10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28378

AmREIT

(Exact name of registrant as specified in its charter)

Texas (State or other jurisdiction of incorporation or organization)	76-0410050 (I.R.S. Employer Identification No.)
8 Greenway Plaza, Suite 1000 Houston, Texas (Address of principal executive offices)	77046 (Zip Code)

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

Securities registered pursuant to Section 12 (b) of the Exchange Act:

Title of Class Class A Common Shares Name of Exchange on Which Registered American Stock Exchange

Securities registered under Section 12(g) of the Exchange Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).

YES ¨ NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES ¨  NO x

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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer ¨   Accelerated Filer ¨   Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨  NO x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common  equity was last sold as of June 30, 2007 was $44.5 million

The number of common shares outstanding on March 14, 2008 was6,152,440 Class A Common Shares, 4,140,278, Class C Common Shares, and 11,001,091 Class D Common Shares.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant incorporates by reference into Part III portions of its Proxy Statement for the 2008 Annual Meeting of Shareholders.

TABLE OF CONTENTS

Item No.		Form10-K Page
	PART I
1.	Business	2
1A.	Risk Factors	6
1B.	Unresolved Staff Comments	11
2.	Properties	11
3.	Legal Proceedings	16
4.	Submission of Matters to a Vote of Security Holders	16
	PART II
5.	Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	17
6.	Selected Financial Data	18
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
7A.	Quantitative and Qualitative Disclosures about Market Risk	27
8.	Consolidated Financial Statements and Supplementary Data	27
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	27
9A.	Controls and Procedures	27
9B.	Other Information	26
	PART III
10.	Trust Managers, Executive Officers and Corporate Governance	28
11.	Executive Compensation	28
12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	28
13.	Certain Relationships, Related Transactions and Trust Manager Independence	28
14.	Principal Accountant Fees and Services	28
	PART IV
15.	Exhibits and Financial Statement Schedules	29

FORWARD –LOOKING STATEMENTS

Certain statements constrained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. They represent our intentions, plans, expectations, and beliefs and are subject to numerous assumptions, risks and uncertainties. Out future results, financial condition and business may differ materially from those expressed in these forward looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Annual Report on Form 10-K, We also note the following forward-looking statements: in the case of our developments projects, the estimated completion date, estimated project costs and costs to complete; and estimates of future capital expenditures, common and preferred share dividends. Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements are beyond our ability to control or predict. For further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A. Risk Factors” in this annual report on Form 10-K

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on From 10-K.

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PART I

Item 1. Business

General

We are an established real estate company that has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. Our business model is similar to an institutional advisory company that is judged by its investor partners on the returns we are able to deliver to reach specified long-term results. Our primary objective is to build long-term shareholder value and continue to build and enhance the net asset value (NAV) of AmREIT and its advised funds.

We seek to create value and drive net operating income (NOI) growth on the properties owned in our institutional-grade portfolio of Irreplaceable Corners™ and those owned by a series of closed-end, merchant development funds. We also seek to support a growing advisory business that raises capital through an extensive independent broker dealer channel as well as through institutional joint venture partners.

The institutional-grade portfolio of Irreplaceable Corners – premier retail properties in high-traffic, highly-populated areas – are held for long-term value and to provide a foundation to our funds from operations (FFO) through a steady stream of rental income. Our advisory business, has a 24-year track record of delivering returns to its investor partners through a series of closed-end, merchant development funds, resulting in recurring income from assets under management and in transactional income through profit participation interests and real estate fees, including acquisition, development and leasing fees.

The recurring-income nature of the institutional-grade portfolio of Irreplaceable Corners and the advisory business can be complemented by the added growth potential of our real estate development and operating business.  This model seeks to provide value through offering an array of services to our tenants and to the properties owned in both the institutional-grade portfolio of Irreplaceable Corners and those owned by the closed-end, merchant development funds as well as to third parties.

When we listed on the AMEX in July 2002, our total assets had a book value of approximately $48 million and equity within our advisory business totaled approximately $15 million in equity assets under management.  As of December 31, 2007:

·   We owned a real estate portfolio consisting of 50 properties located in 15 states that had a book value of approximately $344 million;

·   We directly managed, through our five actively managed merchant development funds, a total of $159 million in contributed capital and an additional $33.0 million in institutional capital under management; and

·   We had over 1.3 million square feet of retail centers in various stages of development or in the pipeline for both our advisory business and for third parties.

Our direct predecessor, American Asset Advisers Trust, Inc. (“AAA”), was formed as a Maryland corporation in 1993. Prior to 1998, AAA was externally advised by American Asset Advisors Corp. which was formed in 1985.  In June 1998, AAA merged with its advisor and changed its name to AmREIT, Inc. In December 2002, AmREIT, Inc. reorganized as a Texas real estate investment trust and became AmREIT.

Our Class A Common Shares are traded on the American Stock Exchange under the symbol “AMY”.  Our headquarter offices are located at 8 Greenway Plaza, Suite 1000 Houston, Texas  77046, and we have a regional office located in Dallas, TX.  Our telephone number is 713.850.1400 and we maintain an internet site at www.amreit.com.

Our Strategy

In 2002, after almost 18 years as a private company, we listed our Class A Common Shares on the American Stock Exchange and set a ten-year goal to build a business model that would enable AmREIT to outperform our peers.  Although very few, if any, of our peers are publicly-traded, we are all judged by our respective partners for the long-term returns we are able to deliver.  We set out to build a real estate company with the potential to create value year over year regardless of the market cycle.  The result was two distinct companies within one: a portfolio of premium shopping centers that we refer to as Irreplaceable Corners and our advisory business, which manages our closed-end merchant development funds.  Those two companies provide a measure of stability due to the recurring income generated by the portfolio and the fees generated from assets under management in the advisory business.  Our real estate development and operating group, which is fee-driven and transaction-oriented, supports and enhances the growth of each company, giving us the flexibility to achieve our financial objectives over the long-term as we navigate the changing real estate market cycles.

In market cycles characterized by strong buyer demand, we place an emphasis on growing our advisory business through actively managing a blend of value-added acquisition redevelopment and development projects that generate both transactional fees and recurring management fees. We also provide these real estate services to third parties for a fee.  With this strategy comes increased volatility as these businesses have a heavy transactional component. In market cycles where we are able to capture a greater spread between cap rates and fixed-rate debt terms, we grow our portfolio of Irreplaceable Corners which provide a steady and dependable income stream by utilizing the acquisition, development and re-development expertise of our real estate development and operating business.

The active management approach we use within our advisory group combines our experience in acquisitions and merchant development and allows us to participate in both declining and rising market cycles. This business was designed to generate an additional source of recurring income for our shareholders based on equity under management as well as a stream of profits and back-end interests as the funds liquidate and preferred returns are met for investors.  We believe that this is the hidden value behind our long-term growth. However, short term, as we grow this side of the business, it creates a strain on earnings and near term results.  Great people are at the heart of our company, our strategy and our structure.  We have focused on growing a team of professionals that display a high degree of character, that are extremely competent, that are able to communicate clearly in good times and challenging times, and that are contributing to our team-oriented culture.  It is our people that are the backbone of our structure and our ability to generate long-term shareholder value.

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Our Structure

Our structure consists of two distinct companies: an institutional grade portfolio of Irreplaceable Corners and our advisory business, each of which is supported by our real estate development and operating group. This structure strives to deliver long-term returns to our investor partners- Wall Street, independent broker-dealers and institutional joint venture partners.

Portfolio of Irreplaceable Corners

During 2005 and continuing through 2007, we acquired approximately 355,000 square feet of shopping centers, representing over $143 million in assets and an average cap rate of 6.8%.  We take a very hands-on approach to ownership, and directly manage the operations and leasing at our properties.  Our portfolio consists primarily of premier retail properties typically located on “Main and Main” intersections in high-traffic, highly populated affluent areas.  Because of their location and exposure as central gathering places, these centers attract well established tenants and we believe they can withstand the test of time, providing our shareholders a dependable rental income stream.

As of December 31, 2007, we owned a real estate portfolio consisting of 50 properties located in 15 states.  Leased to national, regional and local tenants, our shopping center properties are primarily located throughout Texas.  Our single-tenant properties are located throughout the United States and are generally leased to corporate tenants where the lease is the direct obligation of the parent company, not just the local operator.  Properties that we acquire are generally newly constructed or recently constructed at the time of acquisition.  We believe the locations of our properties, and the high barriers to entry at those locations allow us to maximize leasing income through comparatively higher rental rates and high occupancy rates.  As of December 31, 2007, the occupancy rate at our operating properties was 98.1% based on leasable square footage compared to 96.5% as of December 31, 2006.

We invest in properties where we believe effective leasing and operating strategies, combined with cost-effective expansion and renovation programs, can improve the existing properties’ value while providing superior current economic returns.  These fungible types of improvements allow us to place grocery-anchored shopping centers, strip centers and lifestyle centers onto our properties.  We believe that investment in and operation of commercial retail real estate is a local business and we focus our investments in areas where we have strong knowledge of the local markets.  The areas where a majority of our properties are located are densely populated, suburban and infill communities in and around Houston, Dallas and San Antonio, but we have recently begun initiatives to explore new acquisition and development opportunities in select markets throughout the Sunbelt regions that over time could potentially expand our geographic reach.  Our expansion into these markets would be contingent upon finding the right individuals who would ensure that we have a strong knowledge of the local markets and maintain our hands-on management philosophy.  Within the Sunbelt, we intend to focus on markets we consider ‘gateways to the world economy,’ which share demographic characteristics similar to that of Houston.  These markets would feature large ports and/or international airports that make these cities conduits of world economic expansion.

Our shopping centers are primarily grocery-anchored, strip center, and lifestyle properties whose tenants consist of national, regional and local retailers.  Our typical grocery anchored shopping center is anchored by an established major grocery store operator in the region such as Kroger.  Our retail shopping centers are leased to national and regional tenants such as GAP, Starbucks, Bank of America, and Verizon Wireless as well as a mix of local and value retailers.  Lifestyle centers, such as Uptown Park – Houston, are typically anchored by a combination of national and regional restaurant tenants that provide customer traffic and tenant draw for specialty tenants that support the local consumer.  The balance of our retail properties are leased to national drug stores, national restaurant chains, national value oriented retail stores and other regional and local retailers.  The majority of our leases are either leased or guaranteed by the parent company, not just the operator of the individual location.  All of our shopping centers are located in areas of substantial retail shopping traffic.  Our properties generally attract tenants who provide basic staples and convenience items to local customers.  We believe sales of these items are less sensitive to fluctuations in the business cycle than higher priced retail items. No single retail tenant represented more than 10% of total revenues for the year ended December 31, 2007.

We own, and may purchase in the future, fee simple retail properties (we own the land and the building), ground lease properties (we own the land, but not the building and receive rental income from the owner of the building) or leasehold estate properties (we own the building, but not the land, and therefore are obligated to make a ground lease payment to the owner of the land).  We may also develop properties for our portfolio or enter into joint ventures, partnerships or co-ownership for the development of retail properties.

As of December 31, 2007, two properties individually accounted for more than 10% of the Company’s year-end consolidated total assets –Uptown Park in Houston, Texas and MacArthur Park in Dallas, Texas accounted for 15% and 11%, respectively, of total assets.  For the year ended December 31, 2007, the top three tenants by rental income concentration were Kroger at 10.7%, IHOP at 6.9% and CVS/pharmacy at 3.5%.  Consistent with our strategy of investing in areas that we know well, 17 of our properties are located in the Houston metropolitan area.  These properties represented 62% of our rental income for the year ended December 31, 2007.  Houston is Texas’ largest city and the fourth largest city in the United States. See “Location of Properties” in Item 2 for further discussion regarding Houston's economy.

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Advisory Business

The primary goal of our advisory business is to grow assets under management, primarily through the Independent Broker Dealer Network (IBD) and through institutional joint venture relationships.  Through these assets under management, we are able to generate current recurring fee income, long term profit participation, and transactional revenues for real estate services provided such as acquisition, development and leasing.  We break this business down into two components, our securities operations and our merchant development funds

Securities Operations - - In an effort to vertically integrate our business model and better control the inflows of capital into our Advisory business, we have a wholly owned Financial Industry Regulatory Agency (FINRA) registered broker-dealer, AmREIT Securities Company (ASC).  For the past 24 years, we have been raising capital for our funds and building relationships in the financial planning and broker-dealer community, earning fees and sharing in profits from those activities.  Historically, our securities group has raised capital in two ways:  first, directly for AmREIT through non-traded classes of common shares, and second, for our actively-managed merchant development funds.

During 2007, our securities operation raised approximately $45 million for AmREIT Monthly Income and Growth Fund IV, Ltd. (MIG IV), an affiliated merchant development fund sponsored by one of our subsidiaries.  During 2006, the securities operation raised approximately $60 million for AmREIT Monthly Income and Growth Fund III, Ltd (MIG III).

During the fourth quarter, the registration statement relating to REITPlus, Inc., a $550 million non-traded REIT offering that will be advised by a wholly-owned subsidiary of AmREIT, was declared effective by the SEC, allowing REITPlus to begin offering its common stock through AmREIT's broker dealer network. By advising REITPlus, we will earn recurring fees such as asset management and property management fees, and transactional fees such as acquisition fees, development fees and sales commissions. We will also participate in a 15% promoted interest after the REITPlus stockholders receive their invested capital plus a 7% preferred return.

During the years ended December 31, 2007, 2006 and 2005, our securities operation generated commission  revenues related to the sponsorship of our merchant development funds of $4.8 million, $6.6 million and $1.2 million, respectively.  The advisory group incurred commission expenses of $4.0 million, $5.7 million and $864,000 which were paid to non-affiliated broker-dealers in conjunction with such capital-raising activities.

Merchant Development Funds - The advisory business invests in and actively manages seven merchant development funds which were formed to develop, own, manage, and add value to properties with an average holding period of two to four years.  We typically invest as both the general partner and as a limited partner, and our advisory business sells interests in these funds to retail investors.  We, as the general partner, manage the funds, and, in return, receive management fees as well as potentially significant profit participation interests as the funds enter liquidation.  However, we strive to create a structure that aligns the interests of our shareholders with those of our limited partners.  In this spirit, the funds are structured so that the general partner receives a significant profit only after the limited partners in the funds have received their targeted return which links our success to that of the limited partners.   During the years ended December 31, 2007, 2006 and 2005, we earned asset management fees of $1.3 million, $823,000 and $495,000, respectively, which are recurring fees earned over the life of the partnership.

As of December 31, 2007, the advisory group directly managed, through its seven actively managed merchant development funds, a total of $159 million in contributed capital.  Two of the seven partnerships, AmREIT Opportunity Fund, Ltd. (AOF) and AmREIT Income and Growth Fund, Ltd. (AIG), entered into their liquidation phase in 2003 and 2007 respectively, and the remaining five partnerships are scheduled to enter their liquidation phases in , 2010, 2011, 2012, 2013, and 2016.  As these partnerships enter into liquidation, we, acting as the general partner/advisor, expect to receive economic benefit from our profit participation, after certain preferred returns have been paid to the limited partners.  During the years ended December 31, 2007, 2006 and 2005, AmREIT recognized approximately $401,000, $414,000 and $0, respectively, related to its general partner interest in AOF.  See Footnote 5 in the accompanying consolidated financial statements for more information.  In accordance with GAAP, our financial statements do not reflect any potential profit participation in our merchant development funds as any such gains have not been realized.  The income generated from our advisory business, both the current return as well as the future benefits through back-end interests and participations will be a key factor in our ability to grow FFO than our peers over our ten year journey.  We also assign a portion of this back-end interest to top management as contingent, long-term compensation.  See “Deferred Compensation” in Note 2 to the Consolidated Financial Statements.

Real Estate Development and Operating Group

Our real estate development and operating business, ARIC, is a fully integrated and wholly-owned business consisting of brokers and real estate professionals that provide development, acquisitions, brokerage, leasing, construction, general contracting, asset and property management services to our portfolio of properties, to our advisory business, and to third parties.  This operating subsidiary, which is a taxable REIT subsidiary, is transaction-oriented, is very active in the real estate market and has the potential to generate significant earnings on an annual basis.  This business can provide significant long-term growth; however due to its transactional nature, its quarter to quarter results will fluctuate, and therefore its contributions to our earnings will be volatile.

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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.  We have a growing roster of leases with well-known national and regional tenants, and of equal importance is that we have affiliations with these tenants that extend across multiple sites.  Not only does our real estate development and operating business create value through relationships, but it also provides an additional source of fee income and profits.  Through the development, construction, management, leasing and brokerage services provided to our advisory business, as well as to third parties, our real estate team continues to generate fees and profits.  During the years ended December 31, 2007, 2006 and 2005, ARIC generated net real estate and asset management fees of $6.5 million, $9.1 million, and $5.6 million, which represented 13%, 16%, and 17% of the Company’s total revenues, respectively.

Through our real estate development activity, we are able to generate additional profits through the selective development or acquisition and disposition of properties within a short time period (12 to 18 months).  The majority of these assets are listed as real estate assets held for sale on our consolidated balance sheet.  At December 31, 2007 and 2006, assets held for sale totaled approximately $22.4 million and $0, respectively.  For the years ended December 31, 2007, 2006 and 2005, ARIC has generated gains on sales of properties acquired for sale of $0, $382,000, and $3.2 million, respectively.

Our strategy and our structure, as discussed herein, are reviewed by our Board of Trust Managers on a regular basis and may be modified or changed without a vote of our shareholders.

Competition

All of our properties are located in areas that include competing properties.  The number of competitive properties in a particular area could have a material adverse affect on both our ability to lease space at any of our properties or at any newly developed or acquired properties and on the rents charged.  We may be competing with owners, including, but not limited to, other REITs, insurance companies and pension funds that have greater resources than us.

Compliance with Governmental Regulations

Under various federal and state environmental laws and regulations, as an owner or operator of real estate, we may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at our properties. We may also be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by those parties in connection with the contamination. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The presence of contamination or the failure to remediate contaminations at any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral. We could also be liable under common law to third parties for damages and injuries resulting from environmental contamination coming from our properties.

All of our properties will be acquired subject to satisfactory Phase I environmental assessments, which generally involve the inspection of site conditions without invasive testing such as sampling or analysis of soil, groundwater or other media or conditions; or satisfactory Phase II environmental assessments, which generally involve the testing of soil, groundwater or other media and conditions. Our Board of Trust Managers may determine that we will acquire a property in which a Phase I or Phase II environmental assessment indicates that a problem exists and has not been resolved at the time the property is acquired, provided that (A) the seller has (1) agreed in writing to indemnify us and/or (2) established an escrow account with predetermined funds greater than the estimated costs to remediate the problem; or (B) we have negotiated other comparable arrangements, including, without limitation, a reduction in the purchase price. We cannot be sure, however, that any seller will be able to pay under an indemnity we obtain or that the amount in escrow will be sufficient to pay all remediation costs. Further, we cannot be sure that all environmental liabilities have been identified or that no prior owner, operator or current occupant has created an environmental condition not known to us. Moreover, we cannot be sure that (1) future laws, ordinances or regulations will not impose any material environmental liability or (2) the current environmental condition of our properties will not be affected by tenants and occupants of the properties, by the condition of land or operations in the vicinity of the properties (such as the presence of underground storage tanks), or by third parties unrelated to us.

Employees

As of December 31, 2007, AmREIT had 67 full-time employees, 1 part-time contract personnel and 3 full-time dedicated brokers.

Financial Information

Additional financial information related to AmREIT is included in Item 8 “Consolidated Financial Statements and Supplementary Data.”

Materials Available on Our Website

Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, trustees or 10% beneficial owners of us, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934 are available free of charge through our website (www.amreit.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. We have also made available on our website copies of our Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee Charter, Code of Business Conduct and Ethics and Corporate Governance Guidelines. In the event of any changes to these charters or the code or guidelines, changed copies will also be made available on our website. Copies of these documents are also available directly from us free of charge. Our website also includes other financial information about us, including certain non-GAAP financial measures, none of which is a part of this annual report on Form 10-K.

Item 1A.    Risk Factors

Risks Associated with an Investment in AmREIT

We are subject to conflicts of interest arising out of our relationships with our merchant development funds.

We experience competition for acquisition properties. In evaluating property acquisitions, certain properties may be appropriate for acquisition by either us or one of our merchant development funds. Our shareholders do not have the opportunity to evaluate the manner in which these conflicts of interest are resolved. Generally, we evaluate each property, considering the investment objectives, creditworthiness of the tenants, expected holding period of the property, available capital and geographic and tenant concentration issues when determining the allocation of properties among us and our merchant development funds.

There are competing demands on our management and board. Our management team and board are not only responsible for us, but also for our merchant development funds, which include entities that may invest in the same types of assets in which we may invest. For this reason, the management team and trust managers divide their management time and services among those funds and us, will not devote all of their attention to us and could take actions that are more favorable to the other entities than to us.

We may invest along side our merchant development funds. We may also invest in joint ventures, partnerships or limited liability companies for the purpose of owning or developing retail real estate projects. In either event, we may be a general partner and fiduciary for and owe certain duties to our other partners in such ventures. The interests, investment objectives and expectations regarding timing of dispositions may be different for the other partners than those of our shareholders, and there are no assurances that your interests and investment objectives will take priority.

We may, from time to time, purchase one or more properties from our merchant development funds. In such circumstances, we will work with the applicable merchant development fund to ascertain, and we will pay, the market value of the property. By our dealing directly with our merchant development funds in this manner, generally no brokerage commissions will be paid; however, there can be no assurance that the price we pay for any property will be equal to or less than the price we would have been able to negotiate from an independent third party. These property acquisitions from the merchant development funds will be limited to properties that the merchant development funds developed.

There may be significant fluctuations in our quarterly or annual results.

Our quarterly and annual operating results will fluctuate based on a number of factors, including, among others:

· The amount and timing of income generated by our advisory business as well as our real estate development and operating business;

· The recognitions of gains or losses on property sales;

· The volume and timing of our property acquisitions;

· Interest rate changes;

· The level of competition in our market; and

· General economic conditions, especially those affecting the retail industries

As a result of these factors, results for any quarter should not be relied upon as being indicative of performance in future quarters. The market price of our class A common shares could fluctuate with fluctuations in our quarterly or annual results.

Our class A common shares have limited liquidity.

Our class A common shares are currently traded on the American Stock Exchange. Our class A common shares have been listed since July 2002, and as of December 31, 2007, the average daily trading volume was approximately 9,886 shares based on a 90-day average. As a result, the class A common shares currently have limited liquidity.

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The conversion and conversion premium associated with the class C and class D common shares may dilute the interest of the Class A common shares.

At December 31, 2007, there were 4,143,971 class C common shares outstanding and 11,045,763 class D common shares outstanding.

The class C common shares were issued at $10.00 per share and have the ability to convert into class A common shares based on 110% of original investment (i.e. $1,000 of original investment converts into $1,100 of class A common shares) after a seven-year lock out period from the date of issuance.  The shares were issued between September 2003 and May 2004.  After three years and beginning in August 2006, subject to the issuance date of the respective shares, we have the right to force conversion of the shares into class A shares on a one-for-one basis or to redeem the shares at a cash redemption price of $11.00 per share at the holder’s option.

The class D common shares were issued at $10.00 per share and have the ability to convert into class A common shares based on 107.7% of original investment (i.e. $1,000 of original investment converts into $1,077 of class A common shares) after a seven-year lock out period from the date of issuance.  The shares were issued between July 2004 and September 2005.  The class D common shares are redeemable by the Company one year after issuance for 100% of original investment plus the pro rata portion of the 7.7% conversion premium.

The economic impact of the conversion of these non-traded shares can be affected by many factors, including the following:

· The price of our publicly traded class A common shares;

· The multiple and valuation at which our class A common shares trade;

· Our ability to grow earnings, net income and FFO as well as dividends; and

· Our ability to redeem these shares based on access to the debt and equity markets as well as liquidity in our balance sheet based on asset sales

Distribution payments in respect of our Class A common shares are subordinate to payments on debt and other series of common shares.

AmREIT has paid distributions since its organization in 1993. Distributions to our shareholders, however, are subordinate to the payment of our current debts and obligations. If we have insufficient funds to pay our debts and obligations, future distributions to shareholders will be suspended pending the payment of such debts and obligations. Dividends may be paid on the class A common shares only if all dividends then payable on the class C common shares have been paid. As a result, the class A common shares are subordinate to the class C common shares as to dividends.

The economic performance and value of our shopping centers depend on many factors, each of which could have an adverse impact on our cash flows and operating results.

The economic performance and value of our properties can be affected by many factors, including the following:

· Changes in the national, regional and local economic climate;

· Local conditions such as an oversupply of space or a reduction in demand for retail real estate in the area;

· The attractiveness of the properties to tenants;

· Competition from other available space;

· Our ability to provide adequate management services and to maintain our properties;

· Increased operating costs, if these costs cannot be passed through to tenants;

· The expense of periodically renovating, repairing and re-leasing spaces;

· The financial condition of our tenants;

· Fluctuations in interest rates;

· Changes in taxation or zoning laws

· Availability of financing on acceptable terms or at all; and

· Potential liability under environmental or other laws or regulations.

The rents we receive and occupancy levels at our properties may decline as a result of adverse changes in any of these factors.  If our rental revenues and/or occupancy levels decline, we will have less cash available to pay our indebtedness and distribute to our shareholders.

~6~

Bankruptcy or insolvency of tenants may decrease our revenues and available cash.

From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future. If a major tenant declares bankruptcy or becomes insolvent, the rental property at which it leases space may have lower revenues and operational difficulties. In the case of our shopping centers, the bankruptcy or insolvency of a major tenant could cause us to have difficulty leasing the remainder of the affected property. Our leases generally do not contain restrictions designed to ensure the creditworthiness of our tenants. As a result, the bankruptcy or insolvency of a major tenant could result in a lower level of net income and funds available for the payment of our indebtedness or for distribution to our shareholders.

Our dependence on rental income may adversely affect our ability to meet our debt obligations and make distributions to our shareholders.

The majority of our income is derived from rental income from our portfolio of properties.  As a result, our performance depends on our ability to collect rent from tenants.  Our income and therefore our ability to make distributions would be negatively affected if a significant number of our tenants, or any of our major tenants:

· Delay lease commencements;

· Decline to extend or renew leases upon expiration;

· Fail to make rental payments when due; or

· Close stores or declare bankruptcy

Any of these actions could result in the termination of the tenant’s leases and the loss of rental income attributable to the terminated leases.  Lease terminations by an anchor tenant or a failure by that anchor tenant to occupy the premises could also result in lease terminations or reductions in rent by other tenants in the same shopping center under the terms of some leases.  In addition, we cannot be sure that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms.  The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet debt and other financial obligations and make distributions to shareholders.

Tenant, geographic or retail product concentrations in our real estate portfolio could make us vulnerable to negative economic and other trends.

There is no limit on the number of properties that we may lease to a single tenant. However, under investment guidelines established by our board, no single tenant may represent more than 15% of our total annual revenue unless approved by our board. Our board reviews our properties and potential investments in terms of geographic and tenant diversification. Kroger, IHOP and CVS/pharmacy accounted for 10.7%, 6.9% and 3.5%, respectively, of our total operating revenues for the year ended December 31, 2007. There is a risk that any adverse developments affecting either Kroger, IHOP or CVS/Pharmacy could materially adversely affect our revenues (thereby affecting our ability to make distributions to shareholders).

Approximately 62% of our rental income for the year ended December 31, 2007, is generated from properties located in the Houston, Texas metropolitan area. Additionally, approximately 98% of our rental income for the year was generated from properties located throughout major metropolitan areas in the State of Texas.  Therefore, we are vulnerable to economic downturns affecting Houston and Texas, or any other metropolitan area where we might in the future have a concentration of properties.

If in the future properties we acquire result in or extend geographic or tenant concentrations or concentration of product types, such acquisitions may increase the risk that our financial condition will be adversely affected by the poor judgment of a particular tenant’s management group, by poor performance of our tenants’ brands, by a downturn in a particular market sub-segment or by market disfavor with a certain product type.

Our profitability and our ability to diversify our investments, both geographically and by type of properties purchased, will be limited by the amount of capital at our disposal. An economic downturn in one or more of the markets in which we have invested could have an adverse effect on our financial condition and our ability to make distributions.

We may increase our leverage without shareholder approval.

Our bylaws provide that we will not incur recourse indebtedness if, after giving effect to the incurrence thereof, aggregate recourse indebtedness, secured and unsecured, would exceed fifty-five percent (55%) of our gross asset value on a consolidated basis. However, our operating at the maximum amount of leverage permitted by our bylaws could adversely affect our cash available for distribution to our shareholders and could result in an increased risk of default on our obligations. We intend to borrow funds through secured and/or unsecured credit facilities to finance property investments in the future. These borrowings may require lump sum payments of principal and interest at maturity. Because of the significant cash requirements necessary to make these large payments, our ability to make these payments may depend upon our access to capital markets and/or ability to sell or refinance properties for amounts sufficient to repay such loans. At such times, our access to capital might be limited or non-existent and the timing for disposing of properties may not be optimal, which could cause us to default on our debt obligations and/or discontinue payment of dividends. In addition, increased debt service may adversely affect cash flow and share value.

At December 31, 2007, AmREIT had outstanding debt totaling $181.4 million, $150.9 million of which was fixed-rate secured financing.

~7~

If we cannot meet our REIT distribution requirements, we may have to borrow funds or liquidate assets to maintain our REIT status.

REITs generally must distribute 90% of their taxable income annually. In the event that we do not have sufficient available cash to make these distributions, our ability to acquire additional properties may be limited. Also, for the purposes of determining taxable income, we may be required to include interest payments, rent and other items we have not yet received and exclude payments attributable to expenses that are deductible in a different taxable year. As a result, we could have taxable income in excess of cash available for distribution. In such event, we could be required to borrow funds or sell assets in order to make sufficient distributions and maintain our REIT status.

Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs. 

The Americans with Disabilities Act generally requires that public buildings, including our properties, be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants.  To date, we have had no such claims that have resulted in any material expense or liability. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to our shareholders.

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

We May Not Be Able to Obtain Capital to Make Investments.

We depend primarily on external financing to fund the growth of our business. This is because one of the requirements of the Internal Revenue Code of 1986, as amended, for a REIT is that it distribute 90% of its net taxable income, excluding net capital gains, to its shareholders. There is a separate requirement to distribute net capital gains or pay a corporate level tax in lieu thereof. Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments and on conditions in the capital markets generally. We and other companies in the real estate industry have experienced limited availability of financing from time to time. Although we believe that we will be able to finance any investments we may wish to make in the foreseeable future, new financing may not be available on acceptable terms.

For information about our available sources of funds, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and the notes to the consolidated financial statements in this annual report on Form 10-K.

Covenants in our debt instruments could adversely affect our financial condition and our acquisitions and development activities.

The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. Our unsecured credit facilities, unsecured debt securities and other loans that we may obtain in the future contain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including covenants that limit our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense, and fixed charges, and that require us to maintain a certain level of unencumbered assets to unsecured debt. Our ability to borrow under these facilities is subject to compliance with certain financial and other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available to us, or be available only on unattractive terms. Additionally, our ability to satisfy current or prospective lenders’ insurance requirements may be adversely affected if lenders generally insist upon greater insurance coverage against acts of terrorism than is available to us in the marketplace or on commercially reasonable terms.

~8~

We rely on debt financing, including borrowings under our unsecured credit facilities, issuances of unsecured debt securities and debt secured by individual properties, to finance acquisitions and development activities and for working capital. If we are unable to obtain debt financing from these or other sources, or refinance existing indebtedness upon maturity, our financial condition and results of operations would likely be adversely affected. If we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, can take possession of the property securing the defaulted loan.

Risks Associated with an Investment in Real Estate

Real estate investments are relatively illiquid.

Real estate investments are relatively illiquid. Illiquidity limits the owner’s ability to vary its portfolio promptly in response to changes in economic or other conditions. In addition, federal income tax provisions applicable to REITs may limit our ability to sell properties at a time which would be in the best interest of our shareholders.

Our properties are subject to general real estate operating risks.

In general, a downturn in the national or local economy, changes in zoning or tax laws or the lack of availability of financing could adversely affect occupancy or rental rates. In addition, increases in operating costs due to inflation and other factors may not be offset by increased rents. If operating expenses increase, the local rental market for properties similar to ours may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates. If any of the above occurs, our ability to make distributions to shareholders could be adversely affected.

We may construct improvements, the cost of which may not be recoverable.

We may on occasion acquire properties and construct improvements or acquire properties under contract for development. Investment in properties to be developed or constructed is more risky than investments in fully developed and constructed properties with operating histories. In connection with the acquisition of these properties, we may advance, on an unsecured basis, a portion of the purchase price in the form of cash, a conditional letter of credit and/or a promissory note. We will be dependent upon the seller or lessee of the property under construction to fulfill its obligations, including the return of advances and the completion of construction. This party’s ability to carry out its obligations may be affected by financial and other conditions which are beyond our control.

If we acquire construction properties, the general contractors and the subcontractors may not be able to control the construction costs or build in conformity with plans, specifications and timetables. The failure of a contractor to perform may necessitate our commencing legal action to rescind the construction contract, to compel performance or to rescind our purchase contract. These legal actions may result in increased costs to us. Performance may also be affected or delayed by conditions beyond the contractor’s control, such as building restrictions, clearances and environmental impact studies imposed or caused by governmental bodies, labor strikes, adverse weather, unavailability of materials or skilled labor and by financial insolvency of the general contractor or any subcontractors prior to completion of construction. These factors can result in increased project costs and corresponding depletion of our working capital and reserves and in the loss of permanent mortgage loan commitments relied upon as a primary source for repayment of construction costs.

We may make periodic progress payments to the general contractors of properties prior to construction completion. By making these payments, we may incur substantial additional risk, including the possibility that the developer or contractor receiving these payments may not fully perform the construction obligations in accordance with the terms of his agreement with us and that we may be unable to enforce the contract or to recover the progress payments.

An uninsured loss or a loss that exceeds the insurance policy limits on our properties could subject us to lost capital or revenue on those properties.

Under the terms and conditions of the leases currently in force on our properties, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons, air, water, land or property, on or off the premises, due to activities conducted on the properties, except for claims arising from our negligence or intentional misconduct or that of our agents. Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. We have obtained comprehensive liability, casualty, property, flood and rental loss insurance policies on our properties. All of these policies may involve substantial deductibles and certain exclusions. In addition, we cannot assure the shareholders that the tenants will properly maintain their insurance policies or have the ability to pay the deductibles. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to the shareholders.

~9~

We will have no economic interest in leasehold estate properties.

We currently own properties, and may acquire additional properties, in which we own only the leasehold interest, and do not own or control the underlying land. With respect to these leasehold estate properties, we will have no economic interest in the land at the expiration of the lease, and therefore may lose the right to the use of the properties at the end of the ground lease.

We may invest in joint ventures.

· The joint venture partner may have economic or business interest or goals which are inconsistent with ours

· The potential inability of our joint venture partner to perform

· The joint venture partner may take actions contrary to our requests or instructions or contrary to our objectives or policies; and

· The joint venture partners may not be able to agree on matters relating to the property they jointly own. Although each joint owner will have a right of first refusal to purchase the other owner’s interest, in the event a sale is desired, the joint owner may not have sufficient resources to exercise such right of first refusal.

We also may participate with other investors, possibly including investment programs or other entities affiliated with our management, in investments as tenants-in-common or in some other joint venture arrangement. The risks of such joint ownership may be similar to those mentioned above for joint ventures and, in the case of a tenancy-in-common, each co-tenant normally has the right, if an un-resolvable dispute arises, to seek partition of the property, which partition might decrease the value of each portion of the divided property.

Our properties may be subject to environmental liabilities.

Under various federal and state environmental laws and regulations, as an owner or operator of real estate, we may be required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product releases at our properties. We may also be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by those parties in connection with the contamination. In addition, some environmental laws create a lien in favor of the government on the contaminated site for damages and costs the government incurs in connection with the contamination. The presence of contamination or the failure to remediate contaminations at any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as collateral. We could also be liable under common law to third parties for damages and injuries resulting from environmental contamination coming from our properties.

Certain of our properties have had prior tenants such as gasoline stations and, as a result, have existing underground storage tanks and/or other deposits that currently or in the past contained hazardous or toxic substances. Other properties have known asbestos containing materials. The existence of underground storage tanks, asbestos containing materials or other hazardous substances on or under our properties could have the consequences described above. Also, we have not recently had environmental reports produced for many of our older properties, and, as a result, many of the environmental reports relating to our older properties are significantly outdated. In addition, we have not obtained environmental reports for five of our older properties. These properties could have environmental conditions with unknown consequences.

All of our future properties will be acquired subject to satisfactory Phase I environmental assessments, which generally involve the inspection of site conditions without invasive testing such as sampling or analysis of soil, groundwater or other media or conditions; or satisfactory Phase II environmental site assessments, which generally involve the testing of soil, groundwater or other media and conditions. Our board may determine that we will acquire a property in which a Phase I or Phase II environmental assessment indicates that a problem exists and has not been resolved at the time the property is acquired, provided that (A) the seller has (1) agreed in writing to indemnify us and/or (2) established in escrow cash equal to a predetermined amount greater than the estimated costs to remediate the problem; or (B) we have negotiated other comparable arrangements, including, without limitation, a reduction in the purchase price. We cannot be sure, however, that any seller will be able to pay under an indemnity we obtain or that the amount in escrow will be sufficient to pay all remediation costs. Further, we cannot be sure that all environmental liabilities have been identified or that no prior owner, operator or current occupant has created an environmental condition not known to us. Moreover, we cannot be sure that (1) future laws, ordinances or regulations will not impose any material environmental liability or (2) the current environmental condition of our properties will not be affected by tenants and occupants of the properties, by the condition of land or operations in the vicinity of the properties (such as the presence of underground storage tanks), or by third parties unrelated to us. Environmental liabilities that we may incur could have an adverse effect on our financial condition or results of operations.

We depend upon our anchor tenants to attract shoppers.

We own several regional malls and other shopping centers that are typically anchored by well-known department stores and other tenants who generate shopping traffic at the mall or shopping center. The value of our properties would be adversely affected if tenants or anchors failed to meet their contractual obligations, sought concessions in order to continue operations or ceased their operations. If the sales of stores operating in our properties were to decline significantly due to economic conditions, closing of anchors or for other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of a default by a tenant or anchor, we may experience delays and costs in enforcing our rights as landlord.

~10~

Risks Associated with Federal Income Taxation of AmREIT

Our failure to qualify as a REIT for tax purposes would result in taxation of us as a corporation and the reduction of funds available for shareholder distribution.

Although we believe we are organized and are operating so as to qualify as a REIT, we may not be able to continue to remain so qualified. In addition, REIT qualification provisions under the tax laws may change. We are not aware, however, of any currently pending tax legislation that would adversely affect our ability to continue to qualify as a REIT.

For any taxable year that we fail to qualify as a REIT, we will be subject to federal income tax on our taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions, we also will be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. This treatment would reduce the net earnings available for investment or distribution to shareholders because of the additional tax liability for the year or years involved. In addition, distributions no longer would qualify for the dividends paid deduction nor would there be any requirement that such distributions be made. To the extent that distributions to shareholders would have been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or to liquidate certain of our investments to pay the applicable tax.

We may be liable for prohibited transaction tax and/or penalties.

A violation of the REIT provisions, even where it does not cause failure to qualify as a REIT, may result in the imposition of substantial taxes, such as the 100% tax that applies to net income from a prohibited transaction if we are determined to be a dealer in real property. Because the question of whether that type of violation occurs may depend on the facts and circumstances underlying a given transaction, these violations could inadvertently occur. To reduce the possibility of an inadvertent violation, the trust managers intend to rely on the advice of legal counsel in situations where they perceive REIT provisions to be inconclusive or ambiguous.

Changes in the tax law may adversely affect our REIT status.

The discussions of the federal income tax considerations are based on current tax laws. Changes in the tax laws could result in tax treatment that differs materially and adversely from that described herein.

Item 1B.     Unresolved Staff Comments

None

Item 2.     Properties

General

At December 31, 2007, we owned 50 properties located in 15 states. Reference is made to the Schedule III - Consolidated Real Estate Owned and Accumulated Depreciation filed with this Form 10-K for a listing of the properties and their respective costs.

Since 1995, we have been developing and acquiring shopping centers in our advisory business. During this time, we believe we have sharpened our ability to recognize the ideal location of high-end shopping centers and single-tenant properties that can create long-term value which we define as Irreplaceable Corners.  Shopping centers represent 81% of annualized rental income from properties owned as of December 31, 2007, with the balance being single-tenant properties primarily leased by national tenants throughout the United States.

Land - Our property sites, on which our leased buildings sit, range from approximately 34,000 to 1.0 million square feet, depending upon building size and local demographic factors. Our sites are in highly-populated, high traffic corridors and have been reviewed for traffic and demographic pattern and history.

Buildings - The buildings are multi-tenant shopping centers and freestanding single-tenant properties located at “Main and Main” locations throughout the United States. They are positioned for good exposure to traffic flow and are constructed from various combinations of stucco, steel, wood, brick and tile.  Shopping centers are generally 14,000 square feet and greater, and single-tenant buildings range from approximately 2,000 to 14,000 square feet. Buildings are suitable for possible conversion to various uses, although modifications may be required prior to use for other operations.

Leases - Primary lease terms range from five to 25 years.  Generally, leases also provide for one to four five-year renewal options.  Our retail properties are primarily leased on a “net” basis whereby the tenants are responsible, either directly or through landlord reimbursement, for the property taxes, insurance and operating costs such as water, electric, landscaping, maintenance and security.  Generally, leases provide for either percentage rents based on sales in excess of certain amounts, periodic escalations or increases in the annual rental rates or both.

~11~

Location of Properties

Based in Houston, our current focus is on property investments in Texas.  Of our 50 properties, 24 are located in Texas, with 17 being located in the greater Houston metropolitan statistical area.  These 17 properties represented 62% of our rental income for the year ended December 31, 2007.  Our portfolio of assets tends to be located in areas we know well, and where we can monitor them closely.  Because of our proximity and deep knowledge of our markets, we believe we can deliver an extra degree of hands-on management to our real estate investments.  We expect over the long term we will outperform absentee landlords in these markets.

Because of our investments in the greater Houston area, and throughout Texas, the Houston and Texas economy have a significant impact on our business and on the viability of our properties.  Accordingly, management believes that any downturn in the Houston, Dallas and  San Antonio economies could adversely affect us; however, general retail and grocery anchored shopping centers, which we primarily own, provide basic necessity-type items, and tend to be less sensitive to macroeconomic downturns.

According to the Greater Houston Partnership, Houston is the 4th most populous city in the nation, trailing only New York, Los Angeles and Chicago.   Houston is among the nation’s fastest-growing and most diverse metropolitan areas and is growing faster than both the state of Texas and the nation.  Since 2000, approximately 56% of Houston’s population growth has been from net migration with 77% of that growth attributed to international immigration.  Only 21 other nations other than the United States have a Gross Domestic Product (GDP) exceeding Houston's Gross Area Product (GAP).  Houston’s economic base has diversified, sharply decreasing its dependence on upstream energy. Diversifying, or energy-independent, sectors account for 76% of net job growth in the economic base since 1988.  Mining represents the majority of oil and gas exploration and production and accounts for 23%, or a fifth of Houston’s GAP, which has risen sharply in reaction to higher energy prices and thinner worldwide surplus oil production capacity than in previous years. The Houston MSA recorded 2.5 million payroll jobs in July 2007 - more than the job counts of 29 states.  The Port of Houston in 2005 ranked first among U.S. ports in volume of foreign tonnage and is the world’s 10th largest port.

~12~

A listing of our properties by property type and by location follows, including gross leasable area (GLA), annualized base rent (ABR) and percent leased as of December 31, 2007:

Grocery Anchored Shopping Centers			City	State	GLA		ABR		% Leased
	1	AmREIT C-Ranch LP	Houston	TX		97,297	$	1,207,720		98	%
	2	MacArthur Park	Irving	TX		237,381		3,827,651		97	%
	3	Plaza in the Park	Houston	TX		144,062		2,678,998		97	%
	3	Grocery Anchored Shopping Centers Total				478,740	$	7,714,369
Neighborhood Lifestyle & Community Shopping Center			City	State	GLA		ABR		% Leased
	1	Bakery Square	Houston	TX		34,614	$	851,914		100	%
	2	Courtyard on Post Oak	Houston	TX		13,597		477,361		100	%
	3	Sugarland Plaza	Sugarland	TX		16,750		349,612		100	%
	4	Terrace Shops	Houston	TX		16,395		482,278		100	%
	5	Uptown Plaza (including CVS)	Houston	TX		28,000		1,237,769		100	%
	6	Uptown Park	Houston	TX		169,112		5,179,689		99	%
	7	Woodlands Plaza	The Woodlands	TX		20,018		373,317		100	%
	8	Southbank - Riverwalk	San Antonio	TX		46,673		1,534,386		100	%
	9	584 N. Germantown Parkway	Memphis	TN		15,000		193,903		75	%
	10	Uptown Plaza - Dallas	Dallas	TX		33,840		1,619,906		100	%
	10	Community Shopping Centers Total				393,999	$	12,300,134
Single Tenant (Ground Leases) - Land			City	State	GLA		ABR		% Leased
	1	410-Blanco (Citibank)	San Antonio	TX		4,439	$	159,979		100	%
	2	Carlson Restaurants	Hanover	MD		6,802		141,674		100	%
	3	Darden	Peachtree City	GA		6,867		79,366		100	%
	4	CVS Corporation (Eckerds at Yorktown)	Houston	TX		13,824		327,167		100	%
	5	Fontana Tract  - (land)	Dallas	TX		0		0		100	%
	6	Washington Mutual	Houston	TX		3,685		98,155		100	%
	7	Washington Mutual	The Woodlands	TX		3,685		63,996		100	%
	8	Woodlands Ring Road - Ground Leases	The Woodlands	TX		66,349		667,641		100	%
	8	Single Tenant (Ground Leases) Total				105,651	$	1,537,978
Single Tenant (Fee Simple)			City	State	GLA		ABR		% Leased
	1	AFC, Inc.	Atlanta	GA		2,583	$	119,279		100	%
	2	Advance Auto	Aurora	IL		7,000	Note (1) (2) (3) (4)			0	%
	3	Advance Auto	St. Louis	MO		7,000	Note (1) (2) (3) (4)			0	%
	4	Advance Auto (land)	Washington	MO		0	Note (1) (2) (3) (4)			0	%
	5	McAlister's Deli	Champaign	IL		7,000		175,392		100	%
	6	McAlister's Deli	Peoria	IL		3,426		151,491		100	%
	7	Sunbelt Rental (2 acres of land)	Champaign	IL		0	Note (1) (2) (3)			0	%
	8	Carlson Restaurants	Houston	TX		8,500		200,000		100	%
	9	Golden Corral	Houston	TX		12,000		182,994		100	%
	10	Golden Corral	Humble	TX		12,000		181,688		100	%
	11	IHOP Corporation #1483	Sugarland	TX		4,020		189,660		100	%
	12	IHOP Corporation #1737	Centerville	TX		4,020		163,380		100	%
	13	IHOP Corporation #4462	Memphis	TX		4,020		179,376		100	%
	14	IHOP Corporation #5318	Topeka	KS		4,020		158,892		100	%
	14	Single Tenant (Fee Simple)				75,589	$	1,702,152
	Single Tenant (Leasehold)		City	State		GLA		ABR		% Leased
	15	Single Tenant (Leasehold) Total (5)	Various	Various		60,300	$	1,554,147		100	%
		Company Total Sq. Ft.				1,114,279	$	24,808,780

___________________________

(1)           Under Development (GLA represents proposed leasable square footage)

(2)           Held for Sale

(3)           Held in joint venture of which we are the managing 50% owner.

