Income tax benefit (expense)
  for taxable REIT subsidiary
 
 
 (51
 )
 
 89Interest expense
 
 
 (2,203
 )
 
 (2,400
 )Income
  from continuing operations
 
 
 1,336
 
 
 384Income
  (loss) from discontinued operations
 
 
 ―
 
 
 304Net
  income including non-controlling interest
 
 
 1,336
 
 
 688Net
  loss attributable to non-controlling interest
 
 
 ―
 
 
 (11
 )Net
  income available to stockholders
 
 $
 1,336
 
 $
 677Net
  income per share of common stock - basic and dilutedIncome before discontinued
  operations
 
 $
 0.06
 
 $
 0.02Income from discontinued
  operations
 
 $
 ―
 
 $
 0.01Net income
 
 $
 0.06
 
 $
 0.03Weighted average shares of
  common stock used to compute net income per share, basic and diluted
 
 
 22,729
 
 
 22,638
  See
Notes to Consolidated Financial Statements.    2


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Table of Contents  AMREIT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY For the three months ended March 31, 2011 (in thousands) (unaudited)  Common
Stock
     
     Capital in
excess of
par value
     
     Accumulated
distributions
in excess
of earnings
     
     Accumulated
other
comprehensive
loss
     
     Treasury
stock
     
     TotalBalance at December 31, 2010
     
     $
     232
     
     $
     191,369
     
     $
     (68,160
     )
     $
     (346
     )
     $
     (28
     )
     $
     123,067Net income including noncontrolling interest
     
     
     ―
     
     
     ―
     
     
     1,336
     
     
     ―
     
     
     ―
     
     
     1,336Change in fair value of hedge liability
     
     
     ―
     
     
     ―
     
     
     ―
     
     
     80
     
     
     ―
     
     
     80Deferred compensation issuance of restricted shares
     
     
     ―
     
     
     (674
     )
     
     ―
     
     
     ―
     
     
     ―
     
     
     (674
     )Issuance of shares of common stock
     
     
     1
     
     
     673
     
     
     ―
     
     
     ―
     
     
     ―
     
     
     674Amortization of deferred compensation
     
     
     ―
     
     
     132
     
     
     ―
     
     
     ―
     
     
     ―
     
     
     132Forfeitures of shares of common stock
     
     
     ―
     
     
     21
     
     
     ―
     
     
     ―
     
     
     (24
     )
     
     (3
     )Distributions
     
     
     ―
     
     
     ―
     
     
     (2,319
     )
     
     ―
     
     
     ―
     
     
     (2,319
     )Balance at March 31, 2011
     
     $
     233
     
     $
     191,521
     
     $
     (69,143
     )
     $
     (266
     )
     $
     (52
     )
     $
     122,293
  See Notes to Consolidated Financial Statements.         3


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Table of Contents  AMREIT, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
FLOWS (in thousands) (unaudited) Three months ended March 31,2011
 
 2010Cash
  flows from operating activities:Net income including
  noncontrolling interest
 
 $
 1,336
 
 $
 688Adjustments to reconcile net
  income to net cash provided by operating activities:Bad debt expense (recoveries)
 
 
 (10
 )
 
 51Loss from advised funds and
  other affiliates
 
 
 104
 
 
 541Cash receipts (deferrals) for
  related party fees
 
 
 (12)
 
 
 7Depreciation and amortization
 
 
 1,647
 
 
 1,722Amortization of above/below
  market rent
 
 
 (50
 )
 
 (39
 )Amortization of loan premium
  and financing cost
 
 
 100
 
 
 116Amortization of deferred
  compensation
 
 
 132
 
 
 74Distributions from advised
  funds and other affiliates
 
 
 ―
 
 
 36Decrease in tenant receivables
 
 
 555
 
 
 182Decrease in accounts receivable
 
 
 965
 
 
 17Increase in accounts receivable
  - related party
 
 
 (87
 )
 
 (49
 )Cash receipts from direct
  financing leases more than income recognized
 
 
 ―
 
 
 72Decrease in other assets
 
 
 260
 
 
 1,307Decrease in accounts payable
  and other liabilities
 
 
 (2,242
 )
 
 (3,329
 )Decrease in security deposits
 
 
 (39
 )
 
 (1
 )Net cash provided by operating
  activities
 
 
 2,659
 
 
 1,395Cash flows from investing activities:Improvements to real estate,
  including leasing costs
 
 
 (425
 )
 
 (682
 )Net cash paid for acquisition of investment
  properties
 
 
 (4,689
 )
 
 ―Loans to affiliates
 
 
 (193
 )
 
 (1,241
 )Payments from affiliates
 
 
 ―
 
 
 1,000Additions to furniture,
  fixtures and equipment
 
 
 (11
 )
 
 ―Investments in advised funds
  and other affiliates
 
 
 (36
 )
 
 (66
 )Distributions from advised
  funds and other affiliates
 
 
 16
 
 
 85Cash received from qualified
  intermediary
 
 
 9,370
 
 
 ―Net cash provided by (used in)
  investing activities
 
 
 4,032
 
 
 (904
 )Cash flows from financing activities:Proceeds from notes payable
 
 
 1,750
 
 
 3,150Payments of notes payable
 
 
 (6,065
 )
 
 (1,201
 )Payments for financing costs
 
 
 (3
 )
 
 (3
 )Purchase of treasury stock
 
 
 ―
 
 
 (22
 )Issuance of shares of common
  stock
 
 
 ―
 
 
 (20
 )Common dividends paid
 
 
 (2,319
 )
 
 (2,867
 )Distributions to noncontrolling
  interests
 
 
 ―
 
 
 (9
 )Net cash used in financing
  activities
 
 
 (6,637
 )
 
 (972
 )Net
  increase (decrease) in cash and cash equivalents
 
 
 54
 
 
 (481
 )Cash
  and cash equivalents, beginning of period
 
 
 655
 
 
 1,067Cash
  and cash equivalents, end of period
 
 $
 709
 
 $
 586Supplemental schedule of cash flow information:Cash paid during the year for:Interest
 
 $
 1,972
 
 $
 2,547Taxes
 
 
 142
 
 
 19Supplemental schedule of non-cash investing and
  financing activities:Net cash paid for acquisition
  of investment properties:Land
 
 
 (3,740
 )
 
 ―Buildings
 
 
 (13,021
 )
 
 ―Tenant improvements
 
 
 (330
 )
 
 ―Acquired lease intangibles, net
 
 
 (3,344
 )
 
 ―Notes payable
 
 
 16,010
 
 
 ―Accounts receivable - related
  party
 
 
 (60
 )
 
 ―Deferred costs
 
 
 (42
 )
 
 ―Other assets
 
 
 (221
 )
 
 ―Accounts payable and other
  liabilities
 
 
 35
 
 
 ―Security deposits
 
 
 24
 
 
 ―$
 (4,689
 )
 $
 ―
 In 2011, we issued 70,900 restricted shares of common
stock to employees as part of their compensation arrangements.  The restricted
shares vest over a seven-year period.  We recorded approximately $674,000 in
deferred compensation related to the issuance of the restricted shares. In 2010, we issued 171,400 restricted shares of common
stock to employees and directors as part of their compensation arrangements. 
The restricted shares vest over a three to seven-year period. We recorded
approximately $1.6 million in deferred compensation related to the issuance of
the restricted shares. See Notes to Consolidated Financial Statements.  4


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Table of Contents  AmREIT, Inc. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2011 (unaudited)  1.
 OUR RECENT HISTORY AND OUR BUSINESS  OUR
BUSINESS  We are a full service, vertically integrated and
self-administered real estate investment trust, or REIT, that primarily owns,
operates, acquires and selectively develops and redevelops premium-quality retail
and mixed-use properties in high-traffic, densely populated, affluent areas
with high barriers to entry.  We have elected to be taxed as a REIT for federal
income tax purposes.  We seek to own properties in major cities in the United
States that contain submarkets with characteristics comparable to our existing
markets.  Our shopping centers are typically anchored by national or regional
supermarket chains, with the remaining tenant base being comprised
predominantly of select national and local retailers.  Over our 25-year
history, we have acquired, owned and operated retail properties across 19 states. Today,
our investment focus is predominantly concentrated in the affluent high-growth
submarkets of Houston, Dallas, San Antonio, Austin and Atlanta which represent five
of the top ten population and job growth markets in the United States.  We believe
these metropolitan areas are compelling real estate markets given their
favorable demographics, robust job growth and large and diverse economies. The
Texas economy is diverse, with employment spread broadly over sectors such as
government services (including defense), professional and business services,
education, healthcare and leisure and hospitality.  As part of our ongoing
investment strategy, we intend to acquire properties located in submarkets
within other major U.S. cities outside of Texas that have market
characteristics similar to our existing Texas markets. Our targeted properties
will include premier retail frontage locations in high-traffic, highly
populated, affluent areas with high barriers to entry.  As of March 31, 2011, our portfolio consisted of 26
wholly-owned properties totaling approximately 1.1 million gross rentable
square feet which was 93% leased with a weighted average remaining lease term
of 6.1 years.  In addition to our portfolio, we have an advisory services
business which provides a full complement of real estate services to the
properties within our portfolio as well as to eight real estate funds in which
we have varying ownership interests in and manage on behalf of institutional
and individual high-net-worth investors.  We refer to these real estate funds
as the advised funds whose investment strategy is focused upon the development
and re-development of retail and mixed-use properties situated on
premium-quality locations. As of March 31, 2011, our advised funds held 20 properties
with approximately 2.2 million gross rentable square feet which is 75% leased. RECENT
HISTORY  We
were organized by our predecessor, AmREIT, in April 2007 as REITPlus, Inc. (“REITPlus”),
a Maryland corporation that elected to be taxed as a real estate investment
trust (“REIT”). REITPlus was structured as an externally managed and advised
REIT, with a wholly owned subsidiary of AmREIT providing investment advisory
and property and corporate management services.  In November 2009, we completed a restructuring,
which consisted of the merger of AmREIT with and into REITPlus, wherein AmREIT
acquired REITPlus’s net assets, and the surviving entity was renamed AmREIT,
Inc.  The restructuring resulted in the combination of AmREIT’s three classes
of common shares of beneficial interest into a single common class of common
stock.  All of the independent members of the boards of both AmREIT and
REITPlus, as well as H. Kerr Taylor, who served as chairman and chief executive
officer of both companies, now form our seven-member Board of Directors.  For accounting purposes, the transaction was
treated as an asset acquisition, with AmREIT being the accounting acquirer
deemed to have acquired the net assets of REITPlus. As a result, the financial
statements beginning on page 1 reflect the historical position and results of
operations of AmREIT prior to the merger and those of the combined company
following the merger.  In
these notes to the financial statements, “we”, “us”, “our”, or “the Company”,
refers to AmREIT, Inc., the combined company following the merger of REITPlus
with AmREIT, together with its predecessors and subsidiaries, including joint
ventures, unless the context requires otherwise.   5


