Table of Contents





UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

| |           | 
| | --------- | 
| |           | 
| | FORM 10-Q | 
| |           | 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For
the quarterly period ended June 30, 2010

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934

For
the transition period from _________ to _________

Commission file number 000-53841

|                                                       |              | 
|------------------------------------------------------ | ------------ | 
|                                                       |              | 
|                                                       |              | 
|                                                       | 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                                  |  | 77046                               
|Houston,
 Texas                                                |  | (Zip Code)                          
|(Address of Principal Executive Offices)                       |  |                                     

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

| |  | 
| |  | 
| |  | 

Indicate by
check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO o

Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). o Yes o No

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

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

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 August 12, 2010
|AmREIT, Inc.
 Common Stock, $0.01 par value |  | 23,122,350 shares                







AmREIT, Inc.
Quarterly Report on Form 10-Q 
Quarter Ended June 30, 2010

Table of Contents

|        |  |                                                                                        |  |     
|------- |  | -------------------------------------------------------------------------------------- |  | ----
|ItemNo. |  |                                                                                        |  | Page
|        |  |                                                                                        |  |     
|        |  | PART I - Financial Information                                                         |  |     
|1       |  | Financial
 Statements                                                                  |  | 1   
|2       |  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations |  | 27  
|3       |  | Quantitative
 and Qualitative Disclosures About Market Risk                            |  | 34  
|4       |  | Controls
 and Procedures                                                               |  | 34  
|        |  |                                                                                        |  |     
|        |  | PART II - Other Information                                                            |  |     
|1       |  | Legal
 Proceedings                                                                     |  | 35  
|2       |  | Unregistered
 Sales of Equity Securities and Use of Proceeds                           |  | 35  
|3       |  | Defaults
 Upon Senior Securities                                                       |  | 35  
|4       |  | [Removed
 and Reserved]                                                                |  | 35  
|5       |  | Other
 Information                                                                     |  | 35  
|6       |  | Exhibits                                                                               |  | 35  
|        |  | Signatures                                                                             |  | 36  
|        |  | Exhibit
 Index                                                                         |  | 37  

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Table of Contents

PART I - FINANCIAL INFORMATION Item 1.        Financial Statements

AmREIT, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
June 30, 2010 and December 31, 2009
(in thousands, except share data)

|                                                                                                                                        |  |                |         |                    |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ------------------ | - | ------- | -
|                                                                                                                                        |  | June 30,
 2010 |         | December 31,
 2009 |  
|                                                                                                                                       
|                                                                                                                                        |  | (unaudited)    |         |                    |   |        
|ASSETS                                                                                                                                  |  |                |         |                    |   |        
|Real estate investments at cost:                                                                                                        |  |                |         |                    |   |         |  
|Land                                                                                                                                    |  | $              | 128,505 |                    | $ | 131,351 |  
|Buildings                                                                                                                               |  |                | 141,888 |                    |   | 142,575 |  
|Tenant improvements                                                                                                                     |  |                | 10,622  |                    |   | 9,883   |  
|                                                                                                                                        |  |                | 281,015 |                    |   | 283,809 |  
|Less accumulated depreciation and
 amortization                                                                                         |  |                | (27,093 | )                  |   | (24,934 | )
|                                                                                                                                        |  |                | 253,922 |                    |   | 258,875 |  
|                                                                                                                                        |  |                |         |                    |   |         |  
|Real estate held for sale, net                                                                                                          |  |                | 5,885   |                    |   |        |  
|Net investment in direct financing leases
 held for investment                                                                          |  |                | 18,460  |                    |   | 21,057  |  
|Acquired lease intangibles, net                                                                                                         |  |                | 6,386   |                    |   | 7,194   |  
|Investment in merchant development funds
 and other affiliates                                                                          |  |                | 8,548   |                    |   | 9,527   |  
|Net real estate investments                                                                                                             |  |                | 293,201 |                    |   | 296,653 |  
|                                                                                                                                        |  |                |         |                    |   |         |  
|Cash and cash equivalents                                                                                                               |  |                | 576     |                    |   | 1,067   |  
|Tenant receivables, net                                                                                                                 |  |                | 3,530   |                    |   | 3,697   |  
|Accounts receivable, net                                                                                                                |  |                | 1,930   |                    |   | 2,014   |  
|Accounts receivable - related party                                                                                                     |  |                | 265     |                    |   | 152     |  
|Notes receivable                                                                                                                        |  |                | 4,110   |                    |   | 4,043   |  
|Notes receivable - related party                                                                                                        |  |                | 5,352   |                    |   | 4,669   |  
|Deferred costs, net                                                                                                                     |  |                | 2,685   |                    |   | 2,703   |  
|Other assets                                                                                                                            |  |                | 5,351   |                    |   | 5,334   |  
|TOTAL ASSETS                                                                                                                            |  | $              | 317,000 |                    | $ | 320,332 |  
|                                                                                                                                        |  |                |         |                    |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                    |  |                |         |                    |   |         |  
|Liabilities:                                                                                                                            |  |                |         |                    |   |         |  
|Notes payable                                                                                                                           |  | $              | 181,536 |                    | $ | 182,976 |  
|Notes payable, held for sale                                                                                                            |  |                | 5,049   |                    |   |        |  
|Accounts payable and other liabilities                                                                                                  |  |                | 5,314   |                    |   | 7,741   |  
|Acquired below market lease intangibles,
 net                                                                                           |  |                | 1,573   |                    |   | 1,732   |  
|Security deposits                                                                                                                       |  |                | 705     |                    |   | 705     |  
|TOTAL LIABILITIES                                                                                                                       |  |                | 194,177 |                    |   | 193,154 |  
|                                                                                                                                        |  |                |         |                    |   |         |  
|Stockholders 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, 23,122,350 and 22,950,952 shares issued and
 outstanding, respectively |  |                | 232     |                    |   | 230     |  
|Capital in excess of par value                                                                                                          |  |                | 191,117 |                    |   | 190,975 |  
|Accumulated distributions in excess of
 earnings                                                                                        |  |                | (68,355 | )                  |   | (63,908 | )
|Accumulated other comprehensive loss                                                                                                    |  |                | (442    | )                  |   | (384    | )
|Cost of treasury stock, 55 and 0 shares,
 respectively                                                                                  |  |                |        |                    |   |        |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                              |  |                | 122,552 |                    |   | 126,913 |  
|Non-controlling interest                                                                                                                |  |                | 271     |                    |   | 265     |  
|TOTAL EQUITY                                                                                                                            |  |                | 122,823 |                    |   | 127,178 |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                              |  | $              | 317,000 |                    | $ | 320,332 |  

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 June 30, |        | Six months ended June 30, |  
|                                                                                                        |  | 2010                        |        | 2009                      |   | 2010   |   | 2009 |       
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Revenues:                                                                                               |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Rental income from operating leases                                                                     |  | $                           | 7,349  |                           | $ | 7,314  |   | $    | 14,497 |   | $ | 14,765 |  
|Earned income from direct financing leases                                                              |  |                             | 447    |                           |   | 497    |   |      | 939    |   |   | 996    |  
|Lease termination income                                                                                |  |                             |       |                           |   |       |   |      |       |   |   | 1,065  |  
|Real estate fee income - related party                                                                  |  |                             | 485    |                           |   | 621    |   |      | 908    |   |   | 1,398  |  
|Construction management fee income - related party                                                      |  |                             | 93     |                           |   | 206    |   |      | 170    |   |   | 244    |  
|Asset management fee income - related party                                                             |  |                             | 370    |                           |   | 383    |   |      | 740    |   |   | 767    |  
|Total revenues                                                                                          |  |                             | 8,744  |                           |   | 9,021  |   |      | 17,254 |   |   | 19,235 |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Expenses:                                                                                               |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|General and administrative                                                                              |  |                             | 1,505  |                           |   | 780    |   |      | 2,792  |   |   | 3,463  |  
|Property expense                                                                                        |  |                             | 1,959  |                           |   | 1,932  |   |      | 3,654  |   |   | 4,042  |  
|Legal and professional                                                                                  |  |                             | 145    |                           |   | 372    |   |      | 401    |   |   | 1,099  |  
|Real estate commissions                                                                                 |  |                             |       |                           |   |       |   |      | 1      |   |   | 1      |  
|Depreciation and amortization                                                                           |  |                             | 1,662  |                           |   | 1,899  |   |      | 3,378  |   |   | 3,749  |  
|Total expenses                                                                                          |  |                             | 5,271  |                           |   | 4,983  |   |      | 10,226 |   |   | 12,354 |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Operating income                                                                                        |  |                             | 3,473  |                           |   | 4,038  |   |      | 7,028  |   |   | 6,881  |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Other income (expense):                                                                                 |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Interest and other income - related party                                                               |  |                             | 172    |                           |   | 159    |   |      | 385    |   |   | 340    |  
|Loss from merchant development funds and other affiliates                                               |  |                             | (397   | )                         |   | (179   | ) |      | (938   | ) |   | (268   | )
|Income tax benefit (expense) for taxable REIT subsidiary                                                |  |                             | 56     |                           |   | (125   | ) |      | 136    |   |   | 178    |  
|Interest expense                                                                                        |  |                             | (2,694 | )                         |   | (2,546 | ) |      | (5,357 | ) |   | (5,084 | )
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Income from continuing operations                                                                       |  |                             | 610    |                           |   | 1,347  |   |      | 1,254  |   |   | 2,047  |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Income from discontinued operations, net of taxes                                                       |  |                             | 40     |                           |   | 18     |   |      | 84     |   |   | 40     |  
|Gain on sales of real estate acquired for resale, net of taxes                                          |  |                             |       |                           |   |       |   |      |       |   |   | 1,897  |  
|Income from discontinued operations                                                                     |  |                             | 40     |                           |   | 18     |   |      | 84     |   |   | 1,937  |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Net income including noncontrolling interest                                                            |  |                             | 650    |                           |   | 1,365  |   |      | 1,338  |   |   | 3,984  |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Net income attributable to noncontrolling interest                                                      |  |                             | (13    | )                         |   | (49    | ) |      | (24    | ) |   | (102   | )
|Net income attributable to AmREIT stockholders                                                          |  |                             | 637    |                           |   | 1,316  |   |      | 1,314  |   |   | 3,882  |  
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Distributions paid to Class C and D stockholders                                                        |  |                             |       |                           |   | (2,507 | ) |      |       |   |   | (5,014 | )
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Net income (loss) available to stockholders                                                             |  | $                           | 637    |                           | $ | (1,191 | ) | $    | 1,314  |   | $ | (1,132 | )
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Net income (loss) per share of common stock - basic and diluted                                         |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Income (loss) before discontinued operations                                                            |  | $                           | 0.03   |                           | $ | (0.22  | ) | $    | 0.05   |   | $ | (0.58  | )
|Income (loss) from discontinued operations                                                              |  | $                           | 0.00   |                           | $ | 0.00   |   | $    | 0.00   |   | $ | 0.37   |  
|Net income (loss)                                                                                       |  | $                           | 0.03   |                           | $ | (0.22  | ) | $    | 0.05   |   | $ | (0.21  | )
|                                                                                                        |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Weighted average shares of common stock used to Compute net income
 (loss) per share, basic and diluted |  |                             | 23,113 |                           |   | 5,314  |   |      | 23,085 |   |   | 5,296  |  

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 six months ended June 30, 2010 
(in thousands) 
(unaudited)

|                                                    |  |                         |     |                                  |   |                                                    |   |                                         |         |                          |   |                          |   |       |      |   |   |     |   |   |         |  
|--------------------------------------------------- |  | ----------------------- | --- | -------------------------------- | - | -------------------------------------------------- | - | --------------------------------------- | ------- | ------------------------ | - | ------------------------ | - | ----- | ---- | - | - | --- | - | - | ------- | -
|                                                    |  | Amount of
 Common Stock |     | Capital in
 excess of
 par value |   | Accumulated
 distributions
 in excess of
 earnings |   | Accumulated
 other
 comprehensive
 loss |         | Cost of
 treasury
 stock |   | Noncontrolling
 Interest |   | Total |     
|Balance at
 December 31, 2009                       |  | $                       | 230 |                                  | $ | 190,975                                            |   | $                                       | (63,908 | )                        | $ | (384                     | ) | $     |     |   | $ | 265 |   | $ | 127,178 |  
|                                                    |  |                         |     |                                  |   |                                                    |   |                                         |         |                          |   |                          |   |       |      |   |   |     |   |   |         |  
|Net income including noncontrolling interest        |  |                         |    |                                  |   |                                                   |   |                                         | 1,338   |                          |   |                         |   |       |     |   |   |    |   |   | 1,338   |  
|Net income attributable to noncontrolling interest  |  |                         |    |                                  |   |                                                   |   |                                         | (24     | )                        |   |                         |   |       |     |   |   | 24  |   |   |        |  
|Change in fair value of hedge liability             |  |                         |    |                                  |   |                                                   |   |                                         |        |                          |   | (58                      | ) |       |     |   |   |    |   |   | (58     | )
|Deferred compensation issuance of restricted shares |  |                         |    |                                  |   | (1,669                                             | ) |                                         |        |                          |   |                         |   |       |     |   |   |    |   |   | (1,669  | )
|Issuance of shares of common stock                  |  |                         | 2   |                                  |   | 1,621                                              |   |                                         |        |                          |   |                         |   |       | 115  |   |   |    |   |   | 1,738   |  
|Amortization of deferred compensation               |  |                         |    |                                  |   | 190                                                |   |                                         |        |                          |   |                         |   |       |     |   |   |    |   |   | 190     |  
|Repurchase of shares of common stock                |  |                         |    |                                  |   |                                                   |   |                                         |        |                          |   |                         |   |       | (115 | ) |   |    |   |   | (115    | )
|Distributions                                       |  |                         |    |                                  |   |                                                   |   |                                         | (5,761  | )                        |   |                         |   |       |     |   |   | (18 | ) |   | (5,779  | )
|                                                    |  |                         |     |                                  |   |                                                    |   |                                         |         |                          |   |                          |   |       |      |   |   |     |   |   |         |  
|Balance at June 30, 2010                            |  | $                       | 232 |                                  | $ | 191,117                                            |   | $                                       | (68,355 | )                        | $ | (442                     | ) | $     |     |   | $ | 271 |   | $ | 122,823 |  