(4)           Advance Auto properties are located in MO and IL.  Each of the properties has a proposed GLA of 7,000 square feet.

(5) IHOP properties are located in NM, LA, TX, CA, TN, CO, VA, NY, OR, KS, and MO.  Each of the properties has a GLA of 4,020 square feet.  These properties are held by a consolidated subsidiary, 75.0% of which is owned by us, 19.6% of which is owned by AmREIT Income & Growth Corporation, one of our merchant development funds, and the remainder of which is owned by unaffiliated third parties.  We have assigned to management approximately 50% of our back-end participation interest in this entity as part of our long-term incentive compensation program.  Accordingly, approximately half of the future net cash flows from such participation interest are owned by management.

~13~

The rental income generated by our properties during 2007 by state/city is as follows:

	Held for Investment					Held for Sale
	Rental		Rental			Rental		Rental
State/City	Income		Concentration			Income		Concentration
Texas - Houston	$	19,070,557		62.3	%	$	-		0.0	%
Texas - Dallas	$	8,347,503		27.2	%	$	-		0.0	%
Texas - San Antonio	$	2,435,737		8.0	%	$	-		0.0	%
Texas - other	$	-		0.0	%	$	230,642		11.2	%
Total Texas		29,853,797		97.5	%		230,642		11.2	%
Tennessee	$	267,508		0.9	%	$	298,980		14.6	%
Louisiana	$	-		0.0	%	$	214,487		10.6	%
Kansas	$	158,913		0.5	%	$	97,026		4.7	%
Illinois	$	-		0.0	%	$	155,924		7.6	%
Missouri	$	-		0.0	%	$	113,308		5.5	%
Colorado	$	-		0.0	%	$	107,371		5.2	%
Georgia	$	198,739		0.6	%	$	-		0.0	%
Oregon	$	-		0.0	%	$	179,588		8.7	%
Virginia	$	-		0.0	%	$	173,088		8.4	%
Utah	$	-		0.0	%	$	163,593		8.0	%
Maryland	$	141,674		0.5	%	$	-		0.0	%
New York	$	-		0.0	%	$	125,693		6.1	%
California	$	-		0.0	%	$	112,344		5.5	%
New Mexico	$	-		0.0	%	$	80,988		3.9	%
Total		30,620,631		100.0	%		2,053,032		100.0	%

~14~

Grocery-Anchored Shopping Centers

Our grocery-anchored shopping centers comprise 31% of our annualized rental income from the properties owned as of December 31, 2007. These properties are designed for maximum retail visibility and ease of access and parking for the consumer.  All of our grocery-anchored centers are anchored by Kroger and are supported by a mix of specialty national and regional tenants such as Barnes & Noble, GAP and Starbucks.  They are leased in a manner that provides a complementary array of services to support the local retail consumer.  These properties are located in the Houston and Dallas metropolitan areas and are typically located at an intersection guided by a traffic light, with high visibility, significant daily traffic counts, and in close proximity to neighborhoods and communities with household incomes above those of the national average.  We are dependent upon the financial viability of Kroger, and any downturn in Kroger’s operating results could negatively impact our operating results.

All of our grocery-anchored center leases provide for the monthly payment of base rent plus reimbursement of operating expenses.  This monthly operating expense payment is based on an estimate of the tenant’s pro rata share of property taxes, insurance, utilities, maintenance and other common area maintenance charges.  Annually these operating expenses are reconciled with any overage being reimbursed to the tenants and any underpayment being billed to the tenant.  Generally these are net lease terms and allow the landlord to recover all of its operating expenses, with the exception of expenses allocable to any vacant space.

Our grocery-anchored shopping center leases range from 5 to 20 years and generally include one or more five-year renewal options.  Annual rental income from these leases ranges from $23,000 to $1.0 million per year.

Neighborhood, Lifestyle and Community Shopping Centers

As of December 31, 2007, we owned 10 shopping centers, excluding the grocery-anchored centers discussed above, representing approximately 394,000 leasable square feet.   Our shopping center properties are primarily neighborhood, lifestyle and community centers, ranging from 14,000 to 170,000 square feet.  None of the centers have internal common areas, but instead are designed for maximum retail visibility and ease of access and parking for the consumer.  These properties have a mix of national, regional and local tenants, leased in a manner to provide a complementary array of services to support the local retail consumer.  All of our centers are located in major metropolitan areas, are typically located at an intersection guided by a traffic light, with high visibility, significant daily traffic counts, and are in close proximity to neighborhoods and communities with household incomes above those of the national average.

All of our shopping center leases provide for the monthly payment of base rent plus reimbursement of operating expenses. This monthly operating expense payment is based on an estimate of the tenant’s pro rata share of property taxes, insurance, utilities, maintenance and other common area maintenance charges.  Annually these operating expenses are reconciled with any overage being reimbursed to the tenants and any underpayment being billed to the tenant.

Our shopping center leases range from five to 20 years and generally include one or more five-year renewal options.  Annual rental income from these leases ranges from $12,000 to $440,000 per year and typically allow for rental increases, or bumps, periodically through the life of the lease.

Single-tenant Properties

As of December 31, 2007, we owned 37 single-tenant properties, representing approximately 242,000 leaseable square feet.  Our single-tenant leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation of the property such as utilities, property taxes and insurance.  Some of the leases require that we will be responsible for roof and structural repairs.  In these instances, we normally require warranties and/or guarantees from the related vendors, suppliers and/or contractors to mitigate the potential costs of repairs during the primary term of the lease.

Because our leases are entered into with or guaranteed by the corporate, parent tenant, they typically do not limit the Company’s recourse against the tenant and any guarantor in the event of a default.  For this reason, these leases are designated by us as “Credit Tenant Leases”, because they are supported by the assets of the entire company, not just the individual store location.

The primary term of the single-tenant leases ranges from 10 to 25 years.  All of the leases also provide for one to four, five-year renewal options. Annual rental income ranges from $65,000 to $574,000 per year.

Land to be Developed

As part of our investment objectives, we will invest in land to be developed on Irreplaceable Corners.  A typical investment in land to be developed will result in a six to 12 month holding period, followed by the execution of a ground lease with a national or regional retail tenant or by the development of a single-tenant property or shopping center.  In May 2007, we acquired an undeveloped 2-acres parcel in Champaign, IL which we acquired for resale and is currently under development for a national tenant that is in the rental equipment business. In December 2006, we acquired an undeveloped 0.9 acre parcel contiguous to Uptown Plaza in Dallas which we acquired with the intent to resell.

~15~

Property Acquisitions and Dispositions

In May 2007, we acquired a 2-acre parcel of land in Champaign, IL that was acquired for resale and is currently under development for a national tenant that is in the rental equipment business. In February 2007, we acquired The Woodlands Mall Ring Road property, which represents 66,000 square feet of gross leasable area in Houston, Texas.  The property is ground-leased to five tenants, including Bank of America, Circuit City and Landry’s Seafood.   Additionally, during the nine months ended September 30, 2007, we sold one property acquired for resale for $1.4 million which approximated our cost.

Property Held for Sale

Discontinued Operations includes properties sold during the period as well as the operations of properties that are held for sale as of the end of the period.  The 2007 operating results reflect 19 properties included in held for sale as of December 31, 2007, 17 of which represent properties owned by AAA CTL Notes and which are treated as investments in direct financing leases for financial reporting purposes.  We are also considering refinancing these 17 properties as an alternative to an outright sale.

Item 3. Legal Proceedings

We are not a party to any material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of shareholders during the fourth quarter of the 2007 fiscal year.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

As of March 14, 2008, there were approximately 590 holders of record for 6,152,440 our class A common shares outstanding on such date net of 482,050 shares held in treasury. AmREIT’s class A common shares are listed on the American Stock Exchange (“AMEX”) and traded under the symbol “AMY.”  The following table sets forth for the calendar periods indicated high and low sale prices per class A common share as reported on the AMEX and the dividends paid per share for the two year period ended December 31, 2007.

Calendar Period	High		Low		Dividends
2007
Fourth Quarter	$	8.40	$	6.56	$	.1242
Third Quarter	$	8.91	$	6.66	$	.1242
Second Quarter	$	9.00	$	7.90	$	.1242
First Quarter	$	9.25	$	8.00	$	.1242
2006
Fourth Quarter	$	8.65	$	7.25	$	.1242
Third Quarter	$	7.46	$	6.85	$	.1242
Second Quarter	$	7.60	$	6.95	$	.1242
First Quarter	$	7.96	$	6.73	$	.1242

The payment of any future dividends on our class A common shares is dependent upon applicable legal and contractual restrictions, including the provisions of the class C common shares, as well as our earnings and financial needs.

Class B Common Shares — On December 20, 2007, we redeemed the remaining Class B common shares for $10.4 million in cash based on the $10.18 per share redemption price.  No class B common shares were outstanding as of December 31, 2007.

Class C Common Shares —

As of March 14, 2008, there were approximately 1250 holders of record for 4,140,278 ofof the Company’s class C common shares.  The class C common shares are not listed on an exchange and there is currently no available trading market for the class C common shares. The class C common shares have voting rights, together with all classes of common shares, as one class of stock. The class C common shares were issued at $10.00 per share. They receive a fixed 7.0% preferred annual dividend, paid in monthly installments, and are convertible into the class A common shares after a 7-year lock out period based on 110% of invested capital, at the holder’s option. After three years and beginning in August 2006, subject to the issuance date of the respective shares, we have the right to force conversion of the shares into class A shares on a one-for-one basis or to redeem the shares at a cash redemption price of $11.00 per share at the holder’s option.  Currently, there is a class C dividend reinvestment program that allows investors to reinvest their dividends into additional class C common shares.  These reinvested shares are also convertible into the class A common shares after the 7-year lock out period and receive the 10% conversion premium upon conversion.  As of March 14, 2008, 818 holders are participating in the dividend reinvestment plan

Class D Common Shares —

As of March 14, 2008, there were approximately 3374 holders of record for 11,001,091 of the Company’s class D common shares.  The class D common shares are not listed on an exchange and there is currently no available trading market for the class D common shares. The class D common shares have voting rights, together with all classes of common shares, as one class of stock. The class D common shares were issued at $10.00 per share. They receive a fixed 6.5% annual dividend, paid in monthly installments, subject to payment of dividends then payable to class C common shares. The class D common shares are convertible into the class A common shares at a 7.7% premium on original capital after a 7-year lock out period, at the holder’s option. After one year and beginning in July 2005, subject to the issuance date of the respective shares, we have the right to force conversion of the shares into class A shares at the 7.7% conversion premium or to redeem the shares at a cash price of $10.00 per share. In either case, the conversion premium will be pro rated based on the number of years the shares are outstanding.  Currently, there is a class D dividend reinvestment program that allows investors to reinvest their dividends into additional class D common shares.  These reinvested shares are also convertible into the class A common shares after the 7-year lock out period and receive the 7.7% conversion premium upon conversion.   As of March 14, 2008, 2,274 holders are participating in the dividend reinvestment plan.

In June 2007, our Board of Trust Managers authorized a common share repurchase program as part of our ongoing investment strategy. Under the terms of the program, we may purchase up to a maximum value of $5 million of our common shares of beneficial interest. Share repurchases may be made in the open market or in privately negotiated transactions at the discretion of management and as market conditions warrant.  We anticipate funding the repurchase of shares primarily through the proceeds received from general corporate funds as well as through the use of our credit facility.

Repurchases of our common shares of beneficial interest for the quarter ended December 31, 2007 are as follows:

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased As Part of Publicly Announced Program	(d) Maximum Dollar Value of Shares that May Yet be Purchased Under the Program
October 1, 2007 to December 31, 2007	83,400	$7.86	83,400	$3,661,780

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Item 6.  Selected Financial Data

The following table sets forth selected consolidated financial data with respect to AmREIT and should be read in conjunction with Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” the Consolidated Financial Statements and accompanying Notes in Item 8 - “Financial Statements and Supplementary Data” and the financial schedule included elsewhere in this Form 10-K.

	December 31,			December 31,			December 31,			December 31,			December 31,
	2007			2006			2005			2004			2003
Balance sheet data (at end of period)
Real estate investments before accumulated depreciation	$	329,819		$	312,405		$	290,097		$	198,744		$	98,128
Total assets		343,757			328,430			314,971			203,151			101,327
Notes payable		168,560			144,453			114,687			105,964			48,485
Notes payable held for sale		12,811			-			-			-			-
Shareholders' equity		149,433			169,050			187,285			88,370			48,796
Other data
Funds from operations, available to class A (1)		1,896			4,750			3,644			(2,003	)		607
Operating Data
Revenues		49,601			57,391			31,837			18,215			8,366
Expenses  (2)		37,760			45,628			24,101			18,460			8,654
Other expenses		(7,092	)		(5,566	)		(4,878	)		(1,914	)		(1,053	)
Income from discontinued operations  (3)		502			984			4,046			920			3,028
Gain on sale of real estate acquired for resale		-			382			3,222			1,827			312
Net income	$	5,251		$	7,563		$	10,126		$	588		$	1,999
Net income (loss) available to class A shareholders	$	(6,458	)	$	(3,879	)	$	881		$	(3,866	)	$	56
Net (loss) income per common share - basic and diluted
Loss before discontinued operations	$	(1.09	)	$	(0.83	)	$	(1.23	)	$	(2.03	)	$	(1.18	)
Income from discontinued operations		0.08			0.22			1.40			0.84			1.20
Net income (loss)	$	(1.01	)	$	(0.61	)	$	0.17		$	(1.19	)	$	0.02
Distributions per share - class A	$	0.50		$	0.50		$	0.50		$	0.48		$	0.45

(1)   We have adopted the National Association of Real Estate Investment Trusts (NAREIT) definition of FFO.  FFO is calculated as net income (computed in accordance with generally accepted accounting principles) excluding gains or losses from sales of depreciable operating property, depreciation and amortization of real estate assets, and excluding results defined as "extraordinary items" under generally accepted accounting principles.  We 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.  FFO should not be considered an alternative to cash flows from operating, investing and financing activities in accordance with general accepted accounting principles and is not necessarily indicative of cash available to meet cash needs.  Our computation of FFO may differ from the methodology for calculating FFO utilized by other equity REITs and, therefore, may not be comparable to such other REITS. FFO is not defined by generally accepted accounting principles and should not be considered an alternative to net income as an indication of our performance, or of cash flows as a measure of liquidity.  Please see reconciliation of Net Income to FFO in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations."  For the year ended December 31, 2004, FFO includes an impairment charge of $2.4 million related to two single tenant, non-core assets.  For the years ended December 31, 2004, and 2003, FFO includes deferred merger costs of $1.7 million and $915,000 resulting from shares issued to our CEO from the sale of his advisory company to us in June 1998.

(2)  Operating expenses for the years ended December 31, 2004 and 2003 include a charge of $1.7 million, and $915,000, respectively, resulting from shares issued to our CEO as deferred merger cost stemming from the sale of his advisory company to us in June 1998.

(3)  Income from discontinued operations in 2004 includes an impairment charge of $2.4 million, resulting from two asset impairments and corresponding write-downs of value.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

We are an established real estate company that has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. Our business model is similar to an institutional advisory company that is judged by its investor partners on the returns we are able to deliver to reach specified long-term results. Our primary objective is to build long-term shareholder value and continue to build and enhance the net asset value (NAV) of AmREIT and its advised funds.

We seek to create value and drive net operating income (NOI) growth on the properties owned in our institutional-grade portfolio of Irreplaceable Corners™ and those owned by a series of closed-end, merchant development funds. We also seek to support a growing advisory business that raises capital through an extensive independent broker dealer channel as well as through institutional joint venture partners.

As of December 31, 2007, we have over 1.3 million square feet of shopping centers in various stages of development or in the pipeline for our advisory group and for third parties. Since listing on the AMEX in July 2002, our total assets have grown from a book value of approximately $48 million to approximately $344 million, including 50 properties located in 15 states. Within our asset advisory business we manage an additional $231 million in assets, representing 25 properties, all in Texas, and equity under management within our advisory business has grown from approximately $15 million to approximately $159 million and an additional $33 million in institutional capital under management.

Portfolio of Irreplaceable Corners

The institutional-grade portfolio of Irreplaceable Corners – premier retail properties in high-traffic, highly-populated areas – are held for long-term value and to provide a foundation to our funds from operations (FFO) through a steady stream of rental income. Our advisory business, has a 24-year track record of delivering returns to its investor partners through a series of closed-end, merchant development funds, resulting in recurring income from assets under management and in transactional income through profit participation interests and real estate fees, including acquisition, development and leasing fees.

During 2005 and continuing through 2007, we acquired approximately 355,000 square feet of multi-tenant shopping centers, representing approximately $143 million in assets at an average cap rate of 6.8%.  We take a very hands-on approach to ownership, and directly manage the operations and leasing at all of our wholly-owned properties.

As of December 31, 2007, we owned a real estate portfolio consisting of 50 properties located in 15 states.  The areas where a majority of our properties are located are densely populated, suburban communities in and around Houston, Dallas and San Antonio. Within these broad markets, we target locations that we believe have the best demographics and highest long term value.  We refer to these properties as Irreplaceable Corners. Our criteria for an Irreplaceable Corner includes:  high barriers to entry (typically infill locations in established communities without significant raw land available for development), significant population within a three mile radius (typically in excess of 100,000 people), located on the hard corner of an intersection guided by a traffic signal, ideal average household income in excess of $80,000 per year, strong visibility and significant traffic counts passing by the location (typically in excess of 30,000 cars per day).  We believe that centers with these characteristics will provide for consistent leasing demand and rents that increase at or above the rate of inflation.   Additionally, these areas have barriers to entry for competitors seeking to develop new properties due to the lack of available land.

We will continue to divest of properties which no longer meet our core criteria, and, to the extent that we can do so accretively, replace them with high-quality grocery-anchored, lifestyle, and multi-tenant shopping centers or the development of single-tenant properties located on Irreplaceable Corners.   Each potential acquisition is subjected to a rigorous due diligence process that includes site inspections, financial underwriting, credit analysis and market and demographic studies.  Therefore, there can be no assurance that we will ultimately purchase any or all of these projects.  Our acquisitions program is sensitive to changes in interest rates.  As of December 31, 2007, 83% of our outstanding debt had a long-term fixed interest rate with an average term of 6.7 years.  Our philosophy continues to be matching long-term leases with long-term debt structures while keeping our debt to total assets ratio less than 55%.

Our structure consists of two distinct companies: an institutional grade portfolio of Irreplaceable Corners and our advisory business, each of which is supported by our real estate development and operating group. This structure strives to deliver long-term returns to our investor partners- Wall Street, independent broker-dealers and institutional joint venture partners.

Advisory  Business

In an effort to vertically integrate our business model and better control the inflows of capital into our Advisory business, we have a wholly owned Financial Industry Regulatory Agency (FINRA) registered broker-dealer, AmREIT Securities Company (ASC).  For the past 24 years, we have been raising capital for our merchant development funds and building relationships in the financial planning and broker-dealer community, earning fees and sharing in profits from those activities.  Historically, our advisory group has raised capital in two ways:  first, directly for AmREIT through non-traded classes of common shares, and second, for our actively managed merchant development funds.

~19~

The advisory business invests in and actively manages seven merchant development 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 as both the general partner and as a limited partner, and our advisory business sells interests in these funds to retail investors. We, as the general partner, manage the funds and, in return, receive management fees as well as potentially significant profit participation interests.  However, we strive to create a structure that aligns the interests of our shareholders with those of our limited partners.  In this spirit, the funds are structured so that the general partner receives a significant profit only after the limited partners in the funds have received their targeted return which links our success to that of the limited partners.

Real Estate Development and Operating Group

Our real estate development and operating business, ARIC, is a fully integrated and wholly-owned business, consisting of brokers and real estate professionals that provide development, acquisition, brokerage, leasing, construction, general contracting, asset and property management services to our portfolio of properties, to our advisory business, and to third parties.  This operating subsidiary, which is a taxable REIT subsidiary, is transaction-oriented, and has the potential to generate significant profits and fees on an annual basis through its activity in the real estate market.  This business can provide significant long-term and annual growth; however, its quarter to quarter results will fluctuate, and therefore its contributions to our quarterly earnings will be volatile.

Summary of Critical Accounting Policies

Our results of operations and financial condition, as reflected in the accompanying consolidated financial statements and related footnotes, are subject to management’s evaluation and interpretation of business conditions, retailer performance, changing capital market conditions and other factors, which could affect the ongoing viability of our tenants. Management believes the most critical accounting policies in this regard are revenue recognition, the regular evaluation of whether the value of a real estate asset has been impaired, the allowance for uncollectible accounts and accounting for real estate acquisitions. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable based on the circumstances.

Revenue Recognition — We lease space to tenants under agreements with varying terms. The majority of the leases are accounted for as operating leases with revenue being recognized on a straight-line basis over the terms of the individual leases. Accrued rents are included in tenant receivables. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recorded. Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. 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 have been engaged to provide various real estate services, including development, construction, 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. Revenues from fixed-price construction contracts are recognized on the percentage-of-completion method, measured by the physical completion of the structure. Revenues from cost-plus-percentage-fee contracts are recognized on the basis of costs incurred during the period plus the percentage fee earned on those costs. Construction management contracts are recognized only to the extent of the fee revenue.

Construction contract costs include all direct material and labor costs and any indirect costs related to contract performance. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from any contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Any profit incentives are included in revenues when their realization is reasonably assured. An amount equal to contract costs attributable to any claims is included in revenues when realization is probable and the amount can be reliably estimated.

Unbilled construction receivables represent reimbursable costs and amounts earned under contracts in progress as of the date of our balance sheet. Such amounts become billable according to contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project. Advance billings represent billings to or collections from clients on contracts in advance of revenues earned thereon. Unbilled construction receivables are generally billed and collected within the 12 months following the date of our balance sheet, and advance billings are generally earned within the 12 months following the date of our balance sheet.

Securities commission income is recognized as units of our merchant development funds are sold through AmREIT Securities Company. Securities commission income is earned as the services are performed and pursuant to the corresponding prospectus or private offering memorandum. Generally, it includes a selling commission of between 6.5% and 7.5%, a dealer manager fee of between 2.5% and 3.25% and offering and organizational costs of 1.0% to 1.50%. The selling commission is then paid out to the unaffiliated selling broker dealer and reflected as securities commission expense.

~20~

Real Estate Valuation — 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. The Company capitalizes acquisition costs once the acquisition of the property becomes probable. Prior to that time, the Company expenses these costs as acquisition expenses. 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 site improvements and over the life of the respective leases for tenant improvements. Leasehold estate properties, where the Company owns the building and improvements but not the related ground, are amortized over the life of the lease.

Management reviews its 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. Management determines whether an impairment in value occurred by comparing the estimated future cash flows (undiscounted and without interest charges), including the residual value of the property, with the carrying value of the individual property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair value.

Valuation of Receivables — An allowance for the uncollectible portion of tenant receivables and accounts receivable is determined based upon an analysis of balances outstanding, historical payment history, tenant credit worthiness, additional guarantees and other economic trends. Balances outstanding include base rents, tenant reimbursements and receivables attributed to the accrual of straight line rents. Additionally, estimates of the expected recovery of pre-petition and post-petition claims with respect to tenants in bankruptcy are considered in assessing the collectibility of the related receivables.

Real Estate Acquisitions — We account for real estate acquisitions pursuant to Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”). Accordingly, we allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of in-place leases and customer relationships, 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 out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.

~21~

Recently Issued Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (Revised 2007),Business Combinations” (SFAS No. 141R).  SFAS No. 141R will change the accounting for business combinations. Under SFAS No141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.  SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  We are currently evaluating the potential impact of SFAS No. 141R on our financial position and results of operations beginning for fiscal year 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS No. 160 shall be applied prospectively. We are currently evaluating the potential impact of the adoption of SFAS No. 160 on our consolidated financial statements.

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective for fiscal years beginning after November 15, 2007. We currently do not plan to measure any eligible financial assets and liabilities at fair value under the provisions of SFAS No. 159.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).  SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements.  SFAS No. 157 requires companies to disclose the fair value if it’s financial instruments according to a fair value hierarchy.  Additionally, companies are required to provide certain disclosures regarding instruments within the hierarchy, including a reconciliation of the beginning and ending balances for each major category of assets and liabilities.  SAFS No. 157 is effective for our fiscal year beginning January 1, 2008.  The adoption of SFAS No. 157 is not expected to have a material effect on our results of operations or financial position

Liquidity and Capital Resources

At December 31, 2007 and December 31, 2006, our cash and cash equivalents totaled $1.2 million and $3.4 million, respectively. Cash flows provided by (used in) operating activities, investing activities and financing activities for the three years ended December 31, 2007, are as follows (in thousands):

	2007			2006			2005
Operating activities	$	10,950		$	18,147		$	14,869
Investing activities	$	(23,965	)	$	(23,980	)	$	(108,100	)
Financing activities	$	10,821		$	3,333		$	96,186

Cash flows from operating activities and financing activities have been the principal sources of capital to fund our ongoing operations and dividends. Our cash on hand, internally-generated cash flow, borrowings under our existing credit facilities, issuance of equity securities, as well as the placement of secured debt and other equity alternatives, are expected to provide the necessary capital to maintain and operate our properties as well as execute our growth strategies.

Additionally, as part of our investment strategy, we constantly evaluate our property portfolio, systematically selling off any non-core or underperforming assets, and replacing them with Irreplaceable Corners and other core assets. We anticipate that we will continue to sell the underperforming assets and deploy the capital generated into high-quality income-producing retail real estate assets. Since January 2004, we have executed this strategy through the acquisition of $143 million of shopping centers, consisting primarily of four premier properties with approximately 289,000 square feet. We completed our acquisition of Uptown Park, a 169,000 square foot multi-tenant shopping center, in June 2005, our acquisition of The South Bank, a 47,000 square foot multi-tenant retail center located on the San Antonio Riverwalk, in September 2005, our acquisition in December 2005 of 39,000 square feet of multi-tenant retail projects located adjacent to our MacArthur Park Shopping Center in Las Colinas, an affluent residential and business community in Dallas, Texas and our acquisition of Uptown Plaza in Dallas, a 34,000 square foot multi-tenant retail complex located at the corner of McKinney Avenue and Pearl Street near downtown Dallas.

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Cash provided by operating activities as reported in the Consolidated Statements of Cash Flows decreased by $7.2 million for 2007 when compared to 2006. This net decrease is primarily attributable to a $7.6 million decrease in working capital cash flow during the period.  This working capital decrease was due primarily to a $6.2 million net decrease in cash flows from related party receivables which was driven by a number of factors – (1) an $2.5 million increase during 2006 in working capital cash flows as a result of improved collection efforts on 2005 related party receivables generated by our construction business which commenced operations during 2005, (2) $1.1 million of organization and offering costs incurred on behalf of REITPlus, Inc. which is currently in the pre-operating stage (these costs are anticipated to be reimbursed by the fund in the first quarter of 2008) and (3) $2.0 million increase due to timing of construction billings related to a property redevelopment that took place in the fourth quarter of 2007. In addition to the $7.6 million working capital deficit, we had a reduction in net income of $2.3 million as further addressed below in ‘Results of Operations’.  This $9.9 million in cash flow decreases was partially offset by a $2.5 million net increase in cash flow from our activities related to real estate acquired for resale.  During 2006, we had net cash outflows from these activities of $1.1 million as compared to net cash inflows of $1.4 million during 2007.  In 2006, we invested $3.3 million in real estate held for resale and sold four properties for aggregate proceeds of $2.2 million.  In 2007, we made no investments in such real estate and sold one property for aggregate proceeds of $1.4 million.

Net cash used in investing activities as reported in the Consolidated Statements of Cash Flows was $24.0 million for both 2007 and 2006.  We had a $13.9 million decrease in cash usage related to property acquisitions during 2007 which was substantially offset by an increase in investments of $8.2 million, coupled with a $4.5 million reduction in proceeds from the sale of investment property.  On the property acquisition side, in February 2007, we acquired The Woodlands Mall Ring Road property, which represents 66,000 square feet of gross leasable area in Houston, Texas.  The property has been ground-leased to five tenants, including NationsBank, Circuit City and Landry’s Seafood.  In March 2006, we acquired Uptown Plaza in Dallas, a 34,000 square foot multi-tenant retail complex located near downtown Dallas.  With respect to investments made during 2007, we acquired a 30% interest in AmREIT Woodlake LP., which purchased Woodlake Square Shopping Center, a 205,000 square foot Randall’s-anchored shopping center on the northeast corner of Westheimer and Gessner in Houston, Texas.  We also acquired a 30% interest in AmREIT Westheimer Gessner LP which purchased the Borders Books site, an 82,000 square foot center adjacent to the Woodlake Square Shopping Center, at the southeast corner of Westheimer and Gessner.  We made no such investments in 2006.  With respect to the decrease in proceeds from sales of investment property, we did not have any such sales in 2007, whereas in 2006, we sold two properties held for investment, generating proceeds of $4.5 million.

Cash flows provided by financing activities increased from $3.3 million during the 2006 period to $10.8 million during the 2007 period. This $7.5 million increase was primarily attributable to net proceeds from notes payable of $7.2 million which was comprised of a $22.2 million increase in proceeds from notes payable during the period, offset by $15.0 million increase in payments of notes payable.  During 2006, net proceeds from notes payable were $30.0 million (driven primarily by the $20.0 million financing of The South Bank and the $9.2 million draw-down on our credit facility related to our repurchase of approximately 48% of the Class B common shares in December 2006) versus net proceeds from notes payable of $37.2 million during the 2007 period (driven primarily by the $19.9 million in proceeds from the financing of Uptown Dallas, the $10.4 million in financing required to redeem the remainder of the Class B common shares in December 2007 and the $8.0 required to finance our two real estate investments described above).  Additionally, we had a $1.3 million reduction in share repurchase activity under our share repurchase program.

We have an unsecured credit facility in place which is being used to provide funds for the acquisition of properties and working capital. The credit facility matures in October 2009 and provides that we may borrow up to $70 million subject to the value of unencumbered assets.  Effective October 2007, we renewed our credit facility on terms which provided us with an increased borrowing base at reduced borrowing costs. Conditions substantially the same as the previous facility.  The credit facility contains covenants which, among other restrictions, require us to maintain a minimum net worth, a maximum leverage ratio, maximum tenant concentration ratios, specified interest coverage and fixed charge coverage ratios and allow the lender to approve all distributions. For the year ended December 31, 2007, we violated two covenants per the terms of the credit facility.  Our lender has waived both events of non-compliance as of December 31, 2007.  We were in compliance with all other covenants as of December 31, 2007.  The credit facility’s annual interest rate varies depending upon our debt to asset ratio, from LIBOR plus a spread of 1.0% to LIBOR plus a spread of 1.85%.  As of December 31, 2007, the interest rate was LIBOR plus 1.00%.  As of December 31, 2007 and 2006, there was $30.4 million and $11.9 outstanding on the credit facility, respectively.  As of December 31, 2007, we have approximately $37.6 million available under our line of credit, subject to the covenant provisions discussed above.  In addition to the credit facility, we utilize various permanent mortgage financing and other debt instruments. 

~23~

Contractual Obligations

As of December 31, 2007, we had the following contractual debt obligations (see also Note 7 of the Consolidated Financial Statements for further discussion regarding the specific terms of our debt):

	2008		2009		2010		2011		2012		Thereafter		Total
Unsecured debt:
Revolving credit facility*	$	-	$	30,439	$	-	$	-	$	-	$	-	$	30,439
Secured debt**		14,269		918		982		4,062		26,332		91,558		138,121
Secured Debt Held for Sale		491		531		574		620		10,595		-		12,811
Interest*		9,596		6,868		6,775		6,543		5,730		26,532		62,044
Non-cancelable operating
lease payments		320		205		23		23		-		-		571
Total contractual  obligations	$	24,676	$	38,961	$	8,354	$	11,248	$	32,376	$	128,371	$	243,986

* Interest expense includes our interest obligations on our revolving credit facility as well as on our fixed-rate loans.  Our revolving credit facility is a variable-rate debt instrument, and the outstanding balance tends to fluctuate throughout the year based on our liquidity needs.  This table assumes that the balance outstanding ($30.4 million) and the interest rate as of December 31, 2007 (6.1%) remain constant through maturity.

** Secured debt as shown above is $639,000 less than total secured debt as reported in the accompanying balance sheet due to the premium recorded on above-market debt assumed in conjunction with certain of our property acquisitions.

During 2007, we paid dividends to our shareholders of $14.9 million, compared with $14.6 million in 2006.  The class A, C and D shareholders receive monthly dividends and the class B shareholders receive quarterly dividends.  All dividends are declared on a quarterly basis.  The dividends by class follow (in thousands):

		Class A		Class B			Class C		Class D
2007
	Fourth Quarter	$	785	$	1,097	*	$	721	$	1,783
	Third Quarter	$	793	$	191		$	720	$	1,783
	Second Quarter	$	796	$	192		$	726	$	1,791
	First Quarter	$	785	$	194		$	725	$	1,786
2006
	Fourth Quarter	$	776	$	200		$	723	$	1,790
	Third Quarter	$	782	$	385		$	724	$	1,799
	Second Quarter	$	788	$	390		$	726	$	1,798
	First Quarter	$	789	$	390		$	722	$	1,794

*- Includes a $933,000 redemption premium associated with the redemption of the remaining Class B Shares in December 2007.

Until we acquire properties, we use our funds to pay down outstanding debt under the credit facility.  Thereafter, any excess cash is provided first to our affiliates in the form of short-term bridge financing for development or acquisition of properties and then is invested in short-term investments or overnight funds.   This investment strategy allows us to manage our interest costs and provides us with the liquidity to acquire properties at such time as those suitable for acquisition are located.

Inflation has had very little effect on our income from operations.  We expect that increases in store sales volume due to inflation as well as increases in the Consumer Price Index, may contribute to capital appreciation of our properties.  These factors, however, also may have an adverse impact on the operating margins of the tenants of the properties.

Results of Operations

Comparison of the year ended December 31, 2007 to the year ended December 31, 2006

Total revenues decreased by $7.8 million or 14% in 2007 as compared to 2006 ($49.6 million in 2007 versus $57.4 million in 2006).  Rental revenues increased by $2.4 million, or 9%, in 2007 as compared to 2006 ($30.6 million in 2007 versus $28.2 million in 2006).  This increase is attributable to the acquisition of Uptown Dallas in March 2006 and the Woodlands ground leases in February 2007.  In addition, in the first quarter of 2006 we recorded a reduction to rental revenues of $457,000 as a result of a favorable property tax protest on one of our properties.  This reduction was offset by a corresponding reduction in property expense during 2006.

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AmREIT Construction Company (“ACC”), a wholly owned subsidiary of ARIC, generated revenues of $7.6 million during 2007, compared to $13.5 million in 2006.  Such revenues have been recognized under the percentage-of-completion method of accounting.  This reduction in revenues is primarily attributable to reduced related party work.  A significant related party contract that generated $5.3 million revenues during 2006 was completed in the fourth quarter of 2006.

Real estate fee income decreased approximately $3.1 million to $5.2 million, or 37%, primarily as a result of decreased acquisition fees earned on property transactions within our merchant development funds.  During 2007, we acquired three properties with a total gross lease-able area of approximately 288,000 square feet within our merchant development funds compared to eight properties in 2006 with a total gross lease-able area of approximately 1.0 million square feet.

Securities commission revenue decreased by $1.7 million to $4.8 million or 27% in 2007 as compared to 2006. This decrease in commission revenue was driven by the capital-raising activities of our advisory business.  During 2007, we raised $45 million in capital for one of our merchant development funds, AmREIT Monthly Income and Growth Fund IV, L.P. (MIG IV), versus $60 million in capital that we raised for AmREIT Monthly Income and Growth Fund III, LP (MIG III) during 2006.  This decrease in commission income was partially offset by a corresponding decrease in commission expense paid to other third party broker-dealer firms. As we raise capital for our affiliated merchant development partnerships, we earn a securities commission of approximately 11% of the money raised. These commission revenues are then offset by commission payments to non-affiliated broker-dealers of between 8% and 9%.

Expenses

Total operating expenses decreased by $7.9 million, or 17%, from $45.7 million in 2006 to $37.8 million in 2007. This decrease was primarily attributable to decreases in construction costs, securities commissions, depreciation and amortization and real estate commissions.

ACC recognized $6.9 million in construction costs during 2007, compared to $12.3 million in 2006.  This reduction in construction costs is consistent with the reduction in revenues described above.

Securities commission expense decreased by $1.7 million or 30% from $5.7 million in 2006 to $4.0 million in 2007. This decrease is attributable to decreased capital-raising activity through ASC during 2007 as discussed in “Revenues” above.

Depreciation and amortization decreased by $927,000, or 11%, to $7.8 million in 2007 compared to $8.7 million in 2006. The decrease in depreciation and amortization is attributable to capitalized leasing costs that became fully amortized upon expiration of the related leases in 2006 as well as in 2007.  This decrease was partially offset by increased depreciation and amortization during 2007 related to Uptown Dallas which was acquired in March 2006.

Other

Interest expense increased by $1.7 million, or 25%, from $7.0 million in 2006 to $8.7 million in 2007. The increase in interest expense is primarily attributable to the Woodlands Ground lease acquisition in January 2007, as well as additional draw-downs on our line of credit related to the tender of the Class B shares.

Income from merchant development funds and other affiliates decreased by $814,000, or 84%, to $153,000 in 2007.  The decrease is mainly due to a $465,000 decrease in income associated with our 25% limited partner interest in West Road Plaza, which was sold during 2006.  Additionally, in 2007 we recognized $185,000 in losses related to our 30% limited partner interest in Woodlake Square.

Income from discontinued operations decreased by $864,000, or 63%, to $502,000 in 2007. The decrease is primarily attributed to $667,000 of gains related to properties sold in 2006.

Results of Operations

Comparison of the year ended December 31, 2006 to the year ended December 31, 2005

Total revenues increased by $25.6 million or 80% in 2006 as compared to 2005 ($57.4 million in 2006 versus $31.8 million in 2005).  Rental revenues increased by $7.9 million, or 39%, in 2006 as compared to 2005 ($28.2 million in 2006 versus $20.4 million in 2005). This increase is attributable to the acquisitions during 2005 of Uptown Park, South Bank and MacArthur Park pad sites, as well as the acquisition of Uptown Dallas in March 2006.

During the first quarter of 2005, ACC was formed to provide construction services to third parties as well as to our merchant development funds. ACC began executing on contracts during the quarter ended June 30, 2005.  ACC generated revenues of $13.5 million during 2006, compared to $4.7 million in 2005.  Such revenues have been recognized under the percentage-of-completion method of accounting.

Real estate fee income increased approximately $3.2 million to$8.3, or 64%, primarily as a result of increased acquisition and development fees earned on property transactions within our merchant development funds.  During 2006, we acquired eight properties with a total gross lease-able area of approximately 1.0 million square feet within our merchant development funds compared to five properties in 2005 with a total gross lease-able area of approximately 300 thousand square feet.

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Securities commission revenue increased by $5.4 million to $6.6 million or 464% in 2006 as compared to 2005. This increase in commission revenue was driven by the capital-raising activities of our advisory business related to one of our merchant development funds, AmREIT Monthly Income and Growth Fund III, L.P. (MIG III).  During 2006, we raised approximately $60 million through MIG III, while in 2005, we raised $11.2 million.  We closed the MIG III offering to investors effective October 31, 2006.  This increase in commission income was partially offset by a corresponding increase in commission expense paid to other third party broker-dealer firms. As we raise capital for our affiliated merchant development partnerships, we earn a securities commission of approximately 11% of the money raised. These commission revenues are then offset by commission payments to non-affiliated broker-dealers of between 8% and 9%.

Expenses

Total operating expenses increased by $21.5 million, or 89%, from $24.1 million in 2005 to $45.6 million in 2006. This increase was primarily attributable to increases in construction costs, securities commissions, property expenses, depreciation and amortization and general and administrative expenses.

As discussed above in “Revenues,” ACC was formed in the first quarter of 2005 to provide construction services and began executing on contracts during the quarter ended June 30, 2005. ACC recognized $12.3 million in construction costs during 2006, compared to $4.3 million in 2005.

Property expense increased $2.1 million or 44% in 2006 as compared to 2005 ($7.0 million in 2006 versus $4.9 million in 2005) primarily as a result of the acquisitions of the properties discussed in “Revenues” above.

General and administrative expense increased by $3.1 million, or 49%, during 2006 to $9.3 million compared to $6.2 million in 2005. This increase is primarily due to increases in personnel. We increased our total number of employees during 2006 in order to appropriately match our resources with the growth in our portfolio as well as in our real estate operating and development activities.

Securities commission expense increased by $4.9 million or 563% from $1.0 million in 2005 to $5.7 million in 2006. This increase is attributable to increased capital-raising activity through ASC during 2006 as discussed in “Revenues” above.

Depreciation and amortization increased by $2.7 million, or 45%, to $8.7 million in 2006 compared to $6.0 million in 2005. The increased depreciation and amortization is attributable to the significant property acquisitions made during 2005 and 2006 as discussed in “Revenues” above.

Other

Interest and other income decreased by $720,000 from $705,000 million in 2005 to $1.4 million in 2006 primarily as a result of an increase in interest earned on short-term bridge loans made to affiliates related to their acquisition or development of properties.

Interest expense increased by $1.7 million, or 32%, from $5.2 million in 2005 to $7.0 million in 2006. The increase in interest expense is primarily attributable to having a full year of interest in 2006 related to our placement of $49.0 million in debt in connection with our June 2005 Uptown Park acquisition.

Income from merchant development funds and other affiliates increased by $806, 000, or 501%, to $967,000 in 2006 from $161,000 in 2005. During 2006, we realized an increase of $414,000 of back-end profit participation from our general partner interest in AOF, one of our merchant development funds which is currently in liquidation. We also recognized additional income from affiliates related to our 25% limited partner in West Road Plaza, which was sold during 2006.

Income from discontinued operations decreased by $5.9 million, or 81%, to $1.4 million in 2006. The decrease is primarily attributed to $6.6 million of gains related to properties sold in 2005.

Funds From Operations

We consider FFO to be an appropriate measure of the operating performance of an equity REIT.  NAREIT defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  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 by itself 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.  Since 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 uses 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.

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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:

	2007			2006			2005
Income – before discontinued operations	$	4,749		$	6,197		$	2,858
Income  – from discontinued operations		502			1,366			7,268
Plus depreciation of real estate assets – from operations		7,848			8,760			5,933
Plus depreciation of real estate assets – from
discontinued operations		30			21			130
Adjustments for nonconsolidated affiliates		476			133			100
Less gain on sale of real estate assets acquired
for investment		-			(285	)		(3,400	)
Less class B, C & D distributions		(11,709	)		(11,442	)		(9,245	)
Total Funds From Operations available to class A
shareholders	$	1,896		$	4,750		$	3,644

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

We are exposed to interest-rate changes primarily related to the variable interest rate on our credit facility and related to the refinancing of long-term debt which currently contains fixed interest rates.    To achieve these objectives, we borrow primarily at fixed interest rates.  We currently do not use interest-rate swaps or any other derivative financial instruments as part of our interest-rate risk management approach.

As of December 31, 2007, the carrying value of our debt obligations associated with assets held for investment was $168.6 million, $138.1 million of which represented fixed rate obligations with an estimated fair value of $139.1 million. As of December 31, 2006, the carrying value of our total debt obligations was $144.5 million, $132.5 million of which represented fixed-rate obligations with an estimated fair value of $132.9 million. As of December 31, 2007, the carrying value of our debt obligations associated with assets held for sale was $12.8 million, all of which represented fixed rate obligations with an estimated fair value of $13.6 million. The remaining $30.4 million of our debt obligations have a variable interest rate.  Such debt has market-based terms, and its carrying value is therefore representative of its fair value as of December 31, 2007.  In the event interest rates on variable rate debt were to increase 100 basis points, annual net income, FFO and future cash flows would decrease by $304,000 based on the variable-rate debt outstanding at December 31, 2007.

The discussion above considers only those exposures that exist as of December 31, 2007.  It, therefore, does not consider any exposures or positions that could arise after that date.  As a result, the ultimate impact to us of interest-rate fluctuations will depend upon the exposures that arise during the period, any hedging strategies in place at that time and actual interest rates.

Item 8.   Consolidated Financial Statements and Supplementary Data

(a) (1) Financial Statements

 Report of Independent Registered Public Accounting Firm

 Consolidated Balance Sheets as of December 31, 2007 and 2006

 Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005

 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2007, 2006 and 2005

 Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005

 Notes to Consolidated Financial Statements

(2) Financial Statement Schedule (unaudited)

 Schedule III - Consolidated Real Estate Owned and Accumulated Depreciation

~27~

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2007.  Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2007.

Management’s Report on Internal Control over Financial Reporting

AmREIT and its subsidiaries maintain a system of internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act, which is a process designed under the supervision of the AmREIT's principal executive officer and principal financial officer and effected by AmREIT's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

AmREIT's internal control over financial reporting includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of AmREIT's assets;

- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of AmREIT are being made only in accordance with authorizations of management and trust managers of AmREIT; and

- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of AmREIT's assets that could have a material effect on the financial statements.