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Table of Contents  2.
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  BASIS
OF PRESENTATION  Our
financial records are maintained on the accrual basis of accounting whereby
revenues are recognized when earned and expenses are recorded when incurred. 
The consolidated financial statements include our accounts as well as the
accounts of any wholly- or majority-owned subsidiaries in which we have a
controlling financial interest.Investments in joint ventures and partnerships where we
have the ability to exercise significant influence but do not exercise
financial and operating control, are accounted for using the equity method.All significant inter-company accounts and transactions
have been eliminated through consolidation.  The accompanying consolidated financial statements included in this Report
for the three months ended March 31, 2011 and 2010, are unaudited. In our
opinion, all adjustments necessary for a fair presentation of such financial
statementshave been included, and such
adjustments consisted of normal recurring items. REVENUE
RECOGNITION  We
lease space to tenants under agreements with varying terms.  Our leases are
accounted for as operating leases and, although certain leases of the
properties provide for tenant occupancy during periods for which no rent is due
and/or for 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. 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 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 three months
ended March 31, 2011 and 2010, we recognized percentage rents of $10,000 and $82,000,
respectively.  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.  We did
not recognize any lease termination fees during the three months ended March
31, 2011 or 2010.  We
have investments in advised funds and other affiliates that are accounted for
under the equity method because we exercise significant influence over such
entities.  We record our percentage interest in the earnings and losses of
these entities in income (loss) from advised funds and other affiliates in our
statement of operations.  We serve as the general partner of our advised funds
and receive asset management fees for such service, which are calculated as a
percentage of equity under management.  We account for profit recognition on sales of real estate in accordance
with ASC 360,Property, Plant and Equipment. Pursuant to ASC 360,
profits from sales will not be recognized under the full accrual method by the
Company until certain criteria are met.  Gains relating to transactions which
do not meet the criteria for full accrual method of accounting are deferred and
recognized when the full accrual method of accounting criteria are met or by
using the installment or deposit methods of profit recognition, as appropriate
in the circumstances.  We
provide various real estate services, including development, construction
management, property management, leasing and brokerage. The fees for these
services are recognized as services are provided and are generally calculated
as a percentage of revenues earned or to be earned or of property cost, as
appropriate. Construction management contracts are recognized only to the
extent of the fee revenue.   6


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Table of Contents  REAL
ESTATE INVESTMENTS  Development Properties– Land, buildings and improvements are recorded at
cost.  Expenditures related to the development of real estate are carried at
cost which includes capitalized carrying charges, acquisition costs and
development costs.  Carrying charges, primarily interest, real estate taxes and
loan acquisition costs, and direct and indirect development costs related to
buildings under construction, are capitalized as part of construction in
progress.  The capitalization of such costs ceases at the earlier of one year
from the date of completion of major construction or when the property, or any
completed portion, becomes available for occupancy. We capitalize as incurred
costs associated with pending acquisitions of raw land.  We did not capitalize
any interest or taxes during the three months ended March 31, 2011 or 2010.  Acquired
Properties and Acquired Lease Intangibles– We account for operating real estate acquisitions pursuant to ASC
805,Business Combinationsas we believe most operating real estate
meets the definition of a “business” pursuant to this guidance.  Accordingly,
we allocate the purchase price of the acquired properties to land, building and
improvements, identifiable intangible assets and to the acquired liabilities
based on their respective fair values.  Identifiable intangibles include
amounts allocated to acquired above and below market leases, out of market
debt, 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 (i) an estimate of carrying costs during the expected lease-up periods,
considering market conditions, and (ii) 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 market and
in-place lease value are recorded as acquired lease intangibles and are
amortized as an adjustment to rental revenue or amortization expense, as
appropriate, over the remaining terms of the underlying leases.  Below market
leases include fixed-rate renewal periods. Premiums or discounts on debt are
amortized to interest expense over the remaining term of such debt. Costs
related to acquiring operating properties are expensed as incurred.  Depreciation- Depreciation is computed using the straight-line
method over an estimated useful life of up to 39 years for buildings, up to 20
years for site improvements and over the term of lease for tenant
improvements.  Leasehold estate properties, properties on which we own the
building and improvements but not the related ground, are amortized over the
life of the lease.  Properties Held for Sale- Properties are classified as held for sale if we
have decided to market the property for immediate sale in its present condition
with the belief that the sale will be completed within one year.  Properties
held for sale are carried at the lower of cost or fair value less cost to
sell.  Depreciation and amortization are suspended during the held for sale
period.  As of March 31, 2011 and 2010, we owned no properties which were
classified as real estate held for sale.  Our properties generally have operations and cash flows that can be
clearly distinguished from the rest of the Company.  The operations and gains
on sales reported in discontinued operations include those properties that have
been sold or are held for sale and for which operations and cash flows have
been clearly distinguished.  The operations of these properties have been
eliminated from ongoing operations, and we will not have continuing involvement
after disposition.  Prior period operating activity related to such properties
has been reclassified as discontinued operations in the accompanying statements
of operations.  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 has
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. During the three months ended March 31, 2011 and 2010, we did not
recognize any impairment charges related to any of our properties. 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 credit-worthiness, tenant improvement allowances, terminal sales value
and certain macroeconomic factors among other assumptions to be made for each
property.   7


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Table of Contents  RECEIVABLES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS  Tenant receivables- Included in tenant receivables are base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis.  An allowance for the uncollectible portion of accrued rents and accounts receivable is determined based upon customer 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 recoveries related to tenant receivables are included in property expense.  Following is a summary of activity within our allowance for uncollectible accounts ($ in thousands):  Three months ended March 31,2011
     
     2010Beginning balance
     
     2,068
     
     1,025Additional reserves
     
     149
     
     157Collections/reversals
     
     (144
     )
     (105
     )Write-offs
     
     (15
     )
     (87
     )Ending balance
     
     2,058
     
     990
  Accounts receivable Included in accounts receivable are various receivables that arise in the normal course of operating our business, including a $1.2 million receivable from the City of Pearland, Texas.  We acquired this receivable in June 2008 in conjunction with the acquisition of Shadow Creek Ranch Shopping Center by our affiliated funds in February 2008.  The receivable is to be funded by 1/3 of the 1.5% sales tax that the City of Pearland collects from the shopping center.  We did not record any bad debt expense related to accounts receivable during the three months ended March 31, 2011 or 2010.  Bad debt expense and any related recoveries on accounts receivable are included in general and administrative expense.  Notes receivable Included in notes receivable is
$4.6 million due from the sale of a tract of land adjacent to our Uptown Plaza  Dallas property located outside of downtown Dallas, Texas.
In January 2010, we granted an extension to the buyer and extended the loan to December 31, 2010.  Included was an option to extend to December 31, 2011
if the borrower could provide a commitment for a construction loan on the property.  The borrower was unable to obtain a commitment for a construction loan, and
the note matured, unpaid, on December 31, 2010.  The borrower is making principal and interest payments as if the loan had been extended.  We are currently
in discussions with the borrower as to possible remedies and recorded a $1.3 million impairment on the note in 2010.  The impairment reduced the note receivable to
the fair value of the underlying collateral which was determined by calculating an average, per-acre price of vacant tracts of land sold near downtown Dallas, Texas within
the past three years.  Interest accruals are recorded directly to the reserve balance. Interest income is recorded to the extent that cash is received from the
borrower.  During the three months ended March 31, 2011, we collected $96,000 from the borrower on this note, and we have recorded all of such payments in interest
income in the accompanying consolidated statements of operations.  Also included in notes receivable is $190,000 in notes receivable from various tenants.  An allowance for the uncollectible portion of notes receivable from tenants 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.  As of March 31, 2011, and December 31, 2010, we had an allowance for uncollectible notes receivable of $88,000 and $99,000, respectively.  During the three months ended March 31, 2011 and 2010, we recorded bad debt recoveries related to tenant notes receivable of $11,000 and $0, respectively.  Notes receivable  related
party Included in related party notes receivable are loans made to
our affiliated advised funds related to the acquisition or development of properties.  These loans bear interest at LIBOR plus a spread and are due upon demand. The
notes are secured by the funds ownership interests in various unencumbered properties.  During the year ended December 31, 2010, we, as the general partner of
AmREIT Income and Growth Fund (AIGF), approved a plan to begin marketing the funds assets for sale, and recorded a $500,000 impairment on the note from
AIGF as we believe that the fund will be unable to repay the full balance after settlement of its other obligations.  As a result of the impairment, we have ceased
recording interest income on the note.  Instead, interest accruals are recorded directly to the reserve balance. Interest income is recorded to the extent that cash
is received from the borrower.   8


---



Table of Contents  The following is a summary of the notes receivable
due from related parties ($ in thousands):  March 31, 2011
 
 December 31, 2010Related
  Party
 
 Face 
  Amount
 
 Reserve
 
 Carrying 
  Amount
 
 Face
  Amount
 
 Reserve
 
 Carrying
  AmountAmREIT
  Income and Growth Fund, Ltd
 
 $
 $3,209
 
 $
 (542
 )
 $
 2,667
 
 $
 3,157
 
 $
 (500
 )
 $
 2,657AmREIT
  Monthly Income and Growth Fund III, Ltd
 
 
 1,016
 
 
 ―
 
 $
 1,016
 
 
 913
 
 
 ―
 
 $
 913AmREIT
  Monthly Income and Growth Fund IV, L.P.
 