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, except share data)
(unaudited)

|                                                                                    |  |                           |        |      |   |        |  
|----------------------------------------------------------------------------------- |  | ------------------------- | ------ | ---- | - | ------ | -
|                                                                                    |  | Six months ended June 30, |       
|                                                                                    |  | 2010                      |        | 2009 |  
|Cash flows from operating activities:                                               |  |                           |        |      |   |        |  
|Net income including noncontrolling interest                                        |  | $                         | 1,338  |      | $ | 3,984  |  
|Adjustments to reconcile net income to net cash provided by operating
 activities:  |  |                           |        |      |   |        |  
|Proceeds from sale of real estate acquired for resale                               |  |                           |       |      |   | 1,500  |  
|Gain on sale of real estate acquired for resale                                     |  |                           |       |      |   | (2,875 | )
|Bad debt expense                                                                    |  |                           | 164    |      |   | 342    |  
|Lease termination income                                                            |  |                           |       |      |   | (1,065 | )
|Loss from merchant development funds and other affiliates                           |  |                           | 938    |      |   | 268    |  
|Cash receipts related to deferred related party fees                                |  |                           | 13     |      |   | 10     |  
|Depreciation and amortization                                                       |  |                           | 3,388  |      |   | 3,730  |  
|Amortization of above/below market rent                                             |  |                           | (90    | )    |   | (26    | )
|Amortization of loan premium and financing cost                                     |  |                           | 226    |      |   | 209    |  
|Amortization of deferred compensation                                               |  |                           | 190    |      |   | 250    |  
|Distributions from merchant development funds and other affiliates                  |  |                           | 11     |      |   |       |  
|Decrease (Increase) in tenant receivables                                           |  |                           | 3      |      |   | (74    | )
|Decrease in accounts receivable                                                     |  |                           | 84     |      |   | 172    |  
|Increase in accounts receivable - related party                                     |  |                           | (113   | )    |   | (78    | )
|Cash receipts from direct financing leases more than (less than)
 income recognized |  |                           | 189    |      |   | (73    | )
|Decrease (increase) in other assets                                                 |  |                           | (112   | )    |   | 136    |  
|Increase (decrease) in accounts payable and other liabilities                       |  |                           | (2,490 | )    |   | 1,269  |  
|Increase (decrease) in accounts payable - related party                             |  |                           | 5      |      |   | (218   | )
|Decrease in security deposits                                                       |  |                           |       |      |   | (24    | )
|Net
 cash provided by operating activities                                          |  |                           | 3,744  |      |   | 7,437  |  
|                                                                                    |  |                           |        |      |   |        |  
|Cash flows from investing activities:                                               |  |                           |        |      |   |        |  
|Improvements to real estate, including leasing costs                                |  |                           | (1,216 | )    |   | (1,039 | )
|Loans to affiliates                                                                 |  |                           | (1,683 | )    |   | (193   | )
|Payments from affiliates                                                            |  |                           | 1,000  |      |   | 350    |  
|Additions to furniture, fixtures and equipment                                      |  |                           | (22    | )    |   |        |  
|Investment in merchant development funds and other affiliates                       |  |                           | (68    | )    |   |       |  
|Distributions from merchant development funds and other affiliates                  |  |                           | 85     |      |   | 84     |  
|Decrease in preacquisition costs                                                    |  |                           |       |      |   | 4      |  
|Net cash used in investing activities                                               |  |                           | (1,904 | )    |   | (794   | )
|                                                                                    |  |                           |        |      |   |        |  
|Cash flows from financing activities:                                               |  |                           |        |      |   |        |  
|Proceeds from notes payable                                                         |  |                           | 11,700 |      |   | 902    |  
|Payments of notes payable                                                           |  |                           | (8,054 | )    |   | (2,124 | )
|Payments for financing costs                                                        |  |                           | (150   | )    |   | (53    | )
|Purchase of treasury stock                                                          |  |                           | (22    | )    |   |       |  
|Issuance of shares of common stock                                                  |  |                           | (26    | )    |   |       |  
|Retirement of shares of common stock                                                |  |                           |       |      |   | (275   | )
|Common dividends paid                                                               |  |                           | (5,761 | )    |   | (6,328 | )
|Distributions to noncontrolling interests                                           |  |                           | (18    | )    |   | (79    | )
|Net cash used in financing activities                                               |  |                           | (2,331 | )    |   | (7,957 | )
|                                                                                    |  |                           |        |      |   |        |  
|Net decrease in cash and cash equivalents                                           |  |                           | (491   | )    |   | (1,314 | )
|Cash and cash equivalents, beginning of period                                      |  |                           | 1,067  |      |   | 2,335  |  
|Cash and cash equivalents, end of period                                            |  | $                         | 576    |      | $ | 1,021  |  
|                                                                                    |  |                           |        |      |   |        |  
|Supplemental schedule of cash flow information:                                     |  |                           |        |      |   |        |  
|Cash paid during the year for:                                                      |  |                           |        |      |   |        |  
|Interest                                                                            |  | $                         | 6,789  |      | $ | 5,066  |  
|Income taxes                                                                        |  |                           | 302    |      |   | 316    |  

Supplemental schedule of noncash investing and financing
activities

See Note 2 for further
discussion of non-cash investing and financing activities associated with the
recapitalization and merger, including the issuance of AmREIT, Inc. shares of
common stock in exchange for AmREIT class A, class C, and class D common shares
of beneficial ownership and in exchange for REITPluss net assets.

In 2010, we issued 185,500
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 $1.7 million in deferred
compensation related to the issuance of the restricted shares.

In 2009, we issued 64,000
restricted shares of common stock to AmREIT employees and directors as part of
their compensation arrangements. The restricted shares vest over a three to
seven year period. We recorded approximately $580,000 in deferred compensation
related to the issuance of the restricted shares.

During the six months ended
June 30, 2010, we reclassified $5.9 million of assets to held for sale and $5.0
million of notes to held for sale. See Note 2 under Discontinued Operations and Note 12.

During the year ended December
31, 2009, we reclassified $2.7 million of assets held for sale back to held for
use. Furthermore, approximately $2.2 million in building improvements, a
portion of which were incurred in 2009, were reclassified to investment in
direct financing lease upon execuition of a lease in 2009.

During 2009, we recognized
$1.1 million in lease termination income related to a national tenant that
declared bankruptcy and subsequently defaulted upon their operating ground
lease with us. Upon default, ownership of the building transferred from the
tenant to us as the ground lessor. Accordingly, we recorded lease termination
income in an amount equal to the fair value of the building.

See Notes to Consolidated
Financial Statements.

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AmREIT, Inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
June 30, 2010 
(unaudited)

1. OUR RECENT HISTORY AND OUR BUSINESS

OUR 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.

During 2007, AmREIT initiated
a strategic plan referred to as Vision 2010. Vision 2010 was designed to
create a more conforming business platform that would reduce the earnings
volatility of AmREITs business model and that would also simplify its capital
structure, with the ultimate goal of growing its portfolio of properties and
providing liquidity for investors. Vision 2010 included the following three
phases:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase I consisted of
 business model changes which were designed to reduce the earnings volatility
 created by certain of AmREITs transactional operating subsidiaries. In
 connection with Phase I, AmREIT simplified its operating platform and reduced
 its transactional volatility by exiting the general contracting business and
 the independent broker-dealer fund-raising business. Additionally, it
 terminated the best efforts equity offering of REITPlus. Together, these
 restructuring initiatives resulted in a one-time restructuring charge of
 approximately $2.5 million during 2008, but also reduced AmREITs annual
 overhead and general and administrative expenses.                                                                                                 
| |  | Phase II consisted of
 changes which were designed to simplify AmREITs equity capital structure. In
 December 2008, AmREIT voluntarily de-listed its Class A common shares of
 beneficial interest from trading on the NYSE Alternext Exchange. Then, at
 separate special meetings held on November 24, 2009, both AmREIT and REITPlus
 shareholders approved the merger of AmREIT with and into REITPlus (the
 Merger), resulting in a combined, conforming entity with a single class of
 common stock, which was renamed AmREIT, Inc. We believe that this simplified
 capital structure will better position us to raise Wall Street and/or
 institutional capital either through joint ventures at the entity level or
 through an initial public offering and re-listing of our shares.
| |  | For the combined company,
 Phase III will consist of growing our portfolio of properties and identifying
 additional sources of liquidity for stockholders as the United States begins
 to exit the current recession and into recovery. This growth objective is the
 sole focus of managements Vision 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Following our strategic
combination with our predecessor, AmREIT, 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. Since the Merger, we are and have been
internally managed by the former management team of AmREIT. Accordingly, the
following discussion describes the business of AmREIT, Inc. which is comprised
of the combined businesses previously conducted by AmREIT and REITPlus. As
further discussed in Note 2 to the accompanying consolidated financial
statements, for accounting purposes, the Merger 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 accompanying consolidated
financial statements reflect the historical financial 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.

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OUR BUSINESS

AmREIT, Inc. owns, operates
and creates value on Irreplaceable CornersTM in Texas, which is home
to three of the top six major growth markets throughout the United States and
has the 12th largest economy in the world based on GDP (ahead of
Mexico, Russia and India). For over 25 years, we have provided our clients and
investors with financial transparency, reliability and creation of value for
future real estate investment growth. We have access to a variety of capital
markets, including public and private financial companies and institutional
investors, and our platform has grown from approximately $100 million in assets
in 2002 to approaching $1 billion today. We have elected to be taxed as a REIT
for federal income tax purposes. AmREIT, Inc. is headquartered in Houston,
Texas, and has an office in Dallas, Texas.

Our core portfolio consists
primarily of Irreplaceable Corners. These are corner properties in top U.S.
growth markets with high barriers to entry, strong demographic purchasing power
(i.e., target household income in a 1-mile radius of $100,000), high daytime
and evening population (i.e., target average of 100,000 people in a 3-mile
radius), high rate of cars per day, strong demand for retail space and
distinctive qualities. Our advisory business invests in and advises various
real estate partnerships and joint ventures that own, develop and manage retail
and mixed-use properties located within fast growing markets. We create value
for our clients and investors through our expertise in development,
redevelopment and daily operation of these properties.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

MERGER ACCOUNTING

Simultaneously with the
Merger of AmREIT with and into REITPlus on November 24, 2009, wherein AmREIT
acquired REITPluss net assets, AmREIT consummated a recapitalization of its
equity structure by combining its three classes of common shares of beneficial
interest into a single class of common stock. The following discussion
addresses the accounting treatment for the recapitalization as well as for the
acquisition of REITPluss net assets.

Recapitalization  Prior to the Merger, AmREIT had Class A
common shares (Class A shares), Class C common shares (Class C shares) and
Class D common shares (Class D shares) outstanding (collectively, the AmREIT
Shares). The AmREIT Declaration of Trust provided that any merger of AmREIT
that resulted in Class A shares being converted into another security or other
form of consideration must also result in Class C shares and Class D shares
being converted or convertible into such securities or other consideration as
if the Class C shares and Class D shares had first been converted into Class A
shares at the conversion prices and fair market value per share of Class A as
set forth in the Declaration of Trust. The Class C shares and Class D shares
were each convertible into Class A shares at their respective premiums pursuant
to the Declaration of Trust. In conjunction with the Merger, the AmREIT Shares
were converted into a single class of AmREIT, Inc. common stock at exchange
ratios reflecting the foregoing conversion principles. The premium, which was
$10.2 million, was recorded during 2009 as an additional dividend in accordance
with U.S. generally accepted accounting principles (GAAP). Given that AmREIT
was the accounting acquirer, as discussed in more detail below, the foregoing
exchange/conversion was treated for accounting purposes as a deemed
recapitalization of AmREIT immediately prior to the acquisition of REITPluss
net assets. The Class C and Class D shareholders were issued 4,793,455 and
12,178,341 class A shares, respectively, in connection with the
recapitalization on November 24, 2009.