AmREIT's management has responsibility for establishing and maintaining adequate internal control over financial reporting for AmREIT. Management, with the participation of AmREIT's Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of AmREIT's internal control over financial reporting as of December 31, 2007 based on the framework in  Internal Control—Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on their evaluation of AmREIT's internal control over financial reporting, AmREIT's management along with the Chief Executive and Chief Financial Officers believe that the AmREIT's internal control over financial reporting is effective as of December 31, 2007.

Changes in Internal Controls

There has been no change to our internal control over financial reporting during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.   Other Information

Not applicable

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PART III

Item 10. Trust Managers, Executive Officers and Corporate Governance

Information with respect to this Item is incorporated by reference from our Proxy Statement, relating to our annual meeting of shareholders to be held on June 3, 2008.

Item 11.   Executive Compensation

Information with respect to this Item is incorporated by reference from our Proxy Statement, relating to our annual meeting of shareholders to be held on June 3, 2008.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We are authorized to grant stock options up to an aggregate of 1,288,739 shares of common stock outstanding at any time as incentive stock options (intended to qualify under Section 422 of the Code) or as options that are not intended to qualify as incentive stock options. All of our equity compensation plans were approved by security holders.  Information regarding our equity compensation plans was as follows as of December 31, 2007:

	(a)	(b)	(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options	Weighted average exercise price of outstanding options	Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders.	—	—	1,288,739
Equity compensation plans not approved by security holders.	—	—	—
TOTAL			1,288,739

Information relating to the security ownership of certain beneficial owners and management is incorporated by reference from our proxy statements, relating to our annual meeting of shareholders to be held on June 3, 2008.

Item 13. Certain Relationships, Related Transactions and Trust Manager Independence

Information with respect to this Item is incorporated by reference from our Proxy Statement, relating to our annual meeting of shareholders to be held on June 3, 2008.

Item 14. Principal Accountant Fees and Services

Information with respect to this Item is incorporated by reference from our Proxy Statement, relating to our annual meeting of shareholders to be held on June 3, 2008.

PART IV

Item 15. Exhibits, Financial Statements and Schedules

(a)	(1)	Financial Statments
		Report of Independent Registered Public Accounting Firm
		Consolidated Balance Sheets as of December 31, 2007 and 2006
		Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
		Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005
		Consolidated Statments of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
		Notes to Consolidated Financial Statements
	(2)	Financial Statement Schedule (unaudited)
		Schedule III - Consolidated Real Estate Owned and Accumulated Depreciation

 (b)                  Exhibits

3.1 Amended and Restated Declaration of Trust  (included as Exhibit 3.1 of the Exhibits to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002, and incorporated herein by reference).

3.2 By-Laws, dated December 22, 2002  (included as Exhibit 3.1 of the Exhibits to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002, and incorporated herein by reference).

10.2 Amended and Restated Revolving Credit Agreement, effective December 8, 2003, by and among AmREIT and Wells Fargo Bank, as the Agent, relating to a $30,000,000 loan (included as Exhibit 10.4 of the Exhibits to the Company’s Annual Report on Form 10-KSB for  the year ended December 31, 2003 and incorporated herein by reference).

10.3                  Eighth Modification Agreement, effective November 4, 2005 by and between AmREIT and Wells Fargo Bank, relating to a                  $40,000,000 loan and modifying the September 4, 2003 Revolving Credit Agreement (included as Exhibit 10.3 of the          Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).

10.4* Revolving Credit Agreement, dated effective as of October 30, 2007 by and between AmREIT as borrower and Wells Fargo Bank.

 21.1*  Subsidiaries of the Company

31.1 * Certification pursuant to Rule 13a-14(a) of Chief Executive Officer dated December 31, 2006.

31.2 * Certification pursuant to Rule 13a-14(a) of Chief Financial Officer dated December 31, 2006.

32.1 ** Chief Executive Officer certification pursuant to 18 U.S.C.  Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 ** Chief Financial Officer certification pursuant to 18 U.S.C.  Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith

** Furnished herewith

Items 5, 6, 7, 7A and 8 of Part II and Item 15 of Part IV of this Form 10-K contain the financial statements, financial statement schedule and other financial information.  No Annual Report or proxy material has yet been provided to security holders with respect to 2007.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on the 19th of March 2007 by the undersigned, thereunto duly authorized.

AmREIT

/s/ H. Kerr Taylor

H. Kerr Taylor, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ H. Kerr Taylor	March 26, 2008
H. KERR TAYLOR
President, Chairman of the Board, Chief Executive
Officer and Director (Principal Executive Officer)
/s/ Robert S. Cartwright, Jr.	March 26, 2008
ROBERT S. CARTWRIGHT, JR., Trust Manager
/s/ G. Steven Dawson	March 26, 2008
G. STEVEN DAWSON, Trust Manager
/s/ Philip W. Taggart	March 26, 2008
PHILIP W. TAGGART, Trust Manager
/s/ H.L. Rush, Jr.	March 26, 2008
H.L. RUSH, JR., Trust Manager
/s/ Brett P. Treadwell	March 26, 2008
BRETT P. TREADWELL, Managing Vice President – Finance
(Principal Accounting Officer)

~29~

AmREIT AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

	Page
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006	F-3
Consolidated Statements of Operations for the years ended     December 31, 2007, 2006 and 2005	F-4
Consolidated Statements of Shareholders' Equity     for the years ended December 31, 2007, 2006 and 2005	F-5
Consolidated Statements of Cash Flows for the years ended     December 31, 2007, 2006 and 2005	F-6
Notes to Consolidated Financial Statements	F-7 to F-29
FINANCIAL STATEMENT SCHEDULE: Schedule III - Consolidated Real Estate Owned and Accumulated     Depreciation for the year ended December 31, 2007	S-1

All other financial statement schedules are omitted as the required information is either inapplicable or is included in the financial statements or related notes.

F-1

Report of Independent Registered Public Accounting Firm

The Board of Trust Managers and Shareholders

AmREIT:

We have audited the accompanying consolidated balance sheets of AmREIT and subsidiaries (“the Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007.  In connection with our audit of the consolidated financial statements, we have also audited the related financial statement schedule.  These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company’s internal control over financial reporting.  As such, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AmREIT and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

KPMG LLP

Houston, Texas

March 26, 2008

F-2

AmREIT AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2007 and December 31, 2006

(in thousands, except share data)

	December 31,			December 31,
	2007			2006
ASSETS
Real estate investments at cost:
Land	$	130,563		$	124,751
Buildings		141,045			140,487
Tenant improvements		10,105			9,296
		281,713			274,534
Less accumulated depreciation and amortization		(15,626	)		(10,628	)
		266,087			263,906
Real estate held for sale and Investment in direct financing leases held for sale, net		22,438			-
Net investment in direct financing leases held for investment		2,058			19,204
Intangible lease cost, net		13,096			16,016
Investment in merchant development funds and other affiliates		10,514			2,651
Net real estate investments		314,193			301,777
Cash and cash equivalents		1,221			3,415
Tenant receivables, net		4,398			4,330
Accounts receivable, net		1,251			1,772
Accounts receivable - related party		5,386			1,665
Notes receivable - related party		10,442			10,104
Deferred costs		2,472			2,045
Other assets		4,394			3,322
TOTAL ASSETS	$	343,757		$	328,430
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable	$	168,560		$	144,453
Notes payable, held for sale		12,811			-
Accounts payable and other liabilities		7,699			9,162
Below market leases, net		3,401			3,960
Security deposits		674			668
TOTAL LIABILITIES		193,145			158,243
Minority interest		1,179			1,137
Shareholders' equity:
Preferred shares, $.01 par value, 10,000,000 shares authorized, none issued		-			-
Class A Common shares, $.01 par value, 50,000,000 shares authorized, 6,626,559 and 6,549,950 shares issued, respectively		66			65
Class B Common shares, $.01 par value, 3,000,000 shares authorized, 0 and 1,080,180 shares issued and outstanding, respectively		-			11
Class C Common shares, $.01 par value, 4,400,000 shares authorized, 4,143,971 and 4,145,531 shares issued and outstanding, respectively		41			41
Class D Common shares, $.01 par value, 17,000,000 shares authorized, 11,045,763 and 11,039,803 shares issued and outstanding, respectively		110			110
Capital in excess of par value		185,165			194,696
Accumulated distributions in excess of earnings		(33,365	)		(23,749	)
Cost of treasury shares, 337,308 and 292,238 Class A shares, respectively		(2,584	)		(2,124	)
TOTAL SHAREHOLDERS' EQUITY		149,433			169,050
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	343,757		$	328,430

See Notes to Consolidated Financial Statements. 

F-3

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2007, 2006 and 2005
(in thousands, except per share data)
Year to date ended December 31,
        

        
2007
        
2006
        
2005
        

        
Revenues:
        

        
Rental income from operating leases
        
$
30,381
$
27,999
$
20,132

        
Earned income from direct financing leases
        
239
238
238

        
Real estate fee income
        
1,196
1,334
485

        
Real estate fee income - related party
        
4,046
6,983
4,588

        
Construction revenues
        
1,745
3,025
2,302

        
Construction revenues - related party
        
5,900
10,435
2,434

        
Securities commission income - related party
        
4,805
6,554
1,163

        
Asset management fee income - related party
        
1,289
823
495

        
Total revenues
        
49,601
57,391
31,837

        
<
font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> 

        
Expenses:
        
 

        
General and administrative
        
9,252
9,297
6,230

        
Property expense
        
7,601
6,986
4,848

        
Construction costs
        
6,906
12,290
4,283

        
Legal and professional
        
1,745
1,546
1,849

        
Real estate commissions
        
459
1,042
-

        
Securities commissions
        
3,989
5,732
864

        
Depreciation and amortization
        
7,808
8,735
6,027

        
Total expenses
        
37,760
45,628
24,101

        
<
font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> 

        
Operating income
        
11,841
11,763
7,736

        
<
font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> 

        
Other income (expense):
        
 

        
Interest and other income - related party
        
1,142
1,425
705

        
Income from merchant development funds and other affiliates
        
153
967
161

        
Tax benefit (expense) for taxable REIT subsidiary
        
263
(1,066
)
(521
)
        
Interest expense
        
(8,694
)
(6,954
)
(5,262
)
        
Minority interest in income of consolidated joint ventures
        
44
62
39

        
Income before discontinued operations
        
4,749
6,197
2,858

        
Income from discontinued operations, net of taxes
        
502
984
4,046

        
Gain on sales of real estate acquired for resale, net of taxes
        
-
382
3,222

        
Income from discontinued operations
        
502
1,366
7,268

        
Net income
        
5,251
7,563
10,126

        
Distributions paid to class B, C and D shareholders
        
(11,709
)
(11,442
)
(9,245
)
        
Net income (loss) available to class A shareholders
        
$
(6,458
)
$
(3,879
)
$
881

        
Net loss per class A common share - basic and diluted
        
 

        
Loss before discontinued operations
        
$
(1.09
)
$
(0.83
)
$
(1.23
)
        
Income from discontinued operations
        
$
0.08
$
0.22
$
1.40

        
Net (loss) income
        
$
(1.01
)
$
(0.61
)
$
0.17

        
<
font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"> 

        
Weighted average class A common shares used to compute net loss per share, basic and diluted
        
6,358
6,300
5,205

        
        
        
     
        
      

F-4

AmREIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the years ended December 31, 2007, 2006 and 2005

(in thousands, except share data)

	Common Shares Amount			Capital in excess of par value			Accumulated distributions in excess of earnings			Cost of treasury shares			Total
Balance at December 31, 2004	$	119		$	103,344		$	(15,038	)	$	(55	)	$	88,370
Net income		-			-			10,126			-			10,126
Issuance of common shares, Class A		30			21,630			-			57			21,717
Issuance of restricted shares, Class A		-			(1,248	)		-			117			(1,131	)
Amortization of deferred compensation		-			490			-			(667	)		(177	)
Issuance of common shares, Class C		-			1,646			-			-			1,646
Retirement of common shares, Class C		-			(1,377	)		-			-			(1,377	)
Issuance of common shares, Class D		89			80,250			-			-			80,339
Retirement of common shares, Class D		-			(404	)		-			-			(404	)
Distributions		-			-			(11,824	)		-			(11,824	)
Balance at December 31, 2005	$	238		$	204,331		$	(16,736	)	$	(548	)	$	187,285
Net income		-			-			7,563			-			7,563
Deferred compensation issuance of restricted shares, Class A		-			(987	)		-			1,264			277
Repurchase of common shares, Class A		-			-			-			(2,840	)		(2,840	)
Repurchase of common shares, Class B		(11	)		(9,220	)		-			-			(9,231	)
Amortization of deferred compensation		-			556			-			-			556
Issuance of common shares, Class C		2			1,726			-			-			1,728
Retirement of common shares, Class C		(2	)		(1,506	)		-			-			(1,508	)
Issuance of common shares, Class D		5			4,554			-			-			4,559
Retirement of common shares, Class D		(5	)		(4,758	)		-			-			(4,763	)
Distributions		-			-			(14,576	)		-			(14,576	)
Balance at December 31, 2006	$	227		$	194,696		$	(23,749	)	$	(2,124	)	$	169,050
Net income		-			-			5,251			-			5,251
Deferred compensation issuance of restricted shares, Class A		-			(749	)		-			837			88
Issuance of common shares, Class A		1			-			-			-			1
Repurchase of common shares, Class A		-			-			-			(1,297	)		(1,297	)
Repurchase of common shares, Class B		(11	)		(9,274	)		-			-			(9,285	)
Amortization of deferred compensation		-			739			-			-			739
Issuance of common shares, Class C		2			1,721			-			-			1,723
Retirement of common shares, Class C		(2	)		(1,754	)		-			-			(1,756	)
Issuance of common shares, Class D		5			4,412			-			-			4,417
Retirement of common shares, Class D		(5	)		(4,626	)		-			-			(4,631	)
Distributions		-			-			(14,867	)		-			(14,867	)
Balance at December 31, 2007	$	217		$	185,165		$	(33,365	)	$	(2,584	)	$	149,433

See Notes to Consolidated Financial Statements.
 

F-5

AmREIT AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share data)

(unaudited)

	Year Ended December 31,
	2007			2006			2005
Cash flows from operating activities:
Net income	$	5,251		$	7,563		$	10,126
Adjustments to reconcile net income to net cash provided by operating activities:
Investment in real estate acquired for resale		-			(3,331	)		(3,399	)
Proceeds from sales of real estate acquired for resale		1,399			2,190			11,497
Gain on sales of real estate acquired for resale		-			(382	)		(3,223	)
Gain on sales of real estate acquired for investment		-			(285	)		(3,400	)
Debt prepayment penalty		-			-			109
Income from merchant development funds and other affiliates		(153	)		(967	)		(161	)
Cash receipts related to deferred related party fees		851			-			422
Depreciation and amortization		7,746			8,824			5,777
Amortization of deferred compensation		739			556			490
Minority interest in income of consolidated joint ventures		139			56			838
Distributions from merchant development funds and other affiliates		467			1,857			159
Increase in tenant receivables		(68	)		(1,198	)		(1,844	)
(Increase) decrease in accounts receivable		521			35			(1,770	)
(Increase) decrease in accounts receivable - related party		(3,721	)		2,493			(3,073	)
Cash receipts from direct financing leases more than income recognized		112			8			7
Increase in other assets		(962	)		(296	)		(1,368	)
(Increase) decrease in accounts payable and other liabilities		(1,377	)		1,002			3,402
Increase in security deposits		6			22			280
Net cash provided by operating activities		10,950			18,147			14,869
Cash flows from investing activities:
Improvements to real estate		(3,735	)		(4,026	)		(1,784	)
Acquisition of investment properties		(10,610	)		(24,518	)		(110,640	)
Notes receivable (advances) collections		-			-			(20	)
Loans to affiliates		(6,423	)		(22,069	)		(11,232	)
Payments from affiliates		6,085			23,197			-
Additions to furniture, fixtures and equipment		(75	)		(128	)		(162	)
Investment in merchant development funds and other affiliates		(9,263	)		(1,055	)		(929	)
Distributions from merchant development funds and other affiliates		235			137			79
Proceeds from sale of investment property		-			4,466			16,603
(Decrease) Increase in preacquisition costs		(179	)		16			(15	)
Net cash used in investing activities		(23,965	)		(23,980	)		(108,100	)
Cash flows from financing activities:
Proceeds from notes payable		104,811			82,650			52,386
Payments of notes payable		(67,658	)		(52,652	)		(43,436	)
Increase in deferred costs		(542	)		(130	)		(219	)
Purchase of treasury shares		(1,297	)		(2,610	)		(582	)
Issuance of common shares		-			-			108,976
Retirement of common shares		(15,669	)		(15,502	)		(1,781	)
Issuance costs		(12	)		(82	)		(11,424	)
Common dividends paid		(8,715	)		(8,246	)		(6,961	)
Distributions to minority interests		(97	)		(95	)		(773	)
Net cash provided by financing activities		10,821			3,333			96,186
Net increase (decrease) in cash and cash equivalents		(2,194	)		(2,500	)		2,955
Cash and cash equivalents, beginning of period		3,415			5,915			2,960
Cash and cash equivalents, end of period	$	1,221		$	3,415		$	5,915
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest	$	9,708		$	7,861		$	6,506
Income taxes		867			945			707

Supplemental schedule of noncash investing and financing activities

During 2007, 2006 and 2005, 49,000, 70,000, and 98,000 Class B common shares, respectively were converted to Class A common shares. Additionally, during 2007, 2006 and 2005, we issued Class C common and D common shares with a value of $6.2 million, $6.3 million, and $4.9 million respectively, in satisfaction of dividends through the dividend reinvestment program.

In 2007, we issued 131,000 restricted shares to employees and trust managers as part of their compensation arrangements.  The restricted shares vest over a four and three year period, respectively. We recorded $1.1 million in deferred compensation related to the issuance of the restricted shares.

In 2006, the Company issued 103,000 restricted shares to employees and trust managers as part of their compensation arrangements.  The restricted shares vest over a four and three year period, respectively. We recorded $725,000 in deferred compensation related to the issuance of the restricted shares.

See Notes to Consolidated Financial Statements.

F-6

AmREIT AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007, 2006 and 2005

1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

We are an established real estate company that has elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes. Our business model is similar to an institutional advisory company that is judged by its investor partners on the returns we are able to deliver to reach specified long-term results. Our primary objective is to build long-term shareholder value and continue to build and enhance the net asset value (NAV) of AmREIT and its advised funds.

We seek to create value and drive net operating income (NOI) growth on the properties owned in our institutional-grade portfolio of Irreplaceable Corners™ and those owned by a series of closed-end, merchant development funds. We also seek to support a growing advisory business that raises capital through an extensive independent broker dealer channel as well as through institutional joint venture partners.

AmREIT’s direct predecessor, American Asset Advisers Trust, Inc. (“AAA”), was formed as a Maryland corporation in 1993. Prior to 1998, AAA was externally advised by American Asset Advisors Corp. which was formed in 1985.  In June 1998, AAA merged with its advisor and changed its name to AmREIT, Inc. In December 2002, AmREIT, Inc. reorganized as a Texas real estate investment trust and became AmREIT.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.  The consolidated financial statements include our accounts as well as the accounts of any wholly- or majority-owned subsidiaries in which we have a controlling financial interest.  Investments in joint ventures and partnerships where we have the ability to exercise significant influence but do not exercise financial and operating control, are accounted for using the equity method, unless such entities qualify as variable interest entities, and this are considered for consildation under applicable accounting literature related to consolidation.  All significant inter-company accounts and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

We lease space to tenants under agreements with varying terms. The majority of the leases are accounted for as operating leases with revenue being recognized on a straight-line basis over the terms of the individual leases. Accrued rents are included in tenant receivables. Revenue from tenant reimbursements of taxes, maintenance expenses and insurance is recognized in the period the related expense is recorded. Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. During the years ended December 31, 2007, 2006 and 2005, we recognized percentage rents of $669,000, $760,000, and $154,000, respectively.  We recognize lease termination fees in the period that the lease is terminated and collection of the fees is reasonably assured.  During the three years in the period ended December 31, 2007, we recognized lease termination fees of $266,000, $700,000, and $0, respectively, which have been included in rental income from operating leases.  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.

F-7

We have been engaged to provide various real estate services, including development, construction, 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. Revenues from fixed-price construction contracts are recognized on the percentage-of-completion method, measured by the physical completion of the structure. Revenues from cost-plus-percentage-fee contracts are recognized on the basis of costs incurred during the period plus the percentage fee earned on those costs. Construction management contracts are recognized only to the extent of the fee revenue.

Construction contract costs include all direct material and labor costs and any indirect costs related to contract performance. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from any contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Any profit incentives are included in revenues when their realization is reasonably assured. An amount equal to contract costs attributable to any claims is included in revenues when realization is probable and the amount can be reliably estimated.

Unbilled construction receivables represent reimbursable costs and amounts earned under contracts in progress as of the date of our balance sheet.  Such amounts become billable according to contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.  Advance billings represent billings to or collections from clients on contracts in advance of revenues earned thereon.  Unbilled construction receivables are generally billed and collected within the twelve months following the date of our balance sheet, and advance billings are generally earned within the twelve months following the date of our balance sheet.  As of December 31, 2007, $4,000 of unbilled receivables has been included in “Accounts receivable” and $85,000 of unbilled receivables due from related parties has been included in “Accounts receivable – related party”.  At December 31, 2006, $126,000 of unbilled receivables has been included in “Accounts receivable” and $14,000 of unbilled receivables due from related parties has been included in “Accounts receivable – related party”. We had advance billings of $6,000 and $44,000 as of December 31, 2007 and December 31, 2006, respectively.

Securities commission income is recognized as units of our merchant development funds are sold through our wholly-owned subsidiary, AmREIT Securities Company (ASC). Securities commission income is earned as the services are performed and pursuant to the corresponding prospectus or private offering memorandum. Generally, it includes a selling commission of between 6.5% and 7.5%, a dealer manager fee of between 2.5% and 3.25% and offering and organizational costs of 1.0% to 1.50%. The selling commission is then paid out to the unaffiliated selling broker dealer and reflected as securities commission expense.

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.  The Company capitalizes acquisition costs once the acquisition of the property becomes probable.  Prior to that time, we expense these costs as acquisition expense.  During the years ended December 31, 2007, 2006 and 2005, interest and taxes in the amount of $46,000, $57,000, and, $188,000, respectively were capitalized on properties under development.

Acquired Properties and Acquired Lease Intangibles – We account for real estate acquisitions pursuant to Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”).  Accordingly, we allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values.  Identifiable intangibles include amounts allocated to acquired out-of-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. 

F-8

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 out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases.  Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.

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 site improvements and over the term of lease for tenant improvements.  Leasehold estate properties, where we own the building and improvements but not the related ground, are amortized over the life of the lease.

Properties Held for Sale - Properties are classified as held for sale if we have decided to market the property for immediate sale in its present condition with the belief that the sale will be completed within one year.  Operating 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.  At December 31, 2007, we owned 19 properties with a carrying value of $22.4 million which were classified as real estate held for sale.  At December 31, 2006, we did not have any properties that met the criteria for classification as real estate held for sale.

Our properties generally have operations and cash flows that can be clearly distinguished from the rest of the Company.  The operations and gains on sales reported in discontinued operations include those properties that have been sold or are held for sale and for which operations and cash flows have been clearly distinguished.  The operations of these properties have been eliminated from ongoing operations, and we will not have continuing involvement after disposition.  Prior period operating activity related to such properties has been reclassified as discontinued operations in the accompanying statements of operations.

Impairment – We review our properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through operations.  We determine whether an impairment in value 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 three years ended December 31, 2007.

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. As of both December 31, 2007 and 2006, we had an allowance for uncollectible accounts of $157,000 related to our tenant receivables.  During 2007, 2006 and 2005, we recorded bad debt expense in the amount of $55,000, $236,000and $163,000, respectively, related to tenant receivables that we specifically identified as potentially uncollectible based on our assessment of the tenant’s credit-worthiness.  We recovered $97,000 in 2005 and had no recoveries of bad debt in 2006 or 2007 related to tenant receivables. Bad debt expenses and any related recoveries are included in general and administrative expense.

Accounts receivable – Included in accounts receivable are amounts due from clients of our construction services business and various other receivables.  As of December 31, 2007 and 2006, we had an allowance for uncollectible accounts of $264,000 related to our accounts receivable.  During 2005, we recorded bad debt expense in the amount of $264,000 related to amounts due to us as reimbursement from a vendor for obligations that we paid on such vendor’s behalf.  We believe such amounts to be potentially uncollectible based on our assessment of the vendor’s credit-worthiness and other considerations.  We have recorded no other bad debt expense related to accounts receivable during the three years in the period ended December 31, 2007.  Bad debt expense and any related recoveries are included in general and administrative expense.

Notes receivable – related party – Included in related party notes receivable are loans made to our affiliated merchant development funds as part of our treasury management function whereby we place excess cash in short term bridge loans for these affiliates related to the acquisition or development of properties.  We typically provide such financing to our affiliates as a way of efficiently deploying our excess cash and earning a higher return than we would in other short term investments or overnight funds.  In most cases, the funds have a construction lender in place, and we simply step in and provide financing on the same terms as the third party lender.  In so doing, we are able to access these funds as needed by having our affiliate then draw down on their construction loans.  These loans are unsecured, bear interest at the prime rate and are due upon demand.

F-9

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 external commissions associated with leasing our properties and are amortized to expense over the lease term.  Accumulated amortization related to deferred loan costs as of December 31, 2007 and 2006 totaled $627,000 and $421,000, respectively.  Accumulated amortization related to leasing costs as of December 31, 2007 and 2006 totaled $450,000 and $264,000, respectively.

DEFERRED COMPENSATION

Our deferred compensation and long term incentive plan is designed to attract and retain the services of our trust managers 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, and provide key employees the opportunity to participate in the success of our affiliated actively managed merchant development funds through the economic participation in our general partner companies. All long term compensation awards are designed to vest over a period of three to seven years and promote retention of our team.

Restricted Share Issuances - Deferred compensation includes grants of restricted shares to our trust managers 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 closing price per share of our class A common shares on the grant date. We amortize such fair value ratably over the vesting periods of the respective awards.

The following table presents restricted share activity during the years ended December 31, 2007 and 2006:

	2007					2006
	Non-Vested Shares			Weighted Average grant date fair value		Non-Vested Shares			Weighted Average grant date fair value
Beginning of Period		355,599		$	7.31		253,002		$	7.49
Granted		131,334			8.51		166,266			7.01
Vested		(50,758	)		7.36		(32,777	)		7.27
Forfeited		(25,345	)		7.53		(30,892	)		7.23
End of Period		410,830			7.67		355,599			7.31

The weighted-average grant date fair value of restricted shares issued during the years ended December 31, 2007 and 2006 was $8.51 per share and $7.01 per share, respectively.  The total fair value of shares vested during the years ended December 31, 2007 and 2006 was $374,000 and $238,000 respectively.  Total compensation cost recognized related to restricted shares during the three years in  the period ended December 31, 2007 was $739,000, $556,000 and $502,000, respectively.  As of December 31, 2007, total unrecognized compensation cost related to restricted shares was $2.1 million, and the weighted average period over which we expect this cost to be recognized is 3.7 years.

General Partner Profit Participation Interests - We have assigned up to 45% of the residual economic interest in certain of our merchant development funds to certain of our key employees. This economic interest is received, as, if and when we receive economic benefit from our profit participation, 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. This allows us to align the interest of our employees with the interest of our shareholders. Because any future profits and earnings from the retail limited partnerships cannot be reasonably predicted or estimated, and any employee benefit is contingent upon the benefit received by the general partner of the retail limited partnerships, we recognize expense associated with the assignment of economic interest in our retail limited partnerships as we recognize the corresponding income from the associated merchant development funds.

F-10

No portion of the economic interest in the merchant development funds that have provided profit participation to us to date have been assigned to employees. Therefore, no compensation expense has been recorded to date.

Tax-Deferred Retirement Plan (401k) - We maintain a defined contribution 401k retirement plan for our employees. This plan is available for all employees immediately upon employment.  The plan allows for contributions to be either invested in an array of large, mid and small cap mutual funds or directly into class A common shares. Employee contributions invested in our stock are limited to 50% of the employee’s contributions. We match 50% of the employee’s contribution, up to a maximum employee contribution of 4%. None of the employer contribution can be matched in our stock.  As of December 31, 2007, 2006 and 2005, there were 65, 40 and 41 participants enrolled in the plan.  Employer contributions to the plan were $101,000, $99,000 and $72,000, for the three years in the period ended December 31, 2007.

Stock Options - We are authorized to grant options on up to an aggregate of 1,288,739 shares of our class A common shares as either incentive or non-qualified share options, up to an aggregate of 6.0% of the total voting shares outstanding.  As of December 31, 2007 and December 31, 2006, none of these options have been granted.

FEDERAL 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, and are, therefore, not subject to Federal income taxes to the extent of dividends paid, provided we meets all conditions specified by the Internal Revenue Code for retaining our REIT status, including the requirement that at least 90% of our real estate investment trust taxable income be distributed to shareholders.

Our real estate development and operating business, AmREIT Realty Investment Corporation and subsidiaries (“ARIC”), is a fully integrated and wholly-owned business consisting of brokers and real estate professionals that provide development, acquisition, brokerage, leasing, construction, asset and property management services to our publicly traded portfolio and merchant development funds as well as to third parties. ARIC and our wholly-owned corporations that serve as the general partners of our merchant development funds are treated for Federal income tax purposes as taxable REIT subsidiaries (collectively, the “Taxable REIT Subsidiaries”).

State – In May 2006, the State of Texas adopted House Bill 3, which modified the state’s franchise tax structure, replacing the previous tax based on capital or earned surplus with one based on margin (often referred to as the “Texas Margin Tax”) effective with franchise tax reports filed on or after January 1, 2008. The Texas Margin Tax is computed by applying the applicable tax rate (1% for us) to the profit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction.  Although House Bill 3 states that the Texas Margin Tax is not an income tax, SFAS No. 109, Accounting for Income Taxes, applies to the Texas Margin Tax.  We have recorded a margin tax provision of $279,000 and $0 for the Texas Margin Tax for the year ended December 31, 2007 and December 31, 2006, respectively.

EARNINGS PER SHARE

Basic earnings per share has been computed by dividing net income (loss) available to Class A common shareholders by the weighted average number of class A common shares outstanding.  Diluted earnings per share has been computed by dividing net income (as adjusted as appropriate) by the weighted average number of common shares outstanding plus the weighted average number of dilutive potential common shares.  Diluted earnings per share information is not applicable due to the anti-dilutive nature of the common class C and class D shares which represent 19.4 million, 24.7 million and 22.2 million  potential common shares for the years ended December 31, 2007, 2006 and 2005, respectively.

The following table presents information necessary to calculate basic and diluted earnings per share for the periods indicated:

	For the Years Ended December 31,
	2007			2006			2005
(Loss) earnings to class A common shareholders (in thousands) *	$	(6,458	)	$	(3,879	)	$	881
Weighted average class A common shares outstanding (in thousands)		6,358			6,300			5,205
Basic and diluted (loss)/earnings per share *	$	(1.01	)	$	(0.61	)	$	0.17

F-11

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our consolidated financial instruments consist primarily of cash, cash equivalents, tenant receivables, accounts receivable, notes receivable, accounts payable and other liabilities and notes payable. The carrying value of cash, cash equivalents, tenant receivables, accounts receivable, notes receivable, accounts payable and other liabilities are representative of their respective fair values due to the short-term maturity of these instruments. Our revolving line of credit has market-based terms, including a variable interest rate. Accordingly, the carrying value of the line of credit is representative of its fair value.

As of December 31, 2007, the carrying value of our debt obligations associated with assets held for investment was $168.6 million, $138.1 million of which represented fixed rate obligations with  an estimated fair value of $139.1 million. As of December 31, 2006, the carrying value of our total debt obligations was $144.5 million, $132.5 million of which represented fixed-rate obligations with an estimated fair value of $132.9 million.

As of December 31, 2007, the carrying value of our debt obligations associated with assets held for sale was $12.8 million, all of which represented fixed rate obligations with an estimated fair value of $13.6 million.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In December 2003, the FASB reissued Interpretation No. 46 (“FIN 46R”), Consolidation of Variable Interest Entities, as revised.  FIN 46R addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights.  FIN 46R requires a variable interest entity to be consolidated by a company that is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both.  Disclosures are also required about variable interest entities in which a company has a significant variable interest but that it is not required to consolidate.

As of December 31, 2007, we are an investor in and the primary beneficiary of one entity that qualifies as a variable interest entity pursuant to FIN 46R.  This entity was established to develop, own, manage, and hold property for investment and comprises $6.7 million of our total consolidated assets at period end.  This entity had no debt outstanding at period end.

NEW ACCOUNTING STANDARDS

In December 2007, the FASB issued SFAS No. 141 (Revised 2007),“Business Combinations” (SFAS No. 141R).  SFAS No. 141R will change the accounting for business combinations. Under FAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions.  SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  We are currently evaluating the potential impact of SFAS No. 141R on our financial position and results of operations beginning for fiscal year 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (SFAS No. 160).  SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS No. 160 shall be applied prospectively. We are currently evaluating the potential impact of the adoption of SFAS No. 160 on our consolidated financial statements.

F-12

In February 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective for fiscal years beginning after November 15, 2007. We currently do not plan to measure any eligible financial assets and liabilities at fair value under the provisions of SFAS No. 159.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).  SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements.  SFAS No. 157 requires companies to disclose the fair value if its financial instruments according to a fair value hierarchy.  Additionally,

companies are required to provide certain disclosures regarding instruments within the hierarchy, including a reconciliation of the beginning and ending balances for each major category of assets and liabilities.  SAFS No. 157 is effective for our fiscal year beginning January 1, 2008.  The adoption of SFAS No. 157 is not expected to have a material effect on our results of operations or financial position.

DISCONTINUED OPERATIONS

The following is a summary of our discontinued operations (in thousands, except for per share data):

	2007			2006			2005
Rental revenue and earned income from DFL	$	2,053		$	2,003		$	3,949
Interest and other income		-			-			146
Gain on sale of real estate held for resale		-			382			3,222
Gain on sale of real estate held for investment		-			285			3,400
Total revenues		2,053			2,670			10,717
Property expense		(3	)		(31	)		395
General and administrative		10			18			266
Legal and professional		47			51			12
Depreciation and amortization		30			22			130
Income tax expense (benefit)		19			(12	)		329
Interest expense		1,263			1,136			1,332
Minority interest		185			120			876
Debt prepayment penalty		-			-			109
Total expenses		1,551			1,304			3,449
Income from discontinued operations		502			1,366			7,268
Basic and diluted income from discontinued  operations per class A common share	$	0.08		$	0.22		$	1.40

F-13

Included in discontinued operations is the operating activity related to 19 of our properties that have either been sold or that are held for sale.  Our AAA CTL Portfolio comprises 17 of these properties.  Each of these 17 properties were treated as investments in direct financing leases for financial reporting purposes.  See Note 5 for futher discussion of AAA CTL.

STOCK ISSUANCE COSTS

Issuance costs incurred in the raising of capital through the sale of common shares are treated as a reduction of shareholders’ equity.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company considers 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. OPERATING LEASES

Our operating leases range from one to twenty-five years and generally include one or more five year renewal options.  A summary of minimum future base rentals to be received, exclusive of any renewals, under non-cancelable operating leases in existence at December 31, 2007 is as follows (in thousands):

2008	$	23,838
2009		22,975
2010		19,584
2011		15,973
2012		13,927
Thereafter		98,795
	$	195,092

4. NET INVESTMENT IN DIRECT FINANCING LEASES

The Company’s net investment in its direct financing leases at December 31, 2007 and 2006 included (in thousands):

		Associated with Assets				Associated with Assets
		Held for Investment				Held For Sale
		2007		2006		2007		2006
Minimum lease payments receivable	$	4,517	$	44,797	$	38,142	$	-
Unguaranteed Residual Value		701		1,763		802		-
Less: Unearned Income		(3,160)		(27,356)		(21,909)		-
	$	2,058	$	19,204	$	17,035	$	-

A summary of minimum future rentals, exclusive of any renewals, under the non-cancelable direct financing leases in existence at December 31, 2007 is as follows (in thousands):

	Associated with Assets Held for Investment		Associated with Assets Held for Sale
2008		229		1,988
2009		241		1,988
2010		252		1,988
2011		252		1,989
2012		252		2,099
2013-thereafter		3,291		28,090
		4,517		38,142

F-14

5.  INVESTMENTS IN MERCHANT DEVELOPMENT FUNDS AND OTHER AFFILIATES

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 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 51% aggregate residual 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 AAA limited partnership agreement.

During the third quarter of 2007, we elected to hold the AAA assets for sale.

Merchant Development Funds

As of December 31, 2007, we owned, through wholly-owned subsidiaries, interests in six 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 merchant development funds were formed to develop, own, manage and add value to properties with an average holding period of two to four years. Our interests in these merchant development funds range from 2.1% to 10.5%.  See Note 11 regarding transactions we have entered into with our merchant development funds.

AmREIT Opportunity Fund (“AOF”) — AmREIT Opportunity Corporation (“AOC”), our wholly-owned subsidiary, invested $250,000 as a limited partner and $1,000 as a general partner in AOF. We currently own a 10.5% limited partner interest in AOF. Liquidation of AOF commenced in July 2002, and, as of December 31, 2007, AOF has an interest in one property. As the general partner, AOC receives a promoted interest in cash flow and any profits after certain preferred returns are achieved for its limited partners.

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.  Certain members of our management team have been assigned a 49% aggregate residual interest in the income and cash flow of AIGC.  Pursuant to the AIG limited partnership agreement, net sales proceeds from its liquidation (expected in 2008) will be allocated to the limited partners, and to the general partner (AIGC) as, if and when the annual return thresholds have been achieved by the limited partners.

AmREIT Monthly Income & Growth Fund (“MIG”) — AmREIT Monthly Income & Growth Corporation, 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.

AmREIT Monthly Income & Growth Fund II (“MIG II”) — AmREIT Monthly Income & Growth II Corporation, 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.

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 money 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.Certain members of our management team have been assigned a 28.5% aggregate residual interest in the income and cash flow of MIGC III.  Pursuant to the MIG III limited partnership agreement, net sales proceeds from its liquidation (expected in 2012) will be allocated to the limited partners, and to the general partner (MIGC III) as, if and when the annual return thresholds have been achieved by the limited partners.

AmREIT Monthly Income & Growth Fund IV (“MIG IV”) - AmREIT Monthly Income & Growth IV Corporation (“MIGC

F-15

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 money in November 2006, and, as of December 31, 2007, had raised approximately $45 million.  We expect our limited partnership interest at completion of the offering to be between 0.8% and 2.0%.  Certain members of our management team have been assigned a 28.5% aggregate residual interest in the income and cash flow of MIGC IV.  Pursuant to the MIG IV limited partnership agreement, net sales proceeds from its liquidation (expected in 2013) will be allocated to the limited partners, and to the general partner (MIGC IV) as, if and when the annual return thresholds have been achieved by the limited partners

REITPlus, Inc.- During the fourth quarter, a registration statement relating to REITPlus, Inc. (“REITPlus”), a $550 million non-traded REIT offering that will be advised by one of our wholly-owned subsidiaries, was declared effective by the SEC, allowing REITPlus to begin offering its common stock through our securities operation’s broker dealer network. We will operate substantially all of our operations through REITPlus Operating Partnership, LP (“REITPlus OP”) which will own substantially all of the properties acquired on REITPlus’s behalf.  On May 16, 2007, we purchased 100 shares of common stock of REITPlus for total cash consideration of $1,000 and were admitted as the initial shareholder.  Additionally, on May 16, 2007, we made an initial limited partner contribution of $1 million to REITPlus OP.

We will serve as the advisor to REITPlus and will therefore earn recurring fees such as asset management and property management fees, and transactional fees such as acquisition fees, development fees and sales commissions. We will also participate in a 15% promoted interest after the REITPlus stockholders receive their invested capital plus a 7% preferred return.  In our capacity as advisor to REITPlus, we have paid organization and offering costs of $1.1 million on its behalf.  Once REITPlus meets its minimum subscription threshold, such costs will be reimbursed to us.  We have recorded these costs as a receivable in the accompanying financial statements and expect reimbursement for them in the first quarter of 2008.

F-16

The following table sets forth certain financial information for the AIG, MIG, MIG II, MIG III and MIG IV merchant development funds (AOF is not included as it is currently in liquidation):

									Sharing Ratios*
Merchant Development Fund	Capital under Management			LP Interest		GP Interest		Scheduled Liquidation	LP			GP			LP Preference
AIG	$	3	million		2.0%		1.0%	2008		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%	2010		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%	2011		99	%		1	%		8	%
										85	%		15	%		12	%
										0	%		100	%	40% Catch Up
										60	%		40	%	Thereafter
MIG III	$	71	million		1.1%		1.0%	2012		99	%		1	%		10	%
										0	%		100	%	40% Catch Up
										60	%		40	%	Thereafter
MIG IV	$	45	million		1.8%		1.0%	2013		99	%		1	%		8.5	%
										0	%		100	%	40% Catch Up
										60	%		40	%	Thereafter
REITPlus**		-	million	NA		NA		2014		99	%		1	%		7	%
										85	%		15	%	Thereafter

* Illustrating the Sharing Ratios and LP Preference provisions using AIG as an example, the LPs share in 99% of the cash distributions until they receive an 8% preferred return.  The LPs share in 90% of the cash distributions until they receive a 10% preferred return and so on.

** REITPlus commenced capital raising in the first quarter of 2008.

Other Affiliates

Other than the merchant development funds, we have an investment in two entities that are accounted for under the equity method since we exercise significant influence over such investees. We invested $3.4 million in Woodlake Square, LP, and we have a 30% limited partner interest in the partnership. Woodlake Square was formed in 2007 to acquire, lease and manage Woodlake Square, a shopping center located on the west side of Houston, TX at the intersection of  Westheimer and Gessner.  Also, we invested $3.8 million in Borders, LP, and we have a 30% limited partner interest in the partnership. Borders was formed in 2007 to acquire, lease and manage Borders Shopping Center, a shopping center located on the west side of Houston, TX at the intersection of  Westheimer and Gessner.

F-17

Combined condensed financial information for the merchant development funds and other affiliates (at 100%) is summarized as follows:

	As of December 31,
Combined Balance Sheets (in thousands)	2007		2006
Assets
Property, net	$	155,699	$	149,929
Cash		28,208		34,221
Notes receivable		10,497		18,608
Other assets		35,825		24,453
Total Assets		230,229		227,211
Liabilities and partners' capital:
Notes payable (1)		106,291		122,979
Other liabilities		9,664		1,168
Partners capital		114,274		103,064
Total Liabilities and Partners' Capital	$	230,229	$	227,211
AmREIT share of Partners' Capital	$	10,514	$	2,651

	Years ended December 31,
Combined Statement of Operations (in thousands)	2007			2006		2005
Revenue
Total Revenue		15,173			14,248		7,836
Expense
Interest		5,135			3,196		1,849
Depreciation and amortization		4,570			2,757		996
Other		8,779			3,722		2,306
Total Expense		18,484			9,675		5,151
Net (loss) income	$	(3,311	)	$	4,573	$	2,685
AmREIT share of Net (loss) income	$	153		$	967	$	161

(1)  Includes $10.5 million and $10.1 million payable to us as of December 31, 2007 and 2006, respectively.

6.  ACQUIRED LEASE INTANGIBLES

In accordance with SFAS No. 141, we have identified and recorded the value of intangibles at the property acquisition date.  Such intangibles include the value of in-place leases and out-of-market leases.  Acquired lease intangible assets (in-place leases and above-market leases) are amortized over the leases’ remaining terms, which range from 1 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 $2.3 million, $2.7 million and $2.0 million during 2007, 2006 and 2005, respectively.  The amortization of above-market leases, which was recorded as a reduction of rental income, was $382,000, $487,000 and $337,000 during 2007, 2006 and 2005, respectively.

F-18

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

	December 31, 2007						December 31, 2006
	In-Place leases			Above-market leases			In-Place leases			Above-market leases
Cost	$	19,052		$	2,025		$	19,408		$	2,146
Accumulated amortization		(6,910	)		(1,071	)		(4,728	)		(810	)
Intangible lease cost, net	$	12,142		$	954		$	14,680		$	1,336

Acquired lease intangible liabilities (below-market leases) are net of previously accreted minimum rent of $1.6 million and $1.1 million at December 31, 2007 and 2006, respectively and are accreted over the leases’ remaining terms, which range from 1 month to 20 years.  Accretion of below-market leases was $546,000, $526,000 and $495,000 during 2007, 2006

and 2005, respectively.  Such accretion is recorded as an increase to rental income.

The estimated aggregate amortization amounts from acquired lease intangibles for each of the next five years are as follows (in thousands):

Year Ending December 31,	Amortization Expense (in-place lease value)		Rental Income (out-of-market leases)
2008	$	2,165	$	173
2009		2,040		180
2010		1,562		317
2011		1,211		290
2012		946		294
	$	7,924	$	1,254

7. NOTES PAYABLE

The Company’s outstanding debt at December 31, 2007 and 2006 consists of the following (in thousands):

	2007		2006
Notes Payable, Held for Investment
Fixed rate mortgage loans		138,121		132,524
Variable-rate unsecured line of credit		30,439		11,929
Total		168,560		144,453
Notes Payable, Held for Sale
Fixed rate mortgage loans		12,811		-
Total		12,811		-

F-19

We have an unsecured credit facility in place which is being used to provide funds for the acquisition of properties and working capital. The credit facility matures in October 2009 and provides that we may borrow up to $70 million subject to the value of unencumbered assets.  Effective October 2007, we renewed our credit facility on terms and conditions substantially the same as the previous facility.  The credit facility contains covenants which, among other restrictions, require us to maintain a minimum net worth, a maximum leverage ratio, maximum tenant concentration ratios, specified interest coverage and fixed charge coverage ratios and allow the lender to approve all distributions.  For the year ended December 31, 2007, we violated two covenants per terms of the credit facility.  Our lender has waived both events of non-compliance as of December 31, 2007.  We are in compliance with all other covenants as of December 31, 2007.  The credit facility’s annual interest rate varies depending upon our debt to asset ratio, from LIBOR plus a spread of 1.0% to LIBOR plus a spread of 1.85%.  As of December 31, 2007, the interest rate was LIBOR plus 1.00%.  As of December 31, 2007 and 2006, there was $30.4 million and $11.9 outstanding on the credit facility, respectively.  As of December 31, 2007, we have approximately $37.6 million available under our line of credit, subject to the covenant provisions discussed above.  In addition to the credit facility, we utilize various permanent mortgage financing and other debt instruments.