 
 1,370
 
 
 ―
 
 $
 1,370
 
 
 1,290
 
 
 ―
 
 $
 1,290Total
 
 $
 5,595
 
 $
 (542
 )
 $
 5,053
 
 $
 5,360
 
 $
 (500
 )
 $
 4,860
  DERIVATIVE FINANCIAL INSTRUMENTS We
account for our derivative financial instruments pursuant to ASC 815,Derivatives
and Hedging.  ASC 815 requires that all derivative instruments, whether
designated in hedging relationships or not, be recorded on the balance sheet at
their fair value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. Our use of derivative financial
instruments to date has been limited to the use of interest rate swaps to
mitigate our interest rate risk on variable-rate debt. We have designated our interest
rate swaps as cash flow hedges for financial reporting purposes and have
therefore recorded any changes in their fair value to other comprehensive
income.  ASC 815 requires that changes in fair value of
derivatives that qualify as cash flow hedges be recognized in other
comprehensive income (“OCI”) while the ineffective portion of the derivative’s
change in fair value be recognized in the income statement as interest expense.
Upon the settlement of a hedge, gains and losses associated with the
transaction are recorded in OCI and amortized over the underlying term of the
hedge transaction. We assess, both at inception of the hedge and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in the cash flows of the hedged items.  All
methods of assessing fair value result in a general approximation of value, and
such value may never actually be realized.  DEFERRED COSTS, NET  Deferred
costs include deferred leasing costs and deferred loan costs, net of
amortization.  Deferred loan costs are incurred in obtaining financing and are
amortized using a method that approximates the effective interest method to
interest expense over the term of the debt agreements. Deferred leasing costs
consist of internal and external commissions associated with leasing our
properties and are amortized to depreciation and amortization expense over the
lease term.  Accumulated amortization related to deferred loan costs totaled
$1.4 million and $1.3 million as of March 31, 2011, and December 31, 2010,
respectively.  Accumulated amortization related to leasing costs totaled $1.3
million and $1.2 million as of March 31, 2011, and December 31, 2010,
respectively.  DEFERRED COMPENSATION  Our deferred compensation and long term incentive plan is designed to
attract and retain the services of our directors and employees that we consider
essential to our long-term growth and success. As such, it is designed to
provide them with the opportunity to own restricted common stock in us. All
long-term compensation awards are designed to vest over a period of three to
seven years and promote retention of our team.  Restricted Stock Issuances– Deferred compensation includes grants of
restricted stock to our directors and employees as a form of long-term
compensation. The stock grants vest over a period of three to seven years.  We
determine the fair value of the restricted stock as the number of shares
awarded multiplied by the fair value per share of our common shares on the
grant date. We amortize such fair value ratably over the vesting periods of the
respective awards.  The following table presents restricted stock activity
during the three months ended March 31, 2011:  Non-vested
  Shares
 
 Weighted
  average grant
  date fair valueBeginning
  of period
 
 431,175
 
 $
 8.78Granted
 
 70,900
 
 
 9.50Vested
 
 (86,525
 )
 
 8.28Forfeited
 
 (2,928
 )
 
 8.52End
  of period
 
 412,622
 
 $
 9.01
    9


---



Table of Contents  The weighted-average grant date fair value of restricted stock issued
during the three months ended March 31, 2011 was $9.50 per share.  The total
fair value of shares of restricted vested during the three months ended March
31, 2011 was $716,000.  Total compensation cost recognized related to
restricted stock during the three months ended March 31, 2011 and 2010, was $132,000
and $130,000, respectively.  As of March 31, 2011, total unrecognized
compensation cost related to restricted stock was $3.0 million, and the
weighted average period over which we expect this cost to be recognized is 4.4
years.  Tax-Deferred Retirement Plan (401k)- We maintain a defined contribution 401k
retirement plan for our employees. This plan is available for all employees
immediately upon employment.  The plan allows for contributions to be invested
in an array of large, mid and small cap mutual funds.  We match 50% of the
employee’s contribution, up to a maximum employee contribution of 4%.  As of
March 31, 2011, and December 31, 2010,, there were 33 and 36 participants,
respectively, enrolled in the plan.  INCOME
TAXES  We account for federal and state income taxes under the asset and
liability method.  Federal– We have elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the “Code”) and are, therefore, not
subject to Federal income taxes to the extent of dividends paid, provided we
meet all conditions specified by the Internal Revenue Code for retaining our
REIT status, including the requirement that at least 90% of our real estate
investment trust taxable income be distributed to stockholders.  Our real estate development and operating business, AmREIT Realty
Investment Corporation and subsidiaries (“ARIC”), is a fully integrated and
wholly-owned business consisting of brokers and real estate professionals that
provide development, acquisition, brokerage, leasing, construction, asset and
property management services to our portfolio and advised funds as well as to
third parties. ARIC and its subsidiaries are treated for federal income tax
purposes as taxable REIT subsidiaries (collectively, the “Taxable REIT
Subsidiaries”).  State– In
May 2006, the State of Texas adopted House Bill 3, which modified the state’s
franchise tax structure, replacing the previous tax based on capital or earned
surplus with one based on margin (often referred to as the “Texas Margin Tax”)
effective with franchise tax reports filed on or after January 1, 2008. The
Texas Margin Tax is computed by applying the applicable tax rate (1% for us) 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, we believe ASC 740,Income Taxes,applies
to the Texas Margin Tax.  We recorded a margin tax provision of $51,000 and $58,000
for the Texas Margin Tax for the three months ended March 31, 2011 and 2010,
respectively.  Deferred Tax Assets–  To the extent that we have deferred tax assets at period end, we
will determine whether it is more likely than not that we will generate
sufficient future taxable income in order to realize those assets. In making
that determination, we will consider our current financial position, our
results of operations for the current and preceding years, and our expectation
of future operations. As of March 31, 2011, and December 31, 2010, we had a
valuation allowance of $2.5 million, which represents the full balance of our
deferred tax asset as we believe it is not more likely than not to be realized.  EARNINGS
 PER SHARE  Effective
January 1, 2009, we report both basic and diluted earnings per share using the
two-class method as prescribed by ASC 260,Earnings Per Share.The two-class method is an earnings
allocation method for computing EPS when an entity’s capital structure includes
either two or more classes of common stock or includes common stock and
participating securities. The two-class method determines
EPS based on distributed earnings (i.e. dividends declared on common stock and
any participating securities) and undistributed earnings.Undistributed losses are not allocated to
participating securitiesunder
thetwo-class
methodunless
the participating security has a contractual obligation to share in losses on a
basis that is objectively determinable.  Our unvested shares of restricted
stock contain rights to receive non-forfeitable dividends and thus are
participating securities.  However, our unvested shares of restricted stock do
not have a contractual obligation to share in losses and therefore are not
allocated any undistributed losses.   10


---



Table of Contents  In 2010, we determined that undistributed losses had been
allocated to both our common and unvested shares of restricted stock in prior
periods.   As such, prior period amounts have been adjusted to reflect our EPS
using the two-class method.  EPS for the three months ended March 31, 2010, was
initially reported at $0.03 in previously filed financial statements.  This
adjustment was not material to any current or prior period financial
statements.  The
following table provides a reconciliation of net (loss) income from continuing
operations and the number of common shares used in the computations of basic
and diluted EPS under the two-class method (in thousands, except per share
amounts):  For the three months ended
  March 31,2011
 
 2010Continuing
  OperationsIncome from continuing operations attributable to common stockholders
 
 
 1,336
 
 
 384Less:
  Dividends attributable to unvested restricted stockholders
 
 
 (41
 )
 
 (52
 )Less:
  Loss attributable to non-controlling interests
 
 
 ―
 
 
 (11
 )Basic and Diluted — Income from
  continuing operations
 
 
 1,295
 
 
 321Discontinued
  OperationsBasic and Diluted — Income (loss)
  from discontinued operations
 
 
 ―
 
 
 304Net income attributable to common
  stockholders after allocation to participating securities
 
 
 1,295
 
 
 625Number
  of Shares:Basic
  and Diluted — Weighted average shares outstanding
 
 
 22,729
 
 
 22,638Basic
  and Dilluted Earnings Per ShareIncome
  from continuing operations attributable to common stockholders
 
 $
 0.06
 
 $
 0.02Income
  from discontinued operations attributable to common stockholders
 
 $
 ―
 
 $
 0.01Net
  income attributable to common stockholders
 
 $
 0.06
 
 $
 0.03
  Weighted
average shares outstanding do not include unvested shares of restricted
totaling 413 and 420 at March 31, 2011 and 2010, respectively.  USE
OF ESTIMATES  The
preparation of consolidated financial statements in conformity with GAAP
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 MEASUREMENTS  We account for assets and liabilities measured at fair
value in accordance with ASC 820,Fair Value Measurement and Disclosures.
ASC 820 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, ASC 820 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy). The three
levels of inputs used to measure fair value are as follows:  Level 1 - Quoted
prices (unadjusted) in active markets for identical assets or liabilities that
the Company has the ability to access.  Level 2 - Inputs
other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly.  Level 3 -
Unobservable inputs for the asset or liability, which are typically based on
the Company’s own assumptions, as there is little, if any, related market
activity.   11


---



Table of Contents  ASC 820 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.  Notes Payable and Other Financial Instruments  We disclose the fair value of our financial instruments
in accordance with ASC 825, Financial Instruments, on a recurring basis. Our consolidated financial instruments consist of cash
and cash equivalents, tenant receivables, accounts receivable, accounts
receivable – related party, notes receivable, notes receivable – related party,
notes payable, and accounts payable and other liabilities.  The carrying values
of all but the notes payable are representative of the fair values due to the
short term nature of the instruments and/or recent impairments.  Our notes payable consist of both
variable-rate and fixed-rate notes.  The fair value of the variable-rate notes
and revolving line of credit approximate their carrying values.  In determining
the fair value of our fixed-rate notes, 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.  Fixed-rate loans assumed in connection with real estate
acquisitions are recorded in the accompanying consolidated financial statements
at fair value at the time of acquisition.  We believe the fair value of our
notes payable is classified in Level 2 of the fair value hierarchy.  Derivative Financial Instruments  We measure our derivative financial instruments
at fair value on a recurring basis. In determining the fair value of our derivative
instruments, we consider whether credit valuation adjustments are necessary to appropriately
reflect both our own nonperformance risk and the respective counterparty’s
nonperformance risk in the fair value measurements.  Although we have
determined that the majority of the inputs used to value our derivatives fall
within level 2 of the fair value hierarchy, the credit valuation assumptions
associated with its derivatives utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by us and our
counterparties.  However, as of March 31, 2011, we have assessed the
significance of the impact of the credit valuation adjustments on the overall
valuation of our derivative positions and have determined that the credit
valuation adjustments are not significant to the overall valuation of our derivatives.
As a result, we have determined that our derivative valuations in their
entirety are classified in Level 2 of the fair value hierarchy.  Notes Receivable  In 2010, we recorded an impairment on a note
receivable related to the disposition of a tract of land adjacent to our Uptown Plaza – Dallas property. As of December 31,
2010, the fair value of that note was $3.3 million and was determined by calculating an average, per-acre price of vacant tracts
of land sold near Downtown Dallas, Texas, within the last three years. The valuation was classified in Level 2 of the fair value
hierarchy.  The following table presents our assets and
liabilities and related valuation inputs within the fair value hierarchy utilized to measure fair value as of March 31, 2011, and
December 31, 2010 (in thousands):  March 31, 2011
    