Acquisition - Although REITPlus was the surviving legal
entity in the Merger, AmREIT was deemed to be the acquirer for financial
reporting purposes pursuant to Accounting Standards Codification (ASC) ASC
805 Business Combinations. The
transaction was treated legally as a Merger of the two entities; however, for
accounting purposes the transaction was treated as an asset acquisition
pursuant to ASC 805.The Merger was therefore treated as an acquisition by
AmREIT of REITPluss net assets. Accordingly, the accompanying statements of
operations for the periods prior to the Merger represent the historical
operating results of AmREIT. The operating results generated by REITPluss net
assets were included in our 2009 operating results from November 24, 2009, the
date of the Merger. The acquisition of REITPlus was accounted for by applying
the acquisition method under ASC 805. The purchase price for REITPlus was
determined based on the fair value of the consideration given in exchange for
the REITPlus net assets received in the acquisition. The fair value of the
consideration given was $7.2 million, (calculated as the 758,604 AmREIT shares
deemed given in the transaction valued at $9.50/share) which management believes
reflected the fair value of the net assets of REITPlus deemed acquired by
AmREIT.

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AmREIT incurred costs of
approximately $1.3 million in connection with the Merger which included fees
for investment banking services, legal, accounting, due diligence, tax,
valuation, printing and various other services necessary to complete the
transaction. Costs incurred in connection with the issuance of our common stock
in the amount of $858,000 were recorded as a reduction of stockholders equity.
The remaining costs incurred in the amount of $441,000 were associated with the
acquisition of REITPluss net assets. Accordingly, they were initially
capitalized as part of the assets acquired pursuant to GAAP applied to asset
acquisitions, resulting in a total cost to AmREIT of approximately $7.6
million. However, we subsequently expensed such acquisition costs in 2009 as an
other-than-temporary impairment given that the carrying amount of REITPluss
net assets acquired was in excess of their fair value to the extent of these
costs.

The following represents the
assets acquired and liabilities assumed by AmREIT in the acquisition. No other
tangible or intangible assets were identified as part of the acquisition:

|                                                 |  |                |       |  
|------------------------------------------------ |  | -------------- | ----- | -
|                                                 |  | (in thousands) |      
|Assets                                           |  |                |       |  
|Cash                                             |  | $              | 743   |  
|Remaining interest in Shadow Creek Ranch (a)     |  |                | 5,769 |  
|Investment in AmREIT (90,241 Class A shares) (b) |  |                | 720   |  
|Prepaid expenses                                 |  |                | 48    |  
|Total assets acquired                            |  | $              | 7,280 |  
|Liabilities                                      |  |                |       |  
|Accounts payable and accrued liabilities         |  |                |      |  
|Accounts payable  related party                 |  |                | 75    |  
|Total liabilities assumed                        |  |                | 75    |  
|Net assets acquired                              |  | $              | 7,205 |  
|Less: Treasury shares                            |  |                | (720  | )
|Acquisition costs                                |  |                | (858  | )
|Net effect on equity                             |  | $              | 5,627 |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | AmREIT owned a 16% interest
 in REITPlus Operating Partnership, LP (REITPlus OP) which held the
 investment in Shadow Creek Ranch and in AmREIT. The remaining interest of
 $5.8 million represents AmREITs cost in acquiring the remaining 84% interest
 in Shadow Creek Ranch owned by REITPlus OP after expensing the $441,000 in
 acquisition costs as an other-than-temporary impairment.
|(b) | The value of the investment
 in AmREIT was determined using a $9.50/share value of an AmREIT Class A share
 and represents the remaining 84% interest in the AmREIT shares owned by
 REITPlus OP.                                                                                                                                                                                                

In connection with the
Merger, each AmREIT Class A share was exchanged for one share of AmREIT, Inc.
common stock. The following table calculates the number of shares of AmREIT,
Inc. common stock outstanding after the effects of the AmREIT recapitalization
and subsequent merger with REITPlus:

|                                                                  |  |  |            |  |                   |            |  
|----------------------------------------------------------------- |  |  | ---------- |  | ----------------- | ---------- | -
|                                                                  |  |  |            |  | Number of
 Shares |           
|REITPlus shares pre-Merger                                        |  |  |            |  |                   | 758,604    |  
|AmREIT shares exchanged in
 the Merger -                          |  |  |            |  |                   |            |  
|AmREIT shares post-recapitalization                               |  |  | 22,290,695 |  |                   |            |  
|Merger exchange rate                                              |  |  | 1:1        |  |                   | 22,290,695 |  
|                                                                  |  |  |            |  |                   |            |  
|Less: Cancellation of
 AmREIT shares owned by REITPlus pre-Merger |  |  |            |  |                   | (90,241    | )
|                                                                  |  |  |            |  |                   |            |  
|AmREIT, Inc. shares
 immediately post-Merger (November 24, 2009)  |  |  |            |  |                   | 22,959,058 |  
|                                                                  |  |  |            |  |                   |            |  

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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. The Company consolidates
certain joint ventures and partnerships in which it owns less than a 100%
equity interest as defined in ASC 810, Consolidation.
All significant inter-company accounts and transactions have been eliminated
through consolidation.

As discussed above, we exited
the general contracting business and the independent broker-dealer fund-raising
business in the fourth quarter of 2008. Accordingly, the operating activity of
these businesses, including all prior activity, has been reclassified as
discontinued operations in the accompanying consolidated statements of
operations. See Discontinued Operations below for further detail.

The accompanying consolidated
financial statements included in this Report for the three and six months ended
June 30, 2010 and 2009 are unaudited. In our opinion, all adjustments necessary
for a fair presentation of such financial statements have been included, and
such adjustments consisted of normal recurring items.

REVENUE RECOGNITION

We lease space to tenants
under agreements with varying terms. The majority of the leases are accounted
for as operating leases and, although certain leases of the properties provide
for tenant occupancy during periods for which no rent is due and/or 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. In most cases, revenue recognition under a lease begins when
the lessee takes possession of or controls the physical use of the leased
asset. Generally, possession or control occurs on the lease commencement date.
In 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 that 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
generally recognized when the tenants achieve the specified targets as defined
in their lease agreements. During the six months ended June 30, 2010 and 2009,
we recognized percentage rents of $82,000 and $11,000, respectively. The terms
of certain leases require that the building/improvement portion of the lease be
accounted for under the direct financing method which treats the building as if
we had sold it to the lessee and entered into a long-term financing arrangement
with such lessee. This accounting method is appropriate when the lessee has all
of the benefits and risks of property ownership that they otherwise would if
they owned the building versus leasing it from us.

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 and write off any
assets or liabilities and the associated accumulated amortization. We did not
recognize any lease termination fee income during the six months ended June 30,
2010. During the six months ended June 30, 2009, we recognized $1.1 million in
lease termination income related to a national tenant that declared bankruptcy
and subsequently defaulted upon their operating ground lease with us. Upon
default, ownership of the building transferred from the tenant to us as the
ground lessor. Accordingly, we recorded lease termination income in an amount
equal to the fair value of the building.

We have investments in real
estate partnerships 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
our accompanying consolidated statement of operations.

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.

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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.

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. Such costs are expensed if and when such land
acquisition becomes no longer probable. During the six months ended June 30,
2010, we had no capitalized interest and taxes on properties under development.
During the six months ended June 30, 2009, we had $20,000 of capitalized interest
and taxes on properties under development.

Acquired
Properties and Acquired Lease Intangibles  We account for operating real estate acquisitions pursuant to ASC 805, Business Combinationsas we believe that
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 acquire above and below market leases,
the value of in-place leases and customer relationship value, if any. We
determine fair value based on estimated cash flow projections that utilize
appropriate discount and capitalization rates and available market information.
Estimates of future cash flows are based on a number of factors including the
historical operating results, known trends and specific market and economic
conditions that may affect the property. Factors considered by management in
our analysis of determining the as-if-vacant property value include an estimate
of carrying costs during the expected lease-up periods considering market
conditions and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and estimates of lost rentals
at market rates during the expected lease-up periods, tenant demand and other
economic conditions. Management also estimates costs to execute similar leases
including leasing commissions, tenant improvements, legal and other related
expenses. Intangibles related to above market and in-place lease value are
recorded as acquired lease intangibles and are amortized as an adjustment to
rental revenue or amortization expense, respectively, over the remaining terms
of the underlying leases. Below market leases include fixed-rate renewal.
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 50 years for
buildings, up to 20 years for building and site improvements and over the term
of the lease for tenant specific 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. We re-evaluate the useful
lives of our buildings and improvements as warranted by changing conditions at
our properties. As part of this re-evaluation, we first consider whether such
changing conditions indicate a potential impairment, and we perform an
impairment analysis as necessary, at the property level. In the case of a
property redevelopment, we reassess the useful lives of specific buildings or
other improvements to be demolished as part of that redevelopment once the
redevelopment is probable to occur.

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 June 30, 2010, we owned two single-tenant properties with a
carrying value of $5.9 million that were classified as held for sale, one of which was recorded as a direct financing lease
for financial reporting purposes (See footnote under Discontinued Operations and Note 12). As of
December 31, 2009, no properties were classified as real estate held for sale.

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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 consolidated
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. No impairment charges were recognized for the six
months ended June 30, 2010 or 2009. Both the estimated undiscounted cash flow
analysis and fair value determination are based upon various factors which
require that complex and subjective judgments 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.

RECEIVABLES
AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

Tenant receivables  Included in tenant
receivables are base rents, tenant reimbursements and receivables attributable
to recording rents on a straight-line basis. An allowance for the uncollectible
portion of accrued rents and accounts receivable is determined based upon
customer credit-worthiness (including expected recovery of our claim with
respect to any tenants in bankruptcy), historical bad debt levels, and current
economic trends. Bad debt expenses and any related recoveries related to tenant
receivables are included in property expense. Following is a summary of
activity within our allowance for uncollectible accounts:

|                      |  |                           |           |      |  |          |  
|--------------------- |  | ------------------------- | --------- | ---- |  | -------- | -
|                      |  | Six months ended June 30, |          
|                      |  | 2010                      |           | 2009 | 
|Beginning of period   |  |                           | 1,025,806 |      |  | 501,517  |  
|Additional reserves   |  |                           | 286,160   |      |  | 362,158  |  
|Collections/reversals |  |                           | (122,073  | )    |  | (119,177 | )
|Write-offs            |  |                           | (86,893   | )    |  | (29,010  | )
|Ending of period      |  |                           | 1,103,000 |      |  | 715,488  |  

Accounts receivableIncluded in accounts receivable are various receivables
that arise in the normal course of operating our business. Additionally, included in accounts receivable as of June
30, 2010 is a $1.3 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 one-third of the 1.5% sales tax that the City
of Pearland collects from the shopping center. During the six months ended June 30, 2010, we did not record any bad
debt expense related to miscellaneous receivables. During the six months ended
June 30, 2009, we recorded $99,000 in bad debt expense related to miscellaneous
receivables. Bad debt expense and any related recoveries on general receivables
are included in general and administrative expense.

Note receivable  Included in note receivable
is a $4.0 million note 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 received a $50,000 extension fee from the buyer and extended the
maturity date of the loan until December 31, 2010. With a 30-day notice period,
the buyer has a one-time right to extend the maturity date of the loan until
December 31, 2011 with payment of a $25,000 extension fee and an executed
commitment for a construction loan on the property development.

Notes receivable  related party  Included in
related party notes receivable are loans made to our affiliated real estate
partnerships related to their acquisition or development of properties. These
loans bear interest at LIBOR plus a spread and are due upon demand.