As of December 31, 2007, the weighted average interest rate on our fixed-rate debt is 5.78%, and the weighted average remaining life of such debt is 6.74 years. We added fixed-rate debt of $19.9 million during the year ended December 31, 2007 We added fixed-rate debt of $20.0 million during the year ended December 31, 2006.  In conjunction with the acquisition of Uptown Park during 2005, we added $49.0 million in fixed-rate debt.  All other acquisitions have been funded by cash on hand at the date of the acquisition or through the Credit Facility.

As of December 31, 2007, scheduled principal repayments on notes payable and the Credit Facility were as follows (in thousands):

	Associated with Assets						Associated with Assets
	Held for Investment						Held for Sale
Scheduled Payments by Year	Scheduled Principal Payments		Term-Loan Maturities		Total Payments		Scheduled Principal Payments		Term-Loan Maturities		Total Payments
2008	$	859		13,410		14,269	$	491		-		491
2009		31,357		-		31,357		531		-		531
2010		982		-		982		574		-		574
2011		987		3,075		4,062		620		-		620
2012		979		25,353		26,332		314		10,281		10,595
Beyond five years		2,019		88,900		90,919		-		-		-
Unamortized debt premiums		-		639		639		-		-		-
Total	$	37,183	$	131,377	$	168,560	$	2,530	$	10,281	$	12,811

8. CONCENTRATIONS

As of December 31, 2007, two properties individually accounted for more than 10% of our consolidated total assets – Uptown Park in Houston, Texas and MacArthur Park in Dallas, Texas accounted for 15% and 11%, respectively of total assets.  Consistent with our strategy of investing in areas that we know well, 17 of our properties are located in the Houston metropolitan area.  These Houston properties represent 62% of our rental income for the year ended December 31, 2007.  Houston is Texas’ largest city and the fourth largest city in the United States.

F-20

Following are the revenues generated by the Company’s top tenants for each of the years in the three-year period ended December 31 ($ in thousands):

	2007		2006		2005
Kroger		3,512		2,801		2,899
IHOP Corporation		2,246		2,249		2,249
CVS		1,143		1,046		1,060
Landry's Restaurant, Inc.		1,077		872		445
Linens' N things		919		624		716
Hard Rock Café		704		569		142
Paesanos		611		525		129
Champps Americana		567		547		333
Starbucks		516		465		211
McCormick & Schmick's		465		450		266
		11,760		10,148		8,450

9. FEDERAL INCOME TAXES

Non-taxable Operations - We qualify as a REIT under the provisions of the Internal Revenue Code, and therefore, no tax is imposed on us for our taxable income distributed to shareholders.  To maintain out REIT status, we must distribute at least 90% of our ordinary taxable income to our shareholders and meet certain income source and investment restriction requirements.  Our shareholders must report their share of income distributed in the form of dividends.  At December 31, 2007 the net book and tax bases of real estate assets were $271.1million and $281.7 million, respectively.  At December 31, 2006 the net book and tax bases of real estate assets were $267.7 million and $276.0 million, respectively.

Taxable Operations - Income tax (benefit) expense is attributable to the operations of our taxable REIT subsidiaries and consists of the following for the years ended December 31, 2007, 2006 and 2005 which is included in income tax (benefit) expense or in discontinued operations as appropriate ($ in thousands):

	2007			2006		2005
Current- Federal	$	(267	)	$	692	$	1,006
Current- State	$	328		$	191	$	131
Deferred-Federal		(305	)		171		(287	)
Total income tax expense (benefit)	$	(244	)	$	1,054	$	850

The effective tax rate approximates the statutory tax rate of 34% as no significant permanent differences exist between book and taxable income of the Taxable REIT Subsidiaries.  Additionally, the Taxable REIT Subsidiaries had a net deferred tax asset of $430,000 and $129,000 at December 31, 2007 and 2006, respectively.  The deferred tax assets relate to income received from transactions with our merchant development funds, a portion of which has been deferred for financial reporting purposes pursuant to generally accepted accounting principles.  However, all of such income will be subject to tax.  Our deferred tax liabilities were established to record the tax effect of the differences between the book and tax bases of certain real estate assets of our real estate development and operating and our asset advisory businesses.  No valuation allowance was provided on the net deferred tax assets as of December 31, 2007 and 2006 as we believe that it is more likely than not that the future benefits associated with these deferred tax assets will be realized.

In May 2006, the State of Texas adopted House Bill 3, which modified the state’s franchise tax structure, replacing the previous tax based on capital or earned surplus with one based on margin (often referred to as the “Texas Margin Tax”) effective with franchise tax reports filed on or after January 1, 2008. The Texas Margin Tax is computed by applying the applicable tax rate (1% for us) to the profit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction.  Although House Bill 3 states that the Texas Margin Tax is not an income tax, SFAS No. 109, Accounting for Income Taxes, applies to the Texas Margin Tax.

F-21

10.  SHAREHOLDERS’ EQUITY AND MINORITY INTEREST

Class A Common Shares — Our class A common shares are listed on the American Stock Exchange (“AMEX”) and traded under the symbol “AMY.” As of December 31, 2007, there were 6,289,251 of our class A common shares outstanding, net of

337,308 shares held in treasury. During June 2005, we completed an underwritten offering of our class A common shares. We issued 2.76 million shares, including the underwriter’s 360,000 share over-allotment, at $8.10 per share in such offering. The offering proceeds were used to fund the acquisition of the Uptown Park shopping center. Our payment of any future dividends to our class A common shareholders is dependent upon applicable legal and contractual restrictions, including the provisions of the class C common shares, as well as our earnings and financial needs.

Class B Common Shares — As, of December 31,2007 none of the Class B Shares were outstanding. In December 2006, we completed a tender offer for approximately 48% of our class B common shares.  Where we repurchased 998,000 shares at $9.25 per share for a total purchase price of $9.2 million. We redeemed the remaining 1 million outstanding shares as of December 2007 at $10.18 per share for $10.4 million in cash.

Class C Common Shares — The class C common shares are not listed on an exchange and there is currently no available trading market for the class C common shares. The class C common shares have voting rights, together with all classes of common shares, as one class of stock. The class C common shares were issued at $10.00 per share. They receive a fixed 7.0% preferred annual dividend, paid in monthly installments, and are convertible into the class A common shares after a 7-year lock out period based on 110% of invested capital, at the holder’s option. After three years and beginning in August 2006, subject to the issuance date of the respective shares, we have the right to force conversion of the shares into class A shares on a one-for-one basis or to redeem the shares at a cash redemption price of $11.00 per share at the holder’s option. As of December 31, 2007, there were 4,143,971 of our class C common shares outstanding.  Currently, there is a class C dividend reinvestment program that allows investors to reinvest their dividends into additional class C common shares.  These reinvested shares are also convertible into the class A common shares after the 7-year lock out period and receive the 10% conversion premium upon conversion.

Class D Common Shares — The class D common shares are not listed on an exchange and there is currently no available trading market for the class D common shares. The class D common shares have voting rights, together with all classes of common shares, as one class of stock. The class D common shares were issued at $10.00 per share. They receive a fixed 6.5% annual dividend, paid in monthly installments, subject to payment of dividends then payable to class B and class C common shares. The class D common shares are convertible into the class A common shares at a 7.7% premium on original capital after a 7-year lock out period, at the holder’s option. After one year and beginning in July 2005, subject to the issuance date of the respective shares, we have the right to force conversion of the shares into class A shares at the 7.7% conversion premium or to redeem the shares at a cash price of $10.00. In either case, the conversion premium will be pro rated based on the number of years the shares are outstanding. As of December 31, 2007, there were 11,045,763 of our class D common shares outstanding.  Currently, there is a class D dividend reinvestment program that allows investors to reinvest their dividends into additional class D common shares.  These reinvested shares are also convertible into the class A common shares after the 7-year lock out period and receive the 7.7% conversion premium upon conversion.

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

11.           RELATED PARTY TRANSACTIONS

See Note 5 regarding investments in merchant development funds and other affiliates and Note 1 regarding notes receivable from affiliates.

We earn real estate fee income by providing property acquisition, leasing, property management, construction and construction management services to our merchant development funds.  We own 100% of the stock of the companies that serve as the general partner for the funds.  Real estate fee income of $4.0 million, $7.0 million and $4.6 million were paid by the funds to the Company for 2007, 2006, and 2005, respectively.  Additionally, construction revenues of $5.9 million, $10.4 million and $2.4 million were earned from the merchant development funds during 2007, 2006 and 2005, respectively.  The Company earns asset management fees from the funds for providing accounting related services, investor relations, facilitating the deployment of capital, and other services provided in conjunction with operating the fund.  Asset management fees of $1.3 million, $823,000 and $495,000 were paid by the funds to us for 2007, 2006 and 2005, respectively.  Additionally, during the year ended December 31, 2007 and December 31, 2006 we were reimbursed by the merchant development funds $547,000 and $0, respectively for reimbursements of administrative costs and for organization and offering costs incurred on behalf of those funds.

F-22

Accounts receivable-related party of $5.4 million is primarily attributable to several items.  We had $2.0 million of construction billings receivable from one of our affiliated entities related to a property redevelopment that took place in the fourth quarter of 2007. Additionally, we have incurred $1 million of organization and offering costs on behalf of REITPlus, which will be reimbursed to usonce REITPlus achieves it minimum offering threshold.. See Note 5 for further discussion of REITPlus. We also had $700,000 receivable from an affiliated entity related to our up-front funding of earnest monies associated with a property acquisition.

As a sponsor of real estate investment opportunities to the NASD financial planning broker-dealer community, we maintain an indirect 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 met.  Once this has happened, then the general partner begins sharing in the available cash flow at various promoted levels.  We also may assign a portion of this general partner interest in these investment funds to our employees as long term, contingent compensation.  We believe that this assignment will align the interest of management with that of the shareholders, while at the same time allowing for a competitive compensation structure in order to attract and retain key management positions without increasing the overhead burden.

12. REAL ESTATE ACQUISITIONS AND DISPOSITIONS

2007

In May 2007, we acquired a 2-acre parcel of land in Champaign, IL that was acquired for resale and is currently under development for a national tenant that is in the rental equipment business.  In February 2007, we acquired The Woodlands Mall Ring Road property, which represents 66,000 square feet of gross leasable area in Houston, Texas.  The property is ground-leased to five tenants, including Bank of America, Circuit City and Landry’s Seafood.  The acquisitions were accounted for as purchases and the results of their operations are included in the consolidated financial statements from the respective dates of acquisition.Additionally, during 2007, we sold one property acquired for resale for $1.4 million which approximated our cost.

2006

During 2006, we invested approximately $28 million through the acquisition of two properties and generated proceeds of $6.7 million from the sale of four properties.  The acquisitions were accounted for as purchases and the results of their operations are included in the consolidated financial statements from the respective dates of acquisition.

On March 30, 2006, we acquired Uptown Plaza in Dallas, a 34,000 square foot multi-tenant retail complex which was developed in 2005. The center’s tenants include, among others, Pei-Wei, Grotto and Century Bank. Uptown Plaza is located at the corner of McKinney and Pearl Street in an infill location with high barriers to entry and the property services the surrounding affluent residential and downtown areas. The property was acquired for cash which was substantially funded by proceeds from our credit facility.  In December 2006, we acquired an undeveloped 0.9 acre piece of property contiguous to Uptown Plaza in Dallas which we intend to sell.  This property is classified as held for sale in the accompanying balance sheet as of December 31, 2006.

Additionally, during the quarter ended March 31, 2006, we sold two properties which were recorded as real estate held for sale at December 31, 2005.  These sales generated aggregate proceeds of $3.6 million which approximated the properties’ carrying values. Additionally, we sold one of our properties that was held for investment for proceeds of $2.0 million, which generated a $285,000 gain during the quarter ended June 30, 2006.

2005

During 2005, we invested over $110 million through the acquisition of three properties.  The acquisitions were accounted for as purchases and the results of their operations are included in the consolidated financial statements from the respective dates of acquisition.Additionally, we sold ten single-tenant non-core properties for $16.6 million in cash to unrelated third parties resulting in gains of $3.4 million.  We also completed the sale of six single-tenant retail properties that were acquired for resale for a total of approximately $11.5 million in cash.  On December 15, 2005, we utilized the net proceeds from the disposition of our non-core properties to acquire a 39,000 square foot multi-tenant retail project located adjacent to the MacArthur Park Shopping Center in Las Colinas, an affluent residential and business community in Dallas, Texas.  We purchased the MacArthur Park Shopping Center on December 27, 2004.

F-23

On September 30, 2005, we acquired for cash The South Bank, a 47,000 multi-tenant retail center located on the San Antonio Riverwalk in San Antonio, Texas. The property is located at the corner of a major downtown intersection and is accessible from both the river and street levels.  Tenants on the Property include, among others, Hard Rock Café, Starbucks, Ben & Jerry’s, Harley-Davidson and The County Line.  The property was funded with cash and the placement of long-term fixed-rate debt. The cash portion of the purchase consideration was substantially funded by the net proceeds from the secondary offering of our class A common shares as discussed above. The debt has a term of 10 years and is payable interest-only to maturity at a fixed interest rate of 5.91% with the entire principal amount due in 2016.

On June 1, 2005, we acquired Uptown Park, a 169,000 square foot multi-tenant shopping center located on approximately 16.85 acres of land. The property is located on the northwest corner of Loop 610 and Post Oak Boulevard in Houston, Texas in the heart of the Uptown Houston area. The property was developed in two phases — phase one consists of approximately 147,000 square feet that was constructed in 1999, and construction was recently completed on phase two which consists of approximately 22,000 square feet. The property was funded with cash and the placement of long-term fixed-rate debt. The cash portion of the purchase consideration was substantially funded by the net proceeds from the secondary offering of our class A common shares as discussed above. The debt has a term of 10 years and is payable interest-only to maturity at a fixed interest rate of 5.37% with the entire principal amount due in 2015.

13. COMMITMENTS

In March of 2004, we signed a new lease agreement for our office facilities which expires August 31, 2009.  In addition, we lease various office equipment.  Rental expense for the years ended December 31, 2007, 2006 and 2005 was $316,000, $334,000 and $233,000, respectively.

A summary of future minimum lease payments for the office lease and equipment follows (in thousands):

2008	$	320
2009		205
2010		23
2011		23
2012		-
2013 & thereafter		-
Total	$	571

14. SEGMENT REPORTING

The operating segments presented are the segments of AmREIT for which separate financial information is available, and revenue and operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance.

AmREIT evaluates the performance of its operating segments primarily on revenue.  Because the real estate development and operating segment and securities and merchant development fund segments are both revenue and fee intensive, management considers revenue the primary indicator in allocating resources and evaluating performance.

The portfolio segment consists of our portfolio of single and multi-tenant shopping center projects.  At December 31, 2007, this segment consists of 50 properties located in 15 states.   Expenses for this segment include depreciation, interest, minority interest, legal cost directly related to the portfolio of properties and property level expenses.  The consolidated assets of AmREIT are substantially all in this segment.  Additionally, substantially all of the increase in total assets during the year ended December 31, 2007 occurred within the portfolio segment.

F-24

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, construction, asset and property management services to our publicly traded portfolio and merchant development funds as well as to third parties.  Our securities operation consists of an NASD registered securities business that, through the internal securities group, raises capital from the independent financial planning marketplace.  The merchant development funds sell limited partnership interests to retail investors, in which AmREIT indirectly invests as both the general partner and as a limited partner (see Note 5).  These merchant development funds were formed to develop, own, manage, and add value to properties with an average holding period of two to four years.

							Asset Advisory Group
2007 (in thousands)	Portfolio			Real Estate Development & Operating Company			Securities Operations			Merchant Development Funds		Total
Rental income		30,620			-			-			-		30,620
Securities commission income		-			-			4,805			-		4,805
Real estate fee income		-			5,242			-			-		5,242
Construction revenues		-			7,645			-			-		7,645
Other income		-			-			-			1,289		1,289
Total revenue		30,620			12,887			4,805			1,289		49,601
General and administrative		1,395			5,737			2,010			110		9,252
Property expense		7,503			97			1			-		7,601
Construction costs		-			6,906			-			-		6,906
Legal and professional		1,369			196			149			31		1,745
Real estate commissions		-			459			-			-		459
Securities commissions		-			-			3,989			-		3,989
Depreciation and amortization		7,808			-			-			-		7,808
Total expenses		18,075			13,395			6,149			141		37,760
Interest expense		(7,965	)		(680	)		(49	)		-		(8,694	)
Other income/ (expense)		602			688			111			201		1,602
Income from discontinued operations		484			18			-			-		502
Net income (loss)		5,666			(482	)		(1,282	)		1,349		5,251

F-25

							Asset Advisory Group
2006 (in thousands)	Portfolio			Real Estate Development & Operating Company			Securities Operations			Merchant Development Funds		Total
Rental income		28,237			-			-			-		28,237
Securities commission income		-			-			6,554			-		6,554
Real estate fee income		-			8,317			-			-		8,317
Construction revenues		-			13,460			-			-		13,460
Other income		-			-			-			823		823
Total revenue		28,237			21,777			6,554			823		57,391
General and administrative		1,662			5,186			2,289			160		9,297
Property expense		6,905			58			23			-		6,986
Construction costs		-			12,290			-			-		12,290
Legal and professional		1,235			241			70			-		1,546
Real estate commissions		-			1,042			-			-		1,042
Securities commissions		-			-			5,732			-		5,732
Depreciation and amortization		8,735			-			-			-		8,735
Total expenses		18,537			18,817			8,114			160		45,628
Interest expense		(6,426	)		(294	)		(234	)		-		(6,954	)
Other income/ (expense)		1,154			(518	)		607			145		1,388
Income from discontinued operations		874			492			-			-		1,366
Net income (loss)		5,302			2,640			(1,187	)		808		7,563

F-26

							Asset Advisory Group
2005 (in thousands)	Portfolio			Real Estate Development & Operating Company			Securities Operations			Merchant Development Funds		Eliminations			Total
Rental income		20,370			-			-			-		-			20,370
Securities commission income		-			-			10,350			-		(9,187	)		1,163
Real estate fee income		-			9,809			-			-		-			9,809
Other income		-			-			-			495		-			495
Total revenue		20,370			9,809			10,350			495		(9,187	)		31,837
General and administrative		1,627			3,523			2,949			254		(2,123	)		6,230
Property expense		4,771			77			-			-		-			4,848
Construction costs		-			4,283			-			-		-			4,283
Legal and Professional		1,202			535			112			-		-			1,849
Real estate commissions		-			-			-			-		-			-
Securities commissions		-			-			7,928			-		(7,064	)		864
Depreciation and amortization		6,027			-			-			-		-			6,027
Total expenses		13,627			8,418			10,989			254		(9,187	)		24,101
Interest expense		(4,685	)		(552	)		(25	)		-		-			(5,262	)
Other income/ (expense)		(908	)		1,319			(77	)		50		-			384
Income from discontinued operations		6,795			473			-			-		-			7,268
Net income (loss)		7,945			2,631			(741	)		291		-			10,126

F-27

15. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

Presented below is a summary of the consolidated quarterly financial data for the years ended December 31, 2007 and 2006 (amounts in thousands, except per share data):

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2007:	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Revenues as reported	$	11,246		$	11,460		$	12,794		$	15,048
Reclassified to discontinued operations		(474	)		(470	)		(3	)		-
Adjusted Revenues		10,772			10,990			12,791			15,048
Net (loss) income available to class A shareholders		(1,702	)		(1,101	)		(2,005	)		(1,650	)
Net (loss) income per class A share: basic and diluted		(0.27	)		(0.25	)		(0.11	)		(0.38	)
2006:	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Revenues as reported	$	11,588		$	13,260		$	14,077		$	20,663
Reclassified to discontinued operations		(494	)		(475	)		(492	)		(501	)
Reclassified to other income (1)		(235	)		-			-			-
Adjusted Revenues		10,859			12,785			13,585			20,162
Net (loss) income available to class A shareholders		(1,813	)		(1,661	)		(1,352	)		947
Net (loss) income per class A share: basic and diluted		(0.28	)		(0.26	)		(0.22	)		0.15

(1) During 2006, we reclassified interest income from Revenues to Other Income in the accompanying consolidated statements of operations.  We made similar reclassifications to prior periods in order to conform to the current year presentation.

F-28

AmREIT and subsidiaries
SCHEDULE III - Consolidated Real Estate Owned and Accumulated Depreciation For the year ended December 31, 2007
	Initial Cost									Total Cost
Property Description	Building and Improvements		Land		Investment in Direct Financing Lease		Cost Capitalized Subsequent to Acquisition (Note A)			Building and Improvements		Land		Real Estate Held for Sale		Investment in Direct Financing Lease		Direct Financing Lease Held for Sale		Total		Accumulated Depreciation		Date Acquired		Encumbrances
SHOPPING CENTERS
Bakery Square, Texas		4,806,518		4,325,612		-		3,370			4,800,014		4,335,486		-		-		-		9,135,500		523,213		07-21-04		3,703,583
Cinco Ranch, Texas		11,558,491		2,666,534		-		839			11,557,638		2,668,226		-		-		-		14,225,864		1,258,528		07-01-04		8,158,280
Courtyard Square, Texas		1,777,161		4,133,641		-		24,400			1,784,450		4,150,752		-		-		-		5,935,202		223,142		06-15-04		-
Lake Woodlands Plaza, Texas		2,385,103		1,366,452		-		1,028,445			3,410,936		1,369,064		-		-		-		4,780,000		934,898		06-03-98		-
McArthur Park Pads, Texas		5,853,816		6,946,048		-		38,397			5,892,212		6,946,049		-		-		-		12,838,261		573,772		12-15-05		-
McArthur Park, Texas		26,445,219		8,637,580		-		87,329			26,532,548		8,637,580		-		-		-		35,170,128		2,679,739		12-27-04		13,410,000
Plaza in the Park, Texas		17,375,782		13,257,976		-		264,421			17,636,387		13,261,792		-		-		-		30,898,179		1,916,411		07-01-04		17,242,788
Riverwalk, Texas		17,148,688		7,979,779		-		196,154			17,335,653		7,988,968		-		-		-		25,324,621		1,157,834		09-30-05		20,000,000
Sugar Land Plaza, Texas		3,016,816		1,280,043		-		-			3,016,816		1,280,043		-		-		-		4,296,859		759,601		07-01-98		2,257,908
Terrace Shops, Texas		2,544,592		2,212,278		-		83,054			2,627,646		2,212,278		-		-		-		4,839,924		280,553		12-15-03		2,699,065
Uptown Park, Texas		27,060,070		36,976,809		-		1,575,057			28,746,835		36,865,101		-		-		-		65,611,936		2,978,400		06-01-05		49,000,000
Uptown Plaza Dallas, Texas		14,129,798		9,295,665		-		10,482			14,139,718		9,296,227		-		-		-		23,435,945		886,436		03-30-06		19,900,000
Uptown Plaza, Texas		4,887,774		7,796,383		-		168,773			5,056,547		7,796,383		-		-		-		12,852,930		550,779		12-10-03		-
Total Shopping Centers		138,989,828		106,874,800		-		3,480,721			142,537,400		106,807,949		-		-		-		249,345,349		14,723,306				136,371,624
SINGLE TENANT
410 and Blanco, Texas		-		1,318,418		-		165,742			50,943		1,433,217		-		-		-		1,484,160		6,298		12-17-04		-
Advance Auto, Illinois		-		552,258		-		220,502			145,454		627,306		-		-		-		772,760		n/a		06-03-04		-
Advance Auto, Missouri		-		361,187		-		12,574					373,761		-		-		-		373,761		n/a		02-13-04		-
Advance Auto, Missouri		-		352,508		-		102,616			102,616		352,508		-		-		-		455,124		n/a		09-24-04		-
Baptist Memorial Health, Tennessee		1,455,429		623,755		-		589,645			2,044,823		624,006		-		-		-		2,668,829		248,036		07-23-02		-
CVS Pharmacy, Texas		-		2,665,332		-		23,664			-		2,688,996		-		-		-		2,688,996		n/a		01-10-03		-
Fontana Tract, Texas		-		2,700,000		-		45,759			-		-		2,745,759		-		-		2,745,759		n/a		12-11-06		-
Golden Corral, Texas		1,093,139		718,702		-		10,926			1,099,818		722,949		-		-		-		1,822,767		153,928		07-23-02		-
Golden Corral, Texas		1,290,347		553,006		-		10,719			1,297,850		556,222		-		-		-		1,854,072		181,644		07-23-02		-
IHOP, California		-		-		987,204		33,594			-		-		-		-		1,020,798		1,020,798	Note B			08-23-02		645,509
IHOP, Colorado		-		-		1,104,574		(44,309	)		-		-		-		-		1,060,265		1,060,265	Note B			08-23-02		723,996
IHOP, Kansas				450,984		958,975		67,812			-		450,984		-		1,026,787		-		1,477,771		n/a		09-30-99		-
IHOP, Kansas		-		-		876,324		18,241			-		-		-		-		894,565		894,565	Note B			04-16-02		641,517
IHOP, Louisiana		-		-		1,464,105		(156,211	)		-		-		-		-		1,307,894		1,307,894	Note B			04-23-02		1,068,693
IHOP, Louisiana						850,110		9,322			-		-		-		-		859,432		859,432	Note B			07-18-02		618,654
IHOP, Missouri		-		-		1,203,723		(70,956	)		-		-		-		-		1,132,767		1,132,767	Note B			05-17-02		883,320
IHOP, New Mexico		-		-		884,965		(60,901	)		-		-		-		-		824,064		824,064	Note B			04-23-02		646,710
IHOP, New York		-		-		1,125,356		29,896			-		-		-		-		1,155,252		1,155,252	Note B			04-16-02		812,499
IHOP, Oregon		-		-		1,036,506		19,095			-		-		-		-		1,055,601		1,055,601	Note B			04-16-02		757,881
IHOP, Oregon		-		-		730,472		(59,146	)		-		-		-		-		671,326		671,326	Note B			05-17-02		532,112
IHOP, Tennessee		-		469,502		1,074,438		73,439			-		-		469,502		-		1,147,877		1,617,379		n/a		07-26-02		1,158,955
IHOP, Tennessee						1,050,313		35,097			-		-		-		-		1,085,410		1,085,410	Note B			08-23-02		672,690
IHOP, Texas				740,882		962,752		68,109			-		740,882		-		1,030,861		-		1,771,743		n/a		09-22-99		1,110,261
IHOP, Texas						886,212		26,699			-		-		-		-		912,911		912,911	Note B			04-16-02		650,000
IHOP, Texas						1,144,152		39,013			-		-		-		-		1,183,165		1,183,165	Note B			08-23-02		774,781
IHOP, Utah				457,493		1,067,483		52,178			-		-		457,493		-		1,119,661		1,577,154		n/a		07-25-02		1,072,380
IHOP, Virginia						741,991		11,713			-		-		-		-		753,704		753,704	Note B			04-23-02		538,489
IHOP, Virginia				-		839,240		11,185			-		-		-		-		850,425		850,425	Note B			06-21-02		612,788
McAlister Deli, Illinois		-		550,425		-		1,179,350			-		-		1,729,775		-		-		1,729,775		n/a		07-19-06		-
McAlister Deli, Illinois				1,051,862							119,586		1,060,861								1,180,447		n/a		11-30-07		-
Popeye's, Georgia		778,772		333,758		-		(1	)		778,771		333,758		-		-		-		1,112,529		108,995		07-23-02		-
Smokey Bones, Georgia				773,800		-		(60,414	)		-		713,386		-		-		-		713,386		n/a		12-18-98		-
Sunbelt Rental, Illinois				402,080				1,524,103			1,519,046		407,137		-		-		-		1,926,183		n/a		05-23-07
TGI Friday's, Maryland		-		1,473,613		-		860			-		1,474,473		-		-		-		1,474,473		n/a		09-16-03		-
TGI Friday's, Texas		1,425,843		611,075		-		39,894			1,453,769		623,043		-		-		-		2,076,812		203,464		07-23-02		-
Washington Mutual, Texas		-		562,846		-		-			-		562,846		-		-		-		562,846		n/a		09-23-96		-
Washington Mutual, Texas		-		851,974		-		-			-		851,974		-		-		-		851,974		n/a		12-11-96		-
Woodlands Ring Road, Texas				8,957,570				198,840			-		9,156,410						-		9,156,410		n/a		02-01-07
Total Single Tenant		6,043,530		27,533,030		18,988,895		4,168,650			8,612,676		23,754,719		5,402,529		2,057,648		17,035,117		56,862,689		902,365				13,921,235
Total	$	145,033,358	$	134,407,830	$	18,988,895	$	7,649,371		$	151,150,076	$	130,562,668	$	5,402,529	$	2,057,648	$	17,035,117	$	306,208,038	$	15,625,671			$	150,292,859

Note A - The negative balance for costs capitalized subsequent to acquisition could be the result of out-parcels sold, tenant activity or reductions in our investments in properties accounted for as direct financing leases.

Note B - -  The portion of the lease relating to the building of this property has been recorded as a direct financing lease for financial reporting purposes.  Consequently, depreciation is not applicable.

Note C - As of December 31, 2007, the aggregate book basis of our properties approximated the aggregate tax basis.

Activity within real estate and accumulated depreciation during the three years in the period ended December 31, 2006 is as follows:

				Accumulated
	Cost			Depreciation
Balance at December 31, 2003	$	72,243,267		$	2,520,633
Acquisitions / additions		104,136,245			-
Disposals		(7,682,772	)		(478,806	)
Impairment		(1,300,000	)		-
Transfer to held for sale		(478,806	)		-
Depreciation expense		-			1,519,667
Balance at December 31, 2004		166,917,934		$	3,561,494
Acquisitions / additions		106,619,151			-
Disposals		(21,444,663	)		(1,352,195	)
Impairment		-			-
Transfer to held for sale		(1,279,852	)		-
Depreciation expense		-			3,734,200
Balance at December 31, 2005		250,812,570		$	5,943,499
Acquisitions / additions		31,929,242			-
Disposals		(8,207,968	)		(331,253	)
Impairment		-			-
Transfer to held for sale					-
Depreciation expense		-			5,016,230
Balance at December 31, 2006	$	274,533,844		$	10,628,476
Acquisitions / additions		14,214,097			-
Disposals		(1,550,237	)		(80,346	)
Impairment		-			-
Transfer to held for sale		(5,484,748	)		-
Depreciation expense		-			5,077,541
Balance at December 31, 2007	$	281,712,956		$	15,625,671

S-1

EX-31.1

EXHIBIT 31.1

SARBANES-OXLEY SECTION 302(a) CERTIFICATION

I, H. Kerr Taylor, certify that:

1.I have reviewed this annual report on Form 10-K of AmREIT;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of trust managers (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 26 , 2008 By: /s/ H. Kerr Taylor, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SARBANES-OXLEY SECTION 302(a) CERTIFICATION

I, Chad C. Braun, certify that:

1.   I have reviewed this annual report on Form 10-K of AmREIT;

2.   Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.   Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)   designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of trust managers (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 26, 2008 By: /s/ Chad C. Braun, Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of AmREIT (the “Company”) on Form 10-K for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H. Kerr Taylor, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 26, 2008 By: /s/ H. Kerr Taylor, Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of AmREIT (the “Company”) on Form 10-K for the period ended December 31, 2007as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chad C. Braun, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 26, 2008 By: /s/ Chad C. Braun, Chief Financial Officer

EX-10

REVOLVING CREDIT AGREEMENT

dated effective as of October 30, 2007

by and between

AmREIT

as Borrower

and

WELLS FARGO BANK, NATIONAL ASSOCIATION

as Lender

TABLE OF CONTENTS

		Page
ARTICLE 1.	DEFINITIONS	1
Section 1.1	Definitions
Section 1.2	Accounting Terms and Determinations; Covenant Calculations
Section 1.3	Subsidiaries
Section 1.4	Interpretation Generally; Times
ARTICLE 2	CREDIT FACILITY
Section 2.1	Making of Revolving Loan
Section 2.2	Requests for Borrowings
Section 2.3	Funding
Section 2.4	Continuation
Section 2.5	Conversion
Section 2.6	Interest Rate
Section 2.7	Special Provisions for LIBOR Loans
Section 2.8	Capital Adequacy
Section 2.9	Repayment of Loans
Section 2.10	Voluntary Reductions of the Commitment
Section 2.11	Credit Sweep Account
Section 2.12	Funds Transfer Disbursements
Section 2.13	Revolving Note
Section 2.14	Letters of Credit
ARTICLE 3	GENERAL LOAN PROVISIONS
Section 3.1	Fees
Section 3.2	Computation of Interest and Fees
Section 3.3	Limitation of Interest
Section 3.4	Statements of Account
Section 3.5	Lender's Reliance
ARTICLE 4	UNECUMBERED POOL PROPERTIES
Section 4.1	Acceptance of Unencumbered Pool Properties
Section 4.2	Termination of Designation as Unencumbered Pool Property
Section 4.3	Additional Requirements of Unencumbered Pool Properties
ARTICLE 5	CONDITIONS
Section 5.1	Conditions Precedent to Effectiveness
Section 5.2	Conditions Precedent to Loans and Issuance of Letters of Credit
ARTICLE 6	REPRESENTATIONS AND WARRANTIES
Section 6.1	Existence and Power
Section 6.2	Ownership Structure
Section 6.3	Authorization of Agreement, Revolving Notes, Loan Documents and Borrowings
Section 6.4	Compliance of Agreement, Revolving Notes, Loan Documents and Borrowing with Laws, etc.
Section 6.5	Compliance with Law; Governmental Approvals
Section 6.6	Indebtedness and Guarantees
Section 6.7	Property Management Agreements and Other Major Agreements
Section 6.8	Absence of Defaults
Section 6.9	Financial Information
Section 6.10	Litigation
Section 6.11	ERISA
Section 6.12	Taxes
Section 6.13	Investment Company Act; Public Utility Holding Company Act
Section 6.14	Full Disclosure
Section 6.15	Insurance
Section 6.16	Not Plan Assets
Section 6.17	Title and Liens
Section 6.18	Unencumbered Pool Properties
Section 6.19	Margin Stock
Section 6.20	Solvency
Section 6.21	Tax Shelter Regulations
ARTICLE 7	COVENANTS
Section 7.1	Information
Section 7.2	Payment of Obligation
Section 7.3	Maintenance of Property; Insurance
Section 7.4	Conduct of Business; Maintenance of Exeistence; Qualification; Amendment of Declaration of Trust
Section 7.5	Compliance of Laws
Section 7.6	Inspection of Property, Books and Records
Section 7.7	Consolidations, Mergers, Acquistions and Sales of Assets
Section 7.8	Use of Proceeds and Letters of Credit
Section 7.9	Major Agreements
Section 7.10	Major Construction
Section 7.11	Material Events
Section 7.12	ERISA
Section 7.13	ERISA Exemptions
Section 7.14	Negative Pledge
Section 7.15	Listing Status and REIT Status
Section 7.16	Agreements with Affiliates
Section 7.17	New Subsidiaries
Section 7.18	Management
Section 7.19	Concentrations
Section 7.20	No Further Unsecured Indebtedness
Section 7.21	Interest Rate Hedge
ARTICLE 8	FINANCIAL COVENANTS
Section 8.1	Minimum Tangible Net Worth
Section 8.2	Ratio of Total Liabilities to Gross Asset Value
Section 8.3	Distributions
Section 8.4	Ratio of EBITDA to Fixed Charges
Section 8.5	Permitted Investments
Section 8.6	Ratio of Unencumbered Net Operating Income to Unsecured Interest Expense
Section 8.7	Ration of Secured Indebtedness to Gross Asset Value
Section 8.8	Maximum Loan Availability
ARTICLE 9	DEFAULTS
Section 9.1	Events of Defaults
Section 9.2	Remedies Upon an Event of Default
Section 9.3	Additional Remedies Upon Certain Default
Section 9.4	Collateral Account
ARTICLE 10	MISCELLANEOUS
Section 10.1	Notices
Section 10.2	No Waivers
Section 10.3	Expenses
Section 10.4	Stamp, Intangible and Recording Taxes
Section 10.5	Loan Sales and Participations; Discloser of Information
Section 10.6	Indemnification
Section 10.7	Successors and Assigns
Section 10.8	Governing Law
Section 10.9	Litigation
Section 10.10	Counterparts; Integration
Section 10.11	Invalid Provisions
Section 10.12	Mandatory Disclosures
Section 10.13	Limitation of Liability of Trustees, Etc.
Section 10.14	ENTIRE AGREEMENT
Section 10.15	Confidentiality
Section 10.16	USA Patriot Act Notice Compliance
EXHIBITS
A	Form of Guaranty
B	Form of Revolving Note
C	Form of Notice of Borrowing
D	Form of Notice of Continuation
E	Form of Notice of Conversion
F	Form of Opinion
G	Form of Encumbered Pool Certificate
H	Form of Eligibility Certificate
I	Transfer Authorization Designation
SCHEDULES
Schedule 2.13(a)	Outstanding Letters of Credit
Schedule 4.1	Unencumbered Pool Properties as of Agreement Date
Schedule 6.2	Ownership Structure
Schedule 6.6	Indebtedness and Guaranties
Schedule 6.7	Property Management Agreements and Other Major Agreements
Schedule 6.15	Insurance

REVOLVING CREDIT AGREEMENT

THIS REVOLVING CREDIT AGREEMENT (this "Agreement") is entered into effective as of October 30, 2007, by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower") and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender").  This Agreement entirely supercedes and replaces that certain Revolving Credit Agreement between Lender and Borrower dated September 4, 2003.

WHEREAS, Borrower desires to borrow from Lender, on an unsecured revolving credit basis, loans in an aggregate principal sum outstanding from time to time not exceeding Seventy Million Dollars ($70,000,000.00), the proceeds of which shall be used only for the purposes specifically permitted under the terms of this Agreement; and

WHEREAS, Lender is willing to make loans to Borrower on such basis for such purposes, subject to the terms and conditions hereof.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1.

DEFINITIONS

Section 1.1Definitions.

The following terms, as used herein, have the following meanings:

 "Adjusted LIBO Rate" means, with respect to any Interest Period, an interest rate per annum equal to the lesser of (a) the sum of (1) the LIBO Rate with respect to such Interest Period plus (2) the Applicable Margin or (b) the Maximum Lawful Rate.

 "Affiliate" means any Person (other than Lender): (a) directly or indirectly controlling, controlled by, or under common control with, the Borrower; (b) directly or indirectly owning or holding ten percent (10.0%) or more of any equity interest in the Borrower; or (c) ten percent (10.0%) or more of whose voting stock or other equity interest is directly or indirectly owned or held by the Borrower.  For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with") means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise.  In no event shall Lender be deemed to be an Affiliate of the Borrower.

 "Applicable Law" means all applicable provisions of local, state, federal and foreign constitutions, statutes, rules, regulations, ordinances, decrees, permits, concessions and orders of all governmental bodies and all orders and decrees of all courts, tribunals and arbitrators.

 "Applicable Margin" means (i) prior to the Trigger Date, the percentage rate set forth on Chart A below corresponding to the ratio of Total Liabilities to Gross Asset Value as determined in accordance with Section 7.1(c) in effect at such time and (ii) after the Trigger Date, the percentage rate set forth on Chart B below corresponding to the ratio of Total Liabilities to Gross Asset Value as determined in accordance with Section 7.1(c) in effect at such time:

Chart A

Level		Ratio of Total Liabilities to Gross Asset Value	Applicable Margin for LIBOR Loans			Applicable Margin for Base Rate Loans
	1	Less than or equal to .55 to 1.00		1.00	%		0	%
	2	Greater than .55 to 1.00 but less than or equal to 0.60 to 1.00		1.15	%		0	%
	3	Greater than 0.60 to 1.00 but less than or equal to 0.65 to 1.00		1.25	%		0	%
	4	Greater than 0.65 to 1.00 but less than or equal to 0.70 to 1.00		1.35	%		0	%
	5	Greater than 0.70 to 1.00		1.85	%		.50	%

Chart B

Level		Ratio of Total Liabilities to Gross Asset Value	Applicable Margin for LIBOR Loans			Applicable Margin for Base Rate Loans
	1	Less than or equal to .55 to 1.00		1.00	%		0	%
	2	Greater than .55 to 1.00 but less than or equal to 0.60 to 1.00		1.15	%		0	%
	3	Greater than 0.60 to 1.00 but less than or equal to 0.65 to 1.00		1.25	%		0	%
	4	Greater than 0.65 to 1.00		1.85	%		.60	%

The Applicable Margin for Loans shall be determined by Lender  based on the ratio of Total Liabilities to Gross Asset Value as set forth in the Compliance Certificate most recently delivered by the Borrower pursuant to Section 7.1(c)  Any such adjustment to such Applicable Margin shall be effective as of the first day of the calendar month immediately following the month during which Borrower delivers to Lender the applicable Compliance Certificate pursuant to Section 7.1(c).  If the Borrower fails to deliver a Compliance Certificate pursuant to Section 7.1(c) the Applicable Margin shall equal the percentages corresponding to Level 5, Chart A or Level 4, Chart B, as then applicable, from the date the required Compliance Certificate was due until the date of receipt by Lender of the required Compliance Certificate; however the application of such Level 5, Chart A or Level 4, Chart B Applicable Margin, whichever is then applicable, under such circumstances shall not impair Lender's ability to declare such failure to deliver the required Compliance Certificate an Event of Default.  The inclusion of Level 5, Chart A and Level 4, Chart B Applicable Margins shall not be deemed a waiver by Lender of the covenant set forth in Section 8.2.

 "Base Rate" means a rate of interest equal to the lesser of (a) the greater of (1) the rate of interest per annum established from time to time by Lender at its principal office in San Francisco, California and designated as its prime rate (which rate of interest may not be the lowest rate charged by Lender on similar loans) plus the Applicable Margin and (2) the Federal Funds Rate plus one-half of one percent (0.5%) plus the Applicable Margin or (b) the Maximum Lawful Rate.  Each change in the Base Rate shall become effective without prior notice to Borrower automatically as of the opening of business on the date of such change in the Base Rate.

"Base Rate Loan" means any portion of the Revolving Loan with respect to which the interest rate is calculated by reference to the Base Rate.

"Business Day" means (a) any day except a Saturday, Sunday or other day on which commercial banks in San Francisco, California are authorized or required to close and (b) with reference to LIBOR Loans, any day (except a Saturday, Sunday or other day on which commercial banks in San Francisco, California are authorized or required to close) on which dealings in Dollar deposits are carried out in the London interbank market.

"Capital Expenditures Reserve" means, for any period and with respect to any Property, an amount equal to the greater of (a) the aggregate square footage of all completed space of such Property times $.25, times a fraction, the numerator of which is the number of days of such period, and the denominator of which is 365 and (b) the amount of capital expenditures actually made in respect of such Property, excluding non-recurring capital expenditures for such period.

"Capitalized Lease Obligation" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP.

"Collateral Account" means Account Number 4945073278 established by Borrower with Lender as a special, interest-bearing, deposit account under Lender's sole dominion and control.

"Commitment" means the lesser of (i) Seventy Million and No/100 Dollars ($70,000,000.00) and (ii) the sum of Seventy Million and No/100 Dollars minus the amount of any Secured Indebtedness which is incurred by Borrower after the date of this Agreement.

"Compliance Certificate" means the certificate described in Section 7.1(c).

"Consequential Loss" means with respect to (a) Borrower's payment of all or any portion of the then-outstanding principal amount of a LIBOR Loan on a day other than the last day of the Interest Period related thereto or (b) any of the circumstances specified in Section 2.7(d) upon which a Consequential Loss may be incurred, any loss (excluding loss of anticipated profits), cost or expense incurred by Lender as a result of the timing of such payment or LIBOR Loan or in the redepositing, redeploying or reinvesting the principal amount so paid or affected by the timing of such LIBOR Loan or the circumstances described in such Section 2.7(d), including without limitation, the sum of (i) the interest which, but for the payment or timing of the LIBOR Loan, Lender would have earned in respect of such principal amount, reduced, if Lender is able to redeposit, redeploy, or reinvest such principal amount by the interest earned by Lender as a result of so redepositing, redeploying or reinvesting such principal amount and (ii) any expense or penalty incurred by Lender on redepositing, redeploying or reinvesting such principal amount.  All determinations of Consequential Loss shall be made by Lender exercising its reasonable judgment.

"Contingent Obligation" means, for any Person, any commitment, undertaking, Guarantee or other obligation constituting a contingent liability that must be accrued under GAAP.

"Continue," "Continuation" and "Continued" each refers to the continuation of a LIBOR Loan from one Interest Period to the next Interest Period pursuant to Section 2.4.

"Convert," "Conversion" and "Converted" each refers to the conversion of a Base Rate Loan to a LIBOR Loan or a LIBOR Loan to a Base Rate Loan.

"Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

"Derivatives Contract" means any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement.  Not in limitation of the foregoing, the term "Derivatives Contract" includes any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement, including any such obligations or liabilities under any such master agreement.

"Derivatives Termination Value" means, in respect of any one or more Derivatives Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Derivatives Contracts, (a) for any date on or after the date such Derivatives Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Derivatives Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Derivatives Contracts (which may include Lender).

"Development Property" means real estate which is then undergoing development or redevelopment; however, such real property shall cease to be "Development Property" on the earlier of (i) twelve (12) full months of operations following completion or (ii) achievement of an Occupancy Rate of 80%.  The term "Development Property" shall include real property of the type described in the immediately preceding sentence to be (but not yet) acquired by the Borrower, any Subsidiary or any Unconsolidated Affiliate upon completion of construction pursuant to a contract in which the seller of such real property is required to develop or renovate prior to, and as a condition precedent to, such acquisition.

"Dollars" or "$" means the lawful currency of the United States of America.