    Level 1
    
    Level 2
    
    Level 3Notes payable
    
    —
    
    169,185
    
    —Derivative liability
    
    —
    
    266
    
    —December 31, 2010
    
    Level 1
    
    Level 2
    
    Level 3Notes receivable
    
    —
    
    3,288
    
    —Notes payable
    
    —
    
    140,751
    
    —Derivative liability
    
    —
    
    346
    
    —




12


---



Table of Contents  DISCONTINUED OPERATIONS  During the year ended December 31, 2010, we sold 21 non-core, single-tenant assets.  These disposed properties have been reflected as discontinued operations in the accompanying statement of operations.  We had no properties classified as held for sale as of March 31, 2011.  The following is a summary of our discontinued operations for the three months ended March 31, 2011 and 2010 (in thousands, except for per share data):  For the three months ended March 31,2011
     
     2010Revenues:Rental income from operating leases
     
     
     ―
     
     
     126Earned income from direct financing leases
     
     
     ―
     
     
     556Total revenues
     
     
     ―
     
     
     682Expenses:Construction costs
     
     
     ―
     
     
     3Legal and professional
     
     
     ―
     
     
     15Depreciation and amortization
     
     
     ―
     
     
     6Total expenses
     
     
     ―
     
     
     24Operating income
     
     
     ―
     
     
     658Other income (expense):Interest and other income - related party
     
     
     ―
     
     
     2Income tax benefit (expense) for taxable REIT subsidiary
     
     
     ―
     
     
     (19
     )Interest expense
     
     
     ―
     
     
     (337
     )Income (loss) from discontinued operations
     
     
     ―
     
     
     304Basic and diluted income (loss) from discontinued operations per class A common share
     
     $
     ―
     
     $
     0.01
  STOCK ISSUANCE COSTS  Issuance costs incurred in the raising of capital through the sale of common stock are treated as a reduction of stockholders equity.  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.  RECLASSIFICATIONS  Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the presentation used in the current year consolidated financial statement.  3.  INVESTMENTS IN ADVISED FUNDS  As of March 31, 2011, we owned, through wholly-owned subsidiaries, interests in five limited partnerships which are accounted for under the equity method as we exercise significant influence over, but do not control, the investee. In each of the partnerships, the unrelated limited partners have the right, with or without cause, to remove and replace the general partner by a vote of the unrelated limited partners owning a majority of the outstanding units. These advised funds were formed to develop, own, manage and add value to properties with an average holding period of two to four years. Our interests in these advised funds range from 2.1% to 3.0%.  See Note 9 regarding transactions we have entered into with our advised funds.   13


---



Table of Contents  AmREIT Income & Growth Fund, Ltd. (“AIGF”)— AmREIT Income & Growth Corporation (“AIGC”),
our wholly-owned subsidiary, invested $200,000 as a limited partner and $1,000
as a general partner in AIGF. We currently own an approximate 2.0% limited
partner interest in AIGF.  Pursuant to the AIGF limited partnership agreement,
net sales proceeds from its liquidation will be allocated to the limited
partners, and to the general partner (AIGC) as, if and when the annual return
thresholds have been achieved by the limited partners.  AmREIT Monthly Income & Growth Fund (“MIG”)— AmREIT Monthly Income & Growth Corporation (“MIGC”),
our wholly-owned subsidiary, invested $200,000 as a limited partner and $1,000
as a general partner in MIG. We currently own an approximate 1.4% limited
partner interest in MIG. Pursuant to the MIG limited partnership agreement, net
sales proceeds from its liquidation will be allocated to the limited partners
and MIGC as, if and when the annual return thresholds have been achieved by the
limited partners.  MIG was originally
scheduled to begin liquidation in November 2009; however, the liquidation has
been extended to March 2013, pursuant to approval of a majority of the limited
partners.  AmREIT Monthly
Income & Growth Fund II (“MIG II”)—AmREIT Monthly Income &
Growth II Corporation (“MIGC II”), our wholly-owned subsidiary, invested
$400,000 as a limited partner and $1,000 as a general partner in MIG II. We
currently own an approximate 1.6% limited partner interest in MIG II. Pursuant
to the MIG II limited partnership agreement, net sales proceeds from its
liquidation will be allocated to the limited partners and MIGC II as, if and
when the annual return thresholds have been achieved by the limited partners.  MIG
II was originally scheduled to begin liquidation in March 2011; however, the
liquidation has been extended to March 2013, pursuant to approval of a majority
of the limited partners.  AmREIT Monthly
Income & Growth Fund III (“MIG III”)—AmREIT
Monthly Income & Growth III Corporation (“MIGC III”), our wholly-owned
subsidiary, invested $800,000 as a limited partner and $1,000 as a general
partner in MIG III. We currently own an approximate 1.1% limited partner
interest in MIG III.Pursuant to the MIG III limited
partnership agreement, net sales proceeds from its liquidation will be
allocated to the limited partners, and to the general partner (MIGC III) as, if
and when the annual return thresholds have been achieved by the limited partners.  AmREIT Monthly Income & Growth
Fund IV (“MIG IV”)—AmREIT
Monthly Income & Growth IV Corporation (“MIGC IV”), our wholly-owned
subsidiary, invested $800,000 as a limited partner and $1,000 as a general
partner in MIG IV.  We currently own an approximate 1.6% limited partner
interest in MIG IV.Pursuant to the MIG IV limited partnership agreement, net sales proceeds
from its liquidation will be allocated to the limited partners, and to the
general partner (MIGC IV) as, if and when the annual return thresholds have
been achieved by the limited partners.        14


---



Table of Contents  Advised funds – Financial Information The following table sets forth certain financial
information for the AIGF, MIG, MIG II, MIG III and MIG IV advised funds:  Sharing Ratios(1)Advised Fund
 
 Capital under
  management
 
 LP
  interest
 
 GP
  interest
 
 LP
 
 GP
 
 LP PreferenceAIGF
 
 ―
 
 2.0%
 
 1.0%
 
 99%
 
 1%
 
 8%90%
 
 10%
 
 10%80%
 
 20%
 
 12%70%
 
 30%
 
 15%0%
 
 100%
 
 40% Catch Up60%
 
 40%
 
 ThereafterMIG
 
 $
 9 million
 
 1.4%
 
 1.0%
 
 99%
 
 1%
 
 8%90%
 
 10%
 
 10%80%
 
 20%
 
 12%0%
 
 100%
 
 40% Catch Up60%
 
 40%
 
 ThereafterMIG II
 
 $
 11 million
 
 1.6%
 
 1.0%
 
 99%
 
 1%
 
 8%85%
 
 15%
 
 12%0%
 
 100%
 
 40% Catch Up60%
 
 40%
 
 ThereafterMIG III
 
 $
 51 million
 
 1.1%
 
 1.0%
 
 99%
 
 1%
 
 10%0%
 
 100%
 
 40% Catch Up60%
 
 40%
 
 ThereafterMIG IV
 
 $
 35 million
 
 1.6%
 
 1.0%
 
 99%
 
 1%
 
 8.5%0%
 
 100%
 
 40% Catch Up60%
 
 40%
 
 Thereafter
 (1) Using AIGF as an example of how the sharing ratios
and LP preference provisions are applied, the LPs share in 99% of the cash
distributions until they receive an 8% preferred return.  The LPs share in 90%
of the cash distributions until they receive a 10% preferred return and so on.  Other Affiliates We have investments in entities
other than the advised funds that are accounted for under the equity method
because we exercise significant influence over such entities. We record our pro
rata share of income or loss from the underlying entities based on our
ownership interest.  AmREIT
Woodlake, L.P.- In 2007, we invested $3.4 million in AmREIT Woodlake LP, for a 30%
limited partnership interest. AmREIT Woodlake, LP was formed in 2007 to
acquire, lease and manage Woodlake Square, a grocery-anchored shopping center
located in Houston, Texas at the intersection of Westheimer and Gessner. In
June 2008, we sold two-thirds (20%) of our interest in Woodlake Square to MIG
IV.  Pursuant to the purchase agreement, the interest in the property was sold
at its carrying value, resulting in no gain or loss to us. In July 2010, we and
our affiliated partners entered into a joint venture with a third-party
institutional partner wherein the partner acquired a 90% interest in the joint
venture. As a result of this transaction, we now hold a 1% interest in Woodlake
Square, which carries a promoted interest in profits and cash flows once an
11.65% return is met on the project.  AmREIT
Westheimer Gessner, L.P.- In 2007, we invested $3.8 million in AmREIT Westheimer Gessner,
LP, for a 30% limited partner interest in the partnership. AmREIT Westheimer
Gessner, LP was formed in 2007 to acquire, lease and manage the Woodlake Pointe
Shopping Center, a shopping center located on the west side of Houston, Texas
at the intersection of Westheimer and Gessner. In June 2008, we sold two-thirds
of our interest (a 20% limited partner interest) in the Woodlake Pointe
Shopping Center to MIG IV. Pursuant to the purchase agreement, our interest in
the property was sold at its carrying value, resulting in no gain or loss to
us. At March 31, 2011, we hold a 10% interest in the Woodlake Pointe Shopping
Center.   15


---



Table of Contents  AmREIT SPF
Shadow Creek, L.P.- As part of the AmREIT and REITPlus merger in November 2009 (see
further discussion in Note 2), we acquired a 10% investment in AmREIT SPF
Shadow Creek, LP which was formed in 2008 to acquire, lease and manage Shadow
Creek Ranch, a shopping center located in Pearland, Texas at the intersection
of Highway 288 and FM 518. The investment was recorded at $5.8 million on the
date of the acquisition, net of acquisition costs of $441,000 which were expensed
as part of the acquisition as an other-than-temporary impairment.  4.
 ACQUIRED LEASE INTANGIBLES  In
accordance with ASC 805,Business Combinations, we have identified and
recorded the value of 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 one month to 20 years.  The amortization expense related to in-place
leases was $314,000 and $396,000 during the three months ended March 31, 2011
and 2010, respectively.  The amortization of above-market leases, which was
recorded as a reduction of rental income, was $11,000 and $48,000 during the three
months ended March 31, 2011 and 2010, respectively. Acquired lease intangible
liabilities (below-market leases) are accreted over the leases’ remaining
terms, which range from one month to 20 years.  Accretion of below-market
leases was $61,000 and $88,000 during the three months ended March 31, 2011 and
2010, respectively.  Such accretion is recorded as an increase to rental
income.  In connection with our acquisition of Market at Lake Houston (see Note
10), we recorded acquired lease intangible assets related to in-place leases
and above-market leases of $3.3 million and $104,000, respectively.  We also
recorded acquired lease intangible liabilities related to below-market leases
of $72,000.  Acquired
lease intangible assets and liabilities and their respective accumulated
amortization as of March 31, 2011 and December 31, 2010 are as follows (in
thousands):  March 31,
  2011
 