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DISCONTINUED
OPERATIONS

During 2008,
we exited the general contracting business and the independent broker-dealer
fund-raising business. These businesses have been reflected as discontinued
operations in the accompanying consolidated statement of operations along with
any operating properties that we have sold during the reporting periods or that
were held for sale. We ceased all of the general contracting operations during
2009. Included in discontinued operations at June 30, 2010 is the operating
activity related to two of our properties that are currently being held for
sale (See Note 12). One of these properties was treated as a
direct financing lease for financial reporting purposes. No properties were
held for sale as of December 31, 2009. The following is a summary of our
discontinued operations for the three and six months ended June, 2010 and 2009
(in thousands, except for per share data):

|                                                                |  |                             |      |                           |   |      |  |      |      |  |   |       |  
|--------------------------------------------------------------- |  | --------------------------- | ---- | ------------------------- | - | ---- |  | ---- | ---- |  | - | ----- | -
|                                                                |  | Three months ended
 June 30 |      | Six months ended
 June 30 |  
|                                                                |  | 2010                        |      | 2009                      |   | 2010 |  | 2009 |     
|Rental revenue                                                  |  | $                           | 72   |                           | $ | 69   |  | $    | 144  |  | $ | 115   |  
|Earned income from direct financing leases                      |  |                             | 66   |                           |   | 69   |  |      | 130  |  |   | 115   |  
|Construction revenues                                           |  |                             |     |                           |   | 179  |  |      |     |  |   | 857   |  
|Interest and other income                                       |  |                             | 2    |                           |   |     |  |      | 4    |  |   |      |  
|Gain on sale of real estate held for resale, net of taxes       |  |                             |     |                           |   |     |  |      |     |  |   | 1,897 |  
|Total revenues                                                  |  |                             | 140  |                           |   | 317  |  |      | 278  |  |   | 2,984 |  
|                                                                |  |                             |      |                           |   |      |  |      |      |  |   |       |  
|Other general and administrative                                |  |                             | 5    |                           |   | 30   |  |      | 5    |  |   | (16   | )
|Property expense                                                |  |                             | 3    |                           |   | 10   |  |      | 4    |  |   | 33    |  
|Construction costs                                              |  |                             |     |                           |   | 167  |  |      |     |  |   | 826   |  
|Legal and professional                                          |  |                             | 6    |                           |   | 4    |  |      | 9    |  |   | 23    |  
|Depreciation and amortization                                   |  |                             | 4    |                           |   | 6    |  |      | 10   |  |   | 21    |  
|Interest expense                                                |  |                             | 73   |                           |   | 79   |  |      | 147  |  |   | 135   |  
|Federal income tax expense                                      |  |                             | 9    |                           |   | 3    |  |      | 19   |  |   | 25    |  
|Total expenses                                                  |  |                             | 100  |                           |   | 299  |  |      | 194  |  |   | 1,047 |  
|Income from discontinued operations                             |  |                             | 40   |                           |   | 18   |  |      | 84   |  |   | 1,937 |  
|Basic and diluted income from discontinued operations per share |  | $                           | 0.00 |                           | $ | 0.00 |  | $    | 0.00 |  | $ | 0.37  |  

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 do not use derivative financial instruments for trading or speculative
purposes. In December 2008, we entered into an interest rate swap for the
purpose of hedging the interest rate risk on a variable-rate loan placed in
conjunction with the refinancing of one of our properties. We have designated
this interest rate swap as a cash flow hedge for financial reporting purposes
and have therefore recorded changes in the fair value of this hedge instrument
to other comprehensive income. The swap settles monthly with an amount paid to
or received from our counterparty being recorded as an adjustment to interest
expense.

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.

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DEFERRED COSTS

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.If a lease is terminated early or if a
loan is repaid prior to maturity, the remaining costs will be disposed of. Accumulated amortization related to
deferred loan costs as of June 30, 2010 and December 31, 2009 totaled $1.6
million and $1.3 million, respectively. Accumulated amortization related to
leasing costs as of June 30, 2010 and December 31, 2009 totaled $1.0 million
and $902,000, 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 shares, in the form of restricted shares, in us. All long
term compensation awards are designed to vest over a period of three to seven
years, promote retention of our team members and align their interests with
those of our stockholders.

Restricted Share Issuances - Deferred
compensation includes grants of shares of restricted common stock to our
directors and employees as a form of long-term compensation. The share grants
vest over a period of three to seven years. We determine the fair value of the
restricted shares as the number of shares awarded multiplied by the fair value
per share of our common stock on the grant date. We amortize such fair value
ratably over the vesting periods of the respective awards. The following table presents
restricted share activity during the six months ended June 30, 2010.

|                    |  |                    |         |                                          |   |      | 
|------------------- |  | ------------------ | ------- | ---------------------------------------- | - | ---- | 
|                    |  | Non-vested
 Shares |         | Weighted Average
 grant
 date fair value |  
|Beginning of period |  |                    | 278,192 |                                          | $ | 8.20 | 
|Granted             |  |                    | 185,500 |                                          |   | 9.50 | 
|Vested              |  |                    | (21,095 | )                                        |   | 8.23 | 
|Forfeited           |  |                    | (11,422 | )                                        |   | 7.59 | 
|End of period       |  |                    | 431,175 |                                          | $ | 8.78 | 

The
weighted-average grant date fair value of shares issued under our deferred
compensation and long term incentive plan during the six months ended June 30,
2010 was $9.50 per share. The
total fair value of shares vested during the six months ended June 30, 2010 and
2009 was $174,000 and $339,000, respectively. Total compensation cost
recognized related to restricted shares during the six months ended June 30,
2010 and 2009 was $245,000 and $250,000, respectively. As of June 30, 2010,
total unrecognized compensation cost related to restricted shares was $3.7
million, and the weighted average period of time over which we expect this cost
to be recognized is 4.2 years.

General Partner Profit Participation Interests
- We have assigned 50% of the residual economic interest in the general
partners of AAA CTL Notes, Ltd to certain of our key employees. This economic
interest is received as, if and when we receive economic benefit from our
profit participation and after certain preferred returns have been paid to the
partnerships limited partners. This assignment of economic interest generally
vests over a period of five to seven years which allows us to align the
interest of our employees with the interest of our stockholders. Because any
future profits and earnings from AAA CTL Notes, Ltd. cannot be reasonably
predicted or estimated, and any employee benefit is contingent upon the benefit
received by the general partner of the AAA CTL Notes, Ltd, we recognize expense
associated with the assignment of economic interest in our AAA CTL Notes, Ltd
as we recognize the corresponding income from AAA CTL Notes, Ltd. No
compensation expense has been recorded to date.

Tax-Deferred Retirement Plan (401(k)) - We
maintain a defined contribution 401(k) 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%. No portion of the employer matching contribution
can be comprised of our common stock.

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Table of Contents

Share Options - We are authorized to grant
options for shares of our common stock as either incentive or non-qualified
share options, up to an aggregate of 6.0% of the total voting shares
outstanding. As of June 30, 2010 and December 31, 2009, no options have been
granted.

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 that we meet all conditions specified by the Code for retaining our
REIT status, including the requirement that at least 90% of our REIT taxable
income be distributed to shareholders.

Our real
estate development and operating business, AmREIT Realty Investment Corporation
and its subsidiaries (ARIC), is a fully integrated and wholly-owned business
consisting of brokers and real estate professionals that provide development,
acquisition, brokerage, leasing, construction management, asset and property
management services to our portfolio and real estate partnerships as well as to
third parties. ARIC and our wholly-owned corporations that serve as the general
partners of our real estate partnerships are treated for federal income tax
purposes as taxable REIT subsidiaries.

State  In May 2006, the State of Texas
adopted House Bill 3 which modified the states franchise tax structure and
replaced the previous tax based on capital or earned surplus with a tax based
on margin (often referred to as the Texas Margin Tax) effective beginning
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 that ASC 740 Income
Taxes, applies to the
Texas Margin Tax. We have recorded a margin tax provision of $110,000 and
$144,000 for the Texas Margin Tax for the six months ended June 30, 2010 and
2009, respectively.

Deferred Tax Assets - To the extent that we
are in a net deferred tax asset position 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 that net asset. In making that
determination, we will consider our current financial position, our result of
operations for the current and preceding years, and our expectation of future
operations. We will record a valuation allowance as necessary based on that
assessment. As of June 30, 2010, we believe that we will realize our deferred
tax asset through generating sufficient taxable income from fees earned for
services provided to our managed funds, such as brokerage, leasing, property
management, construction management, development, acquisition and disposition
fees.

EARNINGS PER
SHARE

Basic earnings
per share has been computed by dividing net income (loss) available to
stockholders by the weighted average number of shares of common stock
outstanding. Diluted earnings per share has been computed by dividing net
income (as adjusted as appropriate) by the weighted average number of shares of
common stock outstanding plus the weighted average number of any dilutive
potential shares of common stock.

The following
table presents information necessary to calculate basic and diluted earnings
per share for the three and six months ended June 30, 2010 and 2009,
respectively, as indicated:

|                                                  |  |                              |        |                            |   |        |   |      |        |  |   |        |  
|------------------------------------------------- |  | ---------------------------- | ------ | -------------------------- | - | ------ | - | ---- | ------ |  | - | ------ | -
|                                                  |  | Three
 months ended
 June 30 |        | Six
 months ended
 June 30 |  
|                                                  |  | 2010                         |        | 2009                       |   | 2010   |   | 2009 |       
|Net income (loss) available
 to stockholders*     |  | $                            | 637    |                            | $ | (1,191 | ) | $    | 1,314  |  | $ | (1,132 | )
|Weighted average shares of
 common stock outstand |  |                              | 23,113 |                            |   | 5,314  |   |      | 23,085 |  |   | 5,296  |  
|Basic and diluted income
 (loss) per share        |  | $                            | 0.03   |                            | $ | (0.22  | ) | $    | 0.05   |  | $ | (0.21  | )

* In thousands

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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 accompanying 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.

ASC 820
requires the use of observable market data, when available, in making fair
value measurements. Observable inputs that the market participants would use in
pricing the asset or liability are developed based on market data obtained from
sources independent of our own. 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.

Derivative Financial Instruments

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 June 30,
2010, 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.

The following
table presents our assets and liabilities and related valuation inputs within
the fair value hierarchy utilized to measure fair value as of June 30, 2010 (in
thousands):

|                     |  |         |   |         |   |         |  |   |   | 
|-------------------- |  | ------- | - | ------- | - | ------- |  | - | - | 
|                     |  | Level 1 |   | Level 2 |   | Level 3 | 
|Derivative Liability |  | $       |  |         | $ | 442     |  | $ |  | 

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Notes Payable and Other Financial Instruments

Our
consolidated financial instruments consist primarily of cash and cash
equivalents, tenant receivables, accounts receivable, notes receivable, note
receivable related party, accounts payable and other liabilities and notes
payable. The carrying value of our consolidated financial instruments is
representative of their respective fair values due to the short-term maturity
of these instruments. The carrying value of the Companys variable rate notes
payable and the revolving line of credit approximate their carrying values. The
fair value of fixed rate loans are estimated using cash flows discounted at
current market rates which are available for debt with similar terms and
maturities. As a result, we have determined that our notes payable in their
entirety are classified in Level 2 of the fair value hierarchy. 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. Based on our estimates, the fair value of our fixed rate notes
payable was approximately $144 million and $133 million at June 30, 2010 and
December 31, 2009, respectively.

NEW ACCOUNTING
STANDARDS

In June 2009,
the FASB amended the consolidation guidance applicable to variable interest
entities in ASC 810 - Consolidation.
The amendments will significantly affect the overall consolidation analysis
under FASB Interpretation No. 46(R), Consolidation
of Variable Interest Entitiesan interpretation of ARB No. 51, and
changes the way entities account for securitizations and variable interest
entities as a result of the elimination of the Qualified Special Purpose Entity
(QSPE) concept in SFAS No.166. SFAS No. 167 is effective as of the beginning
of the first fiscal year that begins after November 15, 2009 and early adoption
is prohibited. The adoption of SFAS 167 did not have an effect on our results
of operations or financial position.

STOCK ISSUANCE
COSTS

Issuance costs
incurred in the raising of capital through the sale of shares 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 REAL ESTATE PARTNERSHIPS

AAA CTL Notes, Ltd.

AAA CTL Notes
I Corporation (AAA Corp), our wholly-owned subsidiary, invested as a general
partner and limited partner in AAA CTL Notes, Ltd. (AAA). AAA is a
majority-owned subsidiary through which we purchased 15 IHOP Corp. (IHOP)
leasehold estate properties and two IHOP fee simple properties. We have
consolidated AAA in our financial statements. Certain members of our management
team have been assigned a 50% aggregate interest in the income and cash flow of
AAAs general partner. Net sales proceeds from the liquidation of AAA will be
allocated to the limited partners and to the general partner pursuant to the
limited partnership agreement of AAA. During 2009, AmREIT Income and Growth
Fund, Ltd. (AIG) assigned to AmREIT its 19.6% ownership interest in AAA which
was valued at $1.2 million in exchange for a corresponding reduction in AIGs
note payable to AmREIT.

Real Estate Partnerships

As of June 30,
2010, we owned, through wholly-owned subsidiaries, interests in five real
estate 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 limited partners have the right, with or without
cause, to remove and replace the general partner by a vote of the limited
partners owning a majority of the outstanding units. These real estate
partnerships 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
real estate partnerships range from 2.1% to 3.0%. See Note 9 regarding
transactions we have entered into with our real estate partnerships.

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AmREIT Income & Growth Fund, Ltd. (AIG)
 AmREIT Income & Growth Corporation (AIGC), our wholly-owned subsidiary,
invested $200,000 as a limited partner and $1,000 as a general partner in AIG.
We currently own an approximate 2.0% limited partner interest in AIG. Pursuant
to the AIG limited partnership agreement, net sales proceeds from its
liquidation will be allocated to the limited partners and to 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 1.3% 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 to 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
approximately 63% 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 to 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 approximately 63% 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. MIG III began raising equity capital in June 2005. The offering was closed
in October 2006, and the capital raised was approximately $71 million. Our
$800,000 investment represents a 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 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. MIG IV began raising equity capital in November
2006. The offering was closed in March 2008, and the capital raised was
approximately $50 million. Our $800,000 investment represents a 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 MIGC IV as, if and when the annual return
thresholds have been achieved by the limited partners.