"EBITDA" means, with respect to any Person and for any period and without duplication, the sum of (a) net earnings (loss) of such Person for such period (excluding equity in net earnings or net loss of Unconsolidated Affiliates) plus (b) depreciation and amortization expense and other non-cash charges of such Person for such period (but only to the extent deducted in determining net income (loss) for such period) plus (c) the amortized cash portion of direct financing leases (as defined by GAAP) but only to the extent deducted in determining net income (loss) for such period (d) plus interest expense of such Person for such period (but only to the extent deducted in determining net income (loss) for such period) plus (e) income and franchise tax expense of such Person in respect of such period (but only to the extent deducted in determining net income (loss) for such period) minus (with respect to gains) or plus (with respect to losses) (f) extraordinary gains or losses of such Person, non-recurring items of income or expense relating to mergers and potential acquisitions acceptable to Lender in its reasonable discretion, and gains and losses from sales of assets of such Person for such period plus (g) such Person's pro rata share of EBITDA of each of such Person's Unconsolidated Affiliates (determined in a manner consistent with the calculation of such Person's EBITDA) minus (with respect to gains) or plus (with respect to losses) any net income attributable to partnerships which hold Property in which partnerships such Person has direct or indirect (through a Subsidiary of such Person) ownership interest of not greater than fifty percent (50%).

"Effective Date" means the date this Agreement becomes effective in accordance with Section 5.1.

"Eligible Property" means a Property which satisfies all of the following requirements as determined by Lender:  (a) such Property is owned 100% in fee simple by Borrower or a Wholly Owned Subsidiary of Borrower (however the foregoing is not intended to exclude real estate which is ground leased by Borrower or a Wholly Owned Subsidiary of Borrower to a tenant which has constructed and owns the improvements on such ground leased real estate); (b) neither such Property, nor any interest of Borrower or such Wholly Owned Subsidiary therein, is subject to any Lien other than Permitted Liens or to any agreement (other than this Agreement or any other Loan Document) that prohibits the creation of any Lien thereon as security for Indebtedness; (c) if such Property is owned by a Wholly Owned Subsidiary: (i) none of Borrower's direct or indirect ownership interest in such Wholly Owned Subsidiary is subject to any Lien other than Permitted Liens or to any agreement (other than this Agreement or any other Loan Document) that prohibits the creation of any Lien thereon as security for Indebtedness and (ii) neither such Wholly Owned Subsidiary, nor any other Wholly Owned Subsidiary through which Borrower holds any indirect interest in such Wholly Owned Subsidiary, is subject to any restriction of any kind which would limit its ability to pay or perform its obligations under the Guaranty required to be delivered hereunder prior to its obligation to pay dividends or make any other distribution on any of such Wholly Owned Subsidiary's capital stock or other securities owned by Borrower or any other Wholly Owned Subsidiary of Borrower; (d) such Property has an Occupancy Rate of at least 80%; and (e) such Property is free of all structural defects, title defects, environmental conditions or other adverse matters except for defects, conditions or matters individually or collectively which are not material to the profitable operation of such Property.

"Eligible Subsidiary" means any Subsidiary of Borrower other than a Special Purpose Subsidiary.

"Eligibility Certificate" means the certificate described in Section 4.1(b)(iv) and in the Form of Exhibit H.

"Environmental Laws" means any Applicable Law relating to environmental protection or the manufacture, storage, disposal or clean-up of Hazardous Materials including, without limitation, the following: Clean Air Act, 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.; regulations of the Environmental Protection Agency and any applicable rule of common law and any judicial interpretation thereof relating primarily to the environment or Hazardous Materials.

"Equity Interest" means, with respect to any Person, any share of capital stock of (or other ownership or profit interests in) such Person, any warrant, option or other right for the purchase or other acquisition from such Person of any share of capital stock of (or other ownership or profit interests in) such Person, any security convertible into or exchangeable for any share of capital stock of (or other ownership or profit interests in) such Person or warrant, right or option for the purchase or other acquisition from such Person of such shares (or such other interests), and any other ownership or profit interest in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such share, warrant, option, right or other interest is authorized or otherwise existing on any date of determination.

"Equity Issuance" means any issuance or sale by a Person of any Equity Interest.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

"ERISA Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that are treated as a single employer under Section 414 of the Internal Revenue Code.

"ERISA Plan" means any employee benefit plan subject to Title I of ERISA.

"Event of Default" means the occurrence of any of the events specified in Section 9.1, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental or nongovernmental body; provided that any requirement for notice or lapse of time or any other condition has been satisfied.

"Executive Investment Summary" means, to the extent available, the set of information provided to the investment committee of the Borrower in connection with the acquisition of a Property.  The Executive Investment Summary shall include, at a minimum, the following information relating to such Property: (a) a description of such Property, such description to include the age, location, site plan, color photographs (to the extent reasonably available to Borrower) and current occupancy rate of such Property; (b) the purchase price paid or to be paid for such Property; (c) the capitalization rate for such Property; (d) a summary of the existing tenants of such Property; (d) either current operating statements for such Property for the immediately preceding fiscal year and for current fiscal year through the fiscal quarter most recently ending (to the extent reasonably available to Borrower) or pro forma operating statements for such Property (to the extent reasonably available to Borrower); and (e) other demographics and trade information relating to such Property.

"Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Lender on such day on such transactions as reasonably determined by Lender.

"FIRREA" means the Financial Institution Recovery Reform and Enforcement Act of 1989, as amended.

"Fixed Charges" means, with respect to a Person and for a given period, the sum of (a) the Interest Expense of such Person for such period, plus (b) the aggregate of all scheduled principal payments on Indebtedness made by such Person during such period (excluding balloon, bullet or similar payments of principal due upon the stated maturity of Indebtedness), plus (c) the aggregate of all preferred dividends paid or accrued by such Person during such pe­riod, plus (d) the Capital Expenditures Reserve for such period.

"Funds from Operations" means, as of any period for a Person, net income (computed in accordance with GAAP), excluding gains (or losses) from sale of property and debt restructuring, plus depreciation and amortization (except for amortization of deferred financing cost), and after adjustments for unconsolidated partnerships and joint ventures.  Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.  "Funds from Operations" shall not include items which are classified as "extraordinary" in accordance with GAAP."

"GAAP" means, as to a particular Person, such accounting practice as, in the opinion of the independent accountants of recognized national standing regularly retained by such Person and acceptable to Lender, conforms at the time to generally accepted accounting principles, consistently applied.  Generally Accepted Accounting Principles means those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the relevant Person furnished to Lender or where a change therein has been concurred in by such Person's independent auditors, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person.  If there is a change in such accounting practice as to Borrower, then Borrower shall, unless otherwise consented to by Lender, continue to utilize, for the purpose of this Agreement, the accounting practices applicable to Borrower prior to such change.

"Governmental Approvals" means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities.

"Governmental Authority" means any government (or any political subdivision or jurisdiction thereof), court, bureau, agency or other governmental authority having jurisdiction over Borrower or any Subsidiary, or any of its or their business, operations or properties.

"Gross Asset Value" means, at a given time, the sum (without duplication) of (a) the sum of the Operating Property Values of Borrower and its Subsidiaries on a consolidated basis at such time, plus (b) all cash and cash equivalents (excluding tenant deposits) of the Borrower and its Subsidiaries at such time provided, however, that restricted cash and cash equivalents, including, without limitation, cash deposited in escrow accounts for taxes and insurance, shall only be included in Gross Asset Value to the extent a liability corresponding thereto is included in the determination of Total Liabilities and further provided that accounts receivable and notes receivable owed to Borrower or any of its Subsidiaries by an Affiliate of Borrower or any of its Subsidiaries cannot, in the aggregate, contribute more than Twenty-Five Million and No/100 Dollars ($25,000,000.00) of Gross Asset Value; plus (c) the current book value of all unimproved real property (other than Development Property) of Borrower and its Subsidiaries on a consolidated basis held for development (provided that the aggregate value of all real property held for development shall not exceed 5% of the Gross Asset Value) plus (d) the current book value of all Development Property of Borrower and its Subsidiaries on a consolidated basis, plus (e) the contractual purchase price of properties subject to purchase obligations, repurchase obligations, forward commitments and unfunded obligations to the extent such obligations and commitments are included in determining Borrower's Total Liabilities, plus (f) Borrower's Ownership Share of the Operating Property Value of Unconsolidated Affiliates, plus (g) Borrower's Ownership Share of the current book value of all unimproved real property (other than Development Property) of Unconsolidated Affiliates (subject to the percentage limitation set forth in [c] above) plus (h) Borrower's Ownership Share of the current book value of all Development Property of Unconsolidated Affiliates.

"Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.

"Guarantor" means all Eligible Subsidiaries of Borrower and each other Person who has executed and delivered a Guaranty.

"Guaranty" means the Guaranty executed by each Guarantor in favor of Lender and substantially in the form of Exhibit A.

"Hazardous Substances" means all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable Environmental Laws as "hazardous substances", "hazardous materials", "hazardous wastes", "toxic substances" or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, "TCLP" toxicity, or "EP toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; (d) asbestos in any form; and (e) electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty parts per million.  However, de minimus amounts of substances which would otherwise be classified as Hazardous Substances and are utilized in the ordinary course of the use of Properties and in accordance with Applicable Laws are not Hazardous Substances for the purpose of this Agreement.

"Indebtedness" means, with respect to a Person, at the time of computation thereof, all of the following (without duplication): (a) all obligations of such Person in respect of money borrowed; (b) all obligations of such Person (other than trade debt incurred in the ordinary course of business), whether or not for money borrowed (i) represented by notes payable, or drafts accepted, in each case representing extensions of credit, (ii) evidenced by bonds, debentures, notes or similar instruments, or (iii) constituting purchase money indebtedness, conditional sales contracts, title retention debt instruments or other similar instruments, upon which interest charges are customarily paid or that are issued or assumed as full or partial payment for property; (c) Capitalized Lease Obligations of such Person; (d) all Letter of Credit Liabilities of such Person; (e) all Off Balance Sheet Liabilities of such Person; (f) net obligations under any Derivative Contract in an amount equal to the Derivatives Termination Value thereof; and (g) all Indebtedness of other Persons to the extent (i) such Person has Guaranteed or is otherwise recourse to such Person or (ii) is secured by a Lien on any property of such Person.

"Intangible Assets" means, with respect to any Person (to the extent reflected in determining stockholders' equity of such Person) (a) deferred charges, (b) the amount of any write-up in the book value of any assets contained in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired, and (c) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like intangibles.  Notwithstanding the foregoing, "Intangible Assets" shall not include any adjustments required under Financial Accounting Standard (FAS) 141.

"Interest Expense" means, for any Person and for any period, without redundancy, all paid, accrued or capitalized interest expense of such Person (other than capitalized interest funded from a Reserved Construction Loan) for such period and shall include (a) all paid or accrued interest expense in respect of Indebtedness and other liabilities which such Person has Guaranteed or is otherwise obligated whether or not on a recourse basis, (b) such Person's Ownership Share of all paid or accrued interest expense for such period of Unconsolidated Affiliates of such Person, (c) costs related to Derivatives Contracts, and (d) fees and other expenses related to the issuance of letters of credit.

"Interest Period" means with respect to any LIBOR Loan, the period commencing on the date of the borrowing, Conversion or Continuation of such LIBOR Loan and ending on the last day of the period selected by Borrower pursuant to the provisions below.  The duration of each Interest Period shall be one (1), two (2), three (3) or six (6) months, which in each case Borrower may, in an appropriate Notice of Borrowing, Notice of Continuation or Notice of Conversion, select.  In no event shall an Interest Period extend beyond the Maturity Date.  Whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided, however, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day.  In no event shall an Interest Period have a duration of less than one month.

"Interest Rate Hedge" – A Derivatives Contract which is acceptable to Lender, and pursuant to which Borrower's Interest Expense relating to the Indebtedness which is outstanding under the Commitment is controlled within parameters acceptable to Lender.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute.

"Investment" means, with respect to any Person, any acquisition or investment (whether or not of a controlling interest) by such Person, whether by means of (a) the purchase or other acquisition of any Equity Interest in another Person, (b) a loan, advance or extension of credit to, capital contribution to, Guaranty of Indebtedness of, or purchase or other acquisition of any Indebtedness of, another Person, including any partnership or joint venture interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute the business or a division or operating unit of another Person.  Any commitment or option to make an Investment in any other Person shall constitute an Investment.  Except as expressly provided otherwise, for purposes of determining compliance with any covenant contained in a Loan Document, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

"Issuing Bank" means Lender or an affiliate of Lender, as the issuer of Letters of Credit hereunder.

"Issuing Bank Fees" means the Fees payable to the Issuing Bank pursuant to the last sentences of Section 3.1(b) and (c).

"L/C Commitment Amount" means an amount equal to $5,000,000.00.

"Lending Office" means Lender's office identified as:  Wells Fargo Bank, National Association, Disbursement and Operations Center, 733 Marquette Avenue, 10th Floor, Minneapolis, Minnesota 55402, Attention:  Jivko Sabev.

"Letter of Credit" has the meaning set forth in Section 2.13(a).

"Letter of Credit Documents" means, with respect to any Letter of Credit, collectively, any application therefor, any certificate or other document presented in connection with a drawing under such Letter of Credit and any other agreement, instrument or other document governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations.

"Letter of Credit Liabilities" shall mean, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the Stated Amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement Obligations of Borrower at such time due and payable in respect of all drawings made under such Letter of Credit.

"LIBO Rate" means, with respect to each Interest Period, the average rate of interest per annum (rounded upwards, if necessary, to the next highest 1/16th of 1%) at which deposits in immediately available funds in Dollars as quoted to Lender by its current information service provider (at approximately 9:00 a.m., San Francisco time, two Business Days prior to the first day of such Interest Period) by first class banks in the interbank Eurodollar market, where the Eurodollar operations of Lender are customarily conducted, for delivery on the first day of such Interest Period, such deposits being for a period of time equal or comparable to such Interest Period and in an amount equal to or comparable to the principal amount of the LIBOR Loan to which such Interest Period relates.  Each determination of the LIBO Rate by Lender shall, in absence of demonstrable error, be conclusive and binding.

"LIBOR Loan" means any portion of the Revolving Loan with respect to which the interest rate is calculated by reference to the LIBO Rate for a particular Interest Period.

"Lien" as applied to the real property of any Person means:  (a) any security interest, encumbrance, mortgage, deed to secure debt, deed of trust, pledge, lien, charge or lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security interest, security title or encumbrance of any kind in respect of any property of such Person, or upon the income or profits therefrom; (b) any arrangement, express or implied, under which any property of such Person is transferred, sequestered or otherwise identified for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to the payment of the general, unsecured creditors of such Person; (c) the filing of any financing statement under the Uniform Commercial Code or its equivalent in any jurisdiction; and (d) any agreement by any such person to grant, give or otherwise convey any of the foregoing.

"Loan" means a LIBOR Loan or a Base Rate Loan.

"Loan Documents" means this Agreement, the Revolving Note, each Letter of Credit, each of the Guaranties, any agreement evidencing the fees referred to in Section 3.1(c) and each other document or instrument executed and delivered by any Loan Party in connection with this Agreement or any of the other foregoing documents.

"Loan Party" means each of Borrower, each Guarantor, and each other Person who guarantees all or a portion of the Obligations and/or who pledges any collateral security to secure all or a portion of the Obligations.

"MacArthur Pads" means those retail pad sites located in front of the shopping center at I-635 and MacArthur Boulevard, Irving, Texas, which pad sites are not encumbered by a Lien.

"Major Agreements" means, at any time, (a) each Property Management Agreement with respect to a Property and (b) any other agreement which in any way relates to the use, occupancy, operation, maintenance, enjoyment or ownership of a Property, the breach or loss of which would have a Materially Adverse Effect.

"Materially Adverse Effect" means a materially adverse effect on (a) the business, assets, liabilities, financial condition, or results of operations of Borrower and its Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party, (c) the validity or enforceability of any of such Loan Documents, (d) the rights and remedies of Lender under any of such Loan Documents or (e) the timely payment of the principal of or interest on the Revolving Loan or other amounts payable in connection therewith.  Except with respect to representations made or deemed made by Borrower under Article 6 or in any of the other Loan Documents to which any Loan Party is a party, all determinations of materiality shall be made by Lender in its reasonable judgment unless expressly provided otherwise.

"Maximum Loan Availability" means the lesser of (a) the amount of the Commitment and (b) the amount by which the sum of (i) the Unencumbered Pool Value, plus (ii) all cash and cash equivalents of Borrower and its wholly-owned Subsidiaries other than tenant deposits and other restricted cash and cash equivalents (such as cash held in reserves, escrow accounts and the like) exceeds all Unsecured Indebtedness (other than the Commitment) of Borrower and its Subsidiaries.

"Mortgage" means a mortgage, deed of trust or deed to secure debt or similar security instrument made by a Person owning an interest in real estate granting a Lien or such interest in real estate as security for the payment of Indebtedness.

"Net Operating Income" means, for any Property for the period in question, but without duplication, the sum of (a) rents and other revenues received in the ordinary course from such Property (including amounts received from tenants as reimbursements for common area maintenance, taxes and insurance and proceeds of rent loss insurance but excluding pre-paid rents and revenues and security deposits except to  the extent applied in satisfaction of tenants' obligations for rent) minus (b) all expenses paid or accrued related to the ownership, operation or maintenance of such property, including but not limited to taxes, assessments and the like, insurance, utilities, payroll costs, maintenance, repair and landscaping expenses, marketing expenses, and general and administrative expenses (including an appropriate allocation for legal, accounting, advertising, marketing and other expenses incurred in connection with such property, but specifically excluding general overhead expenses of Borrower and any property management fees) minus (c) the Capital Expenditures Reserve for such Property as of the end of such period minus (d) the greater of (i) the actual property management fee paid during such period and (ii) an imputed management fee determined by multiplying the Applicable Management Fee Percentage (hereinafter defined) times the gross revenues for such Property for such period, in each case determined in accordance with GAAP.  The term "Applicable Management Fee Percentage" shall mean, four percent (4.0%) with respect to multi-tenant Properties and one percent (1%) with respect to single-tenant Properties.

"Non-ERISA Plan" means any Plan subject to Section 4975 of the Internal Revenue Code.

"Notice of Borrowing" means a notice in the form of Exhibit C to be delivered to Lender by Borrower pursuant to Section 2.2.

"Notice of Continuation" means a notice in the form of Exhibit D to be delivered to Lender by Borrower pursuant to Section 2.4.

"Notice of Conversion" means a notice in the form of Exhibit E to be delivered to Lender by Borrower pursuant to Section 2.5.

"Obligations" means, individually and collectively:  (a) the Loans; (b) all Reimbursement Obligations and all other Letter of Credit Liabilities; (c) any and all renewals and extensions of any of the foregoing and (d) all other indebtedness, liabilities, obligations, covenants and duties of Borrower owing to Lender and/or the Issuing Bank of every kind, nature and description, under or in respect of this Agreement or any of the other Loan Documents, whether direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any promissory note.

"Occupancy Rate" means, with respect to a Property at any time, the ratio, expressed as a percentage, of (a) the net rentable square footage of such Property actually occupied by tenants paying rent pursuant to binding leases as to which no monetary default has occurred and has been continuing for a period of 90 or more days to (b) the aggregate net rentable square footage of such Property.

"Off Balance Sheet Liabilities" means, with respect to any Person, any obligation or liability that does not appear as a liability on the balance sheet of such Person and that constitutes (a) any repurchase obligation or liability, contingent or otherwise, of such Person with respect to any accounts or notes receivable sold, transferred or otherwise disposed of by such Person, (b) any repurchase obligation or liability, contingent or otherwise, of such Person with respect to property or assets leased by such Person as lessee and (c) all obligations, contingent or otherwise, of such Person under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing if the transaction giving rise to such obligation (i) is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease or (ii) does not (and is not required pursuant to GAAP to) appear as a liability on the balance sheet of such Person.

"Operating Property Value" means, as of a given date and with respect to any Person, such Person's EBITDA for the fiscal quarter most recently ended (including the amortized cash portion of direct financing leases [as defined by GAAP] not already added back to EBITDA, and excluding Net Operating Income from any Property not owned by such Person for the entire fiscal quarter most recently ended and further excluding EBITDA derived from sources other than Property) multiplied by 4 and divided by seven percent (7%), plus the purchase price of any real property acquired during the fiscal quarter most recently ended other than real property upon which construction is then in progress.

"Ownership Share" means, with respect to any Subsidiary of a Person or any Unconsolidated Affiliate of a Person, the greater of (a) such Person's relative nominal direct and indirect ownership interest (expressed as a percentage) in such Subsidiary or Unconsolidated Affiliate or (b) such Person's relative direct and indirect economic interest (calculated as a percentage) in such Subsidiary or Unconsolidated Affiliate determined in accordance with the applicable provisions of the declaration of trust, articles or certificate of incorporation, articles of organization, partnership agreement, joint venture agreement or other applicable organizational document of such Subsidiary or Unconsolidated Affiliate.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

"Permitted Distributions" means an amount not exceeding 95% of Borrower's Funds from Operations for the prior four calendar quarters.

"Permitted Liens" means (a) Liens granted to Lender to secure the Obligations, (b) pledges or deposits made to secure payment of worker's compensation (or to participate in any fund in connection with worker's compensation insurance), unemployment insurance, pensions or social security programs, (c) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such items do not materially impair the use of such property for the purposes intended and none of which is violated in any material respect by existing or proposed structures or land use, (d) the following to the extent no Lien has been filed in any jurisdiction or agreed to: (i) Liens for taxes not yet due and payable; or (ii) Liens imposed by mandatory provisions of Applicable Law such as for materialmen's, mechanic's, warehousemen's and other like Liens arising in the ordinary course of business, securing payment of Indebtedness the payment of which is not yet due, (e) Liens for taxes, assessments and governmental charges or assessments that are being contested in good faith by appropriate proceedings diligently conducted, and for which reserves acceptable to Lender have been provided, (f) Liens expressly permitted under the terms of the Loan Documents, and (g) any extension, renewal or replacement of the foregoing to the extent such Lien as so extended, renewed or replaced would otherwise be permitted hereunder.

"Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

"Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code.

"Property" means real property improved with one or more operating retail properties.

"Property Management Agreements" means, collectively, all agreements entered into by any Person with a Property Manager pursuant to which such Person engages such Property Manager to advise such Person with respect to the management of a Property.

"Property Manager" means any Person engaged under a Property Management Agreement to advise the owner of a Property with respect to the management of such Property.

"Regulations T, U and X" means Regulations T, U and X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

"Reimbursement Obligation" means the absolute, unconditional and irrevocable obligation of Borrower to reimburse the Issuing Bank for any drawing honored by the Issuing Bank under a Letter of Credit.

"REIT" means a Person qualifying for treatment as a "real estate investment trust" under the Internal Revenue Code.

"Reserved Construction Loan" shall mean a construction loan extended to Borrower or any Subsidiary for the purpose of financing construction of a Property in respect of which:  (a) no default or event of default exists; (b) interest on such loan has been budgeted to accrue at a rate of not less than the Base Rate at the time the interest reserve account is established; (c) the amount of such budgeted interest has been (i) included in the principal amount of such loan and (ii) segregated into an interest reserve account (which shall include any arrangement whereby loan proceeds equal to such budgeted interest are reserved and only disbursed to make interest payments in respect of such loan); (d) absent an event of default or default, such interest can be paid out of such interest reserve account only for the purpose of making interest payments on such loan; and (e) the amount held in such interest reserve account in respect of such loan, together with the net income, if any, from such Property projected by Lender will be sufficient, as determined by Lender, to pay all Interest Expense on such loan until the date that the Net Operating Income of such Property is anticipated to be sufficient to pay all Interest Expense on such loan.

"Restricted Payment" means cash payment or other distributions on, or in respect of, any class of stock of, or other equity interest in, a Person, or other payments or transfers made in respect of the redemption, repurchase or acquisition of such stock or equity interest, other than any distribution or other payment payable solely in capital stock of such Person.

"Revolving Credit Termination Date" means the earlier to occur of (a) October 30, 2009 or (b) the date on which the Commitment is terminated pursuant to Section 9.2.

"Revolving Loan" means the credit facility evidenced by the Revolving Note.

"Revolving Note" means the promissory note executed by Borrower, payable to the order of Lender, in the amount of the Commitment and substantially in the form of Exhibit B.

"Secured Indebtedness" means, with respect to any Person, any Indebtedness of such Person that is secured in any manner by any Lien on any real property and shall include such Person's Ownership Share of the Secured Indebtedness of any of such Person's Unconsolidated Affiliates.  The term "Secured Indebtedness" shall not include Indebtedness secured by partnership interests.

"Share" means a transferable unit of beneficial interest in Borrower.

"Solvent" means, when used with respect to any Person, that (a) the fair value and the fair salable value of its assets (excluding any Indebtedness due from any Affiliate of such Person) are each in excess of the fair valuation of its total liabilities (including all contingent liabilities); (b) such Person is able to pay its debts or other obligations in the ordinary course as they mature and (c) that the Person has capital not unreasonably small to carry on its business and all business in which it proposes to be engaged.

"Special Purpose Subsidiary" means any "single-asset" or "single pool" Subsidiary of the Borrower that has been or may hereafter be formed by the Borrower for the exclusive purposes of obtaining permanent financing from a lender, and owning and operating the assets so financed, and which is prohibited by such lender from providing any guaranty of other Indebtedness.

"Stated Amount" means the amount available to be drawn by a beneficiary under a Letter of Credit from time to time, as such amount may be increased or reduced from time to time in accordance with the terms of such Letter of Credit.

"Subsidiary" means, for any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (without regard to the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.  "Wholly Owned Subsidiary" means any such corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled.

"Substantial Amount" means, at the time of determination thereof, an amount greater than or equal to 15% of the sum of (a) total consolidated assets of Borrower and its Subsidiaries, on a consolidated basis, at such time, plus (b) accumulated depreciation of Borrower and its Subsidiaries, on a consolidated basis, at such time.

"Tangible Net Worth" means, for any Person and as of a given date, such Person's total consolidated stockholders' equity, excluding intangible assets, plus, in the case of the Borrower, increases in accumulated depreciation and amortization accrued after the Effective Date, minus (to the extent contained in determining stockholders' equity of such Person): (a) the amount of any write-up in the book value of any assets reflected in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired, and (b) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, service marks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like assets which would be classified as intangible assets under GAAP, all determined on a consolidated basis.

"Total Budgeted Costs" means, with respect to any Development Property, all amounts budgeted with respect to all of the following:  (a) acquisition of land and any related improvements; (b) a reasonable and appropriate reserve for construction interest; (c) a reasonable and appropriate operating deficit reserve; (d) tenant improvements, (e) leasing commissions and (f) other hard and soft costs associated with the development or redevelopment of such real property.  With respect to any real property to be developed in more than one phase, the Total Budgeted Cost shall exclude budgeted costs (other than costs relating to acquisition of land and related improvements) to the extent relating to any phase for which (i) construction has not yet commenced and (ii) a binding construction contract has not been entered into by the Borrower, any other Subsidiary or any Unconsolidated Affiliate, as the case may be.  For purposes of this definition, Total Budgeted Costs shall, with respect to any real property being developed by an Unconsolidated Affiliate, be equal to the greater of (x) Borrower's or any Subsidiary's Ownership Share of such Unconsolidated Affiliate times the Total Budgeted Costs determined in accordance with the foregoing or (y) the total amount of Indebtedness related to such real property that Borrower or any Subsidiary has Guaranteed or is otherwise obligated on a recourse basis.

"Total Liabilities" means, as to any Person as of a given date, all liabilities which would, in conformity with GAAP, be properly classified as a liability on a consolidated balance sheet of such Person as of such date, and in any event shall include (without duplication): (a) all Indebtedness of such Person, including without limitation, Capitalized Lease Obligations and reimbursement obligations with respect to any letter of credit, (b) all accounts payable and accrued expenses of such Person; (c) all purchase and repurchase obligations and forward commitments of such Person to the extent such obligations or commitments are evidenced by a binding purchase agreement (forward commitments shall include without limitation (i) forward equity commitments and (ii) commitments to purchase any real property under development, redevelopment or renovation); (d) all unfunded obligations of such Person; (e) all lease obligations of such Person (including ground leases) to the extent required under GAAP to be classified as a liability on a balance sheet of such Person; (f) all contingent obligations of such Person including, without limitation, all Guarantees of Indebtedness by such Person; (g) all liabilities of any Unconsolidated Affiliate of such Person, which liabilities such Person has Guaranteed or is otherwise obligated on a recourse basis; and (h) such Person's Ownership Share of the Indebtedness of any Unconsolidated Affiliate of such Person, including Nonrecourse Indebtedness of such Person.  For purposes of clauses (c) and (d) of this definition, the amount of Total Liabilities of a Person at any given time in respect of (x) a contract to purchase or otherwise acquire unimproved or fully developed real property shall be equal to (i) the total purchase price payable by such Person under such contract if, at such time, the seller of such real property would be entitled to specifically enforce such contract against such Person, otherwise, (ii) the aggregate amount of due diligence deposits, earnest money payments and other similar payments made by such Person under such contract which, at such time, would be subject to forfeiture upon termination of the contract and (y) a contract relating to the acquisition of real property which the seller is required to develop or renovate prior to, and as a condition precedent to, such acquisition, shall be equal to (i) the maximum amount reasonably estimated to be payable by such Person under such contract assuming performance by the seller of its obligations under such contract, which amount shall include, without limitation, any amounts payable after consummation of such acquisition which may be based on certain performance levels or other related criteria if, at such time, the seller of such real property would be entitled to specifically enforce such contract against such Person, otherwise (ii) the aggregate amount of due diligence deposits, earnest money payments and other similar payments made by such Person under such contract which, at such time, would be subject to forfeiture upon termination of the contract.  For purposes of this definition, Total Budgeted Costs shall include the Total Budgeted Costs of Development Properties being developed by third parties with related Indebtedness which such Person Guaranteed or is otherwise obligated.

"Trigger Date" means the earlier of (i) the first anniversary of the Effective Date and (ii) the date on which Borrower has received cumulative proceeds (net of transaction costs) from the sale or issuance by Borrower, after the Effective Date, of Shares, options, warrants or other Equity Interests of any class or character in the amount of at least Eighteen Million and No/100 Dollars ($18,000,000.00).

"Type" with respect to the Revolving Loan, refers to whether the applicable portion of the Revolving Loan is a LIBOR Loan or a Base Rate Loan.

"Unconsolidated Affiliate" shall mean, in respect of any Person, any other Person in whom such Person holds an Investment, which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person.

"Unencumbered Net Operating Income" means, for any period, the aggregate Net Operating Income for such period for each Property of Borrower or any Subsidiary which satisfies all of the following requirements as determined by Lender:  (a) such Property is 100% owned in fee simple by Borrower or a Wholly Owned Subsidiary of Borrower; (b) neither such Property nor any interest of Borrower or such Subsidiary therein, is subject to any Lien other than Permitted Liens or to any agreement (other than this Agreement or any other Loan Document) that prohibits the creation of any Lien thereon as security for Indebtedness; (c) if such Property is owned by a Subsidiary:  (i) none of Borrower's Ownership Share in such Subsidiary is subject to any Lien other than Permitted Liens or to any agreement (other than this Agreement or any other Loan Document) that prohibits the creation of any Lien thereon as security for Indebtedness and (ii) neither such Subsidiary, nor any other Subsidiary through which Borrower holds any indirect interest in such Subsidiary, is subject to any restriction of any kind which would limit its ability to pay or perform its obligations under the Guaranty required to be delivered hereunder prior to its obligation to pay dividends or make any other distribution on any of such Subsidiary's capital stock or other securities owned by Borrower or any other Subsidiary of Borrower.

"Unencumbered Pool Certificate" means a report, certified by the chief financial officer of  Borrower in the manner provided for in Exhibit G, setting forth the calculations required to establish the Unencumbered Pool Value as of a specified date, all in form and detail satisfactory to Lender.

"Unencumbered Pool Properties" means those Eligible Properties that have been approved pursuant to Article 4 for inclusion when calculating the Maximum Loan Availability.

"Unencumbered Pool Value" means, at any time, the sum of the following amounts as determined for each Unencumbered Pool Property:  (a) the Net Operating Income of such Unencumbered Pool Property for the fiscal quarter most recently ended times (b) 4 and divided by (c) seven percent (7%).

"Unsecured Indebtedness" means, with respect to a Person, all Indebtedness of such Person that is not Secured Indebtedness.

"Unsecured Interest Expense" means, with respect to a Person and for a given period, all Interest Expense for such period attributable to the Unsecured Indebtedness of such Person.

"Unused Fee" means a fee payable by Borrower to Lender in consideration of Lender's having the Commitment available to be loaned to Borrower, which Unused Fee shall be calculated and paid quarterly based on the portion of the Commitment, determined on a daily basis, not borrowed and outstanding during such preceding calendar quarter.

Section 1.2Accounting Terms and Determinations; Covenant Calculations.

Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP.

Section 1.3Subsidiaries.

Unless explicitly set forth to the contrary, a reference to "Subsidiary" shall mean a Subsidiary of Borrower and a reference to an "Affiliate" shall mean a reference to an Affiliate of Borrower.

Section 1.4Interpretation Generally; Times.

References in this Agreement to "Sections", "Articles", "Exhibits" and "Schedules" are to sections, articles, exhibits and schedules herein and hereto unless otherwise indicated.  References in this Agreement or any other Loan Document to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, as updated from time to time, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified or supplemented from time to time in accordance with its terms and in effect at any given time.  Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter.  Unless otherwise indicated, all references to time are references to San Francisco, California time.

CREDIT FACILITY

Section 1.5Making of Revolving Loan.

(a)Subject to the terms and conditions set forth in this Agreement including, without limitation, Section 2.1(b), Lender agrees to permit Borrower to make borrowings under the Revolving Loan during the period from and including the Effective Date to but excluding the Revolving Credit Termination Date, in an aggregate principal amount at any one time outstanding up to, but not exceeding, the lesser of (a) the Maximum Loan Availability and (b) the Commitment.  Each borrowing shall be in an aggregate principal amount of (i) with respect to Base Rate Loans, except with respect to fundings under the Sweep Agreement (hereinafter defined), $100,000.00 and integral multiples of $50,000.00 in excess of that amount (except that any such borrowing of Base Rate Loans may be in the aggregate amount of the unused Commitment) and (ii) with respect to LIBOR Loans, $250,000.00 and integral multiples of $100,000.00 in excess of that amount.  Within the foregoing limits and subject to the other terms of this Agreement, Borrower may borrow, repay and reborrow the Revolving Loan.

(b)Notwithstanding any other term of this Agreement or any other Loan Document, at no time may the aggregate principal amount of all outstanding LIBOR Loans, Base Rate Loans and Letter of Credit Liabilities, exceed the lesser of (a) Maximum Loan Availability at such time or (b) the Commitment.

Section 1.6Requests for Borrowings.

Not later than 10:00 a.m. at least one Business Day prior to a borrowing of Base Rate Loans and not later than 10:00 a.m. at least three Business Days prior to a borrowing of LIBOR Loans, Borrower shall deliver to Lender a Notice of Borrowing.  Each Notice of Borrowing shall specify the principal amount of the Revolving Loans to be borrowed, the date such amount is to be borrowed (which must be a Business Day), the use of the proceeds of such borrowing, the Type of the requested borrowing and if such borrowing is to be a LIBOR Loan, the initial Interest Period for such LIBOR Loan.  Each Notice of Borrowing shall be irrevocable once given and binding on Borrower.  Prior to delivering a Notice of Borrowing, Borrower may (without specifying whether the borrowing will be a Base Rate Loan or a LIBOR Loan) request that Lender provide Borrower with the most recent LIBO Rate available to Lender.  Lender shall provide such quoted rate to Borrower on the date of such request or as soon as possible thereafter.

Section 1.7Funding.  Promptly after receipt of a Notice of Borrowing, and upon and subject to fulfillment of all applicable conditions set forth herein, Lender shall make available to Borrower at Lender's Lending Office, not later than 11:00 a.m. on the date of the requested borrowing, the proceeds of such borrowing.

Section 1.8Continuation.

So long as no Event of Default shall have occurred and be continuing, Borrower may on any Business Day, with respect to any LIBOR Loan, elect to maintain such LIBOR Loan or any portion thereof as a LIBOR Loan by selecting a new Interest Period for such LIBOR Loan.  Each new Interest Period selected under this Section shall commence on the last day of the immediately preceding Interest Period.  Each selection of a new Interest Period shall be made by Borrower's giving of a Notice of Continuation not later than 10:00 a.m. on the third Business Day prior to the date of any such Continuation by Borrower to Lender.  Such notice by Borrower of a Continuation shall be by telephone or telecopy, confirmed immediately in writing if by telephone, in the form of a Notice of Continuation, specifying (a) the date of such Continuation, (b) the LIBOR Loan and portion thereof subject to such Continuation and (c) the duration of the selected Interest Period, all of which shall be specified in such manner as is necessary to comply with all limitations on Loans outstanding hereunder.  Each Notice of Continuation shall be irrevocable by and binding on Borrower once given.  If Borrower shall fail to select in a timely manner a new Interest Period for any LIBOR Loan in accordance with this Section, such Loan will automatically, on the last day of the current Interest Period therefore, Convert into a Base Rate Loan notwithstanding failure of Borrower to comply with Section 2.5.

Section 1.9Conversion.

So long as no Event of Default shall have occurred and be continuing, Borrower may on any Business Day, upon Borrower's giving of a Notice of Conversion to Lender, Convert the entire amount of all or a portion of a Loan of one Type into a Loan of another Type.  Any Conversion of a LIBOR Loan into a Base Rate Loan shall be made on, and only on, the last day of an Interest Period for such LIBOR Loan.  Each such Notice of Conversion shall be given not later than 10:00 a.m. on the Business Day prior to the date of any proposed Conversion into Base Rate Loans and on the third Business Day prior to the date of any proposed Conversion into LIBOR Loans.  Subject to the restrictions specified above, each Notice of Conversion shall be by telephone or telecopy confirmed immediately in writing if by telephone in the form of a Notice of Conversion specifying (a) the requested date of such Conversion, (b) the Type of Loan to be Converted, (c) the portion of such Type of Loan to be Converted, (d) the Type of Loan such Loan is to be Converted into and (e) if such Conversion is into a LIBOR Loan, the requested duration of the Interest Period of such Loan.  Each Notice of Conversion shall be irrevocable by and binding on Borrower once given.  Each Conversion from a Base Rate Loan to a LIBOR Loan shall be in an amount of not less than $250,000.00 or integral multiples of $100,000.00 in excess of that amount.

Section 1.10Interest Rate.

(a)All Loans.  The unpaid principal of each Base Rate Loan shall bear interest from the date of the making of such Loan to but not including the date of repayment thereof at a rate per annum equal to the Base Rate in effect from day to day.  The unpaid principal of each LIBOR Loan shall bear interest from the date of the making of such Loan to but not including the date of repayment thereof at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period therefor.

(b)Default Rate.  Notwithstanding the immediately preceding subsection (a), or any other provision of this Agreement to the contrary, effective immediately upon the occurrence and during the continuance of any Event of Default, the outstanding principal balance of the Loans and all Reimbursement Obligations, and to the extent permitted by Applicable Law any interest payments on the Loans not paid when due, shall bear interest payable on demand until paid at the

(c)lesser of the Maximum Rate or the Base Rate from time to time in effect plus four percent (4.0%).

Section 1.11Special Provisions for LIBOR Loans.

(a)Inadequacy of LIBOR Pricing.  Anything herein to the contrary notwithstanding, if, on or prior to the determination of any LIBO Rate for any Interest Period:

(i)Lender reasonably determines, which determination shall be conclusive, absent manifest error, that quotations of interest rates for the relevant deposits referred to in the definition of LIBO Rate are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Loans as provided herein; or

(ii)Lender reasonably determines, which determination shall be conclusive, absent manifest error, that the relevant rates of interest referred to in the definition of LIBO Rate upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined are not likely adequately to cover the cost to Lender of making or maintaining LIBOR Loans for such Interest Period;

then Lender shall give Borrower prompt notice thereof and, so long as such condition remains in effect, Lender shall be under no obligation to, and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert Base Rate Loans into LIBOR Loans and Borrower shall, on the last day of each current Interest Period for each outstanding LIBOR Loan, either prepay such Loan or Convert such Loan into a Base Rate Loan in accordance with Section 2.5.

(b)Number of Interest Periods.  Anything herein to the contrary notwithstanding, there shall not be outstanding at any one time more than six (6) Interest Periods.

(c)Illegality of LIBOR Loans.  If, after the date of this Agreement, the adoption of any Applicable Law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for Lender to make, maintain or fund LIBOR Loans, Lender shall forthwith give notice thereof to Borrower.  Before giving any notice pursuant to this subsection, Lender shall designate a different LIBOR lending office if such designation will avoid the need for giving such notice and will not be otherwise materially disadvantageous to Lender (as determined in the reasonable judgment of Lender).  Upon receipt of such notice, Borrower shall Convert Lender's LIBOR Loans to Base Rate Loans, on either (i) the last day of the then-current Interest Period applicable to such LIBOR Loan if Lender may lawfully continue to maintain and fund such LIBOR Loan to such day or (ii) immediately if Lender may not lawfully continue to fund and maintain such LIBOR Loan to such day.

(d)Consequential Losses.  Borrower shall indemnify Lender against any Consequential Loss incurred by Lender as a result of (i) any failure to fulfill, on or before the date specified for such Loan in the applicable Notice of Borrowing, the conditions to such Loan set forth herein, or (ii) Borrower's requesting that a Base Rate Loan not be Converted into a

(e)LIBOR Loan on the date specified for such Conversion in a Notice of Conversion, (iii) Borrower's requesting that a LIBOR Loan not be Continued on the date specified for such Continuation in a Notice of Continuation or (iv) Borrower's requesting that a LIBOR Loan not be made on the date specified for such LIBOR Loan in the Notice of Borrowing.  A certificate of Lender establishing the amount due from Borrower according to the preceding sentence, together with a description in reasonable detail of the manner in which such amount has been calculated, shall be prima facie evidence thereof.

(f)Increased Costs for LIBOR Loans.  If, after the date hereof, any Governmental Authority, central bank or other comparable authority, shall at any time impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Lender or shall impose on Lender (or its eurodollar lending office) or the interbank eurodollar market any other condition affecting its LIBOR Loans, the Revolving Note or Lender's obligation to make LIBOR Loans; and the result of any of the foregoing is to increase the cost to Lender of making or maintaining LIBOR Loans, or to reduce the amount of any sum received or receivable by Lender under this Agreement, or under the Revolving Note, by an amount reasonably deemed by Lender to be material, then, within five days after demand by Lender, Borrower shall pay to Lender such additional amount or amounts as will compensate Lender for such increased cost or reduction.  Lender will (i) notify Borrower of any event occurring after the date of this Agreement which will entitle Lender to compensation pursuant to this subsection as promptly as practicable (but in any event within 120 days) after Lender obtains actual knowledge of such event, and Borrower shall not be liable for any such increased costs that accrue between the date such notification is required to be given and the date it was actually given and (ii) use good faith and reasonable efforts to designate a different lending office for Lender's LIBOR Loans if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable opinion of Lender, be materially disadvantageous to Lender.  A certificate of Lender claiming compensation under this Section and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to it hereunder shall be prima facie evidence thereof.

(g)Effect on Base Rate Loans.  If notice has been given pursuant to Section 2.7(a) or (c) requiring LIBOR Loans of Lender to be repaid or Converted, then unless and until Lender notifies Borrower that the circumstances giving rise to such repayment no longer apply, all Loans shall be Base Rate Loans.  If Lender notifies Borrower that the circumstances giving rise to such repayment no longer apply, Borrower may thereafter select LIBOR Loans.

(h)Payments Not at End of Interest Period.  If Borrower makes any payment of principal with respect to any LIBOR Loan on any day other than the last day of an Interest Period applicable to such LIBOR Loan, then Borrower shall reimburse Lender on demand the Consequential Loss incurred by Lender as a result of the timing of such payment.  A certificate of Lender setting forth in reasonable detail the basis for the determination of the amount of Consequential Loss shall be delivered to Borrower by Lender and shall, in the absence of demonstrable error, be conclusive and binding.  Any Conversion of a LIBOR Loan to a Base Rate Loan on any day other than the last day of the Interest Period for such LIBOR Loan shall be deemed a payment for purposes of this subsection.

(i)Capital Adequacy.

If, after the date hereof, Lender shall have reasonably determined that either (a) the adoption of any law, rule, regulation or guideline of general applicability regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or (b) compliance by Lender (or any lending office of Lender) with any request or directive of general applicability regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Lender's capital as a consequence of its or Borrower's obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender's policies with respect to capital adequacy) by an amount reasonably deemed by Lender to be material, then from time to time, Lender may notify Borrower, which notice shall include a calculation and a reference to the law, rule or regulation.  Within 120 days thereafter, Borrower shall either (i) pay to Lender such additional amount or amounts as will adequately compensate Lender for such reduction effective with the 121st day, or (ii) payoff the Loans.  Lender will notify Borrower of any such determination which will entitle Lender to compensation pursuant to this subsection as promptly as practicable (but in any event within 120 days) after Lender obtains actual knowledge of the event or condition prompting Lender to make such determination.  A certificate of Lender claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder, together with the description of the manner in which such amounts have been calculated, shall be prima facie evidence thereof.  In determining such amount, Lender may use any reasonable averaging and attribution methods.

Section 1.12Repayment of Loans.

(a)All accrued and unpaid interest on the unpaid principal amount of each Loan shall be payable (i) monthly in arrears on the first day of each month, commencing with the first full calendar month occurring after the Effective Date, (ii) on the Revolving Credit Termination Date and (iii) on any date on which the principal balance of such Loan is due and payable in full.

(b)The aggregate outstanding principal balance of Revolving Loan shall be due and payable in full on the Revolving Credit Termination Date.

(c)Except with respect to payments under the Sweep Agreement, Borrower may, upon at least one Business Day's prior notice to Lender, prepay any Loan in whole at any time, or from time to time in part in an amount equal to $100,000.00 or integral multiples of $50,000.00 in excess of that amount, by paying the principal amount to be prepaid.  If Borrower shall prepay the principal of any LIBOR Loan on any date other than the last day of the Interest Period applicable thereto, Borrower shall pay the amounts, if any, due under Section 2.7(d).