 December 31,
  2010Acquired
  lease intangible assets:In-place leases
 
 $
 20,203
 
 $
 16,891In-place leases – accumulated amortization
 
 
 (11,437
 )
 
 (11,122
 )Above-market leases
 
 
 2,112
 
 
 2,014Above-market leases – accumulated amortization
 
 
 (1,813
 )
 
 (1,808
 )Acquired leases intangibles, net
 
 $
 9,065
 
 $
 5,975Acquired
  lease intangible liabilities:Below-market leases
 
 $
 3,613
 
 $
 3,813Below-market leases – accumulated amortization
 
 
 (2,117
 )
 
 (2,328
 )Acquired below-market lease intangibles, net
 
 $
 1,496
 
 $
 1,485
   5.
 NOTES PAYABLE  Our outstanding debt consists of the following (in
thousands):  March 31, 2011
 
 December 31, 2010Fixed-rate
  mortgage loans (1)
 
 $
 148,471
 
 $
 132,729Variable-rate
  secured line of credit
 
 
 7,750
 
 
 11,700Variable-rate
  secured loans
 
 
 17,306
 
 
 17,419Total
 
 $
 173,527
 
 $
 161,848
 (1)Included in fixed-rate
mortgage loans is a $17 million variable-rate debt instrument that has been effectively
converted to a fixed-rate instrument pursuant to an interest rate swap
agreement entered into with a third party.   16


---



Table of Contents  As
of March 31, 2011, the weighted average interest rate on our fixed-rate debt
was 5.15%, and the weighted average remaining life of such debt was 4.3 years. In
December 2010, we extended our $25.0 million secured credit facility (the “Facility”)
available to us for the acquisition of properties and for working capital.  The
Facility’s interest rate is LIBOR plus a spread of 3.50%, with a floor of
4.75%, and we paid the lender an extension fee of approximately $94,000.  The
maturity date is June 30, 2013.  The Facility’s borrowing base is determined
based on the properties that are pledged as security on the Facility, and it
contains covenants applicable to those pledged properties which, among other
restrictions, require us to maintain a minimum net worth and, in certain cases
of the occurrence of default, limit distributions to our shareholders.  As of
March 31, 2011, we are in compliance with all covenants.  As of March 31, 2011,
the interest rate was 4.75% and we had $7.8 million outstanding on the
Facility.  We have approximately $16.7 million available under the Facility,
subject to the covenants above.  As of March 31, 2011, scheduled principal repayments
on notes payable were as follows (in thousands):  Year
 
 Scheduled
  Principal
  Payments
 
 Term-Loan
  Maturities
 
 Total
  Payments2011
 
 $
 570
 
 $
 18,860
 
 $
 19,4302012
 
 
 562
 
 
 ―
 
 
 5622013
 
 
 606
 
 
 18,365
 
 
 18,9712014
 
 
 1,238
 
 
 ―
 
 
 1,2382015
 
 
 1,265
 
 
 50,428
 
 
 51,693Beyond
  five years
 
 
 1,162
 
 
 79,929
 
 
 81,091Unamortized
  debt premiums
 
 
 ―
 
 
 542
 
 
 542Total
 
 $
 5,403
 
 $
 168,124
 
 $
 173,527
  6.  DERIVATIVE INSTRUMENTS  In order to manage the volatility relating to interest
rate risk, we may enter into interest rate swaps from time to time primarily to
manage exposures to interest rate risks.  We do not use derivative
financial instruments for trading or speculative purposes.  We have entered
into an interest rate swap with a notional amount of $17 million and a fixed
rate of 5.11% to hedge the interest rate risk on the $17 million variable-rate
loan on our MacArthur Park property. The fair value of the swap was a
liability of $266,000 at March 31, 2011.  The swap settles monthly with an
amount paid to or received from our counterparty, which is recorded as an
adjustment to interest expense. For the three months ended March 31, 2011
and 2010, we paid $89,000 and $90,000, respectively, related to this swap which
is included in interest expense.  Valuations are not actual market prices on which an offer
would be for unwinding any transactions, but rather calculated mathematical
approximations of market values derived from proprietary models as of a given
date. These valuations are calculated on a mid market basis and do not include
bid/offered spread that would be reflected in an actual price quotations,
therefore, actual price quotations for unwinding our transactions would be
different. These valuations and models rely on certain assumptions regarding
past, present, and future market conditions. All methods of assessing fair
value result in a general approximation of value, and such value may never
actually be realized.  We
have designated this interest rate swap as a hedge for financial reporting
purposes.  Accordingly, gains or losses resulting from changes in the value of
our derivatives are recorded on our balance sheet.  7.
 CONCENTRATIONS  As
of March 31, 2011, two properties individually accounted for more than 10% of
our consolidated total assets – Uptown Park in Houston, Texas and MacArthur
Park in Irving, Texas which accounted for 21% and 12% of total assets,
respectively.  Consistent with our strategy of investing in geographic areas
that we know well, 15 of our properties are located in the Houston metropolitan
area.  These Houston properties represent 66% and 67% of our base rental income
for the three months ended March 31, 2011 and 2010, respectively.  Houston is
Texas’ largest city and the fourth largest city in the United States.    17


---



Table of Contents  The following are the base rents generated by our
top tenants for the three months ended March 31, 2011 and 2010 (in thousands):  Three months ended March 31,2011
 
 2010Kroger
 
 $
 529
 
 $
 548CVS/pharmacy
 
 
 230
 
 
 230Landry's
  Seafood House
 
 
 126
 
 
 126Hard
  Rock Café
 
 
 124
 
 
 124TGI
  Friday's
 
 
 113
 
 
 113H-E-B
  Grocery
 
 
 106
 
 
 -Champps
  Americana
 
 
 106
 
 
 106Golden
  Corral
 
 
 105
 
 
 105Paesanos
 
 
 102
 
 
 103McCormick
  & Schmicks
 
 
 85
 
 
 85$
 1,626
 
 $
 1,540
  The above base rents have
been recorded in the accompanying consolidated statement of operations as
rental income from operating leases (see Note 2).  8.  STOCKHOLDERS’ EQUITY  Common Stock- Our charter authorizes us to issue
1,050,000,000 shares of capital stock, of which 1,000,000,000 shares
of capital stock are designated as common stock with a par value of $0.01 per
share and 50,000,000 shares of capital stock are designated as preferred
stock with a par value of $0.01 per share.As of March 31, 2011, there were 23,189,034 shares of
our common stock outstanding. Our payment of any future dividends to our common
stockholders is dependent upon applicable legal and contractual restrictions,
as well as our earnings and financial needs.  Incentive Plans- Under the AmREIT, Inc. 2007 Independent
Directors Stock Incentive Plan, the aggregate number of shares of our common
stock subject to options, restricted stock awards, stock purchase rights, stock
appreciation rights or other awards to our independent directors will be no
more than 2,000,000 shares, all of which are available for issuance. Under
the AmREIT, Inc. 1999 Flexible Incentive Plan, 1,288,739 shares of our common
stock are available for awards of stock options, restricted stock awards, stock
appreciation rights and other awards to our employees and non-employee
directors.  9.  RELATED-PARTY
TRANSACTIONS  See Note 3 regarding investments in advised funds and other affiliates
and Note 2 regarding notes receivable from affiliates.  We earn
real estate fee income by providing property acquisition, leasing, property
management, and construction management services to our advised funds.  We are
the sole owner of the companies that serve as the general partner for the advised
funds.  Real estate fee income of $559,000 and $423,000 were paid by the funds
to the Company during the three months ended March 31, 2011, and 2010,
respectively.  Construction management fee income of $72,000 and $77,000 were
earned from the advised funds during the three months ended March 31, 2011, and
2010, respectively. The Company earns asset management fees from the funds for
providing accounting related services, investor relations, facilitating the
deployment of capital, and other services provided in conjunction with
operating the fund.  Asset management fees of $370,000 were paid by the funds
to us during the three months ended March 31, 2011, and 2010.  Additionally, we
were reimbursed by the advised funds $196,000 and $228,000 during the three
months ended March 31, 2011, and 2010, respectively, for reimbursements of
administrative costs incurred on behalf of those funds.  We maintain a 1%
general partner interest in the investment funds that we sponsor.  The funds
are typically structured such that the limited partners receive 99% of the
available cash flow until 100% of their original invested capital has been
returned and a preferred return has been paid.  Once limited partner capital
has been returned and the limited partner’s preferred return has been paid, the
general partner thereafter shares in the available cash flow at various
promoted levels (see Note 3).   18


---



Table of Contents  10. REAL ESTATE ACQUISITIONS AND DISPOSITIONS  On February
25, 2011, we completed the acquisition of the Market at Lake Houston, a 101,799
square foot grocery anchored shopping center situated on 13.86 acres in
Atascocita, Texas, a northern suburb of Houston, Texas.  The property was built
in 2001 and 2002 and is 100% leased and occupied.  The anchor tenant is H-E-B
Grocery and other major tenants include Five Guys Burgers, Payless ShoeSource
and Subway.  We acquired the property using a combination of cash and the assumption
of $15.7 million of mortgage debt.  This debt matures on January 1, 2016 and is
payable interest-only at a fixed rate of 5.75% per year. The property was owned
by two of our advised funds.  Included in
our consolidated statements of operations are total revenues of $190,000 and
net income available to stockholders of $31,000 related to the operations at
the Market at Lake Houston beginning on the date of acquisition.  Following are
our pro forma results of operations, assuming that we acquired the Market at
Lake Houston on January 1, 2010:  Three months ended March 31,2011
 