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Table of Contents

Real estate partnerships  Financial
Information

The following
table sets forth certain financial information as of June 30, 2010 for the AIG,
MIG, MIG II, MIG III and MIG IV real estate partnerships:

|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  |    |   |  |  |  |     |   |  |  |  |               |   | 
|--------------------------- |  | --------------------- | ----------- | ------------ |  | ------------ | --- | -- |  | -- |  | -------------- | - |  | ----------------- |  | -- | - |  |  |  | --- | - |  |  |  | ------------- | - | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  | Sharing Ratios(1) |  |    |   |  | 
|Merchant
 Development
 Fund |  | Capital
 under
 Mgmt. |             | LP
 Interest |  | GP
 Interest |     | LP |  | GP |  | LP
 Preference |  
|AIG                         |  | $                     | 3
 million  |              |  |              | 2.0 | %  |  |    |  | 1.0            | % |  |                   |  | 99 | % |  |  |  | 1   | % |  |  |  | 8             | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 90 | % |  |  |  | 10  | % |  |  |  | 10            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 80 | % |  |  |  | 20  | % |  |  |  | 12            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 70 | % |  |  |  | 30  | % |  |  |  | 15            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 0  | % |  |  |  | 100 | % |  |  |  | 40%
 Catch Up |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 60 | % |  |  |  | 40  | % |  |  |  | Thereafter    |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  |    |   |  |  |  |     |   |  |  |  |               |   | 
|MIG                         |  | $                     | 15
 million |              |  |              | 1.3 | %  |  |    |  | 1.0            | % |  |                   |  | 99 | % |  |  |  | 1   | % |  |  |  | 8             | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 90 | % |  |  |  | 10  | % |  |  |  | 10            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 80 | % |  |  |  | 20  | % |  |  |  | 12            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 0  | % |  |  |  | 100 | % |  |  |  | 40%
 Catch Up |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 60 | % |  |  |  | 40  | % |  |  |  | Thereafter    |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  |    |   |  |  |  |     |   |  |  |  |               |   | 
|MIG II                      |  | $                     | 25
 million |              |  |              | 1.6 | %  |  |    |  | 1.0            | % |  |                   |  | 99 | % |  |  |  | 1   | % |  |  |  | 8             | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 85 | % |  |  |  | 15  | % |  |  |  | 12            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 0  | % |  |  |  | 100 | % |  |  |  | 40%
 Catch Up |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 60 | % |  |  |  | 40  | % |  |  |  | Thereafter    |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  |    |   |  |  |  |     |   |  |  |  |               |   | 
|MIG III                     |  | $                     | 71
 million |              |  |              | 1.1 | %  |  |    |  | 1.0            | % |  |                   |  | 99 | % |  |  |  | 1   | % |  |  |  | 10            | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 0  | % |  |  |  | 100 | % |  |  |  | 40%
 Catch Up |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 60 | % |  |  |  | 40  | % |  |  |  | Thereafter    |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  |    |   |  |  |  |     |   |  |  |  |               |   | 
|MIG IV                      |  | $                     | 50
 million |              |  |              | 1.6 | %  |  |    |  | 1.0            | % |  |                   |  | 99 | % |  |  |  | 1   | % |  |  |  | 8.5           | % | 
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 0  | % |  |  |  | 100 | % |  |  |  | 40%
 Catch Up |  
|                            |  |                       |             |              |  |              |     |    |  |    |  |                |   |  |                   |  | 60 | % |  |  |  | 40  | % |  |  |  | Thereafter    |  

(1) Using AIG as an example
of how the sharing ratios and limited partner preference provisions are
applied, the limited partners share in 99% of the cash distributions until they
receive their original invested capital plus an 8% preferred return.
Thereafter, the limited partners share in 90% of the cash distributions until
they receive a 10% preferred return. This allocation process continues in
accordance with the chart above.

Other Affiliates

We have
investments in entities other than the real estate partnerships 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. As of June 30, 2010, we held a 10% interest
in Woodlake Square. In July 2010, the general partner of AmREIT Woodlake, LP
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 hold a 1% interest in Woodlake Square. The fair value of our
ownership interest in the property approximated our carrying value as of the
date of this joint venture transaction.

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AmREIT Westheimer Gessner, L.P. - In 2007, we
invested $3.8 million in AmREIT Westheimer Gessner, LP for a 30% limited
partnership interest. AmREIT Westheimer Gessner, LP was formed in 2007 to
acquire, lease and manage Woodlake Pointe, a shopping center located in
Houston, Texas at the southeast intersection of Westheimer and Gessner. In June
2008, we sold two-thirds (20%) of our interest in Woodlake Pointe 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. As of June 30, 2010, we
held a 10% interest in Woodlake Pointe.

AmREIT SPF Shadow Creek, L.P.  As part of the
AmREIT and REITPlus merger in November 2009, 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 acquisitions costs of $441,000,
which were recorded 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 of
above-market leases is recorded as a reduction of rental income and the
amortization of in-place leases is recorded to amortization expense. The
amortization expense related to in-place leases was $730,000 and $976,000
during the six months ended June 30, 2010 and 2009, respectively. The
amortization of above-market leases, which was recorded as a reduction of
rental income, was $69,000 and $168,000 during the six months ended June 30,
2010 and 2009, 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 $159,000
and $193,000 during the six months ended June 30, 2010 and 2009, respectively.
Such accretion is recorded as an increase to rental income. No new intangibles
were recorded during 2010.

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

|                                               |  |                |         |                    |   |         |  
|---------------------------------------------- |  | -------------- | ------- | ------------------ | - | ------- | -
|                                               |  | June 30,
 2010 |         | December 31,
 2009 |  
|Acquired lease intangible
 assets:             |  |                |         |                    |   |         |  
|In-place leases                                |  | $              | 16,915  |                    | $ | 17,080  |  
|In-place leases  accumulated amortization     |  |                | (10,740 | )                  |   | (10,165 | )
|Above-market leases                            |  |                | 1,983   |                    |   | 1,983   |  
|Above-market leases  accumulated amortization |  |                | (1,772  | )                  |   | (1,704  | )
|Acquired leases intangibles, net               |  | $              | 6,386   |                    | $ | 7,194   |  
|                                               |  |                |         |                    |   |         |  
|Acquired lease intangible
 liabilities:        |  |                |         |                    |   |         |  
|Below-market leases                            |  | $              | 3,780   |                    | $ | 3,840   |  
|Below-market leases  accumulated amortization |  |                | (2,207  | )                  |   | (2,108  | )
|Acquired below-market lease intangibles, net   |  | $              | 1,573   |                    | $ | 1,732   |  

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5. NOTES PAYABLE

Our
outstanding debt at June 30, 2010 and December 31, 2009 consists of the
following (in thousands):

|                                      |  |                     |         |                   |   |               |  |                   |       |  |   |   | 
|------------------------------------- |  | ------------------- | ------- | ----------------- | - | ------------- |  | ----------------- | ----- |  | - | - | 
|                                      |  | Held for Investment |         | Held for Sale     |  
|                                      |  | June 30, 2010       |         | December 31, 2009 |   | June 30, 2010 |  | December 31, 2009 |      
|                                      |  |                     |         |                   |   |               |  |                   |      
|Fixed-rate mortgage loans (1)         |  | $                   | 157,405 |                   | $ | 151,406       |  | $                 |      |  | $ |  | 
|Variable-rate secured line
 of credit |  |                     | 17,279  |                   |   | 19,529        |  |                   |      |  |   |  | 
|Variable-rate secured loans           |  |                     | 6,852   |                   |   | 12,041        |  |                   | 5,049 |  |   |  | 
|Total                                 |  | $                   | 181,536 |                   | $ | 182,976       |  | $                 | 5,049 |  | $ |  | 

(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.

In December
2009, we procured 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 5.00%, and we paid the lender a financing fee of
approximately $163,000. The term of the Facility is one year, which can be
extended for three one-year terms or which can be converted, at our option, to
a three-year amortizing loan (20-year amortization) at the end of the first
year, provided that there are no existing and continuing events of default at
that time that we pay an extension fee. 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 June 30, 2010, we were in compliance
with all covenants. As of June 30, 2010, the interest rate was 5.00%, we had
$17.3 million outstanding and approximately $7.0 million available under the
Facility, subject to the covenants above.

As of June 30,
2010, the weighted average interest rate on our fixed-rate debt is 5.92%, and
the weighted average remaining life of such debt is 4.9 years. During the six
months ended June 30, 2010, we procured $6.8 million of long-term financing
secured by our MacArthur Pad Sites property located in Dallas, Texas. During
the year ended December 31, 2009, we procured $7.0 million of long-term
financing secured by five of our single-tenant properties located in The
Woodlands, Texas. On July 16, 2010, we extinguished $5.0 million of debt on one
of our single-tenant properties that we sold to a third party.

As of June 30,
2010, scheduled principal repayments on notes payable were as follows (in
thousands):

|                             |  |                                |       |               |   |                 |     |                                |         |            |   |                 |  |   |       |     |   |       | 
|---------------------------- |  | ------------------------------ | ----- | ------------- | - | --------------- | --- | ------------------------------ | ------- | ---------- | - | --------------- |  | - | ----- | --- | - | ----- | 
|                             |  | Held for Investement           |       | Held for Sale |  
|Scheduled
 Payments by
 Year |  | Scheduled
 Principal
 Payments |       | Maturities    |   | Total
 Payments |     | Scheduled
 Principal
 Payments |         | Maturities |   | Total
 Payments | 
|2010                         |  | $                              | 807   |               |   | 17,279          | (1) |                                | 18,086  |            | $ |                |  |   | 5,049 | (2) |   | 5,049 | 
|2011                         |  |                                | 1,892 |               |   | 19,866          |     |                                | 21,758  |            |   |                |  |   |      |     |   |      | 
|2012                         |  |                                | 1,388 |               |   | 12,812          |     |                                | 14,200  |            |   |                |  |   |      |     |   |      | 
|2013                         |  |                                | 1,120 |               |   | 22,216          |     |                                | 23,336  |            |   |                |  |   |      |     |   |      | 
|2014                         |  |                                | 553   |               |   |                |     |                                | 553     |            |   |                |  |   |      |     |   |      | 
|Thereafter                   |  |                                | 1,759 |               |   | 101,561         |     |                                | 103,320 |            |   |                |  |   |      |     |   |      | 
|Unamortized debt premiums    |  |                                | 283   |               |   |                |     |                                | 283     |            |   |                |  |   |      |     |   |      | 
|Total                        |  | $                              | 7,802 |               | $ | 173,734         |     | $                              | 181,536 |            | $ |                |  | $ | 5,049 |     | $ | 5,049 | 

(1) Of this amount, $17,279
represents the outstanding balance on the Facility. The maturity date of the
facility can be extended for three one-year terms or can be converted to a three year amortizing loan as described above.

(2) On July 16, 2010, we
extinguished $5.0 million of debt on one of our single-tenant properties that
we sold to a third party.

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6. CONCENTRATIONS

As of June 30,
2010, Uptown Park in Houston, Texas accounted for approximately 21% and
MacArthur Park accounted for 12% of our consolidated total assets. 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 67% of our base rental income for the six months ended
June 30, 2010. Houston is Texas largest city and the fourth largest city in
the United States.

The following are
the base rents generated by our top tenants for the three and six months ended
June 30, 2010 and 2009 (in thousands):

|                  |  |   |                             |  |                           |       |      |   |       |  |   |       |  | 
|----------------- |  | - | --------------------------- |  | ------------------------- | ----- | ---- | - | ----- |  | - | ----- |  | 
|                  |  |   | Three months ended
 June 30 |  | Six months ended
 June 30 |      
|Tenant            |  |   | 2010                        |  | 2009                      |       | 2010 |   | 2009  | 
|Kroger            |  | $ | 510                         |  | $                         | 529   |      | $ | 1,058 |  | $ | 1,058 | 
|IHOP Corporation  |  |   | 501                         |  |                           | 553   |      |   | 1,049 |  |   | 1,106 | 
|CVS               |  |   | 230                         |  |                           | 230   |      |   | 461   |  |   | 461   | 
|Walgreens         |  |   | 183                         |  |                           | 206   |      |   | 363   |  |   | 330   | 
|Landrys           |  |   | 126                         |  |                           | 126   |      |   | 251   |  |   | 251   | 
|Hard Rock Cafe    |  |   | 124                         |  |                           | 114   |      |   | 248   |  |   | 223   | 
|TGI Fridays       |  |   | 113                         |  |                           | 113   |      |   | 225   |  |   | 223   | 
|Champps Americana |  |   | 106                         |  |                           | 106   |      |   | 211   |  |   | 211   | 
|Golden Corral     |  |   | 105                         |  |                           | 105   |      |   | 210   |  |   | 210   | 
|Paesanos          |  |   | 102                         |  |                           | 89    |      |   | 204   |  |   | 178   | 
|                  |  | $ | 2,100                       |  | $                         | 2,171 |      | $ | 4,280 |  | $ | 4,251 | 

The above base
rents have been recorded in the accompanying consolidated statement of
operations as rental income from operating leases or earned income from direct
financing leases as appropriate (see Note 2).