(d)If at any time the aggregate principal amount of all outstanding principal balances of LIBOR Loans and Base Rate Loans, together with the aggregate amount of Letter of Credit Liabilities, exceeds the aggregate amount of the Commitment, Borrower shall promptly upon demand pay to Lender the amount of such excess.  If at any time the aggregate outstanding principal balances of LIBOR Loans and Base Rate Loans together with the aggregate amount of

(e)all Letter of Credit Liabilities, exceeds the Maximum Loan Availability, then Borrower shall, within 10 days of Borrower obtaining actual knowledge of the occurrence of such excess, deliver to Lender a written plan acceptable to Lender to eliminate such excess (whether by designation of additional Properties as Unencumbered Pool Properties, by Borrower repaying an appropriate amount of Loans, or otherwise).  If such excess is not eliminated within 30 days of Borrower obtaining actual knowledge of the occurrence thereof, then the entire outstanding principal balance of all Loans and all accrued interest thereon, together with an amount equal to all Letter of Credit Liabilities for deposit into the Collateral Account, shall be immediately due and payable in full.

(f)Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by Borrower under this Agreement, the Revolving Notes or any other Loan Document shall be made in Dollars, in immediately available funds, without setoff, deduction or counterclaim, to Lender at its Lending Office, not later than 11:00 a.m. on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day).  All payments to be made by Borrower to the Issuing Bank under this Agreement or any other Loan Document shall be made in Dollars, in immediately available funds, without setoff, deduction or counterclaim, to the Issuing Bank, not later than 11:00 a.m. on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day).  The parties agree that if Borrower makes any payment due hereunder after 11:00 a.m. but before 5:00 p.m. on the date such payment is due, such late payment shall not constitute a Default under Section 9.1(a) but shall nevertheless for all other purposes, including but not limited to, the calculation of interest and any fees payable pursuant to Section 3.1, be deemed to have been paid as of the next succeeding Business Day as provided in the applicable parenthetical phrase of the preceding sentences.  If the due date of any payment under this Agreement or any other Loan Document would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for the period of such extension.

Section 1.13Voluntary Reductions of the Commitment.

Borrower may terminate or reduce the aggregate unused amount of the Commitment (for which purpose use of the Commitment shall be deemed to include the aggregate amount of all Letter of Credit Liabilities) at any time and from time to time without penalty or premium upon not less than three Business Days prior notice to Lender of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which in the case of any partial reduction of the Commitment shall not be less than $100,000.00 and integral multiples of $50,000.00 in excess of that amount) and shall be irrevocable once given and effective only upon receipt by Lender; provided, however, that if Borrower seeks to reduce the Commitment below $5,000,000.00, then the Commitment shall be reduced to zero and except as otherwise provided herein, the provisions of this Agreement shall terminate.  The Commitment, once reduced pursuant to this Section, may not be increased.  Borrower shall pay all interest and other costs on the Loans accrued to the date of such reduction or termination of the Commitment of Lender.

Credit Sweep Account.

Borrower wishes to establish an automatic debit/credit sweep between the Revolving Loan and Account No. 4311786339 (the "Sweep Account").  Subject to the terms of this Section, the terms of the sweep shall be governed by that certain Master Agreement for Treasury Management Services Agreement, dated May 18, 2000, by and between Borrower and Lender (the "Sweep Agreement").  Borrower hereby authorizes Lender, at the close of each business day, to make disbursements from the Loan for deposit into the Sweep Account and/or to withdraw funds from the Sweep Account to pay, in whole or in part, the outstanding principal balance on the Revolving Loan.  Lender may accept changes to these instructions only by written request from one of the following persons:  H. Kerr Taylor and Chad Braun.  Borrower hereby represents (i) that Lender may rely and act upon any written request from any such individuals and (ii) that the sweep specified above has been duly authorized by all necessary entity approvals.  Borrower further hereby irrevocably grants, pledges and assigns to Lender, as additional security for the Loan, all monies now or hereafter deposited in the Sweep Account.  Finally, notwithstanding anything in the Sweep Agreement to the contrary, Borrower agrees that Lender may immediately terminate the sweep relationship upon any Default under the Loan Documents and/or, whether or not there has been a Default under the Loan Documents, upon seven (7) days prior written notice to Borrower.

Section 1.14Funds Transfer Disbursements.  If requested by Borrower, Borrower hereby authorizes Lender to disburse the proceeds of any Loan(s) made by Lender or its affiliate pursuant to the Loan Documents as requested by an authorized representative of the Borrower to any of the accounts designated in that certain Exhibit entitled Transfer Authorizer Designation.  Borrower agrees to be bound by any transfer request:  (i) authorized or transmitted by Borrower, or, (ii) made in Borrower's name and accepted by Lender in good faith and in compliance with these transfer instruction, even if not properly authorized by Borrower.  Borrower further agrees and acknowledges that Lender may rely solely on any bank routing number or identifying bank account number or name provided by Borrower to effect a wire or funds transfer even if the information provided by Borrower identifies a different bank or account holder than named by the Borrower.  Lender is not obligated or required in any way to take any actions to detect errors in information provided by Borrower.  If Lender takes any actions in an attempt to detect errors in the transmission or content of transfer or requests or takes any actions in an attempt to detect unauthorized funds transfer requests, Borrower agrees that no matter how many times Lender takes these actions Lender will not in any situation be liable for failing to take or correctly perform these actions in the future and such actions shall not become any part of the transfer disbursement procedures authorized under this provision, the Loan Documents, or any agreement between Lender and Borrower.  Borrower agrees to notify Lender of any errors in the transfer of any funds or of any unauthorized or improperly authorized transfer requests within 14 days after Lender's confirmation to Borrower of such transfer.  Lender will, in its sole discretion, determine the funds transfer system and the means by which each transfer will be made.  Lender may delay or refuse to accept a funds transfer request if the transfer would:  (i) violate the terms of this authorization; (ii) require use of a bank unacceptable to Lender or prohibited by governmental authority; (iii) cause Lender to violate and Federal Reserve or other regulatory risk control program or guideline, or (iv) otherwise cause Lender to violate any applicable law or regulation.  Lender shall not be liable to Borrower or any other parties for (i) errors, acts or failures to act of others, including other entities, banks, communications carriers or clearinghouses, through which

Section 1.15Borrower's transfers may be made or information received or transmitted, and no such entity shall be deemed an agent of the Lender, (ii) any loss, liability or delay caused by fires, earthquakes, wars, civil disturbances, power surges or failures, acts of government, labor disputes, failures in communications networks, legal constraints or other events beyond Lender's control, or (iii) any special, consequential, indirect or punitive damages, whether or not (a) any claim for these damages is based on tort or contract or (b) Lender or Borrower knew or should have known the likelihood of these damages in any situation.  Lender makes no representations or warranties other than those expressly made in this Agreement.

Section 1.16Revolving Note.

The obligation of Borrower to repay the Revolving Loan shall, in addition to this Agreement, be evidenced by the Revolving Note.

Section 1.17Letters of Credit.

(a)Subject to the terms and conditions of this Agreement including, without limitation, Section 2.1(b), Lender agrees to cause the Issuing Bank to issue for the account of Borrower during the period from and including the Effective Date to, but excluding, the Revolving Credit Termination Date one or more letters of credit (each a "Letter of Credit") in such form and containing such terms as may be requested from time to time by Borrower and acceptable to the Issuing Bank and Lender, up to a maximum aggregate Stated Amount at any one time outstanding not to exceed the L/C Commitment Amount.  Lender and Borrower agree that those Letters of Credit which are described on Schedule 2.13(a) attached hereto and made a part hereof are outstanding as of the date of this Agreement but shall, for all purposes, be deemed Letters of Credit issued under this Agreement.

(b)At the time of issuance, the amount, terms and conditions of each Letter of Credit, and of any drafts or acceptances thereunder, shall be subject to approval by the Issuing Bank, Lender and Borrower.  Notwithstanding the foregoing, in no event may (i) the expiration date of any Letter of Credit extend beyond the Revolving Credit Termination Date, (ii) a Letter of Credit have an initial duration in excess of one year, (iii) a Letter of Credit contain an automatic renewal clause or (iv) a Letter of Credit be issued within 30 days of the Revolving Credit Termination Date.  The initial Stated Amount of each Letter of Credit shall be at least $100,000.00.

(c)In connection with the proposed issuance of a Letter of Credit, Borrower shall give Lender written notice (or telephonic notice promptly confirmed in writing) prior to the requested date of issuance of a Letter of Credit, such notice to describe in reasonable detail the proposed terms of such Letter of Credit and the nature of the transactions or obligations proposed to be supported by such Letter of Credit, and in any event shall set forth with respect to such Letter of Credit (i) the proposed initial Stated Amount, (ii) the beneficiary, (iii) whether such Letter of Credit is a commercial or standby letter of credit and (iv) the proposed expiration date.  Borrower shall also execute and deliver such customary applications and agreements for standby letters of credit, standby letter of credit agreements, applications for amendment to letter of credit, and other forms as requested from time to time by Lender or the Issuing Bank.  Provided Borrower has given the notice prescribed by the first sentence of this subsection and Borrower

(d)has executed and delivered to Lender and the Issuing Bank the agreements, applications and other forms as required by the immediately preceding sentence of this subsection, and subject to the terms and conditions of this Agreement, including the satisfaction of any applicable conditions precedent set forth in Article 5., Lender agrees to cause the Issuing Bank to issue the requested Letter of Credit on the requested date of issuance for the benefit of the stipulated beneficiary but in no event prior to the date five (5) Business Days following the date after which each of Lender and the Issuing Bank received the items required to be delivered to it under this subsection.  Upon the written request of Borrower, Lender shall deliver to Borrower a copy of each issued Letter of Credit within a reasonable time after the date of issuance thereof.  To the extent any term of a Letter of Credit Document is inconsistent with a term of any Loan Document, the term of the Letter of Credit Document shall control.

(e)Upon receipt by the Issuing Bank from the beneficiary of a Letter of Credit of any demand for payment under such Letter of Credit, Lender shall promptly notify Borrower of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such beneficiary in respect of such demand.  Borrower hereby unconditionally and irrevocably agrees to pay and reimburse the Issuing Bank for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary thereunder, without presentment, demand, protest or other formalities of any kind.

(f)Unless Borrower shall elect to otherwise satisfy such Reimbursement Obligation, such reimbursement shall, subject to satisfaction of the conditions in Section 5.1 and Section 5.2 hereof and to the Maximum Loan Availability (after adjustment to reflect elimination of the corresponding Reimbursement Obligation), automatically be made by a borrowing under the Revolving Loans.

(g)In examining documents presented in connection with drawings under Letters of Credit and making payments under such Letters of Credit against such documents, the Issuing Bank shall only be required to use the same standard of care as it uses in connection with examining documents presented in connection with drawings under other letters of credit it has issued and making payments under such other letters of credit.  Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit.  In furtherance and not in limitation of the foregoing, neither the Issuing Bank, nor Lender shall be responsible (i) for the form, validity, sufficiency, accuracy, genuineness or legal effects of any document submitted by any party in connection with the application for and issuance of or any drawing honored under any Letter of Credit even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telex, telecopy or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit, or of the proceeds thereof; (vii) for the misapplication by the beneficiary of any such Letter of Credit,

(h)or the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Issuing Bank or Lender.  None of the above shall affect, impair or prevent the vesting of any of the Issuing Bank's rights or powers hereunder.  Any action taken or omitted to be taken by the Issuing Bank under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create against the Issuing Bank any liability to Borrower or Lender.  In this connection, the obligation of Borrower to reimburse the Issuing Bank for any drawing made under any Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement or any other applicable Letter of Credit Document under all circumstances whatsoever, including without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit Document or any term or provisions therein; (ii) any amendment or waiver of or any consent to departure from all or any of the Letter of Credit Documents; (iii) the existence of any claim, setoff, defense or other right which Borrower may have at any time against the Issuing Bank, Lender, any beneficiary of a Letter of Credit or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or in the Letter of Credit Documents or any unrelated transaction; (iv) any breach of contract or dispute between Borrower, the Issuing Bank, Lender or any other Person; (v) any demand, statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein or made in connection therewith being untrue or inaccurate in any respect whatsoever; (vi) any non-application or misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; (vii) payment by the Issuing Bank under the Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of the Letter of Credit; and (viii) any other act, omission to act, delay or circumstance whatsoever that might, but for the provisions of this Section, constitute a legal or equitable defense to or discharge of Borrower's Reimbursement Obligations.

(i)The issuance by the Issuing Bank of any amendment, supplement or other modification to any Letter of Credit shall be subject to the same conditions applicable under this Agreement to the issuance of new Letters of Credit (including, without limitation, that the request therefor be made through the Issuing Bank), and no such amendment, supplement or other modification shall be issued unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such amended, supplemented or modified form or (ii) Lender shall have consented thereto.

(j)Upon the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Commitment shall be deemed to be utilized for all purposes of this Agreement in an amount equal to the Stated Amount of such Letter of Credit plus any related Reimbursement Obligations then outstanding.

(k)If on the date (the "Facility Termination Date") this Agreement is terminated (whether voluntarily, by reason of the occurrence of an Event of Default or otherwise) any Letters of Credit are outstanding, Borrower shall, on the Facility Termination Date, pay to Lender an amount of money equal to the Stated Amount of such Letter(s) of Credit, together with the amount of any fees which would otherwise be payable by Borrower to Lender or the Issuing Bank in respect of such Letters of Credit but for the occurrence of the Facility Termination Date for deposit into the Collateral Account.  If at any time the aggregate Stated

(l)Amount of all outstanding Letters of Credit shall exceed the L/C Commitment Amount then in effect, Borrower shall pay to Lender for deposit into the Collateral Account an amount equal to such excess.  If a drawing pursuant to any such Letter of Credit occurs on or prior to the expiration date of such Letter of Credit, Borrower authorizes Lender to disburse to the Issuing Bank the monies deposited in the Collateral Account to make payment to the beneficiary with respect to such drawing.  If no drawing occurs on or prior to the expiration date of any such Letter of Credit, Lender shall return to Borrower the monies deposited in the Collateral Account with respect to such outstanding Letter of Credit on or before the date 10 Business Days after the expiration date with respect to the Letter of Credit.

(m)If as a result of the adoption of any Applicable Law or guideline of general applicability regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or if as a result of any risk-based capital guideline or other requirement heretofore or hereafter issued by any Governmental Authority, there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit and the result shall be to increase the cost to the Issuing Bank of issuing (or of Lender purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit or reduce any amount receivable by the Issuing Bank or Lender hereunder in respect of any Letter of Credit, then, upon demand by the Issuing Bank or Lender, Borrower shall pay immediately to the Issuing Bank or Lender, as applicable, from time to time as specified by the Issuing Bank or Lender, such additional amounts as shall be sufficient to compensate the Issuing Bank or Lender for such increased costs or reductions in amount.

ARTICLE 2.

GENERAL LOAN PROVISIONS

Section 2.1Fees.

(a)Upon the execution of this Agreement, Borrower shall pay to the Lender a credit facility fee equal to $262,500.00.

(b)On the first day of each January, April, July and October prior to the Revolving Credit Termination Date, commencing October 1, 2007, and on the Revolving Credit Termination Date with respect to the period since the last date on which the Unused Fee was paid, Borrower shall pay to Lender the Unused Fee.  If the unused portion of the Commitment is equal to or less than fifty percent (50%) of the Commitment, the Unused Fee rate shall be zero dollars ($-0-).  If the unused portion of the Commitment is greater than fifty percent (50%) of the Commitment, the Unused Fee rate shall be 15/100% (.15%) of the unused portion of the Commitment.

(c)Borrower agrees to pay to Lender such reasonable fees for services rendered by Lender as shall be separately agreed upon between Borrower and Lender.  Borrower agrees to pay to the Issuing Bank such reasonable fees for services rendered by the Issuing Bank as shall be separately agreed upon between Borrower and the Issuing Bank from time to time.

(d)Borrower agrees to pay to Lender a letter of credit fee at a rate per annum equal to the product obtained by multiplying the then Applicable Margin for LIBOR Loans times the Stated Amount of each Letter of Credit on the date of issuance of such Letter of Credit and on each anniversary of the date of issuance thereof until such Letter of Credit has expired.  The fee provided for in the immediately preceding sentence shall be nonrefundable.  Borrower shall also pay directly to the Issuing Bank from time to time on demand all commissions, charges, costs and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit, drawings, amendments and other transactions relating thereto.  Borrower shall also pay to Lender, solely for its own account and on the date of the issuance of such Letter of Credit, a fronting fee in respect of each Letter of Credit at the rate equal to one-eighth of one percent (0.125%) per annum on the Stated Amount of such Letter of Credit; provided, however, in no event shall the amount of such fronting fee in respect of any Letter of Credit be less than $500.00.

Section 2.2Computation of Interest and Fees.

Interest on the Loans and the Letter of Credit Liabilities and all fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day of a period).

Section 2.3Limitation of Interest.

(a)It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply strictly with the applicable Texas law (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law) governing the maximum rate or amount of interest payable on the Revolving Note or the Related Indebtedness.  If the applicable law is ever judicially interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to the Revolving Note, any of the other Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, (ii) contracted for, charged or received by reason of Lender's exercise of the option to accelerate the maturity of the Revolving Note and/or the Related Indebtedness, or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of the Revolving Note and/or the Related Indebtedness, then it is Borrower's and Lender's express intent that all amounts charged in excess of the Maximum Lawful Rate shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Lawful Rate theretofore collected by Lender shall be credited on the principal balance of the Revolving Note and/or the Related Indebtedness (or, if the Revolving Note and all Related Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of the Revolving Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if the Revolving Note has been paid in full before the end of the stated term of the Revolving Note, then Borrower and Lender agrees that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Maximum Lawful Rate, either refund such

(b)excess interest to Borrower and/or credit such excess interest against the Revolving Note and/or any Related Indebtedness then owing by Borrower to Lender.  Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against the Revolving Note and/or the Related Indebtedness then owing by Borrower to Lender.  All sums contracted for, charged or received by Lender for the use, forbearance or detention of any debt evidenced by the Revolving Note and/or the Related Indebtedness shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of the Revolving Note and/or the Related Indebtedness (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of the Revolving Note and/or the Related Indebtedness does not exceed the Maximum Lawful Rate from time to time in effect and applicable to the Revolving Note and/or the Related Indebtedness for so long as debt is outstanding.  In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving triparty accounts) apply to the Revolving Note and/or the Related Indebtedness.  Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.  Borrower and Lender hereby agree that any and all suits alleging the contracting for, charging or receiving of usurious interest shall lie in Harris County, Texas, and each irrevocably waives the right to venue in any other county.

(c)As used herein, the term "Maximum Lawful Rate" shall mean the maximum lawful rate of interest which may be contracted for, charged, taken, received or reserved by Lender in accordance with the applicable laws of the State of Texas (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law), taking into account all Charges (as herein defined) made in connection with the transaction evidenced by the Revolving Note and the other Loan Documents.  As used herein, the term "Charges" shall mean all fees, charges and/or any other things of value, if any, contracted for, charged, received, taken or reserved by Lender in connection with the transactions relating to the Revolving Note and the other Loan Documents, which are treated as interest under applicable law.  As used herein, the term "Related Indebtedness" shall mean any and all debt paid or payable by Borrower to Lender pursuant to the Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, except such debt which has been paid or is payable by Borrower to Lender under the Revolving Note.

(d)To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Lawful Rate payable on the Revolving Note and/or the Related Indebtedness, Lender will utilize the weekly ceiling from time to time in effect as provided in such Chapter 303, as amended.  To the extent United States federal law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States federal law instead of such Chapter 303 for the purpose of determining the Maximum Lawful Rate. Additionally, to the extent permitted by applicable law

(e)now or hereafter in effect, Lender may, at its option and from time to time, utilize any other method of establishing the Maximum Lawful Rate under such Chapter 303 or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect.

(f)Notwithstanding anything in the Revolving Note to the contrary, if at any time (i) the interest rate provided for under the Revolving Note or any other Loan Document (the "Stated Rate"), and (ii) the Charges computed over the full term of the Revolving Note, exceed the Maximum Lawful Rate, then the rate of interest payable hereunder, together with all Charges, shall be limited to the Maximum Lawful Rate; provided, however, that any subsequent reduction in the Stated Rate shall not cause a reduction of the rate of interest payable hereunder below the Maximum Lawful Rate until the total amount of interest earned hereunder, together with all Charges, equals the total amount of interest which would have accrued at the Stated Rate if such interest rate had at all times been in effect.  Changes in the Stated Rate resulting from a fluctuations in the rates used to calculate the Stated Rate shall be subject to the provisions of this paragraph.

Section 2.4Statements of Account.

Lender will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement and the other Loan Documents, and such account rendered by Lender shall be prima facie evidence thereof.  The failure of Lender to maintain or deliver such a statement of accounts shall not relieve or discharge Borrower from its obligations hereunder.

Section 2.5Lender's Reliance.

Neither Lender, nor the Issuing Bank, shall incur any liability to Borrower for acting upon any telephonic notice permitted under this Agreement which Lender or the Issuing Bank believes reasonably and in good faith to have been given by an individual authorized to deliver a Notice of Borrowing, Notice of Conversion, Notice of Continuation, a request for issuance of a Letter of Credit or an Extension Request on behalf of Borrower.

ARTICLE 3.

UNENCUMBERED POOL PROPERTIES

Section 3.1Acceptance of Unencumbered Pool Properties

(a)Existing Unencumbered Pool Properties.  Subject to compliance with the terms and conditions of Section 5.1, Lender has accepted the Properties listed on Schedule 4.1 as of the date hereof as Unencumbered Pool Properties.

(b)Submission of Additional Properties.  If Borrower desires that Lender accept an additional Property as an Unencumbered Pool Property, Borrower shall so notify Lender in writing.  No Property will be evaluated by Lender unless it is an Eligible Property, and unless and until Borrower delivers to Lender the following, in form and substance satisfactory to Lender:

(c)An Executive Investment Summary in a form acceptable to the Lender;

(i)An Unencumbered Pool Certificate setting forth (A) on a pro forma basis the Maximum Loan Availability, assuming that such Property is accepted as an Unencumbered Pool Property; (B) the Occupancy Rate of such Property, and (C) the aggregate Occupancy Rate of all Unencumbered Pool Properties, assuming that such Property is accepted as an Unencumbered Pool Property; and

(ii)Copies of most recent environmental report, Borrower's current title policy and a current survey applicable to such Property to the extent same are available to Borrower; and

(iii)An Eligibility Certificate executed by the chief financial officer or controller of Borrower (which officer shall be authorized to execute such certificate) in the form of Exhibit H attached hereto.

Following receipt of the foregoing items (i) through (iii) for such Property, Lender will, within thirty (30) days after receipt of, review such documents and information from Borrower (the "Review Period") take one of the following actions:  (I) notify Borrower of Lender's approval of the Property as an Unencumbered Pool Property or (II) request from Borrower further information relating to such Property in accordance with the following paragraph.  If none of the foregoing actions is taken by Lender prior to the expiration of the Review Period, Lender shall be deemed to have accepted such Property as an Unencumbered Pool Property.

At any time during the Review Period, Lender may request that Borrower furnish additional information regarding the additional property.  If a request is made for such further information by Lender during the Review Period, Borrower shall promptly (but in any event within ten (10) days of receipt of such request) deliver the requested information to Lender.  Lender shall then have twenty (20) days (the "Extended Review Period") after receipt from Borrower of the requested information to notify Borrower of its acceptance or rejection of such Property.  If Lender notifies the Borrower of its rejection of such Property, such Property shall not be accepted as an Unencumbered Pool Property under this subsection (b).  If Lender fails to notify Borrower prior to the expiration of the Extended Review Period, Lender shall be deemed to have accepted such Property as Unencumbered Pool Property.

Section 3.2Termination of Designation as Unencumbered Pool Property.

From time to time Borrower may request, upon not less than 30 days prior written notice to Lender, that an Unencumbered Pool Property cease to be an Unencumbered Pool Property.  Lender shall grant such request if all of the following conditions are satisfied:

(a)no Default or Event of Default shall have occurred and be continuing both at the time of such request and immediately after giving effect to such request; and

(b)Borrower shall have delivered to Lender an Unencumbered Pool Certificate demonstrating on a pro forma basis, and Lender shall have determined, that the outstanding principal balance of the Loans, together with the aggregate amount of Letter of Credit Liabilities, will not exceed the Maximum Loan Availability after giving effect to such request and any

(c)prepayment to be made and/or the acceptance of any Property as an additional or replacement Unencumbered Pool Property to be given concurrently with such request.

Section 3.3Additional Requirements of Unencumbered Pool Properties.

(a)The aggregate Occupancy Rate of all Unencumbered Pool Properties, when determined on a combined basis, shall at all times equal or exceed 90% and no single Unencumbered Pool Property shall have an Occupancy Rate of less than 80%.

(b)A Property shall cease to be an Unencumbered Pool Property if it shall cease to be an Eligible Property.

(c)If a tenant of an Unencumbered Pool Property, while paying rent, has not actually occupied the Property for 90 days, such Tenant's space shall, for the purpose of determining Occupancy Rate, be deemed unoccupied.

(d)No single-tenant leasing one or more Unencumbered Pool Property shall constitute greater than 10% of the total value of the Unencumbered Pool Properties.

(e)Any single Unencumbered Pool Property which has an Unencumbered Pool Value that is greater than 15% of the total value of all Unencumbered Pool Properties shall, for the purposes of determining Maximum Loan Availability, only be accorded a value in an amount equal to 15% of the total value of all Unencumbered Pool Properties, except that the foregoing, limit shall, as to the MacArthur Pads be increased to 25% of the total value of all Unencumbered Pool Properties.

(f)The aggregate Unencumbered Pool Value of all Unencumbered Pool Properties which are ground leased to retail tenants shall not exceed thirty percent (30%) of the aggregate Unencumbered Pool Value of all Unencumbered Pool Properties.

ARTICLE 4.

CONDITIONS

Section 4.1Conditions Precedent to Effectiveness.

The effectiveness of this Agreement and the obligation of Lender to make any Loans to Borrower or to cause the Issuing Bank to issue any Letters of Credit in accordance with the terms hereof are subject to the condition precedent that Borrower deliver to Lender each of the following, each of which shall be in form and substance reasonably satisfactory to Lender:

(a)counterparts of this Agreement and all other Loan Documents executed by the parties hereto;

(b)the Revolving Note executed by Borrower, payable to Lender and complying with the terms of Section 2.13;

(c)the Guaranty executed by each Guarantor;

(d)an opinion of counsel (which may be an attorney employed by Borrower) to the Loan Parties, and addressed to Lender in substantially the form of Exhibit F;

(e)a certified copy of the Bylaws of Borrower;

(f)a certificate of incumbency signed by the Secretary or Assistant Secretary of Borrower with respect to each of the officers of Borrower authorized to execute and deliver the Loan Documents to which Borrower is a party;

(g)certified copies (certified by the Secretary or Assistant Secretary of Borrower) of all action taken by Borrower's Board of Directors to authorize the execution, delivery and performance of the Loan Documents to which it is a party;

(h)certified copy (certified by the Secretary or Assistant Secretary of Borrower) of the Amended and Restated Declaration of Trust of Borrower as filed in Harris County, Texas;

(i)the articles of incorporation, articles of organization, certificate of limited partnership or other comparable organizational instrument (if any) of each Guarantor certified as of a recent date by the Secretary of State of the State of formation of such Guarantor;

(j)a Certificate of Good Standing or certificate of similar meaning with respect to each Guarantor issued as of a recent date by the Secretary of State of the State of formation of each such Guarantor and certificates of qualification to transact business or other comparable certificates issued by each Secretary of State (and any state department of taxation, as applicable) of each state in which each such Guarantor is required to be so qualified;

(k)a certificate of incumbency signed by the Secretary or Assistant Secretary (or other individual performing similar functions) of each Guarantor with respect to each of the officers of such Guarantor authorized to execute and deliver the Loan Documents to which such Guarantor is a party;

(l)copies certified by the Secretary or Assistant Secretary of each Guarantor (or other individual performing similar functions) of (i) the by-laws of such Guarantor, if a corporation, the operating agreement, if a limited liability company, the partnership agreement, if a limited or general partnership, or other comparable document in the case of any other form of legal entity and (ii) all corporate, partnership, member or other necessary action taken by such Guarantor to authorize the execution, delivery and performance of the Loan Documents to which it is a party;

(m)an Unencumbered Pool Certificate calculated as of the date hereof;

(n)the fees then due under Section 3.1;

(o)such other documents and instruments as Lender may reasonably request.

(p)Conditions Precedent to Loans and Issuance of Letters of Credit.

The obligation of Lender to make any Loans or to cause the Issuing Bank to issue Letters of Credit is subject to the condition precedent that the following conditions be satisfied in the judgment of Lender:

(q)in the case of Loans, timely receipt by Lender of a Notice of Borrowing;

(r)the proposed use of proceeds of such Loans or proposed use of such Letter of Credit, as the case may be, set forth in the Notice of Borrowing is consistent with the provisions of Section 7.8.;

(s)Since the date of the most recent financial statements of Borrower or Guarantors delivered to Lender, nothing shall have occurred which would or could have a Materially Adverse Effect on Borrower or any Guarantor;

(t)immediately before and after the making of such Loans or the issuance of such Letter of Credit, as applicable, no Default (including without limitation the existence of the condition described in Section 2.1(b)) or Event of Default shall have occurred and be continuing; and

(u)the representations and warranties of Borrower and the other Loan Parties contained in this Agreement and the other Loan Documents to which any of them is a party shall be true in all material respects on and as of the date of the making of such Loans or issuance of such Letter of Credit, as applicable, except to the extent such representations or warranties specifically relate to an earlier date or such representations or warranties become untrue by reason of events or conditions otherwise permitted hereunder and the other Loan Documents.

The delivery of each Notice of Borrowing, the making of each Loan and the issuance of each Letter of Credit shall constitute a certification by Borrower to Lender and the Issuing Bank that the statements in the immediately preceding clauses (b) through (e) are true.

ARTICLE 5.

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants, to the best of its knowledge and belief (limited to the current actual knowledge, after due inquiry, of H. Kerr Taylor and Chad Braun, to Lender and the Issuing Bank as follows:

Section 5.1Existence and Power.

Borrower is a Texas Real Estate Investment Trust duly formed and validly existing under the laws of the State of Texas and is qualified as a real estate investment trust under Section 856 of the Internal Revenue Code.  Each of Borrower's Subsidiaries is a corporation or other applicable legal entity, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation.  Each of Borrower and its Subsidiaries has all requisite power and authority and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and is duly qualified and is in good standing as a foreign corporation or other applicable legal entity, and authorized to do business, in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization except where the failure to be so qualified or authorized would not have a Materially Adverse Effect.

Section 5.2Ownership Structure.

Schedule 6.2. correctly sets forth the corporate structure and ownership interests of Borrower and all of its Subsidiaries as of the date hereof, including the correct legal name of Borrower and each such Subsidiary, and Borrower's relative equity interest in each such Subsidiary.

Section 5.3Authorization of Agreement, Revolving Notes, Loan Documents and Borrowings.

Each Loan Party has the right and power, and has taken all necessary action to authorize it, to borrow hereunder (in the case of Borrower) and to execute, deliver and perform the Loan Documents to which it is or is to be a party, in accordance with their respective terms and to consummate the transactions contemplated.  Each of the Loan Documents has been (and when executed and delivered in connection with this Agreement will be) duly executed and delivered by the duly authorized officers of each Loan Party a party thereto and each is (and each other Loan Document when executed and delivered in connection with this Agreement will be) a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations (other than the payment of principal) contained herein or therein may be limited by equitable principles generally.

Section 5.4Compliance of Agreement, Revolving Notes, Loan Documents and Borrowing with Laws, etc.

The execution, delivery and performance of the Loan Documents in accordance with their respective terms and the borrowing of Loans hereunder do not and will not, by the passage of time, the giving of notice or otherwise (a) require any Governmental Approval, or violate any Applicable Law relating to any Loan Party, the failure to possess or to comply with which would have a Materially Adverse Effect; (b) conflict with, result in a breach of or constitute a default under the declaration of trust of Borrower, the articles of incorporation, articles of organization, partnership agreement or other comparable instrument of any other Loan Party, or any indenture, agreement or other instrument to which any Loan Party is a party or by which it or any of its properties may be bound and the violation of which would have a Materially Adverse Effect; or (c) result in or require the creation or imposition of any Lien upon or with respect to any Unencumbered Pool Property other than Permitted Liens.

Section 5.5Compliance with Law; Governmental Approvals.

Each of Borrower and its Subsidiaries is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Law relating to it, except for noncompliances which, and Governmental Approvals the failure to possess which, would not, singly or in the aggregate, cause a Default or Event of Default or have a Materially Adverse Effect and in respect of which (if Borrower has actual knowledge of such Applicable Law or Governmental Approval) adequate reserves have been established on the books of Borrower or such Subsidiary, as applicable.

Section 5.6Indebtedness and Guarantees.

Schedule 6.6 is a complete and correct listing of all Indebtedness and Guarantees of Borrower and the other Loan Parties as of the date hereof.  Each Loan Party has performed and is in compliance with all of the terms of such Indebtedness and such Guarantees and all instruments and agreements relating thereto in all material respects, and no default or event of default, or event or condition which with the giving of notice, the lapse of time or otherwise, would constitute such a default or event of default, exists with respect to any such Indebtedness or Guarantees.

Section 5.7Property Management Agreements and Other Major Agreements.

Schedule 6.7 sets forth all Property Management Agreements and other Major Agreements to which Borrower is a party or otherwise relating to any of the Unencumbered Pool Properties as of the date hereof.  All Property Management Agreements and other Major Agreements are in full force and effect and to Borrower's knowledge no default or event of default exists under any of such agreements.

Section 5.8Absence of Defaults.

Neither Borrower nor any Guarantor is in default under its declaration of trust, articles of incorporation, bylaws, operating agreement, partnership agreement or other organizational or constituent document, and no event has occurred, which has not been remedied, cured or waived (a) which constitutes a Default or an Event of Default; or (b) which constitutes, or which with the passage of time, the giving of notice or otherwise, would constitute, a default or event of default by Borrower, any Guarantor or any other Loan Party under any material agreement (other than this Agreement) or judgment, decree or order to which Borrower, any Guarantor or any other Loan Party is a party or by which Borrower or any of its properties may be bound.

Section 5.9Financial Information.

The consolidated balance sheets of Borrower as of June 30, 2007 and the related statements of earnings, stockholders' equity and cash flows for the three month period, then ending, copies of which have been delivered to Lender, fairly present, in conformity with GAAP, the financial position of Borrower and its Subsidiaries, on a consolidated basis, as of such date and its results of operations and cash flows for such fiscal period.  Since June 30, 2007, and with reference to such date, no change has occurred which could or would have a Materially Adverse Effect.

Section 5.10Litigation.

There is no action, suit or proceeding pending against, or to the knowledge of Borrower threatened against or affecting, Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official (a) which would reasonably be expected  to have a Materially Adverse Effect or (b) which in any manner draws into question the validity of any Loan Document.

Section 5.11ERISA.

No Loan Party maintains, and has at any time maintained, any Plan subject to the provisions of ERISA and is, and has at any time been, a member of any ERISA Group with any Person that has at any time maintained any such Plan.

Section 5.12Taxes.

(a)As of the date hereof, no United States Federal income tax returns of the "affiliated group" (as defined in the Internal Revenue Code) of which Borrower is a member have been examined and closed.  The members of such affiliated group have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by any of them except for taxes being contested in good faith by appropriate proceedings and for which appropriate reserves have been established.  The charges, accruals and reserves on the books of Borrower in respect of taxes or other governmental charges are, in the opinion of Borrower, adequate.

(b)Borrower is in compliance with all conditions imposed under the Internal Revenue Code to allow Borrower to maintain its status as a REIT.

Section 5.13Investment Company Act; Public Utility Holding Company Act.

Neither Borrower nor any of its Subsidiaries is (a) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, (b) a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other Applicable Law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or the other Loan Documents or to perform its obligations hereunder or thereunder.

Section 5.14Full Disclosure.

All written information furnished by or on behalf of Borrower to Lender or Issuing Bank for purposes of or in connection with this Agreement and the other Loan Documents or any transaction contemplated hereby is, and all such information hereafter furnished by or on behalf of Borrower or any Subsidiary to Lender or Issuing Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified and does not, and will not, fail to state any material facts necessary to make the statements contained therein not misleading.  Borrower has disclosed to Lender in writing any and all facts known to Borrower which, to the extent Borrower can now reasonably foresee, could or would have a Materially Adverse Effect.

Insurance.

Schedule 6.15 sets forth a true and correct description of the insurance coverage maintained by or on behalf of each Loan Party currently in effect.

Section 5.15Not Plan Assets.

The respective assets of Borrower and each other Loan Party do not and will not constitute "plan assets" within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder, of any ERISA Plan or Non-ERISA Plan.  The execution, delivery and performance of this Agreement, and the borrowing and repayment of amounts thereunder, do not and will not constitute "prohibited transactions" under ERISA or the Internal Revenue Code.

Section 5.16Title and Liens.

Each of Borrower and its Subsidiaries has good, indefeasible and legal title to, or a valid leasehold interest in, (a) its respective Properties and (b) its other assets, except in the case of this clause (b) where the failure to have such title to its other assets could not reasonably be expected to have a Materially Adverse Effect.  Each of the Unencumbered Pool Properties is free and clear of all Liens except for Permitted Liens.

Section 5.17Unencumbered Pool Properties.

Each of the Unencumbered Pool Properties qualifies as an Eligible Property.

Section 5.18Margin Stock.

Neither Borrower nor any of its Subsidiaries is engaged principally in the business of extending credit for the purpose of purchasing or carrying "margin stock" within the meaning of Regulation T, U or X.

Section 5.19Solvency.

Borrower and the other Loan Parties are Solvent and will remain Solvent after giving effect to the execution and delivery of each Loan Document to which any is a party, the initial disbursement of Loans hereunder and the payment and accrual of all fees then payable under this Agreement or any of the other Loan Documents.

Section 5.20Tax Shelter Regulations.

Neither the Borrower, any Guarantor, any non-borrower trustor, nor any Subsidiary of any of the foregoing intends to treat the Revolving Loan or the transactions contemplated by this Agreement and other Loan Documents as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4).  If the Borrower, or any other Loan Party determines to take any action inconsistent with such intention, the Borrower will promptly notify the Lender thereof.  If the Borrower so notifies the Lender, the Borrower acknowledges that Lender may treat the Revolving Loan as part of a transaction that is subject to Treasury Regulation Section  301.6112-1, and Lender will maintain the lists and other records, including the identity of the applicable Loan Party as required by such Treasury Regulation.

ARTICLE 6.

COVENANTS

Borrower agrees that, so long as Lender has any Commitment hereunder or any Obligation remains unpaid:

Section 6.1Information.

Borrower will deliver to Lender:

(a)as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, the audited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related audited consolidated statements of income, retained earnings, and comprehensive income and cash flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in comparative form the figures as at the end of and for the previous fiscal year, all of which shall be certified by (a) the chief financial officer or controller of the Borrower, in his or her opinion, to present fairly, in accordance with GAAP, the financial position of the Borrower and its Subsidiaries as at the date thereof and the result of operations for such period and (b) KPMG or any other independent certified public accountants of recognized national standing acceptable to Lender whose certificate shall be unqualified and in scope and substance satisfactory to Lender;

(b)as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Borrower, a consolidated balance sheet of Borrower as of the end of such quarter and the related consolidated statements of funds from Operations or earnings, stockholders' equity, cash flows for such quarter and for the portion of Borrower's fiscal year ended at the end of such quarter, together with forward looking cash flow projections for the next four fiscal quarters of Borrower, setting forth in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP (subject to absence of full footnote disclosures and other than the statement of funds from operations) and consistency by the chief financial officer or controller of Borrower (which officer shall be authorized to so certify such statements);

(c)simultaneously with the delivery of each set of financial statements referred to in the immediately preceding clauses (a) and (b), a certificate of the chief financial officer or controller of Borrower (which officer shall be authorized to execute such certificate) (i) setting forth in reasonable detail the calculations required to establish whether Borrower was in compliance with the requirements of Article 8 on the date of such financial statements, (ii) stating whether any Default or Event of Default is known to Borrower on the date of such certificate and, if any Default or Event of Default is then known to Borrower, setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto, and (iii) setting forth a schedule of all Contingent Obligations of Borrower as of the date of such financial statements;

(d)as soon as available and in any event within 45 days after the end of each fiscal quarter of Borrower, an Unencumbered  Pool Certificate setting forth the information to be contained therein as of the last day of such fiscal quarter;

(e)within 45 days after the end of each fiscal quarter of Borrower, the Net Operating Income and occupancy rates for each Unencumbered Pool Property; provided, as to any specific Property, Lender shall have the right to require Borrower to deliver such information on a monthly basis;

(f)upon Lender's request, a current rent roll and detailed operating statement for any specific Property; provided, however, Lender shall have the right to require Borrower to provide such information on an ongoing monthly basis as to any specific Property;

(g)within 45 days after the beginning of each calendar year, a projected cash flow statement of Borrower and its Subsidiaries, in a form satisfactory to Lender, for such calendar year, prepared on a quarterly basis and setting forth the estimates and assumptions (including without limitation, with respect to costs, revenues, general economic conditions, seasonal variations, financial and market conditions and results of operations) on which such projections are based;

(h)no later than 30 days before the end of each fiscal year of Borrower, a property budget for each Unencumbered Pool Property for the coming fiscal year of Borrower;

(i)promptly upon receipt thereof, copies of all management reports relating to the financial condition of Borrower submitted to Borrower or its Board of Trustees by Borrower's independent public accountants;

(j)within ten days after H. Kerr Taylor, Chad Braun, Brett Treadwell, Anne Newtown or other officer of Borrower with the rank of Executive Vice President or higher obtains knowledge of any Default or Event of Default, a certificate of the chief financial officer or controller of Borrower setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto;

(k)promptly upon the mailing thereof to the shareholders of Borrower generally, copies of all financial statements, reports, offering memoranda and proxy statements so mailed;

(l)promptly upon the filing thereof, notify Lender of the filing of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent), reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and all other periodic reports, if any, which Borrower or any of its Subsidiaries which it directly or indirectly controls shall file with the Securities and Exchange Commission (or any Governmental Authority substituted therefor) or any national securities exchange, and, if Lender requests same, provide Lender with a copy of any such requested filings;

(m)if requested by Lender, promptly upon the release thereof, copies of all press releases of Borrower and any of its Subsidiaries which it directly or indirectly controls;

(n)promptly upon obtaining knowledge thereof, a description in reasonable detail of (i) any action, suit or proceeding commenced against Borrower, any of its Subsidiaries or any of the Unencumbered Pool Properties which is reasonably likely to have a Materially Adverse Effect, and (ii) any change which would or could have a Materially Adverse Effect on any of the Unencumbered Pool Properties, including, without limitation, any contract or agreement regarding the sale, transfer, mortgage or other encumbrance relating thereto or any default of any major tenant under any lease thereof;

(o)promptly upon the occurrence of same, written notice of any change in the composition of Borrower's board of trustees and of any change in the senior management personnel of Borrower;

(p)written notice of the acquisition, incorporation or other creation of any Subsidiary after the date hereof, such notice to be given within 10 Business Days of such acquisition, incorporation or other creation; and

(q)from time to time such additional information regarding the financial position or business of Borrower and its Subsidiaries or any Property as Lender may reasonably request.

Section 6.2Payment of Obligations.

(a)Borrower will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings unless the contest thereof would have a Materially Adverse Effect, and will maintain, and will cause each Subsidiary to maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same.  Borrower has paid or will pay (or has caused to be paid or will be caused to be paid) in full (except for such retainages as may be permitted or required by any Applicable Law to be withheld pending completion of any improvements) all sums by Borrower or its Subsidiaries owing or claimed from Borrower or such Subsidiaries for labor, material, supplies, personal property (whether or not a fixture) and services of every kind and character used, furnished or installed in or on any Pool Property and no claim for same exists or will be permitted to be created, except where the same may be contested in good faith by appropriate proceedings unless the contest thereof would have a Materially Adverse Effect, and will maintain, and will cause each Subsidiary to maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same.

(b)Borrower will utilize the proceeds (net of transaction costs) derived from (i) the sale or issuance by Borrower of Shares, options, warrants or other Equity Interests of any class or character, (ii) the sale of Unencumbered Pool Property and (iii) Indebtedness incurred by Borrower, to repay the then outstanding principal balance of the Revolving Note.

Section 6.3Maintenance of Property; Insurance.

(a)Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear and insured casualty losses excepted.

(b)Borrower will maintain, and will cause each other Loan Party and each Subsidiary to maintain insurance coverage with financially sound and reputable insurance companies in such amounts and with respect to such risks as is consistent with insurance maintained by businesses of comparable type and size in the industry or as may be required by Applicable Law, which insurance shall be acceptable to Lender.  Borrower may cause such insurance to be provided by the tenant of a Property.  In addition to the foregoing, Borrower shall maintain insurance as may be required under the other Loan Documents.  Borrower will deliver to Lender (i) upon request of Lender from time to time full information as to the insurance carried, (ii) within five days of receipt of notice from any insurer a copy of any notice of cancellation or material change in coverage from that existing on the date of this Agreement and (iii) forthwith, notice of any cancellation or nonrenewal of coverage by Borrower.

Section 6.4Conduct of Business; Maintenance of Existence; Qualification; Amendment of Declaration of Trust.

(a)Borrower will only engage in the business of acquiring, developing, owning, managing and operating single-tenant and multi-tenant retail properties, together with related business activities and investments incidental thereto, as such related activities and investments are contemplated by the provisions of Section 8.5 of this Agreement.

(b)Subject to Section 7.7, Borrower will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section shall prohibit (i) the merger of a Subsidiary into Borrower or the merger or consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, and (ii) the dissolution of a Subsidiary if (A) Borrower's board of trustees has determined that such dissolution is in the best interest of Borrower, (B) such dissolution will not be materially disadvantageous to Lender and (C) such dissolution will not have a Materially Adverse Effect.

(c)Borrower will, and will cause each Subsidiary to, qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization and where the failure to be so qualified or authorized would have a Materially Adverse Effect.

(d)Borrower shall not amend, supplement, restate or otherwise modify its declaration of trust without the prior written consent of Lender unless such amendment, supplement or other modification (i) is required under or as a result of the Internal Revenue Code or other Applicable Law, (ii) is required or prudent to maintain Borrower's status as a REIT, or (iii) does not affect the operation or management of Borrower, the rights and obligations of any party thereto or any other material provision of the document.

(e)Compliance with Laws.

Borrower will comply, and cause each Subsidiary to comply, with all Applicable Laws, including without limitation, all Environmental Laws and ERISA and the rules and regulations thereunder, except where compliance therewith is contested in good faith by appropriate proceedings or the failure to so comply would not have a Materially Adverse Effect.