 2010Total
  revenues
 
 $
 8,853
 
 $
 8,478Net
  income available to stockhoders
 
 $
 1,242
 
 $
 587
  There were no real estate
dispositions during the three months ended March 31, 2011.  11. COMMITMENTS AND
CONTINGENCIES  In
April 2010, we signed a new lease agreement for our office facilities which
expires October 31, 2012.  In addition, we lease various office equipment. 
Rental expense for the three months ended March 31, 2011, and 2010, was $39,000
and $95,000, respectively.  We
are also involved in various matters of litigation arising in the normal course
of business.  While we are unable to predict with certainty the
amounts involved, our management and counsel are of the opinion that, when such
litigation is resolved, any additional liability, if any, will not have a
material effect on our consolidated financial statements.  12. SUBSEQUENT
EVENTS  We did not have any material subsequent events as of
the date of this filing that impacted our consolidated financial statements.  13. SEGMENT REPORTING  The operating segments presented are the segments of AmREIT for which
separate financial information is available, and revenue and operating
performance is evaluated regularly by senior management in deciding how to
allocate resources and in assessing performance. However, this operating
performance data might not be indicative of what a third party would assess or
evaluate for purposes of determining fair value of our segments.  The portfolio segment consists of our portfolio of single and
multi-tenant shopping center projects. This segment consists of 26 properties
located in four states. Expenses for this segment include depreciation,
interest, minority interest, legal cost directly related to the portfolio of
properties and property level expenses. Substantially all of our consolidated
assets are in this segment.  Our advisory services segment consists of our real estate operating and
development business as well as our advised funds.  The real estate operating
and development business is a fully integrated and wholly-owned business
consisting of brokers and real estate professionals that provide development,
acquisition, brokerage, leasing, and asset and property management services to
our publicly traded portfolio and advised funds. The advised funds that we
sponsor sell limited partnership interests and non-listed REIT securities to
retail investors.  These funds were formed to develop, own, manage, and add
value to properties with an average holding period of two to four years with
respect to the limited partnerships.  We invest in these funds as both the
general partner and a limited partner in the case of the limited partnerships.   19


---



Table of Contents  Segment results for the three months ended March 31,
2011 and 2010, are as follows:  Advisory ServicesFor
  the three months ended March 31, 2011 (in thousands)
 
 Portfolio
 
 Real Estate Operating and
  Development
 
 Advised Funds
 
 TotalRental
  income
 
 $
 7,406
 
 $
 127
 
 $
 ―
 
 $
 7,533Real
  estate fee income - related party
 
 
 ―
 
 
 559
 
 
 ―
 
 
 559Construction
  management fee income
 
 
 ―
 
 
 72
 
 
 ―
 
 
 72Asset
  management fee income
 
 
 ―
 
 
 ―
 
 
 370
 
 
 370Total revenue
 
 
 7,406
 
 
 758
 
 
 370
 
 
 8,534General
  and administrative
 
 
 430
 
 
 888
 
 
 34
 
 
 1,352Property
  expense
 
 
 1,719
 
 
 9
 
 
 ―
 
 
 1,728Legal
  and professional
 
 
 258
 
 
 15
 
 
 1
 
 
 274Real
  estate commissions
 
 
 1
 
 
 ―
 
 
 ―
 
 
 1Depreciation
  and amortization
 
 
 1,634
 
 
 13
 
 
 ―
 
 
 1,647Total expenses
 
 
 4,042
 
 
 925
 
 
 35
 
 
 5,002Interest
  expense
 
 
 (2,203
 )
 
 ―
 
 
 ―
 
 
 (2,203
 )Other
  income/ (expense)
 
 
 146
 
 
 20
 
 
 (159
 )
 
 7Income from continuing
  operations
 
 $
 1,307
 
 $
 (147
 )
 $
 176
 
 $
 1,336
    Advisory ServicesFor
  the three months ended March 31, 2010 (in thousands)
 
 Portfolio
 
 Real Estate Operating and
  Development
 
 Advised Funds
 
 TotalRental
  income
 
 $
 6,968
 
 $
 126
 
 $
 ―
 
 $
 7,094Real
  estate fee income - related party
 
 
 (4
 )
 
 427
 
 
 ―
 
 
 423Construction
  management fee income
 
 
 ―
 
 
 77
 
 
 ―
 
 
 77Asset
  management fee income
 
 
 ―
 
 
 ―
 
 
 370
 
 
 370Total revenue
 
 
 6,964
 
 
 630
 
 
 370
 
 
 7,964General
  and administrative
 
 
 419
 
 
 837
 
 
 31
 
 
 1,287Property
  expense
 
 
 1,693
 
 
 -
 
 
 ―
 
 
 1,693Legal
  and professional
 
 
 230
 
 
 12
 
 
 2
 
 
 244Real
  estate commissions
 
 
 1
 
 
 ―
 
 
 ―
 
 
 1Depreciation
  and amortization
 
 
 1,694
 
 
 22
 
 
 ―
 
 
 1,716Total expenses
 
 
 4,037
 
 
 871
 
 
 33
 
 
 4,941Interest
  expense
 
 
 (2,400
 )
 
 ―
 
 
 ―
 
 
 (2,400
 )Other
  income/ (expense)
 
 
 154
 
 
 94
 
 
 (487
 )
 
 (239
 )Income from continuing
  operations
 
 $
 681
 
 $
 (147
 )
 $
 (150
 )
 $
 384
    20


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Table of Contents  Item 2.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations.  References
to “we,” “us,” “our” and “the Company” refer to AmREIT, Inc. and our consolidated
subsidiaries, except where the context otherwise requires.  FORWARD-LOOKING STATEMENTS  Certain
information presented in this Quarterly Report on Form 10-Q constitutes “forward-looking
statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Although we believe that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, our business, financial condition, liquidity, results of
operations, funds from operations and prospects could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a material 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 other risks,
uncertainties and assumptions. Any forward-looking statement speaks only as of
the date on which it was made, and the Company 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.  The
following discussion should be read in conjunction with our accompanying consolidated
financial statements and notes thereto appearing elsewhere in this Quarterly
Report on Form 10-Q, as well as our 2010 consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2010. Historical results and trends which might appear should not
be taken as indicative of future operations.  Executive
Overview  We
are a full service, vertically integrated and self-administered real estate
investment trust, or REIT, that primarily owns, operates, acquires and
selectively develops and redevelops premium-quality retail and mixed-use
properties in high-traffic, densely populated, affluent areas with high
barriers to entry.  We have elected to be taxed as a REIT for federal income
tax purposes.  We seek to own properties in major cities in the United States
that contain submarkets with characteristics comparable to our existing
markets.  Our shopping centers are typically anchored by national or regional
supermarket chains, with the remaining tenant base being comprised
predominantly of select national and local retailers.  Over our 25-year history,
we have acquired, owned and operated retail properties across 19 states.  Today,
our investment focus is predominantly concentrated in the affluent high-growth
submarkets of Houston, Dallas, San Antonio, Austin and Atlanta which represent five
of the top ten population and job growth markets in the United States.  We
believe these metropolitan areas are compelling real estate markets given their
favorable demographics, robust job growth and large and diverse economies. The
Texas economy is diverse, with employment spread broadly over sectors such as
government services (including defense), professional and business services,
education, healthcare and leisure and hospitality.  As part of our ongoing
investment strategy, we intend to acquire properties located in submarkets
within other major U.S. cities outside of Texas that have market
characteristics similar to our existing Texas markets.  Our targeted properties
will include premier retail frontage locations in high-traffic, highly
populated, affluent areas with high barriers to entry.  Our
Portfolio  As of March 31, 2011, we owned and operated a real estate
portfolio consisting of 26 wholly-owned properties totaling approximately 1.1
million gross rentable square feet which was 93% leased with a weighted average
remaining lease term of 6.1 years.  Leased to national, regional and local
tenants, our shopping centers are primarily located throughout Texas and
exhibit the characteristics we believe are consistent with our investment
criteria.  As owners and operators of real estate, we focus on maintaining the
value, aesthetics, tenant mix and safety of each of our properties. In
addition, selecting properties with high quality tenants and mitigating risk by
diversifying our tenant base is at the forefront of our acquisition and leasing
strategy. We continually monitor the sales trends and creditworthiness of our
tenants.   21


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Table of Contents  We generally
seek to invest in properties based on the presence of the following attributes: •
 Demographic
  purchasing power – where we target average household incomes within a 1-mile radius of $100,000, resulting in an affluent
  population with substantial disposable income;•
 Density
  of population – where we target 100,000 people within a 3-mile radius and additional retail drivers such as favorable
  daytime employment population, tourism and regional draws;•
 Demand
  for retail space – where we map the market to identify the submarkets and areas that are under-retailed, with limited
  nearby retail properties or land available for retail properties, providing for favorable retail per capita figures as compared
  to the national and metropolitan statistical area, or MSA, average;•
 Desirability
  of physical layout – where we assure that the physical improvements will provide the best opportunity for our tenants
  to attract and serve their target customers; and•
 Demarcation
  advantage – where we are careful to understand the “invisible” demographic barriers that will help persuade
  customers to frequent our projects.
  We believe
that our strategy of purchasing high quality retail properties in high-traffic,
well-populated areas will produce stable earnings and opportunities for growth
in future years. Our philosophy continues to be matching long-term leases with
long-term debt structures while maintaining a conservative debt-to-gross assets
ratio.  On February 25, 2011, we
completed the acquisition of The Market at Lake Houston, a 101,799 square foot
grocery-anchored shopping center situated on 13.86 acres in Atascocita, Texas,
a northern suburb of Houston, Texas. The property was built in 2001 and 2002
and was 100% leased and occupied at the time of purchase. The anchor tenant is
H-E-B Grocery and other major tenants include Five Guys Burgers, Payless ShoeSource
and Subway. We acquired the property for a combination of cash and the
assumption of $15.7 million of mortgage debt. This debt matures on January 1,
2016 and is payable interest-only at a fixed rate of 5.75% per year. The
property was acquired from two of our advised funds pursuant to an independent
appraisal process.  Our Advisory Services  In addition
to our Portfolio, we have an advisory services business which provides a full
complement of real estate services to the properties within our portfolio as
well as to eight real estate funds in which we have varying ownership interests
and which we manage on behalf of institutional and individual high-net-worth
investors.  We refer to these real estate funds as the advised funds.  Real
Estate Operating and Development Service– Our real estate operating and development business focuses on acquiring,
managing, leasing and providing development and redevelopment services for our
wholly-owned properties as well as the properties within in our advised funds. 
By employing our own fully integrated real estate team we are able to provide
all services to our properties in-house and maintain strong relationships with
our tenants.  Our real estate operating and development business is held under
a taxable REIT subsidiary named AmREIT Realty Investment Corporation, or ARIC. 
ARIC contributes to our profitability by generating brokerage, leasing,
construction management, development and property management fee income.  Advised
Funds– Our advised funds business
consists of our ownership interest in such funds as well as the management
oversight services that we provide to them.  As of March 31, 2011, we managed
three joint ventures for our institutional partners J.P. Morgan Investment
Management and AEW Capital and five retail real estate partnership funds for
high net worth retail investors.  As of March 31, 2011, our advised funds 20
properties totaling approximately 2.2 million square feet of gross leasable
area which was 75% leased.  We invest in
the advised funds that we manage as both the general partner and as a limited
partner.  Our asset management personnel assist in the creation of value on the
properties owned by the advised funds by overseeing the real estate operating
and development services provided to those properties on behalf of our
institutional and retail investors. For over 25 years, we have managed retail
properties for our investors by offering investment opportunities that provided
a stable and dependable source of income and portfolio growth. We have
successfully formed, invested in and managed 17 advised funds over the past two
and a half decades that have led to the acquisition, development and
redevelopment of retail properties throughout the United States.  Through our
advised funds, we are able to generate fee income from the real estate and
asset management services that we provide to them.  Additionally, the advised
funds’ properties provide a growth opportunity for us in that we retain the
right to acquire these properties at market value once they become stabilized
and once the fund’s objectives in purchasing the property have been met.  In
our retail advised funds, the limited partners generally receive 99% of the
available cash flow until they have received 100% of their original invested
capital and a preferred return. Once this threshold has been met, the general
partner begins sharing in the available cash flow.   22