7. DERIVATIVE INSTRUMENTS

In order to
manage the volatility relating to interest rate risk, we may enter into
interest rate swaps from time to time. We do not use derivative financial
instruments for trading or speculative purposes. In December 2008, we 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 that was procured in conjunction with the 2008 refinancing of the
MacArthur Park property. The fair value of the swap was a liability of $442,000
and $384,000 at June 30, 2010 and December 31, 2009, respectively, and is
recorded in accounts payable and other liabilities on the accompanying
consolidated balance sheet. The swap settles monthly with an amount paid to or
received from our counterparty being recorded as an adjustment to interest
expense. For the six months ended June 30, 2010 and 2009, we have paid $179,000
and $164,000, respectively, related to this swap which is included in interest
expense in the accompanying consolidated statement of operations.

Valuations are
not actual market prices on which an offer would be made for unwinding any
transactions but rather are 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 as an adjustment to stockholders equity.

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8. STOCKHOLDERS EQUITY AND NONCONTROLLING
INTEREST

Recapitalization and merger  On November 24,
2009, the AmREIT Class C and D common shares were converted into AmREIT Class A
common shares pursuant to the AmREIT Declaration of Trust. The AmREIT Class A
shares were then simultaneously exchanged on a 1:1 basis for shares of AmREIT,
Inc. stock. Upon consummation of the Merger, AmREIT, Inc. had and has a single
class of common stock outstanding as further described below.

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 June 30, 2010, there were 23,122,350
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.

Stock Redemption Program  Subject to certain
restrictions and limitations, our stock redemption program allows stockholders
to redeem their shares. We are not obligated to redeem shares of our common
stock under the stock redemption plan, and stock redemptions and the share
price paid will be made at the sole discretion of our Board of Directors.

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.

Noncontrolling Interest  Noncontrolling
interest represents a third-party interest in entities that we consolidate as a
result of our controlling financial interest in such investees.

9. RELATED-PARTY
TRANSACTIONS

See Note 3
regarding investments in real estate partnerships and other affiliates and Note
2 regarding notes receivable from affiliates.

We earn real
estate fee income by providing property acquisition, leasing, property
management, construction (discontinued) and construction management services to
our real estate partnerships and joint ventures. We are the sole owners of the
companies that serve as the general partner for the funds. Real estate fee
income of $908,000 and $1.4 million was paid by the funds to the Company for
the six months ended June 30, 2010 and 2009, respectively. Additionally,
construction revenues (included in discontinued operations) of $0 and $857,000
were earned from the real estate partnerships during the six months ended June
30, 2010 and 2009, respectively. Construction management fee income of $170,000
and $244,000 were earned from the real estate partnerships during the six
months ended June 30, 2010 and 2009, 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 real estate partnerships and joint
ventures. Asset management fees of $740,000 and $767,000 were paid by the funds
to us during the six months ended June 30, 2010 and 2009, respectively.
Additionally, during the six months ended June 30, 2010 and 2009, we were
reimbursed by the real estate partnerships $504,000 and $724,000, respectively,
for administrative costs incurred on behalf of those funds.

As a sponsor
of our real estate partnerships, 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.

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10. REAL
ESTATE ACQUISITIONS AND DISPOSITIONS

There were no acquisitions or dispositions in the six
months ended June 30, 2010 and 2009.

11.
COMMITMENTS AND CONTINGENCIES

In April 2010, we signed a new lease agreement for our
office facilities which expires on October 31, 2012. In addition, we lease
various office equipment for daily activities. Rental expense for the six
months ended June 30, 2010 and 2009 was $170,000 and $179,000, respectively.

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.

12.
SUBSEQUENT EVENTS

In July 2010, we sold two of our non-core single
tenant assets that were classified as held for sale as of June 30, 2010. These
properties generated net proceeds of $2.1 million and a gain of $1.2 million.

We have evaluated all events or transactions as of the
date through which the financial statements were made available for issuance.
With the exception of the events listed above, we did not have any material
subsequent events that impacted our consolidated financial statements during
this period.

13.
SEGMENT REPORTING

The operating segments presented are the segments for
which separate financial information is available, and the revenues and
operating performance of each segment 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 45
properties located in 15 states. Expenses for this segment include
depreciation, interest, noncontrolling interest, legal costs directly related
to the portfolio of properties and property level expenses. Substantially all
of our consolidated assets are in this segment.

Our real estate development and operating 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 Irreplaceable Corner
portfolio and real estate partnerships as well as to third parties. Our asset
advisory group consists of active management of five real estate partnership
funds which were formed to develop, own, manage and add value to properties
with an average holding period of two to four years. We invest in these
partnerships as both the general partner and as a limited partner (see Note 3).
We, as the general partner, manage the funds and, in return, receive management
fees as well as potential profit participation.

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Segment results for the six ended June 30, 2010 and
2009 are as follows:

|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|--------------------------------------------------------- |  | --------- | ------ | ----------------------- | - | ---------------------- | - | ----- | ---- | - | - | ------ | -
|For the
 three months ended
 June 30, 2010 (in thousands) |  | Portfolio |        | Real Estate
 Operations |   | Asset
 Advisory
 Group |   | Total |     
|Rental income                                             |  |           | 7,658  |                         |   | 138                    |   |       |     |   | $ | 7,796  |  
|Real estate fee income - related party                    |  |           |       |                         |   | 485                    |   |       |     |   |   | 485    |  
|Construction management fee income - related party        |  |           |       |                         |   | 93                     |   |       |     |   |   | 93     |  
|Asset management fee income - related party               |  |           |       |                         |   |                       |   |       | 370  |   |   | 370    |  
|Total revenue                                             |  |           | 7,658  |                         |   | 716                    |   |       | 370  |   |   | 8,744  |  
|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|General and administrative                                |  |           | 493    |                         |   | 972                    |   |       | 40   |   |   | 1,505  |  
|Property expense                                          |  |           | 1,948  |                         |   | 11                     |   |       |     |   |   | 1,959  |  
|Legal and professional                                    |  |           | 196    |                         |   | (51                    | ) |       |     |   |   | 145    |  
|Depreciation and amortization                             |  |           | 1,640  |                         |   | 22                     |   |       |     |   |   | 1,662  |  
|Total expenses                                            |  |           | 4,277  |                         |   | 954                    |   |       | 40   |   |   | 5,271  |  
|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Interest expense                                          |  |           | (2,694 | )                       |   |                       |   |       |     |   |   | (2,694 | )
|Other income/ (expense)                                   |  |           | 168    |                         |   | 36                     |   |       | (373 | ) |   | (169   | )
|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Income (loss) from continuing operations                  |  | $         | 855    |                         | $ | (202                   | ) | $     | (43  | ) | $ | 610    |  

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|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|--------------------------------------------------------- |  | --------- | ------ | ----------------------- | - | ---------------------- | - | ----- | ---- | - | - | ------ | -
|For the
 three months ended
 June 30, 2009 (in thousands) |  | Portfolio |        | Real Estate
 Operations |   | Asset
 Advisory
 Group |   | Total |     
|Rental income                                             |  |           | 7,684  |                         |   | 127                    |   |       |     |   | $ | 7,811  |  
|Real estate fee income - related party                    |  |           |       |                         |   | 621                    |   |       |     |   |   | 621    |  
|Construction management fee income - related party        |  |           |       |                         |   | 206                    |   |       |     |   |   | 206    |  
|Asset management fee income - related party               |  |           |       |                         |   |                       |   |       | 383  |   |   | 383    |  
|Total revenue                                             |  |           | 7,684  |                         |   | 954                    |   |       | 383  |   |   | 9,021  |  
|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|General and administrative                                |  |           | (142   | )                       |   | 874                    |   |       | 48   |   |   | 780    |  
|Property expense                                          |  |           | 1,930  |                         |   | 2                      |   |       |     |   |   | 1,932  |  
|Legal and professional                                    |  |           | 355    |                         |   | 13                     |   |       | 4    |   |   | 372    |  
|Depreciation and amortization                             |  |           | 1,878  |                         |   | 21                     |   |       |     |   |   | 1,899  |  
|Total expenses                                            |  |           | 4,021  |                         |   | 910                    |   |       | 52   |   |   | 4,983  |  
|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Interest expense                                          |  |           | (2,546 | )                       |   |                       |   |       |     |   |   | (2,546 | )
|Other income/ (expense)                                   |  |           | 158    |                         |   | (102                   | ) |       | (201 | ) |   | (145   | )
|                                                          |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Income (loss) from continuing operations                  |  | $         | 1,275  |                         | $ | (58                    | ) | $     | 130  |   | $ | 1,347  |  

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|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|------------------------------------------------------- |  | --------- | ------ | ----------------------- | - | ---------------------- | - | ----- | ---- | - | - | ------ | -
|For the
 six months ended
 June 30, 2010 (in thousands) |  | Portfolio |        | Real Estate
 Operations |   | Asset
 Advisory
 Group |   | Total |     
|Rental income                                           |  |           | 15,173 |                         |   | 263                    |   |       |     |   | $ | 15,436 |  
|Real estate fee income - related party                  |  |           |       |                         |   | 908                    |   |       |     |   |   | 908    |  
|Construction management fee income - related party      |  |           |       |                         |   | 170                    |   |       |     |   |   | 170    |  
|Asset management fee income - related party             |  |           |       |                         |   |                       |   |       | 740  |   |   | 740    |  
|Total revenue                                           |  |           | 15,173 |                         |   | 1,341                  |   |       | 740  |   |   | 17,254 |  
|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|General and administrative                              |  |           | 912    |                         |   | 1,808                  |   |       | 72   |   |   | 2,792  |  
|Property expense                                        |  |           | 3,640  |                         |   | 14                     |   |       |     |   |   | 3,654  |  
|Legal and professional                                  |  |           | 440    |                         |   | (41                    | ) |       | 2    |   |   | 401    |  
|Real estate commissions                                 |  |           | 1      |                         |   |                       |   |       |     |   |   | 1      |  
|Depreciation and amortization                           |  |           | 3,333  |                         |   | 45                     |   |       |     |   |   | 3,378  |  
|Total expenses                                          |  |           | 8,326  |                         |   | 1,826                  |   |       | 74   |   |   | 10,226 |  
|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Interest expense                                        |  |           | (5,357 | )                       |   |                       |   |       |     |   |   | (5,357 | )
|Other income/ (expense)                                 |  |           | 315    |                         |   | 130                    |   |       | (862 | ) |   | (417   | )
|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Income (loss) from continuing operations                |  | $         | 1,805  |                         | $ | (355                   | ) | $     | (196 | ) | $ | 1,254  |  

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|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|------------------------------------------------------- |  | --------- | ------ | ----------------------- | - | ---------------------- | - | ----- | ---- | - | - | ------ | -
|For the
 six months ended
 June 30, 2009 (in thousands) |  | Portfolio |        | Real Estate
 Operations |   | Asset
 Advisory
 Group |   | Total |     
|Rental income                                           |  |           | 15,505 |                         |   | 256                    |   |       |     |   | $ | 15,761 |  
|Lease termination fee income                            |  |           | 1,065  |                         |   |                       |   |       |     |   |   | 1,065  |  
|Real estate fee income - related party                  |  |           |       |                         |   | 1,398                  |   |       |     |   |   | 1,398  |  
|Construction management fee income - related party      |  |           |       |                         |   | 244                    |   |       |     |   |   | 244    |  
|Asset management fee income - related party             |  |           |       |                         |   |                       |   |       | 767  |   |   | 767    |  
|Total revenue                                           |  |           | 16,570 |                         |   | 1,898                  |   |       | 767  |   |   | 19,235 |  
|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|General and administrative                              |  |           | 750    |                         |   | 2,634                  |   |       | 79   |   |   | 3,463  |  
|Property expense                                        |  |           | 4,033  |                         |   | 9                      |   |       |     |   |   | 4,042  |  
|Legal and professional                                  |  |           | 541    |                         |   | 539                    |   |       | 19   |   |   | 1,099  |  
|Real estate commissions                                 |  |           | 1      |                         |   |                       |   |       |     |   |   | 1      |  
|Depreciation and amortization                           |  |           | 3,706  |                         |   | 43                     |   |       |     |   |   | 3,749  |  
|Total expenses                                          |  |           | 9,031  |                         |   | 3,225                  |   |       | 98   |   |   | 12,354 |  
|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Interest expense                                        |  |           | (5,084 | )                       |   |                       |   |       |     |   |   | (5,084 | )
|Other income/ (expense)                                 |  |           | 619    |                         |   | (14                    | ) |       | (355 | ) |   | 250    |  
|                                                        |  |           |        |                         |   |                        |   |       |      |   |   |        |  
|Income (loss) from continuing operations                |  | $         | 3,074  |                         | $ | (1,341                 | ) | $     | 314  |   | $ | 2,047  |  

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|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 report, as well as our 2009 consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2009. Historical results and trends which might appear
should not be taken as indicative of future operations.