Section 6.5Inspection of Property, Books and Records.

Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of Lender to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants in Borrower's presence prior to an Event of Default, all at such reasonable times during business hours and as often as may reasonably be desired and with reasonable notice so long as no Event of Default shall have occurred and be continuing.  All inspections of Properties are subject to the rights of tenants in possession of the Properties.

Section 6.6Consolidations, Mergers, Acquisitions and Sales of Assets.

Borrower shall not, and shall not permit any Subsidiary to (a) consolidate or merge with or into, acquire a Substantial Amount of the assets of, or make any Investment of a Substantial Amount in, any other Person, (b) acquire any Property without prior written notice to Lender, (c) incur any additional Secured Indebtedness without prior written notice to Lender or (d) sell, lease or otherwise transfer, directly or indirectly, and whether by one or a series of related transactions, a Substantial Amount of its assets (including capital stock or other securities of Subsidiaries) to any other Person without the prior written consent of Lender, which consent will not be unreasonably withheld or delayed and (i) after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; (ii) in the case of a consolidation or merger by Borrower or a Subsidiary, Borrower or such Subsidiary, as applicable, is the survivor thereof and (iii) at the time Borrower requests Lender's consent, Borrower shall have delivered to Lender a Compliance Certificate, calculated on a pro forma basis, evidencing Borrower's continued compliance with the terms and conditions of this Agreement and the other Loan Documents, including without limitation, the financial covenants contained in Article 8, after giving effect to such consolidation, merger, acquisition, Investment, sale, lease or other transfer.

Section 6.7Use of Proceeds and Letters of Credit.

Borrower will only use the proceeds of the Loans made under this Agreement (a) for the payment of pre-development and development costs incurred in connection with a Development Property; (b) to finance acquisitions permitted under Section 8.5; (c) to finance the repayment of Indebtedness of Borrower, including the making of scheduled amortization payments on Indebtedness; (d) to finance acquisitions of unimproved real estate intended to become a Development Property; (e) to make Investments permitted by this Agreement; (f) to finance tenant improvements at the Properties, (g) to provide for capital expenditure, general working capital and corporate needs of Borrower and (h) to repurchase Class B and Class C stock previously issued by Borrower.  Borrower will not use any proceeds of the Loans for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulations T, U and X if such use would result in a violation of any of Regulations T, U and X.  Borrower will use the Letters of Credit only for the same purposes for which it may use the proceeds of Loans.

Section 6.8Major Agreements.

Borrower shall, and shall cause each other Loan Party to, duly and punctually perform and comply with any and all material representations, warranties, covenants and agreements expressed as binding upon Borrower or such other Loan Party under any Major Agreement.  Without Lender's prior written consent, Borrower shall not do or knowingly permit to be done anything to impair materially the value of any of the Major Agreements; provided, Borrower may terminate a Major Agreement so long as Borrower enters into a materially comparable replacement agreement.

Section 6.9Major Construction.

Borrower shall give Lender not less than 60-days' prior written notice before commencing any construction, remodeling or demolition project or series of related projects with respect to an Eligible Property of Borrower or any Subsidiary, the aggregate cost of which will exceed $250,000.  If (a) any such project would reasonably be expected to have a Materially Adverse Effect or (b) the aggregate cost of such project will exceed $2,000,000, then Borrower or such Subsidiary, as applicable, shall not commence such project without the prior written consent of Lender, which approval shall not be unreasonably withheld, conditioned or delayed, and will be deemed granted if no written denial is received within 60 days after written notice to Lender of the project together with an adequate description of the project which is reasonably acceptable to Lender.

Section 6.10Material Events.

Borrower shall give Lender not less than 30-day's prior written notice of any material acquisitions, dispositions, mergers or asset purchases and shall, with the giving of such notice, deliver a Compliance Certificate evidencing that Borrower will, after giving effect to such proposed acquisition, disposition, merger or asset purchase, be in compliance with its covenants under this Agreement.

Section 6.11ERISA.

Borrower will not and will not permit any Subsidiary to at any time maintain any Plan subject to the provisions of ERISA and will not at any time be a member of any ERISA Group with any Person that has at any time maintained any such Plan.

Section 6.12ERISA Exemptions.

Borrower shall not, and shall not permit any of its Subsidiaries to, permit any of its assets to become or be deemed to be "plan assets" within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder, of any ERISA Plan or any Non-ERISA Plan.

Section 6.13Negative Pledge.

Borrower will not, and will not permit any Subsidiary to, (a) create, assume or suffer to exist any Lien on any asset of Borrower or any Subsidiary, except for Permitted Liens, without Lender's prior written approval which may be granted or withheld in Lender's sole and absolute discretion; or (b) create or otherwise cause or suffer to exist or become effective, any consensual encumbrance or restriction of any kind on the ability of any Subsidiary: (i) if such Subsidiary is a Loan Party, to pay or perform its obligations under the Guaranty to which it is a party prior to its obligation to pay dividends or make any other distribution on any of such Subsidiary's capital stock or other securities owned by Borrower or any Subsidiary of Borrower; (ii) to pay any Indebtedness owed to Borrower or any other Subsidiary; (iii) to make loans or advances to Borrower or any other Subsidiary; or (iv) to transfer any of its property or assets to Borrower or any other Subsidiary.

Section 6.14Listing Status and REIT Status.

Borrower will maintain its status as an American Stock Exchange listed company and shall at all times be qualified as a real estate investment trust pursuant to Section 856 of the Internal Revenue Code.

Section 6.15Agreements with Affiliates.

Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction requiring such Person to pay any amounts to or otherwise transfer property to, or pay any management or other fees to, any Affiliate other than on terms and conditions (a) substantially as favorable to Borrower or such Subsidiary as would be obtainable at the time in a comparable arm's length transaction with a Person not an Affiliate or (b) which comply with the requirements of the Statement of Policy for Real Estate Investment Trusts promulgated by the North American Security Administrators Association, as amended from time to time.

Section 6.16New Subsidiaries.

Upon any Person becoming an Eligible Subsidiary of Borrower after the date hereof, Borrower shall cause such Eligible Subsidiary to deliver to Lender within 15 days of such event each of the following items (if not previously delivered to Lender):

(a)an accession agreement in the form of Annex I to the Guaranty duly executed by such Eligible Subsidiary;

(b)the articles of incorporation, articles of organization, certificate of limited partnership or other comparable organizational instrument (if any) of such Eligible Subsidiary certified as of a recent date by the Secretary of State of the State of formation of such Eligible Subsidiary;

(c)a Certificate of Good Standing or certificate of similar meaning with respect to such Eligible Subsidiary issued as of a recent date by the Secretary of State of the State of formation of such Eligible Subsidiary and certificates of qualification to transact business or other comparable certificates issued by each Secretary of State (and any state department of taxation, as applicable) of each state in which such Eligible Subsidiary is required to be so qualified;

(d)a certificate of incumbency signed by the Secretary or Assistant Secretary (or other individual performing similar functions) of such Eligible Subsidiary with respect to each of the officers of such Eligible Subsidiary authorized to execute and deliver the Loan Documents to which such Guarantor is a party;

(e)copies certified by the Secretary or Assistant Secretary of such Eligible Subsidiary (or other individual performing similar functions) of (i) the by-laws of such Eligible Subsidiary, if a corporation, the operating agreement, if a limited liability company, the partnership agreement, if a limited or general partnership, or other comparable document in the case of any other form of legal entity and (ii) all corporate, partnership, member or other necessary action taken by such Eligible Subsidiary to authorize the execution, delivery and performance of the Loan Documents to which it is a party;

(f)an opinion of legal counsel to such Eligible Subsidiary, regarding the due formation and good standing of such Subsidiary, the enforceability of the Loan Documents to which it is a party, and such other matters as Lender shall request; and

(g)such other documents and instruments as Lender may reasonably request.

Section 6.17Management.

Should either Kerr Taylor or Chad Braun cease to be a member of the board of trustees and/or an executive officer of Borrower, Borrower shall replace such vacancy with a person reasonably acceptable to Lender within 90 days after the vacancy shall occur.

Section 6.18Concentrations.

At no time shall Borrower and its Subsidiaries, on a consolidated basis, derive more than 15% of its aggregate Net Operating Income from any single tenant.  Any tenant entities whose financial reporting is, in accordance with GAAP, consolidated shall, for the purposes of the foregoing covenant, be deemed a "single tenant."

Section 6.19No Further Unsecured Indebtedness.

Borrower shall not incur any additional Unsecured Indebtedness without the prior written consent of Lender, which consent may be granted or withheld in Lender's sole discretion.

Section 6.20Interest Rate Hedge.  At all times when required by Lender Borrower shall have an Interest Rate Hedge in effect.

ARTICLE 7.  FINANCIAL COVENANTS

Borrower agrees that, so long as Lender has any Commitments hereunder or any Obligation remains unpaid:

Section 7.1Minimum Tangible Net Worth.

Borrower shall not at any time permit the Tangible Net Worth of Borrower and its Subsidiaries, on a consolidated basis, to be less than (a) $164,000,000.00, plus (b) 90% of the amount of proceeds in cash or Property (net of transaction costs) received by Borrower from the sale or issuance by Borrower of Shares, options, warrants or other Equity Interests of any class or character after June 30, 2007.

Section 7.2Ratio of Total Liabilities to Gross Asset Value.

Borrower shall not permit the ratio of (a) Total Liabilities of Borrower and its Subsidiaries, on a consolidated basis, to (b) Gross Asset Value of Borrower and its Subsidiaries, on a consolidated basis to exceed (x) 0.70 to 1.00 at anytime prior to the Trigger Date and 0.65 to 1.00 at anytime after the Trigger Date.

Section 7.3Distributions.

If an Event of Default under any of Sections 9.1(a), 9.1(h) or 9.1(i) shall have occurred and be continuing, Borrower shall not directly or indirectly declare or make, or incur any liability to make, any Restricted Payments.  If any other Event of Default shall have occurred and be continuing, Borrower shall not directly or indirectly declare or make, or incur any liability to make, any Restricted Payments except that Borrower may make distributions to its shareholders in the minimum amount necessary to maintain compliance with Section 7.15.  If no Event of Default, or any Event of Default other than those specified above, shall have occurred and be continuing, Borrower shall not directly or indirectly declare or make, or incur any liability to make, any Restricted Payments other than Permitted Distributions.

Section 7.4Ratio of EBITDA to Fixed Charges.

Borrower shall not permit the ratio of (a) EBITDA of Borrower and its Subsidiaries, on a Consolidated Basis, to (b) the Fixed Charges of Borrower and its Subsidiaries, on a consolidated basis, for any fiscal quarter, to be less than (i) initially, 1.40 to 1.00 for such quarter or (ii) after the first fiscal quarter ending after the Trigger Date, 1.50 to 1.00 for such subsequent quarter.  Income which is classified as interest income, other income and interest income derived by Borrower or any of its Subsidiaries from an Affiliate shall not, for the purposes of this Section 8.4, contribute more than $450,000.00 to EBITDA.

Section 7.5Permitted Investments.

Borrower shall not, and shall not permit any Subsidiary to, make any Investment in or otherwise own the following items which would cause the value of such holdings of Borrower and its Subsidiaries, on a consolidated basis, to exceed the following percentages of Gross Asset Value:

unimproved real estate (excluding Development Property) such that the aggregate book value of all such unimproved real estate exceeds 5% of Gross Asset Value;

(i)Mortgages in favor of Borrower or such Subsidiary, such that the aggregate book value of Indebtedness secured by such Mortgages exceeds 5% of Gross Asset Value;

(ii)Investments in Equity Interests (other than Equity Interests in Subsidiaries and Unconsolidated Affiliates), such that the aggregate value of such Equity Interests exceeds 5% of Gross Asset Value;

(iii)Development Property, such that the Total Budgeted Costs for all such Development Properties exceeds 10% of Gross Asset Value;

(iv)Non-retail improved real estate such that the aggregate book value of all such non-retail improved real estate exceeds 5% of Gross Asset Value;

(v)Investments in Subsidiaries (other than Wholly-Owned Subsidiaries) and Unconsolidated Affiliates such that the aggregate of Borrower's Ownership Share in such entities exceeds 5% of Gross Asset Value.

The aggregate of all of the foregoing items shall not exceed 20% of Gross Asset Value.  For the purposes of the determining the value of any of the foregoing items which are non-income producing (such as unimproved real estate) such items will be valued at the lower of their acquisition cost or market value (as determined by Lender in its reasonable discretion); however, the value of Borrower's interest in joint ventures and preferred stock subsidiaries shall be valued at the greater of Borrower's economic interest or nominal interest in such entity.

Section 7.6Ratio of Unencumbered Net Operating Income to Unsecured Interest Expense.

Borrower shall not permit the ratio of (a) Unencumbered Net Operating Income of Borrower and its Subsidiaries, on a consolidated basis, to (b) Unsecured Interest Expense of Borrower and its Subsidiaries, on a consolidated basis, for any fiscal quarter to be less than 1.00:1.00 for such quarter.

Section 7.7Ratio of Secured Indebtedness to Gross Asset Value.

Borrower will not permit the ratio of (a) Secured Indebtedness of Borrower and its Subsidiaries, on a consolidated basis, to (b) Gross Asset Value to exceed 0.50 to 1.00.

Section 7.8Maximum Loan Availability.

Borrower will not at any time permit the aggregate principal amount of all outstanding Loans, together with the aggregate amount of all Letter of Credit Liabilities, to exceed the lesser of (a) Maximum Loan Availability at such time, or (b) the Commitment.

ARTICLE 8.                                DEFAULTS

Section 8.1Events of Default.

If one or more of the following events shall have occurred and be continuing:

(a)(i) Borrower shall fail to pay when due any Reimbursement Obligation or any principal of any Loan or other Obligation, or (ii) Borrower shall fail to pay when due any interest, fees or other Obligation and such failure under this clause (ii) shall continue for a period of five days after notice that such payment is due and payable;

(b)Borrower shall fail to observe or perform any covenant or agreement contained in Section 7.7, Sections 7.12 through 7.15, inclusive, or Section 8.8;

(c)Borrower shall fail to comply with any of the covenants or agreements contained in Article 8 (other than Section 8.8), and Borrower shall remain in noncompliance with any such Section after 30 days following the first failure following the Effective Date to comply with such Section;

(d)Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by the immediately preceding clauses (a) through (c)) for a period of 30 days after written notice thereof has been given to Borrower by Lender;

(e)An Event of Default under and as defined in any Loan Document shall occur and be continuing or Borrower shall fail to observe or perform any covenant or agreement contained in any of the Loan Documents and such failure shall continue beyond any applicable period of grace;

(f)any representation, warranty, certification or statement made or deemed made by or on behalf of any Loan Party in this Agreement or in any certificate, financial statement or other Loan Document delivered pursuant to this Agreement shall prove to have been incorrect or misleading in any material respect when made or deemed made;

(g)the maturity of any Indebtedness of Borrower or its Subsidiaries in excess of $500,000.00 in the aggregate shall have been (i) accelerated in accordance with the provisions of any indenture, contract or instrument providing for the creation of or concerning such Indebtedness or (ii) required to be prepaid in full prior to the stated maturity thereof;

(h)Borrower or any other Loan Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(i)an involuntary case or other proceeding shall be commenced against Borrower or any other Loan Party seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against any such Person under the federal bankruptcy laws as now or hereafter in effect;

(j)a judgment or order for the payment of money in excess of $250,000.00 shall be rendered against Borrower or any other Loan Party and such judgment or order shall continue unsatisfied and unstayed for a period of sixty days;

(k)the assets of Borrower or any other Loan Party at any time constitute assets, within the meaning of ERISA, the Internal Revenue Code and the respective regulations promulgated thereunder, of any ERISA Plan or Non-ERISA Plan; or

(l)any Guarantor shall fail to comply with any term, covenant, condition or agreement contained in the Guaranty (after giving effect to any applicable grace or cure periods) or any Guarantor shall disallow, revoke or terminate or attempt to do any of the foregoing with respect to the Guaranty.

Section 8.2Remedies Upon an Event of Default.

Upon the occurrence of an Event of Default, and in every such event, Lender may, (i) by notice to Borrower terminate the Commitments, which shall thereupon terminate, (ii) by notice to Borrower declare the Loan and all other Obligations and an amount equal to the Stated Amount of all Letters of Credit then outstanding due, and the Loan and all other Obligations and an amount equal to the Stated Amount of all Letters of Credit then outstanding shall thereupon become, immediately due and payable without presentment, demand, protest or notice of intention to accelerate, all of which are hereby waived by Borrower; and (iii) exercise all rights and remedies available under all of the Loan Documents.  Notwithstanding the foregoing, upon the occurrence of any of the Events of Default specified in clause (h) or (i) above, without any notice to Borrower or any other act by Lender, the Commitment shall thereupon immediately and automatically terminate and the Loans and all other Obligations and an amount equal to the Stated Amount of all Letters of Credit then outstanding shall become immediately due and payable without presentment, demand, protest, notice of intention to accelerate or notice of acceleration, or other notice of any kind, all of which are hereby waived by Borrower.

Section 8.3Additional Remedies Upon Certain Default.

In addition to the other rights and remedies of Lender upon the occurrence and during the continuance of a Default, upon the occurrence and during the continuance of a Default under Section 9.1(c), Lender shall not be obligated to make any Loans or issue any Letters of Credit.

Section 8.4Collateral Account.

(a)As collateral security for the prompt payment in full when due of all Letter of Credit Liabilities, Borrower hereby pledges and grants to Lender, for the benefit of the Issuing

(b)Bank and Lender as provided herein, a security interest in all of Borrower's right, title and interest in and to the Collateral Account and the balances from time to time in the Collateral Account (including the investments and reinvestments therein provided for below).  The balances from time to time in the Collateral Account shall not constitute payment of any Letter of Credit Liabilities until applied by Lender as provided herein.  Anything in this Agreement to the contrary notwithstanding, funds held in the Collateral Account shall be subject to withdrawal only as provided in this Section.

(c)Amounts on deposit in the Collateral Account shall be invested and reinvested by Lender in such investments as Lender shall determine in its sole discretion.  All such investments and reinvestments shall be held in the name of and be under the sole dominion and control of Lender.  Lender shall exercise reasonable care in the custody and preservation of any funds held in the Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which Lender accords other funds deposited with Lender, it being understood that Lender shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any funds held in the Collateral Account.

(d)If an Event of Default shall have occurred and be continuing, Lender may (and, if instructed by the Issuing Bank, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such investments and reinvestments and credit the proceeds thereof to the Collateral Account and apply or cause to be applied such proceeds and any other balances in the Collateral Account to the payment of any of the Letter of Credit Liabilities then due and payable.

(e)When all of the Obligations shall have been indefeasibly paid in full and no Letters of Credit remain outstanding, Lender shall promptly deliver to Borrower, against receipt but without any recourse, warranty or representation whatsoever, the balances remaining in the Collateral Account.

(f)Borrower shall pay to Lender from time to time such fees as Lender normally charges for similar services in connection with Lender's administration of the Collateral Account and investments and reinvestments of funds therein.

ARTICLE 9.

MISCELLANEOUS

Section 9.1Notices.

All notices, requests and other communications to any party under the Loan Documents shall be in writing (including facsimile transmission or similar writing) and shall be given to such party as follows:

If to Borrower:

  AmREIT

  Eight Greenway Plaza, Suite 1000

  Houston, Texas  77046

  Attention:  Mr. Kerr Taylor

  Telecopier:                                (713) 850-0498

  Telephone:                                (713) 850-1400

With a copy of any notice of default to:

 AmREIT

  Eight Greenway Plaza, Suite 1000

  Houston, Texas  77046

  Attention:  Mr. Chad Braun

  Telecopier:                                (713) 850-0498

  Telephone:                                (713) 850-1400

And to:

AmREIT

Eight Greenway Plaza, Suite 1000

Houston, Texas  77046

Attention:  Ms. Anne Newtown

Telecopier:                                (713) 850-0498

Telephone:                                (713) 850-1400

If to Lender:

Wells Fargo Bank, National Association

Disbursement and Operations Center

 733 Marquette Avenue, 10th Floor

 Minneapolis, Minnesota 55402

 Attention:  Jivko Sabev

 Telecopier:                                (866) 720-0617

 Telephone:                                (612) 667-4507

 with a copy to:

 Wells Fargo Bank, National Association

 1000 Louisiana, 4th Floor

 MAC:  T5002-042

 Houston, Texas 77002-5093

 Attention:  Real Estate Loan Administration

 Telecopier:                                (713) 739-1077

 Telephone:                                (713) 319-1416

or as to each party at such other address as such party shall designate in a written notice to the other parties.  Each such notice, request or other communication shall be effective (a) if given by mail, 72 hours after such communication is deposited in the United States Mail, certified with return receipt requested, postage prepaid, addressed as aforesaid or (b) if given by any other means (including facsimile), when received at the applicable address provided for in this Section; provided that notices to Lender under Article 2, and any notice of a change of address for notices, shall not be effective until received.

Section 9.2No Waivers.

No failure or delay by Lender or the Issuing Bank in exercising any right, power or privilege under any Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies provided in the Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.3Expenses.

Borrower will pay on demand all present and future reasonable expenses actually incurred by Persons who are not employees of, and other third parties engaged by:

(a)Lender in connection with the negotiation, preparation, execution, delivery and administration of this Agreement, the Revolving Note and each of the other Loan Documents, whenever the same shall be executed and delivered, including, without limitation, appraisers' fees, environment engineers' fees, search fees, recording fees, mortgage recording taxes, and the reasonable fees and disbursements of Winstead Sechrest & Minick P.C., counsel for Lender;

(b)Lender in connection with the review of Properties for acceptance as Unencumbered Pool Properties and Lender's other activities under Section 4.1, including reasonable fees and disbursements of counsel to Lender;

(c)Lender in connection with the negotiation, preparation, execution and delivery of any waiver, amendment or consent by Lender relating to this Agreement, the Revolving Note or any of the other Loan Documents, including the reasonable fees and disbursements of counsel to Lender;

(d)Lender and Issuing Bank in connection with any restructuring, refinancing or "workout" of the transactions contemplated by this Agreement, the Revolving Note and the other Loan Documents, including the reasonable fees and disbursements of counsel to Lender;

(e)Lender and Issuing Bank, after the occurrence of a Default or Event of Default, in connection with the collection or enforcement of the obligations of Borrower under this Agreement, the Revolving Note or any other Loan Document, including the reasonable fees and disbursements of counsel to Lender and Issuing Bank;

(f)Subject to any limitation contained in Section 10.6, Lender and Issuing Bank in connection with prosecuting or defending any claim in any way arising out of, related to, or

(g)connected with this Agreement, the Revolving Note or any of the other Loan Documents, including the reasonable fees and disbursements of counsel to Lender and Issuing Bank and of experts and other consultants retained by Lender in connection therewith;

(h)Lender and Issuing Bank, to the extent not already covered by any of the preceding subsections, in connection with any bankruptcy or other proceeding of the type described in Sections 9.1(h) or (i), and the reasonable fees and disbursements of counsel to Lender and Issuing Bank actually incurred in connection with the representation of Lender and Issuing Bank in any matter relating to or arising out of any such proceeding, including without limitation (i) any motion for relief from any stay or similar order, (ii) the negotiation, preparation, execution and delivery of any document relating to Lender and Issuing Bank and (iii) the negotiation and preparation of any plan of reorganization of Borrower, whether proposed by Borrower, Lender or any other Person, and whether such fees and expenses are incurred prior to, during or after the commencement of such proceeding or the confirmation or conclusion of any such proceeding.

Section 9.4Stamp, Intangible and Recording Taxes.

Borrower will pay any and all stamp, intangible, registration, recordation, mortgage and similar taxes, fees or charges and shall indemnify Lender and Issuing Bank against any and all liabilities with respect to or resulting from any delay in the payment or omission to pay any such taxes, fees or charges, which may be payable or determined to be payable in connection with the execution, delivery, recording, performance or enforcement of this Agreement, the Revolving Note and any of the other Loan Documents or the perfection of any rights or Liens thereunder.

Section 9.5Loan Sales and Participations; Disclosure of Information.

Borrower agrees that Lender may elect, at any time, to sell, assign or grant participations in all or any portion of its rights and obligations under the Loan Documents, and that any such sale, assignment or participation may be to one or more financial institutions, private investors, and/or other entities, at Lender's sole discretion ("Participant"). Borrower further agrees that Lender may disseminate to any such actual or potential purchaser(s), assignee(s) or participant(s) all documents and information (including, without limitation, all financial information) which has been or is hereafter provided to or known to Lender with respect to: (a) the Properties and their operation; (b) any party connected with the Loan (including, without limitation, the Borrower and any Guarantor); and/or (c) any lending relationship other than the Loans which Lender may have with any party connected with the Loans.  In the event of any such sale, assignment or participation, Lender and the parties to such transaction shall share in the rights and obligations of Lender as set forth in the Loan Documents only as and to the extent they agree among themselves. In connection with any such sale, assignment or participation, Borrower further agrees that the Loan Documents shall be sufficient evidence of the obligations of Borrower to each purchaser, assignee, or participant, and upon written request by Lender, Borrower shall enter into such amendments or modifications to the Loan Documents as may be reasonably required in order to evidence any such sale, assignment or participation. The indemnity obligations of Borrower under the Loan Documents shall also apply with respect to any purchaser, assignee or participant.  Anything in this Agreement to the contrary notwithstanding, and without the need to comply with any of the formal or procedural requirements of this Agreement, including this Section, any lender may at any time and from time to time pledge and assign all or any portion of its rights under all or any of the Loan Documents to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from its obligations thereunder.

Section 9.6Indemnification.

Borrower shall and hereby agrees to indemnify, defend and hold harmless Lender and Issuing Bank and their respective directors, officers, agents and employees (each an "Indemnified Party") from and against (a) any and all losses, claims, damages, liabilities, deficiencies, judgments or expenses reasonably incurred by any of them (except to the extent that it results from their own gross negligence or willful misconduct) arising out of or by reason of any litigation, investigations, claims or proceedings which arise out of or are in any way related to: (i) this Agreement or the transactions contemplated thereby; (ii) the making of Loans; (iii) any actual or proposed use by Borrower of the proceeds of the Loans or of Letters of Credit; or (iv) Lender's or Issuing Bank's entering into this Agreement, the other Loan Documents or any other agreements and documents relating hereto, including, without limitation, amounts paid in settlement, court costs and the reasonable fees and disbursements of counsel incurred in connection with any such litigation, investigation, claim or proceeding or any advice rendered in connection with any of the foregoing and (b) any such losses, claims, damages, liabilities, deficiencies, judgments or expenses incurred in connection with any remedial or other similar action taken by Borrower, Lender or Issuing Bank in connection with the required compliance by Borrower or any of the Subsidiaries, or any of their respective properties, with any federal, state or local Environmental Laws or other material environmental rules, regulations, orders, directions, ordinances, criteria or guidelines.  If and to the extent that the obligations of Borrower hereunder are unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under Applicable Law.  Borrower's obligations hereunder shall survive any termination of this Agreement and the other Loan Documents and the payment in full of the Obligations, and are in addition to, and not in substitution of, any other of its other obligations set forth in this Agreement and the other Loan Documents.  Borrower shall not be obligated as provided in this Section to indemnify, defend or hold harmless any Indemnified Person in respect of any litigation, investigation, claim or proceeding commenced by any Indemnified Party against another Indemnified Party.

Section 9.7Successors and Assigns.

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of Lender.

Section 9.8Governing Law.

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

Litigation.

(a)EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG BORROWER, LENDER OR ISSUING BANK WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT AND THAT A TRIAL BY JURY COULD RESULT IN SIGNIFICANT DELAY AND EXPENSE.  ACCORDINGLY, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, LENDER, ISSUING BANK AND BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST BORROWER ARISING OUT OF THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG BORROWER, LENDER OR ISSUING BANK OF ANY KIND OR NATURE.

(b)BORROWER, LENDER AND ISSUING BANK EACH HEREBY AGREES THAT THE FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF LENDER, ANY STATE COURT LOCATED IN HARRIS COUNTY, TEXAS SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG BORROWER, LENDER OR ISSUING BANK PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM.  BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS.  THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY LENDER OR ISSUING BANK OR THE ENFORCEMENT BY LENDER OR ISSUING BANK OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.  FURTHER, BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c)THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS AND THE TERMINATION OF THIS AGREEMENT.

Section 9.9Counterparts; Integration.

This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.  This Agreement, together with the other Loan Documents, constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.

Section 9.10Invalid Provisions.

Any provision of this Agreement or any other Loan Document held by a court of competent jurisdiction to be illegal, invalid or unenforceable shall not invalidate the remaining provisions of such Loan Document which shall remain in full force and effect and the effect thereof shall be confined to the provision held invalid or illegal.

Section 9.11Mandatory Disclosures.

Notwithstanding anything to the contrary set forth herein or in any other written or oral understanding or agreement to which the parties hereto are parties or by which they are bound, the parties hereto acknowledge and agree that (i) any obligations of confidentiality contained herein and therein do not apply and have not applied from the commencement of discussions between the parties to the tax treatment and tax structure of the transactions contemplated by the Loan Documents (and any related transactions or arrangements), and (ii) each party (and each of its employees, representatives, or other agents) may disclose to any and all parties as required, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by the Loan Documents and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure, all within the meaning of Treasury Regulations Section 1.6011-4; provided, however, that each party recognizes that the privilege each has to maintain, in its sole discretion, with regard to the confidentiality of a communication relating to the transactions contemplated by the Loan Documents, including a confidential communication with its attorney or a confidential communication with a federally authorized tax practitioner under Section 7525 of the Internal Revenue Code, is not intended to be affected by the foregoing.

Section 9.12Limitation of Liability of Trustees, Etc.

LENDER SHALL LOOK SOLELY TO BORROWER FOR THE ENFORCEMENT OF ANY CLAIM AGAINST BORROWER AND ACCORDINGLY NEITHER THE BORROWER'S BOARD OF TRUSTEES, OFFICERS, EMPLOYEES, SHAREHOLDERS OF BORROWER NOR THE INVESTMENT MANAGER OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES OR SHAREHOLDERS SHALL HAVE ANY PERSONAL LIABILITY FOR OBLIGATIONS ENTERED INTO BY OR ON BEHALF OF BORROWER.

Section 9.13ENTIRE AGREEMENT.

THIS REVOLVING CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  THIS INSTRUMENT MAY BE AMENDED ONLY BY AN INSTRUMENT IN WRITING EXECUTED BY THE PARTIES HERETO.

Confidentiality.

Notwithstanding anything to the contrary set forth herein or in any other written or oral understanding or agreement to which the parties hereto are parties or by which they are bound, the parties hereto acknowledge and agree that (i) any obligations of confidentiality contained herein and therein do not apply and have not applied from the commencement of discussions between the parties to the tax treatment and tax structure of the transactions contemplated by the Loan Documents (and any related transactions or arrangements), and (ii) each party (and each of its employees, representatives, or other agents) may disclose to any and all persons as required, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by the Loan Documents and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure, all within the meaning of Treasury Regulations Section 1.6011-4; provided, however, that each party recognizes that the privilege each has to maintain, in its sole discretion, with regard to the confidentiality of a communication relating to the transactions contemplated by the Loan Documents, including a confidential communication with its attorney or a confidential communication with a federally authorized tax practitioner under Section 7525 of the Internal Revenue Code, is not intended to be affected by the foregoing.

Section 9.14USA Patriot Act Notice. Compliance.

The USA Patriot Act of 2001 (Public Law 107-56) and federal regulations issued with respect thereto require all financial institutions to obtain, verify and record certain information that identifies individuals or business entities which open an “account” with such financial institution. Consequently, Lender may from time-to-time request, and Borrower shall provide to Lender, Borrower’s name, address, tax identification number and/or such other identification information as shall be necessary for Lender to comply with federal law. An “account” for this purpose may include, without limitation, a deposit account, cash management service, a transaction or asset account, a credit account, a loan or other extension of credit, and/or other financial services product.

IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BORROWER:

AmREIT,

a Texas Real Estate Investment Trust

By:                                                                           

Name:  Chad C. Braun

Title:  Vice President

[Signatures Continued on Next Page]

WELLS FARGO BANK, NATIONAL

ASSOCIATION

By:                                                                           

Name:  Timothy P. Williamson

Title:  Senior Vice President

FORM OF GUARANTY

THIS GUARANTY dated as of October 30, 2007, executed and delivered by each of the undersigned and the other Persons from time to time party hereto pursuant to the execution and delivery of an Accession Agreement in the form of Annex I hereto (all of the undersigned, together with such other Persons each a "Guarantor" and collectively, the "Guarantors") in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender") under that certain Revolving Credit Agreement dated as of October 30, 2007, by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower") (as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Credit Agreement").

WHEREAS, pursuant to the Credit Agreement, Lender has agreed to extend certain financial accommodations to Borrower;

WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and the extension of financial accommodations under the Credit Agreement that the Guarantors execute and deliver this Guaranty;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Guarantor, each Guarantor agrees as follows:

Section 1.Guaranty.  Each Guarantor hereby absolutely, irrevocably and unconditionally guaranties the due and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all of the following (collectively referred to as the "Guaranteed Obligations''): (a) all indebtedness and obligations owing by the Borrower to Lender or the Issuing Bank under or in connection with the Credit Agreement and any other Loan Document to which the Borrower is a party, including without limitation, the repayment of all principal of the Revolving Loan, all Reimbursement Obligations and all other Letter of Credit Liabilities, and the payment of all interest, Fees, charges, reasonable and actual attorneys fees and other amounts payable to Lender or the Issuing Bank thereunder or in connection therewith; (b) any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (c) all expenses, including, without limitation, reasonable and actual attorneys' fees and disbursements that are incurred by the Lender or the Issuing Bank in the enforcement of any of the foregoing or any obligation of such Guarantor hereunder and (d) all other Obligations.

Section 2.Guaranty of Payment and Not of Collection.  This Guaranty is a guaranty of payment, and not of collection, and a debt of each Guarantor for its own account.  Accordingly, neither Lender nor the Issuing Bank shall be obligated or required before enforcing this Guaranty against any Guarantor: (a) to pursue any right or remedy Lender or the Issuing Bank may have against Borrower, any other Loan Party or any other Person or commence any suit or other proceeding against Borrower, any other Loan Party or any other Person in any court or other tribunal, (b) to make any claim in a liquidation or bankruptcy of Borrower, any other Loan Party or any other Person; or (c) to make demand of Borrower, any other Loan Party or any other Person or to enforce or seek to enforce or realize upon any collateral security held by Lender or the Issuing Bank which may secure any of the Guaranteed Obligations.

Section 3.Guaranty Absolute.  Each Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the documents evidencing the same, regardless of any Applicable Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Lender or the Issuing Bank with respect thereto. The liability of each Guarantor under this Guaranty shall be absolute and unconditional in accordance with its terms and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including without limitation, the following (whether or not such Guarantor consents thereto or has notice thereof):

(a)(i) any change in the amount, interest rate or due date or other term of any of the Guaranteed Obligations, (ii) any change in the time, place or manner of payment of all or any portion of the Guaranteed Obligations, (iii) any amendment or waiver of, or consent to the departure from or other indulgence with respect to, the Credit Agreement, any other Loan Document, or any other document or instrument evidencing or relating to any Guaranteed Obligations, or (iv) any waiver, renewal, extension, addition, or supplement to, or deletion from, or any other action or inaction under or in respect of, the Credit Agreement, any of the other Loan Documents, or any other documents, instruments or agreements relating to the Guaranteed Obligations or any other instrument or agreement referred to therein or evidencing any Guaranteed Obligations or any assignment or transfer of any of the foregoing;

(b)any lack of validity or enforceability of the Credit Agreement, any of the other Loan Documents, or any other document, instrument or agreement referred to therein or evidencing any Guaranteed Obligations or any assignment or transfer of any of the foregoing;

(c)any furnishing to the Lender or the Issuing Bank of any additional security for the Guaranteed Obligations, or any sale, exchange, release or surrender of, or realization on, any collateral securing any of the Obligations;

(d)any settlement or compromise of any of the Guaranteed Obligations, any security therefor, or any liability of any other party with respect to the Guaranteed Obligations, or any subordination of the payment of the Guaranteed Obligations to the payment of any other liability of the Borrower or any other Loan Party,

(e)any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Guarantor, the Borrower, any other Loan Party or any other Person, or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding;

(f)any act or failure to act by the Borrower, any other Loan Party or any other Person which may adversely affect such Guarantor's subrogation rights, if any, against the Borrower to recover payments made under this Guaranty;

(g)any application of sums paid by the Borrower, any other Loan Party or any other Person with respect to the liabilities of the Borrower to Lender, or the Issuing Bank, regardless of what liabilities of the Borrower remain unpaid;

(h)any defect, limitation or insufficiency in the borrowing powers of the Borrower or in the exercise thereof; or

(i)any other circumstance which might otherwise constitute a defense available to, or a discharge of, such Guarantor hereunder

Section 4.Action with Respect to Guaranteed Obligations.  Lender and the Issuing Bank may, at any time and from time to time, without the consent of, or notice to, any Guarantor, and without discharging any Guarantor from its obligations hereunder take any and all actions described in Section 3 and may otherwise: (a) amend, modify, alter or supplement the terms of any of the Guaranteed Obligations, including, but not limited to, extending or shortening the time of payment of any of the Guaranteed Obligations or the interest rate that may accrue on any of the Guaranteed Obligations; (b) amend, modify, alter or supplement the Credit Agreement or any other Loan Document; (c) sell, exchange, release or otherwise deal with all, or any part, of any collateral securing any of the Obligations; (d) release any Loan Party or other Person liable in any manner for the payment or collection of the Guaranteed Obligations; (e) exercise, or refrain from exercising, any rights against the Borrower, any other Loan Party or any other Person; and (f) apply any sum, by whomsoever paid or however realized, to the Guaranteed Obligations in such order as the Lender shall elect.

Section 5.Representations and Warranties.  Each Guarantor hereby makes to the Lender all of the representations and warranties made by the Borrower with respect to or in any way relating to such Guarantor in the Credit Agreement and the other Loan Documents, as if the same were set forth herein in full.

Section 6.Covenants. Each Guarantor will comply with all covenants which the Borrower is to cause such Guarantor to comply with under the terms of the Credit Agreement or any of the other Loan Documents.

Section 7.Waiver.  Each Guarantor, to the fullest extent permitted by Applicable Law, hereby waives notice or acceptance hereof or any presentment, demand, protest or notice or any kind, and any other act or thing, or omission or delay to do any other act or thing, which in any manner or to any extent might vary the risk of such Guarantor or which otherwise might operate to discharge such Guarantor from its obligations hereunder.

Section 8.Inability to Accelerate Loan.  If either Lender or the Issuing Bank is prevented from demanding or accelerating payment of any of the Guaranteed Obligations by reason of any automatic stay or otherwise, Lender or the Issuing Bank shall be entitled to receive from such Guarantor, upon demand therefor, the sums which otherwise would have been due had such demand or acceleration occurred.

Section 9.Reinstatement of Guaranteed Obligations.  If claim is ever made on Lender or the Issuing Bank for repayment or recovery of any amount or amounts received in payment or on account of any of the Guaranteed Obligations, and Lender or the Issuing Bank repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body of competent jurisdiction, or (b) any settlement or compromise of any such

Section 10.claim effected by Lender or the Issuing Bank with any such claimant (including the Borrower or a trustee in bankruptcy for the Borrower), then and in such event each Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding on it, notwithstanding any revocation hereof or the cancellation of the Credit Agreement, any of the other Loan Documents, or any other instrument evidencing any liability of the Borrower, and such Guarantor shall be and remain liable to Lender or the Issuing Bank for the amounts so repaid or recovered to the same extent as if such amount had never originally been paid to Lender or the Issuing Bank.

Section 11.Subrogation.  Upon the making by any Guarantor of any payment hereunder for the account or the Borrower, such Guarantor shall be subrogated to the rights of the payee against the Borrower; provided, however, that such Guarantor shall not enforce any right or receive any payment by way of subrogation or otherwise take any action in respect of any other claim or cause of action such Guarantor may have against the Borrower arising by reason of any payment or performance by such Guarantor pursuant to this Guaranty, unless and until all of the Guaranteed Obligations have been indefeasibly paid and performed in full.  If any amount shall be paid to such Guarantor on account of or in respect of such subrogation rights or other claims or causes of action, such Guarantor shall hold such amount in trust for the benefit of Lender and the Issuing Bank and shall forthwith pay such amount to Lender to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement or to be held by Lender as collateral security for any Guaranteed Obligations existing.

Section 12.Payments Free and Clear.  All sums payable by each Guarantor hereunder, whether of principal, interest, Fees, expenses, premiums or otherwise, shall be paid in full, without set-off or counterclaim or any deduction or withholding whatsoever (including any withholding tax or liability imposed by any Governmental Authority, or any Applicable Law promulgated thereby), and if such Guarantor is required by Applicable Law or by any Governmental Authority to make any such deduction or withholding, such Guarantor shall pay to Lender and the Issuing Bank such additional amount as will result in the receipt by Lender and the Issuing Bank of the full amount payable hereunder had such deduction or withholding not occurred or been required.

Section 13.Subordination.  Each Guarantor hereby expressly covenants and agrees for the benefit of Lender and the Issuing Bank that all obligations and liabilities of the Borrower to such Guarantor of whatever description, including without limitation, all intercompany receivables of such Guarantor from the Borrower (collectively, the "Junior Claims") shall be subordinate and junior in right of payment to all Guaranteed Obligations.  If an Event of Default shall have occurred and be continuing, then no Guarantor shall accept any direct or indirect payment (in cash, property, securities by set-off or otherwise) from the Borrower on account of or in any manner in respect of any Junior Claim until all of the Guaranteed Obligations have been indefeasibly paid in full.

Section 14.Avoidance Provisions.  It is the intent of each Guarantor, Lender and the Issuing Bank that in any Proceeding, such Guarantor's maximum obligation hereunder shall equal, but not exceed, the maximum amount which would not otherwise cause the obligations of

Section 15.the Guarantor hereunder (or any other obligations of the Guarantor to Lender and the Issuing Bank) to be avoidable or unenforceable against the Guarantor in such Proceeding as a result of Applicable Law, including, without limitation, (a) Section 548 of the Bankruptcy Code of 1978, as amended (the "Bankruptcy Code") and (b) any state fraudulent transfer or fraudulent conveyance act or statue applied in such Proceeding, whether by virtue of Section 544 of the Bankruptcy Code or otherwise.  The Applicable Laws under which the possible avoidance or unenforceability of the obligations of such Guarantor hereunder (or any other obligations of such Guarantor to Lender and the Issuing Bank) shall be determined in any such Proceeding are referred to as the "Avoidance Provisions".   Accordingly, to the extent that the obligations of any Guarantor hereunder would otherwise be subject to avoidance under the Avoidance Provisions, the maximum Guaranteed Obligations for which such Guarantor shall be liable hereunder shall be reduced to that amount which, as of the time any of the Guaranteed Obligations are deemed to have been incurred under the Avoidance Provisions, would not cause the obligations of any Guarantor hereunder (or any other obligations of the Guarantor to Lender and the Issuing Bank), to be subject to avoidance under the Avoidance Provisions. This Section is intended solely to preserve the rights of Lender and the Issuing Bank hereunder to the maximum extent that would not cause the obligations of any Guarantor hereunder to be subject to avoidance under the Avoidance Provisions, and no Guarantor or any other Person shall have any right or claim under this Section as against Lender and the Issuing Bank that would not otherwise be available to such Person under the Avoidance Provisions.

Section 16.Information.  Each Guarantor assumes all responsibility for being and keeping itself informed of the financial condition of the Borrower and the other Loan Parties, and of all other circumstances bearing upon the risk of nonpayment of any of the Guaranteed Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that neither Lender nor the Issuing Bank shall have any duty whatsoever to advise any Guarantor of information regarding such circumstances or risks.

Section 17.Governing Law.  THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

Section 18.WAIVER OF JURY TRIAL.

(a)EACH GUARANTOR, LENDER AND THE ISSUING BANK BY ACCEPTING THE BENEFITS HEREOF, ACKNOWLEDGE THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG ANY GUARANTOR, LENDER AND THE ISSUING BANK WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT AND THAT A TRIAL BY JURY COULD RESULT IN SIGNIFICANT DELAY AND EXPENSE.  ACCORDINGLY, THE GUARANTOR, AND LENDER AND THE ISSUING BANK BY ACCEPTING THE BENEFITS HEREOF, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST SUCH GUARANTOR ARISING OUT OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG SUCH GUARANTOR, LENDER OR THE ISSUING BANK OF ANY KIND OR NATURE.

(b)EACH GUARANTOR, LENDER AND THE ISSUING BANK EACH HEREBY AGREES THAT THE FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF LENDER, ANY STATE COURT LOCATED IN HARRIS COUNTY, TEXAS SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG GUARANTOR, LENDER OR THE ISSUING BANK, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY, THE GUARANTEED OBLIGATIONS OR ANY OTHER LOAN DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM.  GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS.  THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY LENDER OR THE ISSUING BANK OR THE ENFORCEMENT BY LENDER OR THE ISSUING BANK OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.  FURTHER, EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

(c)THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE OBLIGATIONS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS AND THE TERMINATION OF THIS GUARANTY.

Section 19.Loan Accounts.  Lender and the Issuing Bank may maintain books and accounts setting forth the amounts of principal, interest and other sums paid and payable with respect to the Guaranteed Obligations, and in the case of any dispute relating to any of the outstanding amount, payment or receipt of any of the Guaranteed Obligations or otherwise, the entries in such books and accounts shall constitute prima facie evidence of the outstanding amount of such Guaranteed Obligations and the amounts paid and payable with respect thereto.  The failure of Lender or the Issuing Bank to maintain such books and accounts shall not in any way relieve or discharge any Guarantor of any of its obligations hereunder.

Section 20.Waiver of Remedies.  No delay or failure on the part of Lender or the Issuing Bank in the exercise of any right or remedy it may have against any Guarantor hereunder or otherwise shall operate as a waiver thereof, and no single or partial exercise by Lender or the Issuing Bank of any such right or remedy shall preclude other or further exercise thereof or the exercise of any other such right or remedy.

Section 21.Termination.  This Guaranty shall remain in full force and effect until indefeasible payment in full of the Obligations and the termination or cancellation of the Credit Agreement.