---



Table of Contents  Liquidity and Capital Resources  Our sources of immediate liquidity primarily consist of cash flows generated from the operation of our properties, available cash and proceeds from our $25 million secured facility.  The cash generated from operations is primarily paid to our common stockholders in the form of dividends. As a REIT, we must generally make annual distributions to our stockholders of at least 90% of our REIT taxable income.  In addition to our sources of immediate liquidity, we utilize several other forms of capital for funding our long-term liquidity requirements including our proceeds from secured mortgages and unsecured indebtedness, proceeds from equity issuances, cash generated from the sale of property and the formation of joint ventures.  We anticipate that our primary future uses of capital will include, but will not be limited to, operating expenses, making scheduled debt service payments, funding renovations, expansions, and other significant capital expenditures for our existing portfolio of properties and, subject to the availability of attractive properties and our ability to consummate acquisitions on satisfactory terms, acquiring new assets compatible with our investment strategy. These expenditures include building improvement projects, as well as amounts for tenant improvements and leasing commissions related to re-leasing, which are subject to change as market and tenant conditions dictate.  As of March 31, 2011, we had $709,000 of available cash on hand.  We anticipate that cash on hand and cash flows from operating activities will be sufficient to meet our short-term liquidity needs.  We currently have a $25.0 million secured credit facility (the Facility), the proceeds of which are to be used for the acquisition of properties and for working capital needs. The Facilitys interest rate is LIBOR plus a spread of 3.50%, with a floor of 4.75%. The maturity date is June 30, 2013. The Facilitys borrowing base is determined based on the properties that are pledged as security against the Facility. The Facility contains covenants applicable to those pledged properties which, among other restrictions, require us to maintain a minimum net worth and, in certain cases of the occurrence of default, limit distributions to our stockholders. As of March 31, 2011, we were in compliance with all covenants. As of March 31, 2011 the interest rate on the Facility was 4.75%, and we had $7.8 million outstanding under the Facility.  As of March 31, 2011, we had an approximate borrowing base availability of $16.7 million under the Facility, subject to the covenants above.  Our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets will be dependent on a number of factors as well, including general market conditions for REITs and market perceptions about our Company. Potential disruptions in the financial markets and deteriorating economic conditions could adversely affect our ability to utilize any one or more of these sources of funds.  We expect our debt to contain customary restrictive covenants, including provisions that may limit our ability, without the prior consent of the lender, to incur additional indebtedness, further mortgage or transfer the applicable property, purchase or acquire additional property, discontinue insurance coverage, change the conduct of our business or make loans or advances to, enter into any merger or consolidation with, or acquire the business, assets or equity of, any third party.  We intend to maintain a conservative capital structure.  As of March 31, 2011, approximately 86% of our debt was fixed, long-term mortgage financing, and our ratio of debt to gross assets was 51%.  We routinely review our liquidity requirements and believe that our current cash flows from operations, coupled with our Facility, are sufficient to allow us to continue operations, satisfy our contractual obligations and pay dividends to our stockholders. Cash flows provided by (used in) operating activities, investing activities and financing activities for the three months ended March 31, 2011 and 2010 are as follows (in thousands):  Three months ended March 31,2011
     
     2010Operating activities
     
     $
     2,659
     
     $
     1,395Investing activities
     
     $
     4,032
     
     $
     (904
     )Financing activities
     
     $
     (6,637
     )
     $
     (972
     )
   23


---



Table of Contents  Until
we acquire additional properties, any excess cash will first fund paydowns of
available debt and then be invested in short-term investments or overnight
funds.   We believe that this investment strategy provides us with the
liquidity to acquire properties at such time as those suitable for acquisition
are sourced.  Operating Activities  The
primary driver of the increase in operating cash flows was an increase of $1.3 million
attributable to changes in working capital accounts.  Cash inflows from accounts
receivables increased by $948,000 due to the timing of our escrow
reimbursements associated with our debt refinancing in December 2010.  We
refinanced two of our grocery anchored shopping centers in December 2010 and
received full reimbursement of our escrow accounts in January 2011. 
Additionally, cash inflows from tenant receivables increased $373,000 primarily
due to timing of our common area maintenance reimbursements.  Investing Activities  At
December 31, 2010, we had $9.4 million balance in cash deposited with a
qualified intermediary to be used for future property acquisitions in
accordance with section 1031 of the Code which was generated from the sale of
17 single-tenant properties. During the first quarter of 2011, we withdrew $4.7
million of these proceeds to acquire Market at Lake Houston, a multi-tenant
retail center located near Houston, Texas. The remaining amount of the cash
deposited with the qualified intermediary was returned to us upon expiration of
the 1031 exchange, and we used such proceeds to reduce the outstanding balance
of the Facility.  As of March
31, 2011, we have notes receivable with a face amount of $5.6 million due from
our advised funds.  We made these loans to the partnerships for the purpose of
acquiring and/or developing properties. These loans bear interest at LIBOR plus
a spread and are due upon demand.  We have a note receivable in the amount of
$3.2 million due from AmREIT Income and Growth Fund, Ltd. (“AIGF”), one of our
advised funds.  During the third quarter of 2010, we recorded a reserve of
$500,000 on this note receivable.  AIGF is currently in liquidation, and we
believe that it is likely that the proceeds from the sale of its properties
will be insufficient to fully extinguish the obligations of the entity.  We
expect to receive payments on the remaining $2.4 million of these notes
receivable from our other advised funds as they generate liquidity from
property dispositions and from financings with third parties.  Of this $2.4
million, $1.0 million is secured by the advised funds’ ownership interest in
unencumbered properties.  Financing Activities  Debt  We
intend to continue managing our debt prudently and conservatively so as to
maintain a conservative capital structure.  As of March 31, 2011 and December
31, 2010, our debt consists of the following:  2011
 
 2010Fixed-rate mortgage loans (1)
 
 $
 148,471
 
 $
 132,729Variable-rate secured line of credit
 
 
 7,750
 
 
 11,700Variable-rate secured loans
 
 
 17,306
 
 
 17,419Total
 
 $
 173,527
 
 $
 161,848
 (1) Included in Fixed-rate Mortgage Loans is a $17
million variable-rate debt instrument that has been effectively converted to a
fixed-rate instrument through the execution of an interest rate swap agreement.     24


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Table of Contents  Our leverage is 51% of the undepreciated value of our
consolidated assets as of March 31, 2011.  Approximately 86% of our debt is
fixed, long-term mortgage financing.  The weighted average interest rate and
term of our fixed-rate debt are 5.15% and 4.3 years, respectively.  As of March
31, 2011, we had a $7.8 million balance outstanding on the Facility, yielding $16.7
million in availability.  We believe based on our current cash flow forecasts
that the availability on our line of credit throughout 2011 will be sufficient
for us to continue our operations, satisfy our obligations and pay dividends to
our stockholders.  We have $18.9 million of debt maturing in 2011 which
is comprised primarily of a $17.0 million variable-rate loan with a fixed
swap-rate of 5.11% on our MacArthur Park property which matures in December
2011.  The terms of this loan include two one-year extension options, and we
expect that we will be able to extend the note pursuant to these terms or
refinance the note with another lender.  During
the three months ended March 31, 2011, we had approximately $4.3 million in net
payments on notes payable, $3.9 million of which represented net payments on
the Facility.  We also assumed a $15.7 million mortgage in connection with the
acquisition of Market at Lake Houston (see Note 10 to the consolidated
financial statements).  Equity  During
the three months ended March 31, 2011, we declared dividends to our
stockholders of $2.3 million as compared to $2.9 million in the three months
ended March 31, 2010.  Effective with the July 2010 dividend, we reduced our
annual dividend from $0.50 per share to $0.40 per share, and we changed our
historical practice from paying dividends monthly to paying dividends quarterly
in arrears. These changes resulted in a more conforming and conservative
dividend structure, including a lower payout ratio (ratio of dividends to funds
from operations) and reduced general and administrative costs associated with
fewer dividend payments during the year. The dividends paid are as follows (in
thousands):  2011
 
 2010First
  Quarter
 
 $
 2,319
 
 $
 2,867Second
  Quarter
 
 
 
 
 $
 2,894Third
  Quarter
 
 
 
 
 $
 2,312Fourth
  Quarter
 
 
 