EXECUTIVE
OVERVIEW

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.

During 2007, AmREIT initiated a strategic plan
referred to as Vision 2010. Vision 2010 was designed to create a more
conforming business platform that would reduce the earnings volatility of
AmREITs business model and that would also simplify its capital structure,
with the ultimate goal of growing its portfolio of properties and providing
liquidity for investors. Vision 2010 included the following three phases:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase I consisted of business model changes which
 were designed to reduce the earnings volatility created by certain of
 AmREITs transactional operating subsidiaries. In connection with Phase I,
 AmREIT simplified its operating platform and reduced its transactional
 volatility by exiting the general contracting business and the independent
 broker-dealer fund-raising business. Additionally, it terminated the best
 efforts equity offering of REITPlus. Together, these restructuring
 initiatives resulted in a one-time restructuring charge of approximately $2.5
 million during 2008, but also reduced AmREITs annual overhead and general
 and administrative expenses.                                                                                                 
| |  | Phase II consisted of changes which were designed to
 simplify AmREITs equity capital structure. In December 2008, AmREIT
 voluntarily de-listed its Class A common shares of beneficial interest from
 trading on the NYSE Alternext Exchange. Then, at separate special meetings
 held on November 24, 2009, both AmREIT and REITPlus shareholders approved the
 merger of AmREIT with and into REITPlus (the Merger), resulting in a
 combined, conforming entity with a single class of common stock, which was
 renamed AmREIT, Inc. We believe that this simplified capital structure will better
 position us to raise Wall Street and/or institutional capital either through
 joint ventures at the entity level or through an initial public offering and
 re-listing of our shares.
| |  | For the combined company, Phase III will consist of
 growing our portfolio of properties and identifying additional sources of
 liquidity for stockholders as the United States begins to exit the current
 recession and into recovery. This growth objective is the sole focus of
 managements Vision 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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Following our strategic combination with our
predecessor, AmREIT, 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 comprise our seven-member Board
of Directors. Since the Merger, we are and have been internally managed by the
former management team of AmREIT. Accordingly, the following discussion
describes the business of AmREIT, Inc. which is comprised of the combined
businesses previously conducted by AmREIT and REITPlus. As further discussed in
Note 2 to the accompanying consolidated financial statements, for accounting
purposes, the Merger 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 accompanying consolidated financial statements reflect the
historical financial position and results of operations of AmREIT prior to the
Merger and those of the combined company following the Merger effective
November 24, 2009.

AmREIT, Inc. owns, operates and
creates value on Irreplaceable CornersTM in Texas, which is home to
three of the top six major growth markets throughout the United States and
which has the 12th largest economy in the world based on GDP (ahead
of Mexico, Russia and India). For over 25 years, we have provided our clients
and investors with financial transparency, reliability and creation of value
for future real estate investment growth. We have access to a variety of
capital markets, including public and private financial companies and
institutional investors, and our platform has grown from approximately
$100 million in assets in 2002 to approaching $1 billion today. We have elected
to be taxed as a REIT for federal income tax purposes. AmREIT, Inc. is
headquartered in Houston, Texas, and has an office in Dallas, Texas.

Our Structure

Our structure consists of three segments that are
comprised of an institutional grade portfolio of Irreplaceable Corners and our
advisory business, both of which are supported by our real estate development
and operating group. For our results of operations by segment, see the
accompanying Notes to Consolidated Financial Statements.

Portfolio
of Todays Irreplaceable Corners

Our core portfolio consists
primarily of Irreplaceable Corners. These are corner properties, primarily
located in the top Texas markets with the following characteristics:

| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | Located on a corner in major
 metropolitan area;                                                            
| |   |                                                                                                             
| |  | High barriers to entry;                                                                                     
| |   |                                                                                                             
| |  | Strong demographic purchasing
 power (i.e., target average household income in a 1-mile radius of $100,000);
| |   |                                                                                                             
| |  | High daytime and evening
 population (i.e., average of target 100,000 people in a 3-mile radius);           
| |   |                                                                                                             
| |  | High count of cars per day;                                                                                 
| |   |                                                                                                             
| |  | Strong demand for retail
 space; and                                                                        
| |   |                                                                                                             
| |  | Distinctive qualities.                                                                                      

As of June 30, 2010, we owned a real estate portfolio
consisting of 45 properties located in 15 states. Leased to national, regional
and local tenants, our properties are primarily located throughout Texas. We
are currently focused on the cities of Houston, Dallas and San Antonio, each of
which represent three of the top six population and job growth markets in the
United States. As owners and operators of real estate, we implement high
standards of excellence in maintaining the value, aesthetics, tenant mix and
safety of each of our properties. As of June 30 2010, our operating properties
were leased at 91.8% occupancy based on leasable square footage as compared to
91.0% as of December 31, 2009.

Advisory
Business

For 26 years, we have created financial solutions for
our investors by offering real estate investment opportunities as a stable and
dependable source of income and portfolio growth. We have successfully formed,
invested in and advised 17 private and public investment vehicles over the past
two and a half decades that have led to the acquisition, development and
redevelopment of properties throughout the United States. Our advisory business invests in and advises
various real estate partnerships and joint ventures that own, develop and
manage retail and mixed-use properties located within fast
growing markets. We create value for our clients and investors through our
expertise in the development, redevelopment and daily operation of these
properties.

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Our advisory business invests in and actively manages
five real estate partnership funds, which were formed to develop, own, manage,
and add value to properties with an average holding period of two to four
years. We invest in the limited partnerships that we manage as both the general
partner and as a limited partner. We, as the general partner or advisor, manage
the funds and, in return, receive management fees as well as potential profit
participation interests. The funds are structured such that the general partner
does not receive a significant profit until after the limited partners in the
funds have received or are deemed to have received their targeted return.

Real
Estate Development and Operating Group

Our real estate operating and development business is
comprised of a fully integrated real estate team that works directly with
landlords, builders and developers. This team is primarily focused on managing,
leasing and creating value for our owned and managed portfolio of Irreplaceable
CornersTM and gives us a competitive edge on pricing and development
opportunities. Having a full complement of real estate professionals helps
secure strong tenant relationships for both our portfolio and the merchant
development portfolios managed by our advisory business.

Liquidity
and Capital Resources

Due to the nature of our business and strategy, we
typically generate significant amounts of cash from operations. 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.

Our short-term liquidity requirements consist
primarily of normal recurring operating expenses, debt service requirements,
recurring expenditures to maintain our properties, non-recurring expenditures
(such as tenant improvements and other tenant lease costs) and dividends to our
stockholders. We anticipate that cash on hand and cash flows from operating
activities will be sufficient to meet these short-term needs. During the six
months ended June 30, 2010 and 2009, we generated cash provided by operating
activities of $3.7 million and $7.4 million, respectively. The primary driver
of the reduction in operating cash flows was the timing of our property tax payments.
We paid our 2009 property taxes during the first quarter of 2010, but paid no
property taxes during the similar period in 2009 as we made payment on our 2008
property taxes during December 2008.

We 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 5.00%. The term of the Facility is one
year, can be extended for three one-year terms or can be converted, at our
option, into a three-year amortizing loan (20-year amortization) at the end of
the first year, provided that there are no existing and continuing events of
default at the time of conversion. 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 June 30, 2010, we were in compliance with all covenants. As of June 30, 2010
the interest rate was 5.00%, and we had $17.3 million outstanding under the
Facility. We had an approximate borrowing base availability of $7.0 million
under the Facility, subject to the covenants above. Amounts outstanding under
the Facility are retired as needed with proceeds from long-term mortgages, cash
generated from disposition of properties and cash flow generated by our
operating properties. During the second quarter of 2010, we retired
approximately $6.8 million under the Facility, using the proceeds from the
placement of a long-term mortgage on one of our unencumbered properties. Taking
into consideration this mortgage and other forecasted financing activities,
including the potential restructuring and refinancing of certain long-term
mortgage debt, we expect to have availability of approximately
$8.0 million under the Facility at year end 2010.

Our long-term capital requirements consist primarily
of maturities under our long-term mortgages and potential acquisitions. The
primary sources of capital for funding any debt maturities and acquisitions are
our Facility, proceeds from both secured and unsecured mortgages, proceeds from
equity issuances, cash generated from the sale of property and the formation of
joint ventures.

We intend to continue managing our debt prudently and
conservatively so as to maintain a conservative capital structure. As of June
30, 2010, our ratio of debt to assets (un-depreciated book value) is 54%, and
approximately 84% of our debt is fixed, long-term mortgage financing. Of the
$22.3 million in debt obligations maturing in 2010, $17.3 million represents
borrowings made under the Facility which, as discussed above, can be extended
for three one-year terms or can be converted, at our option, to a three-year
loan (20-year amortization), provided that there are no existing and continuing
events of default at the time of conversion. The remaining $5.0
million in maturing debt obligations represents a secured loan on a property leased to Walgreens in San Antonio, Texas
that was scheduled to mature in September 2010. On July 16, 2010, we extinguished this loan in connection with the sale of the property.

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We routinely review our liquidity requirements, and,
provided that we are able to extend or convert our Facility when it matures, we
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. As of June 30, 2010 and
December 31, 2009, our cash and cash equivalents totaled $576,000 and
$1.1 million, respectively. Cash flows provided by (used in) operating
activities, investing activities and financing activities for the six months
ended June 30, are as follows (in thousands):

|                     |  |      |        |      |   |        |  
|-------------------- |  | ---- | ------ | ---- | - | ------ | -
|                     |  | 2010 |        | 2009 |  
|Operating activities |  | $    | 3,744  |      | $ | 7,437  |  
|Investing activities |  | $    | (1,904 | )    | $ | (794   | )
|Financing activities |  | $    | (2,331 | )    | $ | (7,957 | )

Until we acquire additional properties, any excess
cash will be invested in short-term investments or overnight funds. This
investment strategy provides us with the liquidity to acquire properties at
such time as those suitable for acquisition are sourced.

Investing
Activities

We acquired no real estate assets during the six
months ended June 30, 2010. Capital expenditures for additions to the existing
portfolio totaled $1.2 million and $1.0 million for the first six months of 2010
and 2009, respectively. Cash flows associated with loans to our real estate
partnerships were a net outflow of $683,000 during the six months ended June
30, 2010 as compared to a net inflow of $157,000 during the six months ended
June 30, 2009. As of June 30, 2010, we have notes receivable in the amount of
$5.4 million due from our real estate partnerships. 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 of 3.5% and are due upon demand. Of
the balances outstanding, $1.0 million is secured by the real estate
partnerships ownership interest in unencumbered properties. We expect to
receive payments on these notes receivable as the partnerships generate liquidity
from property dispositions and from financings with third parties.

Financing
Activities

Debt

During the six months ended June 30, 2010, we had
approximately $3.6 million in net proceeds from notes payable. We drew down on
our Facility in order to fund costs associated with the Merger, capital
improvements on our real estate properties and for general working capital
needs. (See further discussion above regarding the terms of our Facility that
we use for the acquisition of properties and for our working capital needs.)

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Equity

During the six months ended June 30, 2010, we declared
dividends to our stockholders of $5.8 million as compared to $6.3 million in
the six months ended June 30, 2009. Effective with the July 2010 dividend, we
have reduced our annual dividend from $0.50 per share to $0.40 per share, and
we have changed our historical practice of from paying dividends monthly to
paying dividends quarterly in arrears. These changes will result 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 making fewer dividend payments during the
year. The dividends paid are as follows (in thousands):

|     |                 |  |              |       |                     |   |         |  |         |       |    |   |       |   
|---- | --------------- |  | ------------ | ----- | ------------------- | - | ------- |  | ------- | ----- | -- | - | ----- | --
|     |                 |  | Post Merger  |       | Pre Merger - AmREIT |  
|     |                 |  | AmREIT, Inc. |       | Class A             |   | Class C |  | Class D |      
|2010 | Second
 Quarter |  | $            | 2,894 |                     |   | n/a     |  |         | n/a   |    |   | n/a   |   
|     | First
 Quarter  |  | $            | 2,867 |                     |   | n/a     |  |         | n/a   |    |   | n/a   |   
|     |                 |  |              |       |                     |   |         |  |         |       |    |   |       |   
|2009 | Fourth
 Quarter |  | $            | 964   | *                   | $ | 1,192   |  | $       | 4,383 | ** | $ | 6,626 | **
|     | Third
 Quarter  |  |              | n/a   |                     | $ | 660     |  | $       | 724   |    | $ | 1,782 |   
|     | Second
 Quarter |  |              | n/a   |                     | $ | 660     |  | $       | 724   |    | $ | 1,782 |   
|     | First
 Quarter  |  |              | n/a   |                     | $ | 655     |  | $       | 724   |    | $ | 1,783 |   

* The fourth quarter dividends include dividends for
the months of November and December.

** The fourth quarter dividends include a $4.1 million
premium (class C) and a $6.0 million premium (class D) associated with the
share conversion of the Class C and D shares in relation to the Merger which
was accounted for as an additional dividend in accordance with GAAP.

The United States has undergone and may continue to
experience a prolonged recession that has been marked by pervasive and
fundamental disruptions in the financial markets. Continued concerns regarding
the uncertainty of whether the U.S. economy will be adversely affected by
inflation, deflation or stagflation and the systemic impact of increased
unemployment, volatile energy costs, geopolitical issues, the availability and
cost of credit, the U.S. mortgage market and a severely distressed real estate
market have contributed to increased market volatility and weakened business
and consumer confidence. The United States may not experience a sustained
recovery and could suffer pronounced instability and decreased economic
activity for an extended period of time. Our operations are sensitive to
changes in overall economic conditions that impact our tenants, including,
among other things, increased bad debts due to such recessionary pressures. A
general reduction in the level of tenant leasing or shifts in tenant leasing
practices could adversely affect our business, financial condition, liquidity,
results of operations, funds from operations and prospects. 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 cash on hand 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 2010 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 June 30, 2010, none of our off balance sheet
arrangements had or are reasonably likely to have a material effect on our
liquidity or availability of, or requirement for, our capital resources. A
letter of credit totaling $1.0 million was outstanding under the Facility at
December 31, 2009. In April 2010, the $1.0 million letter of credit was
released, and, as of June 30, 2010, we had no letters of credit outstanding.

We own interests in several unconsolidated real estate
partnerships 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.

Results
of Operations 
Comparison of the three months ended June 30, 2010 to the three months ended
June 30, 2009

RevenuesTotal revenues decreased
by $277,000, or 3%, for the three months ended June 30, 2010 as compared to the
same period in 2009 ($8.7 million in 2010 versus $9.0 in 2009). This decrease
was primarily attributable to decreases in related-party real estate fee income
and related-party construction management fees.

Real estate fee income - related
party decreased by $136,000, or 22%, for the three months ended June 30, 2010
as compared to the same period in 2009 ($485,000 in 2010 versus $621,000 in
2009). This decrease is primarily attributable to a decrease in development
fees and leasing commissions earned on the properties that we manage within our
affiliated real estate partnerships.

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Construction management fee
income - related party decreased by $113,000, or 55%, for the three months
ended June 30, 2010 as compared to the same period in 2009 ($93,000 in 2010 versus
$206,000 in 2009). This decrease is primarily attributable to a decrease in
construction management fees earned a property within our affiliated real
estate partnerships whose development was completed in the second quarter of
2009.

ExpensesTotal operating expenses
increased by $288,000, or 6%, for the three months ended June 30, 2010 as
compared to the same period in 2009 ($5.3 million in 2010 versus $5.0 million
in 2009). This increase was primarily attributable to an increase in general
and administrative expenses offset by decreases in legal and professional
expense and depreciation and amortization.

General and administrative
expense increased by $725,000, or 93%, for the three months ended June 30, 2010
as compared to the same period in 2009 ($1.5 million in 2010 versus $780,000 in
2009). The increase was primarily due to the timing of accruing our incentive
compensation in order to match the earnings for the period with the related
compensation expense.

Legal and professional fee
expense decreased by $227,000, or 61%, for the three months ended June 30, 2010
as compared to the same period in 2009 ($145,000 in 2010 versus $372,000 in
2009). This decrease is mainly attributable to legal costs incurred in 2009
associated with a matter which was resolved in 2010 to the mutual satisfaction
of us and the other party to the litigation.

Depreciation and amortization
expense decreased by $237,000, or 12%, for the three months ended June 30, 2010
as compared to the same period in 2009 ($1.7 million in 2010 versus $1.9
million in 2009). The decrease is primarily attributable to a limited number of
tenants that terminated their leases in late 2009.

Other Income (expense)

Interest expense increased by
$148,000, or 6%, for the three months ended June 30, 2010 as compared to the
same period in 2009 ($2.7 million in 2010 versus $2.5 million in 2009). This increase is due to a higher weighted
average debt balance outstanding during the period, primarily attributable to
the financing of a portfolio of properties in December 2009, and due to an
increase in our interest cost on our Facility, which we refinanced in December
2009.

Loss
from merchant development funds increased by $218,000, or 122%, for the three
months ended June 30, 2010 (loss of $397,000 in 2010 versus a loss of $179,000
in 2009). The increase is primarily attributable to increased
depreciation expense resulting from the impending redevelopment of the Woodlake
Square property. We have reassessed and shortened the estimated useful lives of
various buildings consistent with our current redevelopment plan.

Comparison
of the six months ended June 30, 2010 to the six months ended June 30, 2009

RevenuesTotal revenues decreased
by $2.0 million, or 10%, for the six months ended June 30, 2010 as compared to
the same period in 2009 ($17.3 million in 2010 versus $19.2 million in 2009).
This decrease was primarily attributable to decreases in rental income, lease
termination fee income and related party real estate fee income.

Rental income from operating
leases decreased by $268,000, or 2%, for the six months ended June 30, 2010 as
compared to the same period in 2009 ($14.5 million in 2010 versus $14.8 million
in 2009). This decrease is attributable to a reduction of rental revenues
associated with expense reimbursements resulting from a favorable property tax
appeal relating to one of our properties. This reduction was offset by a
corresponding reduction in property expense during 2010.

Lease termination fee income
from operating leases decreased by $1.1 million, or 100%, for the six months
ended June 30, 2010 as compared to the same period in 2009 ($0 in 2010 versus
$1.1 million in 2009). This decrease is primarily attributable to a national
tenant declaring bankruptcy in 2009 and subsequently defaulting upon its ground
lease with us. Upon default, ownership of the building transferred from the
tenant to us as the land owner. Lease termination income for the 2009 period
represents the fair value of the building.

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Real estate fee income - related
party decreased by $490,000, or 35%, for the six months ended June 30, 2010 as
compared to the same period in 2009 ($908,000 in 2010 versus $1.4 million in
2009). This decrease is primarily attributable to a decrease in development
fees and leasing commissions earned on the properties that we manage within our
affiliated real estate partnerships.

ExpensesTotal operating expenses
decreased by $2.1 million, or 17%, for the six months ended June 30, 2010 as
compared to the same period in 2009 ($10.2 million in 2010 versus $12.4 million
in 2009). This decrease was primarily attributable to decreases in general and
administrative expenses, property expense, legal and professional expense and
depreciation and amortization expense.

General and administrative
expense decreased by $671,000, or 19%, for the six months ended June 30, 2010
as compared to the same period in 2009 ($2.8 million in 2010 versus $3.5
million in 2009). The decrease was primarily due to the timing of accruing our
2009 incentive compensation in order to match the earnings for the period with
the related compensation expense. Our 2010 incentive compensation accrual was
lower for the six months ended June 30 than the 2009 period as a result of
lower earnings for the period.

Property expense decreased by
$388,000, or 10%, for the six months ended June 30, 2010 as compared to the
same period in 2009 ($3.7 million in 2010 versus $4.0 million in 2009). The
decrease is primarily attributable to a lower amount of bad debt reserves
recorded on our tenant receivables and a decrease in property taxes.

Legal and professional fee
expense decreased by $698,000, or 64%, for the six months ended June 30, 2010
as compared to the same period in 2009 ($401,000 in 2010 versus $1.1 million in
2009). This decrease is mainly attributable to legal costs incurred in 2009
associated with a matter which was resolved in February 2010 to the mutual
satisfaction of us and the other party to the litigation.

Depreciation and amortization
expense decreased by $371,000, or 10%, for the six months ended June 30, 2010
as compared to the same period in 2009 ($3.4 million in 2010 versus $3.7
million in 2009). The decrease is primarily attributable to accelerated
depreciation resulting from a few tenants that terminated their leases in late
2009.

Other Income (expense)

Interest expense increased by
$273,000, or 5%, for the six months ended June 30, 2010 as compared to the same
period in 2009 ($5.4 million in 2010 versus $5.1 million in 2009). This increase is due to a higher weighted
average debt balance outstanding during the period, primarily attributable to
the financing of a portfolio of properties in December 2009, and due to an
increase in our interest cost on our Facility, which we refinanced in December
2009.

Loss
from merchant development funds increased by $670,000, or 250%, for the six
months ended June 30, 2010 (loss of $938,000 in 2010 versus a loss of $268,000
in 2009). The increase is primarily attributable to increased
depreciation expense resulting from the impending redevelopment of the Woodlake
Square property. We have reassessed and shortened the estimated useful lives of
various buildings consistent with our current redevelopment plan.

Income from discontinued operations decreased by $1.9
million, or 100%, for the six months ended June 30, 2010 ($84,000 in 2010
versus $2.0 million in 2009). The
decrease is primarily attributed to the recognition of a $1.9 million deferred
gain in the first quarter of 2009 (net of taxes) resulting from the 2008 sale
of an undeveloped 0.9 acre property contiguous to Uptown Plaza in Dallas.

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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 our 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 June 30, |       | Six Months
 Ended June 30, |  
|                                                                        |  | 2010                         |       | 2009                       |   | 2010   |   | 2009 |      
|Income from continuing operations                                       |  | $                            | 610   |                            | $ | 1,347  |   | $    | 1,254 |   | $ | 2,047  |  
|Income from discontinued operations                                     |  |                              | 40    |                            |   | 18     |   |      | 84    |   |   | 1,937  |  
|Non-controlling interest                                                |  |                              | (13   | )                          |   | (49    | ) |      | (24   | ) |   | (102   | )
|                                                                        |  |                              |       |                            |   |        |   |      |       |   |   |        |  
|Plus depreciation of real estate assets - from
 operations              |  |                              | 1,638 |                            |   | 1,863  |   |      | 3,328 |   |   | 3,674  |  
|Plus depreciation of real estate assets - from
 discontinued operations |  |                              | 4     |                            |   | 6      |   |      | 10    |   |   | 21     |  
|                                                                        |  |                              |       |                            |   |        |   |      |       |   |   |        |  
|Adjustments for nonconsolidated affiliates                              |  |                              | 448   |                            |   | 138    |   |      | 1,138 |   |   | 265    |  
|Less Class C and D distributions shareholder                            |  |                              |      |                            |   | (2,507 | ) |      |      |   |   | (5,014 | )
|Total Funds From Operations available to common
 stockholders           |  | $                            | 2,727 |                            | $ | 816    |   | $    | 5,790 |   | $ | 2,828  |  

|        |                                                            
|------- | -----------------------------------------------------------
|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 June 30, 2010. Based on that evaluation, our CEO and
CFO concluded that, as of June 30, 2010, 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 June 30, 2010 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

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Table of Contents

Part II  OTHER INFORMATION

|        |                    
|------- | -------------------
|Item 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.

Our shares are no longer
actively traded on an exchange. We do not currently have a public stock buyback
program in place. However, our Board of Directors has authorized redemptions of
up to $500,000 in cases where our stockholders initiate a redemption request
due to financial hardship. As of June 30, 2010, we have redeemed approximately
$115,000 of common stock in the aggregate for these cases.

|        |                                  
|------- | ---------------------------------
|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.

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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.                                                                               | 
|                      |  |                                                                                            | 
|                      |  | /s/ H. Kerr Taylor                                                                         | 
|Date: August 12, 2010 |  | H. Kerr Taylor, Chairman of the Board of Directors,
 President and Chief Executive Officer
|                      |  |                                                                                            | 
|                      |  | /s/ Chad C. Braun                                                                          | 
|Date: August 12, 2010 |  | Chad C. Braun, Executive Vice President, Chief Financial
 Officer, Treasury and Secretary 

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Table of Contents

Exhibit
Index

|            |                                                                                                                                                                                                      
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.
|            |                                                                                                                                                                                                      
|3.1         | Articles of Amendment and Restatement (included as
 Exhibit 3.1 Amendment No. 3 to REITPluss Registration Statement on Form S-4,
 filed on September 9, 2009, and incorporated herein by reference).
|            |                                                                                                                                                                                                      
|3.2         | Amended and Restated By-laws (included as Exhibit
 3.2 to the Amendment No. 1 to REITPluss Registration Statement on Form S-11,
 filed July 20, 2007, and incorporated herein by reference).        
|            |                                                                                                                                                                                                      
|31.1        | Certification pursuant to Rule 13a-14(a) of Chief
 Financial Officer (filed herewith).                                                                                                               
|            |                                                                                                                                                                                                      
|31.2        | Certification pursuant to Rule 13a-14(a) of Chief
 Financial Officer (filed herewith).                                                                                                               
|            |                                                                                                                                                                                                      
|32.1        | Chief Executive Officer certification pursuant to 18
 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002 (furnished herewith).                                  
|            |                                                                                                                                                                                                      
|32.2        | Chief Financial Officer certification pursuant to 18
 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002 (furnished herewith).                                  

37

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