 
 $
 2,310
  The
U.S. economy is still experiencing weakness from recent economic conditions,
which resulted in increased unemployment, weakening of tenant financial
condition, large-scale business failures and tight credit markets. Our results
of operations may be sensitive to changes in overall economic conditions that
impact tenant leasing practices. Adverse economic conditions affecting tenant
income, such as employment levels, business conditions, interest rates, tax rates,
fuel and energy costs and other matters, could reduce overall tenant leasing or
cause tenants to shift their leasing practices. In addition, periods of
economic slowdown or recession, rising interest rates or declining demand for
real estate, or the public perception that any of these events may occur, could
result in a general decline in rents or an increased incidence of defaults
under existing leases. Although the U.S. economy has emerged from the recent
recession, high levels of unemployment have persisted, and rental rates and
valuations for retail space have not fully recovered to pre-recession levels
and may not for a number of years. It is difficult to determine the breadth and
duration of the financial market problems and the many ways in which they may
affect our tenants and our business in general. While we believe that we have
sufficient access to cash in order to meet our contractual obligations, a
significant additional deterioration in the U.S. economy or the bankruptcy or
insolvency of one or more of our significant tenants could cause our 2011 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 sufficient cash resources are available.  Off-Balance Sheet
Arrangements  As
of March 31, 2011, none of our off balance sheet arrangements had or are
reasonably likely to have a material effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital resources or
capital expenditures. We own interests in several unconsolidated advised funds
which are accounted for under the equity method as we exercise significant
influence over, but do not control, the investee.  We have made loans to some
of these affiliates as discussed above under “Investing Activities.”    25


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Results
of Operations Comparison of the three
months ended March 31, 2011 to the three months ended March 31, 2010  Revenues  Total revenues increased
by $570,000, or 7%, to $8.5 million in 2011 as compared to $8.0 million in 2010.
This increase was primarily attributable to an increase in rental revenues and
real estate fee income, each of which is discussed below.  Rental revenues increased
by $439,000, or 6%, to $7.5 million in 2011 as compared to $7.1 million in 2010.
The increase is primarily due to the acquisitions of our 500 Lamar and Market
at Lake Houston properties, which were acquired in December 2010 and February
2011, resepectively.  Real estate fee income – related
party increased approximately $136,000, or 32%, to $559,000 in 2011 as compared
to $423,000 in 2010.This increase is primarily
attributable to an increase in development fees earned on the properties that
we manage within our advised funds. During 2011, we recognized $91,000 of
development fees on our Woodlake Square development which commenced in August
2010 and will be completed in the second quarter of 2011.  Expenses  Total operating
expenses remained relatively constant at $5.0 million for 2011 as compared to
$4.9 million in 2010.  Other  Loss from advised funds and other affiliates decreased
by $437,000, or 81%, to a loss of $104,000 in 2011 compared to a loss of $541,000
in 2010.The decrease is primarily attributable tothe increased depreciation expense in 2010 resulting from the impending
redevelopment of the Woodlake Square property.  During the first quarter of
2010, we reassessed and shortened the estimated useful lives of various
buildings consistent with our current redevelopment plan.  Income tax benefit decreased $140,000, or 157%, to an
expense of $51,000 in 2011 compared to a benefit of $89,000 in 2010.  This
decrease is primarily attributable to a reserve on our $2.5 million gross
deferred tax asset as of December 31, 2010.  Our deferred tax assets consist
primarily of amounts that have been deducted in arriving at our net income as
reported in the accompanying consolidated statements of operations, but that
are not currently deductible for tax purposes (impairment charges, allocated
interest charges, etc.).  These costs will be deductible for tax purposes in
the future to the extent that we have taxable income sufficient to utilize
those deductions.  We were unable to predict with sufficient certainty whether
we will generate sufficient taxable income to realize these benefits, and we
concluded that it is not more likely than not that we will realize them.  As a
result, we have not recorded any tax expense or benefit related to federal
taxes.  The $51,000 expense recorded in 2011 is comprised solely of state
taxes. Interest expense decreased by $197,000, or 8%,
to $2.2 million in 2011 as compared to $2.4 million in 2010. This decrease is
due to a lower average outstanding balance on our line of credit as well as lower
interest rates resulting from the refinancing of our Plaza in the Park and
Cinco Ranch properties in December 2010.  Income from discontinued operations decreased by $304,000,
or 100%, to $0 in 2011 as compared to income of $304,000 in 2010.The decrease is
primarily attributable to our property disposition activity during 2010.  We
sold 21 non-core, single tenant properties during the third quarter of 2010. 
Included in income (loss) from discontinued operations is $307,000 in income
generated by these properties during the three months ended March 31, 2010.   26


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Table of Contents  Funds From Operations  We consider funds
from operations (“FFO”), a non-GAAP measure, to be an appropriate measure of
the operating performance of an equity REIT.  The National Association of Real
Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) computed
in accordance with GAAP, excluding gains or losses from sales of property held
for investment, plus real estate related depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. See
Discontinued Operations discussion in Footnote 1 to our accompanying
consolidated financial statements for detail of discontinued operations
included in FFO. In addition, NAREIT recommends that extraordinary items not be
considered in arriving at FFO. We calculate FFO in accordance with this
definition.  Most industry analysts and equity REITs, including us, consider
FFO to be an appropriate supplemental measure of operating performance because,
by excluding gains or losses on dispositions and excluding depreciation, FFO is
a helpful tool that can assist in the comparison of the operating performance
of a company’s real estate between periods or as compared to different
companies.  Management uses FFO as a supplemental measure to conduct and
evaluate our business because there are certain limitations associated with
using GAAP net income as the primary measure of our operating performance. 
Historical cost accounting for real estate assets in accordance with GAAP
implicitly assumes that the value of real estate assets diminishes predictably
over time.  Because real estate values instead have historically risen or
fallen with market conditions, management believes that the presentation of
operating results for real estate companies that use historical cost accounting
is insufficient by itself.  There can be no assurance that FFO presented by us
is comparable to similarly titled measures of other REITs.  FFO should not be
considered as an alternative to net income or other measurements under GAAP as
an indicator of our operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity.  Below
is the calculation of FFO and the reconciliation to net income, which we
believe is the most comparable GAAP financial measure to FFO (in thousands):  Three months ended March 31,2011
 
 2010Income
  from continuing operations [1]
 
 $
 1,336
 
 $
 384Income
  (loss) from discontinued operations
 
 
 ―
 
 
 304Net
  loss attributable to non-controlling interest
 
 
 ―
 
 
 (11
 )Plus
  depreciation of real estate assets - from operations
 
 
 1,622
 
 
 1,690Plus
  depreciation of real estate assets - from discontinued operations
 
 
 ―
 
 
 6Adjustments
  for nonconsolidated affiliates  [2]
 
 
 152
 
 
 690Total
  Funds From Operations available to common stockholders
 
 $
 3,110
 
 $
 3,063
  [1] – Included in income from
continuing operations for the three months ended March 31, 2011 and 2010, are
acquisition costs of $31,000 and $0, respectively, incurred in connection with
the acquisition of operating properties.  [2] – Included in adjustments
for nonconsolidated affiliates for the three months ended March 31, 2010 is
$497,000 related to accelerated depreciation resulting from the redevelopment
of the Woodlake Square property. We shortened the useful lives of certain
buildings consistent with the redevelopment plan once that redevelopment became
probable.  Item 3. 
Quantitative and Qualitative Disclosures about Market Risk.  Not applicable.  Item 4.  Controls and Procedures.  Evaluation of Disclosure
Controls and Procedures  Under
the supervision and with the participation of our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), management has evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of March 31,
2011. Based on that evaluation, our CEO and CFO concluded that, as of March 31,
2011, our disclosure controls and procedures were effective in causing material
information relating to us (including our consolidated subsidiaries) to be
recorded, processed, summarized and reported by management on a timely basis
and to ensure the quality and timeliness of our public disclosures with SEC
disclosure obligations.  Changes in Internal
Controls  There
has been no change to our internal control over financial reporting during the
quarter ended March 31, 2011 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.    27


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Table of Contents  Part II – OTHER INFORMATION  Item 1. Legal Proceedings.  We are involved in various matters of litigation arising in the normal
course of business.  While we are unable to predict with certainty the amounts
involved, our management and counsel are of the opinion that, when such
litigation is resolved, any additional liability, if any, will not have a
material effect on our consolidated financial statements.  Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds.  None.  Item 3.
Defaults Upon Senior Securities.  None.  Item 4. [Removed
and Reserved.]  Item 5.
Other Information.  None.  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 Report.        28


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Table of Contents  SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  AmREIT, Inc.(registrant)Date: May 6, 2011
     By:
     /s/ H. Kerr TaylorH. Kerr Taylor, Chairman of the Board of Directors,
President and Chief Executive OfficerDate: May 6, 2011
     By:
     /s/ Chad C. BraunChad C. Braun, Executive Vice President, Chief
Operating Officer, Chief Financial Officer, Treasurer
and Secretary
       29


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Table of
Contents  Exhibit
Index Exhibit
No. 2.1
 Agreement
  and Plan of Merger between REITPlus, Inc. and AmREIT (incorporated by
  reference to Appendix D to Amendment No. 5 to REITPlus’s Registration
  Statement on Form S-4, filed on October 8, 2009).3.1
 Articles
  of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to
  Amendment No. 3 to REITPlus’s Registration Statement on Form S-4, filed on
  September 9, 2009).3.2
 Amended
  and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s
  current report on form 8-K filed November 3, 2010).10.1
 Executive
  Employment Agreement – H. Kerr Taylor (included as Exhibit 10.1 to the
  Registrant’s Current Report on Form 8-K, filed on March 31, 2011, and
  incorporated herein by reference).10.2
 Executive
  Employment Agreement – Chad C. Braun (included as Exhibit 10.2 to the
  Registrant’s Current Report on Form 8-K, filed on March 31, 2011, and
  incorporated herein by reference).10.3
 Executive
  Employment Agreement – Tenel H. Tayar (included as Exhibit 10.3 to the
  Registrant’s Current Report on Form 8-K, filed on March 31, 2011, and
  incorporated herein by reference).10.4
 Executive
  Employment Agreement – Charles Scoville (included as Exhibit 10.4 to the
  Registrant’s Current Report on Form 8-K, filed on March 31, 2011, and
  incorporated herein by reference).10.5
 Executive
  Employment Agreement – Brett Treadwell (included as Exhibit 10.5 to the
  Registrant’s Current Report on Form 8-K, filed on March 31, 2011, and
  incorporated herein by reference).31.1
 Certification
  pursuant to Rule 13a-14(a) of Chief Executive Officer.31.2
 Certification
  pursuant to Rule 13a-14(a) of Chief Financial Officer.32.1
 Chief
  Executive Officer certification pursuant to 18 U.S.C.  Section 1350, adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
 Chief
  Financial Officer certification pursuant to 18 U.S.C.  Section 1350, adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     30


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