Section 22.Successors and Assigns.  Each reference herein to Lender or the Issuing Bank shall be deemed to include such Person's respective successors and assigns (including, but not limited to, any holder of the Guaranteed Obligations) in whose favor the provisions of this Guaranty also shall inure, and each reference herein to each Guarantor shall be deemed to include such Guarantor's successors and assigns, upon whom this Guaranty also shall be binding.  Lender and the Issuing Bank may, in accordance with the applicable provisions of the Credit Agreement, assign, transfer or sell any Guaranteed Obligations, or grant or sell participation in any Guaranteed Obligations, to any Person without the consent of, or notice to, any Guarantor and without releasing, discharging or modifying any Guarantor's obligations hereunder.  Each Guarantor hereby consents to the delivery by Lender or the Issuing Bank to any assignee or participant (or any prospective assignee or participant) of any financial or other information regarding the Borrower or any Guarantor.  No Guarantor may assign or transfer its obligations hereunder to any Person.

Section 23.JOINT AND SEVERAL OBLIGATIONS.  THE OBLIGATIONS OF EACH GUARANTOR HEREUNDER SHALL BE JOINT AND SEVERAL AND ACCORDINGLY, EACH GUARANTOR CONFIRMS THAT IT IS LIABLE FOR THE FULL AMOUNT OF THE "GUARANTEED OBLIGATIONS" AND ALL OF THE OBLIGATIONS AND LIABILITIES OF EACH OF THE OTHER GUARANTORS HEREUNDER.

Section 24.Amendments.  This Guaranty may not be amended except in writing signed by Lender and each Guarantor.

Section 25.Payments. All payments to be made by any Guarantor pursuant to this Guaranty shall be made in Dollars, in immediately available funds to Lender at its Lending Office, not later than 11:00 a.m., on the date one Business Day after demand therefor.

Section 26.Notices.  All notices, requests and other communications hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given (a) to each Guarantor at its address set forth below its signature hereto, (b) to Lender or the Issuing Bank at its address for notices provided for in the Credit Agreement, or (c) as to each such party at such other address as such party shall designate in a written notice to the other parties.  Each such notice, request or other communication shall be effective (i) if mailed, when received; (ii) if telecopied, when transmitted; or (iii) if hand delivered, when delivered; provided, however, that any notice of a change of address for notices shall not be effective until received.

Section 27.Severability.  In case any provision of this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 28.Headings.  Section headings used in this Guaranty are for convenience only and shall not affect the construction of this Guaranty.

Section 29.Definitions.

(a)For the purposes of this Guaranty:

(b)"Proceeding" means any of the following: (i) a voluntary or involuntary case concerning any Guarantor shall be commenced under the Bankruptcy Code of 1978, as amended; (ii) a custodian (as defined in such Bankruptcy Code or any other applicable bankruptcy laws) is appointed for, or takes charge of, all or any substantial part of the property of any Guarantor; (iii) any other proceeding under any Applicable Law, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding-up or composition for adjustment of debts, whether now or hereafter in effect, is commenced relating to any Guarantor; (iv) any Guarantor is adjudicated insolvent or bankrupt; (v) any order of relief or other order approving any such case or proceeding is entered by a court of competent jurisdiction; (vi) any Guarantor makes a general assignment for the benefit of creditors; (vii) any Guarantor shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (viii) any Guarantor shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; (ix) any Guarantor shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or (x) any corporate action shall be taken by any Guarantor for the purpose of effecting any of the foregoing.

(c)Terms not otherwise defined herein are used herein with the respective meanings given them in the Credit Agreement.

Section 30.ENTIRE AGREEMENT.  THIS GUARANTY, TOGETHER WITH THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  THIS INSTRUMENT MAY BE AMENDED ONLY BY AN INSTRUMENT IN WRITING EXECUTED BY THE PARTIES HERETO.

[Signatures on Next Page]

IN WITNESS WHEREOF, each Guarantor has duly executed and delivered this Guaranty as of the date and year first written above.

AMREIT OPERATING CORPORATION,

a Texas corporation

By:                                                                           

Name:  Chad C. Braun

Title:  Vice President

Address for Notices:

8 Greenway Plaza, Suite 1000

Houston, Texas 77046

Attention:  Chad C. Braun

Telecopier: (713) 860-4924

Telephone: (713) 860-4932

AMREIT REALTY INVESTMENT CORPORATION,

a Texas corporation

By:                                                                           

Name:  Chad C. Braun

Title:  Vice President

Address for Notices:

8 Greenway Plaza, Suite 1000

Houston, Texas 77046

Attention:  Chad C. Braun

Telecopier: (713) 860-4924

Telephone: (713) 860-4932

ANNEX I

FORM OF ACCESSION AGREEMENT

THIS ACCESSION AGREEMENT dated as of _________, _______, executed and delivered by ________________, a (the "New Guarantor") in favor of (a) WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender") under that certain Revolving Credit Agreement dated as of October 30, 2007 (as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Credit Agreement"), by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower").

WHEREAS, pursuant to the Credit Agreement, Lender and the Issuing Bank have agreed to make available to the Borrower certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

WHEREAS, the Borrower owns, directly or indirectly, ___% of the issued and outstanding capital stock of; or other equity interest in, the New Guarantor;

WHEREAS, the Borrower, the New Guarantor and the other Subsidiaries of the Borrower though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from Lender and the Issuing Bank through their collective efforts;

WHEREAS, the New Guarantor acknowledges that it will receive direct and indirect benefits from Lender and the Issuing Bank making such financial accommodations available to the Borrower under the Credit Agreement and, accordingly, the New Guarantor is willing to guarantee the Borrower's obligations to Lender and the Issuing Bank on the terms and conditions contained herein, and

WHEREAS, the New Guarantor's execution and delivery of this Agreement is a condition to Lender and the Issuing Bank continuing to make such financial accommodations to the Borrower.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the New Guarantor, the New Guarantor agrees as follows:

Section 1.Accession to Guaranty.  The New Guarantor hereby agrees that it is a "Guarantor" under that certain Guaranty dated as of October 30, 2007 (the "Guaranty"), made by each Subsidiary a party thereto in favor of Lender and the Issuing Bank and assumes all obligations of a "Guarantor" thereunder, all as if the New Guarantor had been an original signatory to the Guaranty.  Without limiting the generality of the foregoing, the New Guarantor hereby:

Section 2.irrevocably and unconditionally guarantees the due and punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all Guaranteed Obligations;

(a)makes to Lender and the Issuing Bank as of the date hereof each of the representations and warranties contained in Section 5 of the Guaranty and agrees to be bound by each of the covenants contained in Section 6 of the Guaranty; and

(b)consents and agrees to each provision set forth in the Guaranty.

Section 3.GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

Section 4.Definitions.  Capitalized terms used herein and not otherwise defined herein shall have their respective defined meanings given them in the Credit Agreement.

Section 5.ENTIRE AGREEMENT.  THIS ACCESSION AGREEMENT, TOGETHER WITH THE GUARANTY, CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  THIS INSTRUMENT MAY BE AMENDED ONLY BY AN INSTRUMENT IN WRITING EXECUTED BY THE PARTIES HERETO.

[Signatures on Next Page]

IN WITNESS WHEREOF, the new Guarantor has caused this Accession Agreement to be duly executed and delivered under seal by its duly authorized officers as of the date first written above.

[NEW GUARANTOR]

By:                                                                           

Name

Title:

ATTEST:

By:                                                                           

Name

Title:

Address for Notices:

Attention:                                                                           

Telecopier: (___)                                                                           

Telephone: (___)                                                                           

Accepted:

WELLS FARGO BANK, NATIONAL

ASSOCIATION, as Lender

By:                                                                

Name:                                                                           

Title:                                                                           

FORM OF REVOLVING NOTE

$70,000,000.00                                                      Houston, Texas October 30, 2007

FOR VALUE RECEIVED, the undersigned, AmREIT, a Texas Real Estate Investment Trust ("Borrower"), hereby unconditionally promises to pay to the order of Wells Fargo Bank, National Association (the "Lender"), at its Lending Office at Wells Fargo Bank, National Association, Disbursement and Operations Center, 733 Marquette Avenue, 10th Floor, Minneapolis, Minnesota 55402 or at such other address as may be specified by Lender to Borrower, the principal sum of SEVENTY MILLION AND NO/100 DOLLARS ($70,000,000.00), or such lesser amount as may be the then outstanding and unpaid balance of all the Loans made by Lender to the Borrower pursuant to, and in accordance with the terms of, the Credit Agreement (hereinafter defined).

The Borrower further agrees to pay interest at said Lending Office, in like money, on the unpaid principal amount owing hereunder from time to time on the dates and at the rates and at the times specified in the Credit Agreement.

This Revolving Note (the "Revolving Note") shall constitute the "Revolving Note" referred to in that certain Revolving Credit Agreement dated as of October 30, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and between the Borrower and Lender, and is subject to, and entitled to, all provisions and benefits thereof.  Capitalized terms used herein and not defined herein shall have the respective meanings given to such terms in the Credit Agreement.  The Credit Agreement, among other things, (a) provides for the making of Loans by Lender to Borrower from time to time in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, (b) permits the prepayment of the Loans by the Borrower subject to certain terms and conditions and (c) provides for the acceleration of the Loans upon the occurrence of certain specified events.

It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply strictly with the applicable Texas law (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law) governing the maximum rate or amount of interest payable on this Revolving Note or the Related Indebtedness (hereinafter defined).  If the applicable law is ever judicially interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to this Revolving Note, any of the other Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, (ii) contracted for, charged or received by reason of Lender's exercise of the option to accelerate the maturity of this Revolving Note and/or the Related Indebtedness, or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this Revolving Note and/or the Related Indebtedness, then it is Borrower's and Lender's express intent that all amounts charged in excess of the Maximum Lawful Rate shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Lawful Rate theretofore collected by Lender shall be credited on the principal balance of this Revolving Note and/or the Related Indebtedness (or, if this Revolving Note and all Related Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of this Revolving Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if this Revolving Note has been paid in full before the end of the stated term of this Revolving Note, then Borrower and Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Maximum Lawful Rate, either refund such excess interest to Borrower and/or credit such excess interest against this Revolving Note and/or any Related Indebtedness then owing by Borrower to Lender.  Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against this Revolving Note and/or the Related Indebtedness then owing by Borrower to Lender.  All sums contracted for, charged or received by Lender for the use, forbearance or detention of any debt evidenced by this Revolving Note and/or the Related Indebtedness shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of this Revolving Note and/or the Related Indebtedness (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of this Revolving Note and/or the Related Indebtedness does not exceed the Maximum Lawful Rate from time to time in effect and applicable to this Revolving Note and/or the Related Indebtedness for so long as debt is outstanding.  In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving triparty accounts) apply to this Revolving Note and/or the Related Indebtedness.  Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.  Borrower and Lender hereby agree that any and all suits alleging the contracting for, charging or receiving of usurious interest shall lie in Harris County, Texas, and each irrevocably waive the right to venue in any other county.

As used herein, the term "Maximum Lawful Rate" shall mean the maximum lawful rate of interest which may be contracted for, charged, taken, received or reserved by Lender in accordance with the applicable laws of the State of Texas (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law), taking into account all Charges (as herein defined) made in connection with the transaction evidenced by this Revolving Note and the other Loan Documents.  As used herein, the term "Charges" shall mean all fees, charges and/or any other things of value, if any, contracted for, charged, received, taken or reserved by Lender in connection with the transactions relating to this Revolving Note and the other Loan Documents, which are treated as interest under applicable law.  As used herein, the term "Related Indebtedness" shall mean any and all debt paid or payable by Borrower to Lender pursuant to the Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, except such debt which has been paid or is payable by Borrower to Lender under the Revolving Note.

To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Lawful Rate payable on this Revolving Note and/or the Related Indebtedness, Lender will utilize the weekly ceiling from time to time in effect as provided in such Chapter 303, as amended.  To the extent United States federal law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States federal law instead of such Chapter 303 for the purpose of determining the Maximum Lawful Rate. Additionally, to the extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, utilize any other method of establishing the Maximum Lawful Rate under such Chapter 303 or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect.

Notwithstanding anything in this Revolving Note to the contrary, if at any time (i) the interest rate provided for under this Revolving Note or any other Loan Document (the "Stated Rate"), and (ii) the Charges computed over the full term of this Revolving Note, exceed the Maximum Lawful Rate, then the rate of interest payable hereunder, together with all Charges, shall be limited to the Maximum Lawful Rate; provided, however, that any subsequent reduction in the Stated Rate shall not cause a reduction of the rate of interest payable hereunder below the Maximum Lawful Rate until the total amount of interest earned hereunder, together with all Charges, equals the total amount of interest which would have accrued at the Stated Rate if such interest rate had at all times been in effect.  Changes in the Stated Rate resulting from a fluctuations in the rates used to calculate the Stated Rate shall be subject to the provisions of this paragraph.

The holder hereof shall be entitled to the benefits of the other Loan Documents (to the extent and with the effect as therein provided).

The Borrower hereby waives presentment, demand, protest and notice of any kind, including without limitation notice of interest to accelerate and notice of acceleration.  No failure to exercise, and no delay in exercising any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights.

Time is of the essence of this Revolving Note.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

IN WITNESS WHEREOF, the undersigned has executed and delivered this Revolving Note as of the date written above.

AmREIT,

a Texas Real Estate Investment Trust

By:                                                                           

Name:  Chad C. Braun

Title:  Vice President

FORM OF NOTICE OF BORROWING

___________________, 200__

Wells Fargo Bank, National Association

Disbursement and Operations Center

733 Marquette Avenue, 10th Floor

Minneapolis, Minnesota 55402

Attention:  Jivko Sabev

Facsimile:  (866) 720-0617

Ladies and Gentlemen:

Reference is made to that certain Revolving Credit Agreement dated as of October 30, 2007, as amended (the "Credit Agreement"), by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower"), and Wells Fargo Bank, National Association ('Lender').  Capitalized terms used herein and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

1. Pursuant to Section 2.2 of the Credit Agreement, the Borrower hereby requests that the Lender makes a Loan to the Borrower in an amount equal to $_______________________.

2. The Borrower requests that the Loan be made available to the Borrower on _________________, 200___.

3. The Borrower hereby requests that the requested Loan be of the following Type:

[Check one box only]

☐ Base Rate Loan

☐ LIBOR Loan, with an initial Interest Period for a duration of:

[Check one box only]                          ☐ one month

☐ two months

☐ three months

☐ six months

4. The proceeds of the Loan will be used for the following:

The Borrower hereby certifies to Lender that as of the date hereof, as of the date of the making of the requested Loan, and after making such Loan, (a) no Default or Event of  Default shall have occurred and be continuing and (b) the representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents are and shall be true and correct in all material respects, except to the extent such representations or warranties specifically relate to an earlier date or such representations or warranties have become untrue by reason of events or conditions otherwise permitted under the Credit Agreement or the other Loan Documents.

AmREIT,

a Texas Real Estate Investment Trust

By:                                                                           

Name:

Title:

FORM OF NOTICE OF CONTINUATION

____________________, 200___

Wells Fargo Bank, National Association

Disbursement and Operations Center

733 Marquette Avenue, 10th Floor

Minneapolis, Minnesota 55402

Attention:  Jivko Sabev

Facsimile:  (866) 720-0617

Ladies and Gentlemen:

Reference is made to that certain Revolving Credit Agreement dated as of October 30, 2007, as amended (the "Credit Agreement"), by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower"), and Wells Fargo Bank, National Association (the "Lender").  Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 2.4 of the Credit Agreement, the Borrower hereby requests a Continuation of a LIBOR Loan under the Credit Agreement, and in that connection sets forth below the information relating to such Continuation as required by such Section of the Credit Agreement:

1. The requested date of such Continuation is ___________________, 200___.

2. The aggregate principal amount of the LIBOR Loan subject to the requested Continuation is $______________ and the portion of such principal amount subject to such Continuation is $_______________.

3. The current Interest Period of the Loan subject to such Continuation ends on _________________, 200___.

4. The duration of the Interest Period for the Loan or portion thereof subject to such Continuation is:

[Check one box only]                          ☐ one month

☐ two months

☐ three months

☐ six months

The Borrower hereby certifies to Lender and the Issuing Bank that as of the date hereof, as of the proposed date of the requested Continuation, and after giving effect to such Continuation, no Event of Default shall have occurred and be continuing.

If notice of the requested Continuation was given previously by telephone, this notice is to be considered the written confirmation of such telephone notice required by Section 2.4 of the Credit Agreement.

AmREIT,

a Texas Real Estate Investment Trust

By:                                                                           

Name:

Title:

FORM OF NOTICE OF CONVERSION

_________________, 200___

Wells Fargo Bank, National Association

Disbursement and Operations Center

733 Marquette Avenue, 10th Floor

Minneapolis, Minnesota 55402

Attention:  Jivko Sabev

Facsimile:  (866) 720-0617

Ladies and Gentlemen:

Reference is made to that certain Revolving Credit Agreement dated as of October 30, 2007, as amended (the "Credit Agreement"), by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower"), and Wells Fargo Bank, National Association ("Lender").  Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 2.5 of the Credit Agreement, the Borrower hereby requests a Conversion of a Loan of one Type into a Loan of another Type under the Credit Agreement, and in that connection sets forth below the information relating to such Conversion as required by such Section of the Credit Agreement:

1. The requested date of such Conversion is ________________, 200___.

2. The Type of Loan to be Converted pursuant hereto is currently:

[Check one box only]                                                      ☐ Base Rate Loan

☐ LIBOR Loan

3. The aggregate principal amount of the Loan subject to the requested Conversion is $______________ and the portion of such principal amount subject to such Conversion is $_________________.

4. The amount of such Loan to be so Converted is to be converted into a Loan of the following Type:

[Check one box only]                                                                ☐ Base Rate Loan

☐ LIBOR Loan, with an initial Interest

Period for a duration of:

[Check one box only]                          ☐ one month

☐ two months

☐ three months

☐ six months

The Borrower hereby certifies to Lender and the Issuing Bank that as of the date hereof, as of the proposed date of the requested Conversion, and after giving effect to such Conversion, no Event of Default shall have occurred and be continuing.

If notice of the requested Conversion was given previously by telephone, this notice is to be considered the written confirmation of such telephone notice required by Section 2.5 of the Credit Agreement.

AmREIT,

a Texas Real Estate Investment Trust

By:                                                                           

Name:

Title:

FORM OF OPINION

________________, 2007

Wells Fargo Bank, National Association

1000 Louisiana, 4th Floor

Houston, Texas  77002-5093

Re: $70,000,000.00 Revolving Credit Facility

Ladies and Gentlemen:

We have acted as counsel to AmREIT, a Texas Real Estate Investment Trust (the "REIT"), and AmREIT Operating Corporation, a Texas corporation and AmREIT Realty Investment Corporation, a Texas corporation (collectively, "Guarantors") in connection with the $70,000,000.00 revolving credit facility provided pursuant to that certain Revolving Credit Agreement dated as of October 30, 2007 (the "Agreement") by and between REIT and Wells Fargo Bank, National Association ("Lender").  This Opinion Letter (herein so called) is furnished to you as required by Section 5.1(d) of the Agreement. Capitalized terms used in this Opinion Letter and not defined herein are defined as set forth in the Agreement.

Our opinions are limited in all respects to the substantive law of the State of Texas and the federal law of the United States and we assume no responsibility as to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction.

I.           Documents Reviewed

A.           Documents Reviewed--Loan Documents.  As counsel to REIT, we have reviewed the following documents and instruments (collectively, the "Transaction Documents"):

1. Agreement;

2. Promissory Note, dated as of October 30, 2007, executed by Borrower and payable to the order of Lender in the maximum principal amount of $70,000,000.00; and

3. Guaranty executed by Guarantors dated as of October 30, 2007.

B.           Documents Reviewed--Other Documents Examined:  In addition to the Transaction Documents, other documents we have examined in rendering this opinion, and upon which we have relied, include the following:

1. [LIST ALL ORGANIZATIONAL DOCUMENTS, CERTIFICATES AND RESOLUTIONS]

II. Qualifications to Factual Examination;

Reliance on Local Counsel

We have been furnished with and examined originals or copies, certified or otherwise identified to our satisfaction, of all such records of REIT, agreements and other instruments, certificates of officers and representatives of REIT, certificates of public officials, and other documents, and we have had such discussions with appropriate officers of REIT as we have deemed necessary or desirable as a basis for the opinions hereinafter expressed.  As to questions of fact material to such opinions, we have, where relevant facts were not independently verified or established, relied upon certificates of and discussions with officers of REIT.

III.           Assumptions

For purposes of this opinion, we have assumed:  (i) the genuineness of all signatures on all documents (other than REIT and the Guarantors on the Transaction Documents); (ii) the authenticity of all documents submitted to us as originals; (iii) the conformity to the originals of all documents submitted to us as copies; (iv) the correctness and accuracy of all facts set forth in all certificates and reports identified in this opinion; and (v) the due authorization, execution, and delivery of and the validity and binding effect of the Transaction Documents with regard to the parties to the Transaction Documents other than REIT.

IV.           Opinions

Based upon and subject to the foregoing and the other qualifications and limitations stated in this Opinion Letter, we are of the opinion that:

1.           REIT is duly organized and validly existing under the laws of the State of Texas and is a real estate investment trust under Section 856 of the Internal Revenue Code.

2.           [RECITE ORGANIZATION, EXISTENCE AND GOOD STANDING OPINIONS FOR EACH GUARANTOR]

3.           REIT and the Guarantors have the corporate power and authority to execute, deliver, and perform their respective obligations under the Transaction Documents to which they are a party.  The Transaction Documents to which either REIT or the Guarantors are a party have been duly authorized by all necessary corporate action on the part of such Person and have been duly executed and delivered by such Person.

4.           The Transaction Documents to which REIT or the Guarantors are a party are enforceable against such Person.

5.           The execution and delivery by REIT and the Guarantors, as applicable, of, and performance of their agreements in, the Transaction Documents to which either Person is a party do not (i) violate the trust declaration, articles of incorporation or bylaws of such Person, breach, or result in a default under, any existing obligation of such Person under any agreement binding on such Person, or (ii) breach or otherwise violate any existing obligation of such Person.

6.           The execution and delivery of the Transaction Documents to which either REIT or the Guarantors are a party, the consummation of the transactions contemplated thereby, and compliance by such Person with the provisions thereof will not violate any Texas or federal statute or regulation.

7.           No consent, approval, waiver, license or authorization or other action by or filing with any governmental authority is required under Texas or federal statutes or regulations in connection with the execution and delivery by REIT or the Guarantors of the Transaction Documents to which such Person is a party, except for those already obtained or completed.

8.           The Transaction Documents are not usurious contracts.

V.           Enforceability Limitations

The opinions expressed in paragraph 3 are qualified and may be limited as follows:

A.           The enforceability of the Transaction Documents is subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium, or other similar laws affecting the rights and remedies of creditors generally.

B.           The enforceability of the Transaction Documents is subject to the effect of general principles of equity.

The qualification of any opinion or statement herein by the use of the words "to our knowledge" or "known to us" means that during the course of representation as described in this Opinion Letter, no information has come to the attention of the attorneys in this Firm which would give such attorneys current actual knowledge of the existence of the facts so qualified.  Except as set forth herein, we have not undertaken any investigation to determine the existence of such facts, and no inference as to our knowledge thereof shall be drawn from the fact of our representation of any party or otherwise.

This Opinion Letter (i) has been furnished to Lender at its request, and we consider it to be a confidential communication which may not be furnished, reproduced, distributed or disclosed to anyone without our prior written consent, (ii) is rendered solely for Lender's use in connection with the above transaction, and may not be relied upon by any other person (other than an assignee of Lender) or for any other purpose without our prior written consent, (iii) is rendered as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any changes or any new developments which might affect any matters or opinions set forth herein; and (iv) is limited to the matters stated herein and no opinions may be inferred or implied beyond the matters expressly stated herein.

Very truly yours,

By:                                                                           

FORM OF UNENCUMBERED POOL CERTIFICATE

Reference is made to that certain Revolving Credit Agreement dated as of October 30, 2007 (the "Credit Agreement"), by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower") and Wells Fargo Bank, National Association ("Lender").  Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

1.           Pursuant to Section 4.l(b)(ii) or Section 7.1(d), as applicable, of the Credit Agreement, the undersigned hereby certifies to Lender that Schedule I attached hereto accurately and completely sets forth, as of the date hereof:  (i) the identity of each Eligible Property as to which Borrower seeks Lender's approval as a Pool Property, (ii) assuming the approval of each such Eligible Property as a Pool Property, (A) on a pro forma basis the Maximum Loan Availability, (B) the Occupancy Rate of such Property, and (C) the aggregate Occupancy Rate of all Unencumbered Pool Properties, assuming the approval of each such Eligible Property as a Pool Property.

The undersigned further certifies to Lender that as of the date hereof (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents are true and correct in all material respects, except to the extent such representations or warranties specifically relate to an earlier date or such representations or warranties become untrue by reason of events or conditions otherwise permitted under the Credit Agreement or the other Loan Documents.

IN WITNESS WHEREOF, the undersigned has signed this Unencumbered Pool Certificate on and as of __________, 200___.

Name:

Title:Chief Financial Officer of AmREIT,

a Texas Real Estate Investment Trust

FORM OF ELIGIBILITY CERTIFICATE

Reference is made to that certain Revolving Credit Agreement dated as of October 30, 2007 (the "Credit Agreement"), by and between AmREIT, a Texas Real Estate Investment Trust ("Borrower") and Wells Fargo Bank, National Association ("Lender").  Capitalized terms used herein, and not otherwise defined herein, have their respective meanings given them in the Credit Agreement.

Pursuant to Section 4.1 (b)(iv) of the Credit Agreement, the undersigned hereby certifies to Lender, with respect to each of the properties listed on Schedule 1 attached hereto, that:

(a)           such property is improved with one or more operating retail properties.

(b)           such property is 100% owned in fee simple by Borrower or by a Wholly Owned Subsidiary designated as the owner of such property on Schedule 1.  Schedule 1 sets forth the capital structure of each such Wholly Owned Subsidiary.

(c)           (i) neither such property, nor any interest of Borrower or such Wholly Owned Subsidiary therein, is subject to any Lien other than Permitted Liens or to any agreement (other than the Credit Agreement or any other Loan Document) that prohibits the creation of any Lien thereon as security for Indebtedness; (ii) if such property is owned by a Wholly Owned Subsidiary: (A) none of Borrower's direct or indirect ownership interest in such Wholly Owned Subsidiary is subject to any Lien other than Permitted Liens or to any agreement (other than the Credit Agreement or any other Loan Document) that prohibits the creation of any Lien thereon as security for Indebtedness and (B) neither such Wholly Owned Subsidiary, nor any other Wholly Owned Subsidiary through which Borrower holds any indirect interest in such Wholly Owned Subsidiary, is subject to any restriction of any kind which would limit its ability to pay or perform its obligations under the Guaranty required to be delivered under the Credit Agreement prior to its obligation to pay dividends or make any other distribution on any of such Wholly Owned Subsidiary's capital stock or other securities owned by Borrower or any other Wholly Owned Subsidiary of Borrower; (iii) such property has an Occupancy Rate of at least 80%, and (iv) such property is free of all structural defects, title defects, environmental conditions or other adverse matters except for defects, conditions or matters individually or collectively which are not material to the profitable operation of such property.

(d)           if such property were an Unencumbered Pool Property, the aggregate Occupancy Rate of all Unencumbered Pool Properties as of the date hereof (including all properties listed on Schedule 1), would not be less than ninety percent (90%).

(e)           (i)           Borrower has obtained, with respect to such property, a "Phase I" environmental assessment

(ii)           Borrower has reviewed such assessments and believes it reasonable to rely upon such assessments; and

(iii)           such assessments do not (1) identify any contamination or potential contamination that has resulted in, or that could reasonably be anticipated to result in a materially adverse effect upon the condition, market value, Net Operating Income or prospects of such property, (2) recommend that any further material investigation be undertaken, or (3) identify any potential or actual recognized environmental condition.

IN WITNESS WHEREOF, the undersigned has signed this Eligibility Certificate on and as of ___________, 200___.

Name:

Printed:                                                                           

Title:Chief Financial Officer of AmREIT,

a Texas Real Estate Investment Trust

Schedule 1

TO ELIGIBILITY CERTIFICATE

(A)           Property Description [For each Property]

1.           Property Name:

2.           Owner:                                [If not Borrower, set forth capital structure of the owner]

3.           Location:                                [Including City, State, County and address]

4.           Environmental Information:

a.           Date Phase I prepared:

b.           The Phase I was prepared by:

5.           Summary of Existing Tenants:  [Including Rent Rolls in detail satisfactory to Lender]

TRANSFER AUTHORIZER DESIGNATION

(For Disbursement of Loan Proceeds by Funds Transfer)

o NEW o REPLACE PREVIOUS DESIGNATION   o  ADD   o   CHANGE    o  DELETE LINE NUMBER    _____

The following representatives of AmREIT, a Texas Real Estate Investment Trust (“Borrower”) are authorized to request the disbursement of Loan Proceeds and initiate funds transfers for Loan Number 5448 dated October 30, 2007 between Wells Fargo Bank, National Association ("Lender") and Borrower. Lender is authorized to rely on this Transfer Authorizer Designation until it has received a new Transfer Authorizer Designation signed by Borrower, even in the event that any or all of the foregoing information may have changed.

	Name	Title	Maximum Wire Amount1
1.	H. Kerr Taylor		$	70,000,000.00
2.	Chad Braun		$	70,000,000.00
3.
4.
5.

Beneficiary Bank and Account Holder Information

1.

Transfer Funds to (Receiving Party Account Name):
Receiving Party Account Number:
Receiving Bank Name, City and State:	Receiving Bank Routing (ABA) Number
Maximum Transfer Amount:
Further Credit Information/Instructions:

2.

Transfer Funds to (Receiving Party Account Name):
Receiving Party Account Number:
Receiving Bank Name, City and State:	Receiving Bank Routing (ABA) Number
Maximum Transfer Amount:
Further Credit Information/Instructions:

3.

Transfer Funds to (Receiving Party Account Name):
Receiving Party Account Number:
Receiving Bank Name, City and State:	Receiving Bank Routing (ABA) Number
Maximum Transfer Amount:
Further Credit Information/Instructions:

2 Maximum Wire Amount may not exceed the Loan Amount.

Date: DATE OF DOCUMENTS

“BORROWER”

AMREIT

a Texas Real Estate Investment Trust

By:  ________________________________

Name:                                                                

Title:                                                                

OUTSTANDING LETTERS OF CREDIT

Irrevocable Letter of Credit No. NZS435795 as amended issued April 8, 2002 for the benefit of General Electric Capital Business Asset Funding Corporation.

Irrevocable Standby Letter of Credit No. NZS545181 as amended issued June 1, 2005 for the benefit of LaSalle Bank NA, as Trustee.

UNENCUMBERED POOL PROPERTIES AS OF AGREEMENT DATE

Property	City	State	Date Acquired	Square Footage	Lease Expiration
FEE SIMPLE
MacArthur Pads - Eye Masters	Irving	TX	Dec-05	4,000	Nov-09
MacArthur Pads - Deli Masters	Irving	TX	Dec-05	4,540	Dec-09
MacArthur Pads - Mattress Giant	Irving	TX	Dec-05	5,000	Feb-10
MacArthur Pads - Men's Warehouse	Irving	TX	Dec-05	6,660	Feb-10
MacArthur Pads - Nextel	Irving	TX	Dec-05	4,213	Feb-10
MacArthur Pads - Pier One	Irving	TX	Dec-05	9,028	Feb-10
MacArthur Pads - Signature Nails	Irving	TX	Dec-05	1,604	Mar-10
MacArthur Pads - Smoothie King	Irving	TX	Dec-05	1,422	Mar-11
McArthur Pads - Sports Clips	Irving	TX	Dec-05	1,275	Nov-09
MacArthur Pads - Up in Smoke	Irving	TX	Dec-05	1,273	Dec-09
AFC, Inc	Atlanta	GA	Jul-02	2,583	Jul-14
Carlson Restaurants (TGI Friday's)	Houston	TX	Dec-93	8,500	Jun-08
Golden Corral	Houston	TX	Aug-92	12,000	Nov-07
Golden Corral	Houston	TX	Mar-93	12,000	Mar-08
IHOP Corporation	Topeka	KS	Sep-99	4,500	Dec-08
CVS-Uptown Plaza	Houston	TX	Dec-03	12,000	Sep-24
Woodlands Plaza - Kinko's	Houston	TX	Jan-03	2,750	Mar-08
Woodlands Plaza - DiMassi's	Houston	TX	Nov-02	4,329	Jan-13
Woodlands Plaza - Liberty Mutual	Houston	TX	Apr-03	2,962	Mar-08
Woodlands Plaza - Rug Gallery	Houston	TX	Feb-04	9,977	Jan-11
Uptown Plaza - The Grotto	Houston	TX	Dec-03	8,000	Oct-12
Uptown Plaza - Nextel	Houston	TX	Dec-03	1,660	Mar-09
Uptown Plaza - IS Images	Houston	TX	Dec-03	1,600	Mar-08
Uptown Plaza - EG Geller	Houston	TX	Dec-03	1,600	Nov-14
Uptown Plaza - Omaha Steaks	Houston	TX	Dec-03	1,600	Nov-14
Uptown Plaza - Judith Anne Jewels	Houston	TX	Dec-03	1,600	Jan-10
Courtyard at Post Oak - Verizon / WAMU	Houston	TX	Jun-04	4,013	Nov-09
Courtyard at Post Oak - Ninfa's	Houston	TX	Jun-04	7,606	Nov-09
Courtyard at Post Oak - Dessert Gallery	Houston	TX	Jun-04	1,978	Aug-08
GROUND LEASE
Washington Mutual	Houston	TX	Dec-96	3,685	Dec-11
Washington Mutual	The Woodlands	TX	Sep-96	3,685	Sep-11
CVS - Westheimer & Yorktown	Houston	TX	Jan-03	13,824	Dec-23
Dardin (Smokey Bones)	Peach Tree City	GA	Dec-98	6,687	Dec-08
410 and Blanco - Citibank	San Antonio	TX	Dec-04	4,439	Jan-21
Woodlands Ring Road - Bank of America	The Woodlands	TX	Feb-07	4,251	Jul-15
Woodlands Ring Road - Circuit City	The   Woodlands	TX	Feb-07	34,233	Dec-17
Woodlands Ring Road - Landry's	The Woodlands	TX	Feb-07	13,497	Sep-25
Woodlands Ring Road - Brinker (Macaroni Grill)	The Woodlands	TX	Feb-07	7,825	Oct-09
Woodlands Ring Road - Carlson Restaurants (TGI Friday's)	The Woodlands	TX	Feb-07	6,543	Oct-09
Carlson Restaurants (TGI Friday's)	Hanover	MD	Sep-03	8,500	Sep-23

OWNERSHIP STRUCTURE

Attached is a complete corporate structure and ownership interests of Borrower and all of its Subsidiaries as of the date hereto, including the correct legal name of Borrower and each such Subsidiary, and Borrower's relative equity interest in each Subsidiary:

[Missing Graphic Reference]

INDEBTEDNESS AND GUARANTEES

AmREIT

Debt Information

Description	Amount Outstanding 06-30-2007		Amount Outstanding 12-31-2006		Interest Rate			Annual Debt Service		Maturity Date
Credit Facility (1)	$	5,856	$	11,929		7.19	%	$	421	11/04/2007
2007 Maturities	$	5,856	$	11,929
MacArthur Park	$	13,410	$	13,410		6.17	%	$	827	12/01/2008
2008 Maturities	$	13,410	$	13,410
Sugarland IHOP	$	1,133	$	1,155		8.25	%	$	138	03/01/2011
Sugar Land Plaza		2,272		2,286		7.60	%		203	11/01/2011
2011 Maturities	$	3,405	$	3,441
Albuquerque IHOP	$	659	$	670		7.82	%	$	75	04/24/2012
Baton Rouge IHOP		1,088		1,107		7.82	%		124	04/24/2012
Beaverton IHOP		772		785		7.82	%		88	04/16/2012
Charlottesville IHOP		548		558		7.82	%		62	04/24/2012
El Paso #1934 IHOP		662		673		7.82	%		75	04/16/2012
Rochester IHOP		828		842		7.82	%		94	04/16/2002
Shawnee IHOP		653		665		7.82	%		74	04/18/2012
5115 Buffalo Spdwy.		2,715		2,731		7.82	%		241	05/11/2012
Salem IHOP		542		551		7.82	%		61	05/17/2012
Springfield IHOP		899		915		7.82	%		102	06/21/2012
Roanoke IHOP		624		635		7.89	%		71	07/26/2012
Centerville IHOP		1,091		1,110		7.89	%		124	07/26/2012
Memphis #4462 IHOP		1,180		1,199		7.89	%		134	07/19/2012
Alexandria IHOP		630		640		7.89	%		71	07/19/2012
El Paso #1938 IHOP		788		802		7.89	%		89	08/23/2012
La Verne IHOP		657		668		7.89	%		74	08/23/2012
Memphis #4482 IHOP		685		696		7.89	%		77	08/23/2012
Parker IHOP		737		749		7.89	%		83	08/23/2012
2012 Maturities	$	15,758	$	15,996
Cinco Ranch	$	8,229	$	8,298		5.60	%	$	601	07/10/2013
Plaza in the Park		17,392		17,538		5.60	%		1,270	07/10/2013
2013 Maturities	$	25,621	$	25,836

Description	Amount Outstanding 06-30-2007		Amount Outstanding 12-31-2006		Interest Rate			Annual Debt Service		Maturity Date
Uptown Park	$	49,000	$	49,000		5.37	%	$	2,631	06/01/2015
2015 Maturities	$	49,000	$	49,000
Southbank-Riverwalk	$	20,000	$	-		5.91	%	$	1,182	06/01/2016
2016 Maturities	$	20,000	$	-
Bakery Square	$	3,838	$	3,967		8.00	%	$	571	02/10/2017
Uptown Plaza Dallas	$	19,900	$	-		5.64	%	$	783	04/01/2017
2017 Maturities	$	23,738	$	3,967
Total Maturities	$	156,788	$	143,579

(1) Our revolving credit facility is a variable-rate debt instrument, and its outstasnding balance fluctuates throughout the year based on our liquidity needs.  Annual Debt Service on this debt instrument assumes that the amount outstanding and the interest rate as of June 30, 2007 remain constant through maturity.

(2) Total maturities above are $757 thousand and $874 thousand less than total debt as reported in our consolidated financial statements as of June 30, 2007 and December 31, 2006, respectively, due to the premium recorded on above-market debt assumed in conjuntion with certain of our property acquisitions.

PROPERTY MANAGEMENT AGREEMENTS

AND OTHER MAJOR AGREEMENTS

AmREIT Realty Investment Corporation, as Agent:

1. Uptown Plaza – Houston, TX – April 1, 2004 – AmREIT

2. Lake Woodlands Plaza – April 1, 2004 - AmREIT

3.           The Courtyard – June 15, 2004 - AmREIT

4.           MacArthur Pad Sites – April 12, 2006 – AmREIT MacArthur Pad Sites, LP

5.           All AmREIT Properties – April 19, 2006 - AmREIT

AmREIT

SCHEDULE OF INSURANCE

Aon Risk Services of Texas, Inc

1330 Post Oak Blvd., Suite 900

Houston, TX, 77056-3089

Main Line (866) 283-7124

Fax (866) 430-1035

Am REIT

Schedule Of Insurance

Policy Number	Underwriter/A.M. Best Rating	Term	Description	Coverage Description	Limit/Deductible	Premium
61UENTW5600	Hartford Ins Co of the Midwest – A+	11/10/2006     to 11/10/2007	General Liability Coverage	£   General Aggregate        Limit £   Prod & Comp Ops        Aggregate Limit £   Per Occurrence Limit £   Personal & Advertising        Injury Limit £   Damage to Rented        Premises/Fire Damage £   Medical Expense Limit        (any one person) £   Employee Benefit        Liability Aggregate Lim £   Emp Benefits Liab Limit         - Per Occurrence	$2,000,000    $2,000,000    $1,000,000    $1,000,000    $300,000    $10,000    $1,000,000    $1,000,000	$93,764.00
61 UEN TW5600	Twin City Fire Insurance Company - A+	11/10/2006     to 11/10/2007	Business Auto Coverage	£   CSL £   Comprehensive        Deductible £   Collision Deductible £   Comprehensive        Coverage Deductible £   Collision Coverage        Deductible 8  Hired Autos 9  Non-Owned Autos	$1,000,000    $1,000    $1,000    $1,000    $1,000	$1,302.00
1WEPI8551	Hartford Underwriters Ins. Co. – A+	11/10/2006     to 11/10/2007	Workers Compensation - Casualty	£   Bodily Injury Limit -        Each Accident £   Bodily Injury by Disease         - Policy Limit £   Bodily Injury by Disease         - Ea Employee	$1,000,000    $1,000,000    $1,000,000	$19,208.00

Proprietary Information: Data provided on this page is proprietary between Aon and AmREIT.

This insurance document is furnished to you as a matter of information for your convenience. It only summarizes me listed policy(ies) and is not intended to reflect all the term policy(ies). Moreover, the information contained in this document reflects coverage as of 05/21/2007; except in the case of Pending and Expired policies. In which case, coverage is shown as of the Effective date or Expiration date respectively. This document is not an insurance policy and does not amend, alter or extend the coverage afforded by the listed policy(ies). The insurance afford the terms, exclusions and conditions of such policy(ies).

AmREIT

Schedule Of Insurance

YU2L9L43607217   Liberty Mutual Fire Ins Co - A 4/19/2007     to 4/19/2008 Commercial Property Coverage £   Blkt Real & Personal        Property Limit £   Deductible £   Business Income        Including Rent Value £   Extra Expense Only        Limit £   Deductible £   Unnamed Locations        Sublimit £   Service Interrupt - PD &        TE Limit £   Demolition & Inc COC -        PD Limit £   Demolition and        Increased COC        Deductible £   Valuable Papers &        Records £   Valuable Papers        Deductible £   Accounts Receivable £   Accounts Receivable        Deductible £   Transit - per        Conveyance £   Transit Deductible £   Earth Movement - per        Occurrence £   Earth Movement -        Aggregate £   Earth Movement        Deductible £   Flood - per Occurrence £   Flood - Aggregate £   Flood Deductible £   Mold/Fungus Limit £   Mold/Fungus Deductible $171,503,325     $10,000   $45,684,884     $1,000,000     $10,000   $1,000,000     $1,000,000     $7,000,000     10000       $1,000,000     $10,000     $1,000,000    $10,000      $100,000     $10,000   $25,000,000     $25,000,000     $100,000     $25,000,000   $25,000,000   100000   $250,000   $10,000   $360,920.00  

Proprietary Information; Data provided on this page is proprietary between Aon and AmRElT.

This insurance document is furnished to you as a matter of information for your convenience. It only summarizes me listed policy(ies) and is not intended to reflect all the term policy(ies). Moreover, the information contained in this document reflects coverage as of 05/21/2007; except in the case of Pending and Expired policies. In which case, coverage is shown as of the Effective date or Expiration date respectively. This document is not an insurance policy and does not amend, alter or extend the coverage afforded by the listed policy(ies). The insurance afford the terms, exclusions and conditions of such policy(ies).

AmREIT

Schedule Of Insurance

				£   Boiler & Machinery        (Equipment) Limit £   Boiler & Machinery        (Equipment) Ded Causes of Loss-Special Form	$75,000,000   $10,000
UU0532731627	Ohio Casualty Insurance Co - A	11/10/2006     to 11/10/2007	Umbrella Liability	£   Limit of Liability-Each        Occurrence £   Limit of Liability -        Aggregate Claims Made, Occur or    Occur Reported	$25,000,000   $25,000,000	$38,695.00
QI04200224	St Paul Fire & Marine Insurance Co. - A+	11/10/2006     to 11/10/2007	Excess Liability Coverage	£   Limit of Liability-Each        Occurrence £   Limit of Liability -        Aggregate £   Underlying limit Policy Provides Excess    Coverage For:	$25,000,000   $25,000,000   25000000	$25,000.00
201252016	Liberty Surplus Ins Corp - A	11/1/2006     to 11/1/2007	Directors & Officers Coverage	£   D&O limit each loss £   Deductible	$5,000,000   $150,000	$131,575.00
S70660029	HCC Specialty Insurance Company - A+	11/1/2006     to 11/1/2007	Excess Directors & Officers Coverage	£   Underlying limit £   Limit of Liability-Each        Occurrence £   Limit of Liability-        Aggregate Deductible or Self Insured    Retention	5000000   $2,500,000   $2,500,000	$66,500.00
EPG0002779	RLI Insurance Company - A+	4/19/2007     to 4/19/2008	Fiduciary Liability Coverage	£   Deductible £   Fiduciary Liability Limit Deductible or Self Insured    Retention	$25,000   $1,000,000	$8,959.00
68025770	Federal Insurance Company - A++	4/19/2007     to 4/19/2008	Employment Practices Liability	£   Limit per Occurrence Deductible or Self Insured    Retention Describe Endorsement (1)	$1,000,000	$2,500.00

Proprietary Information: Data provided on this page is proprietary between Aon and AmREIT.

This insurance document is furnished to you as a matter of information for your convenience. It only summarizes me listed policy(ies) and is not intended to reflect all the term policy(ies). Moreover, the information contained in this document reflects coverage as of 05/21/2007; except in the case of Pending and Expired policies. In which case, coverage is shown as of the Effective date or Expiration date respectively. This document is not an insurance policy and does not amend, alter or extend the coverage afforded by the listed policy(ies). The insurance afford the terms, exclusions and conditions of such policy(ies).

AmREIT

Schedule Of Insurance

81911327 Federal Insurance Company – A++ 4/19/2007     to 4/19/2008 Crime Coverage £   Employee Dishonesty        Aggregate Limit £   Deductible £   Forgery or Alteration        Limit £   Deductible £   Depositors Forgery        Limit £   Deductible £   Computer Fraud Limit £   Deductible £   Money Orders and        Counterfeit Currency £   Limit £   Deductible £   Transit Limit £   Deductible $1,000,000     $25,000   $1,000,000     $25,000   $1,000,000     $25,000   $1,000,000   $25,000   $1,000,000     $25,000   $1,000,000   $25,000    $7,631.00 

Additional Information:

Proprietary Information: Data provided on tbis page is proprietary between Aon and AmREIT.

This insurance document is furnished to you as a matter of information for your convenience. It only summarizes me listed policy(ies) and is not intended to reflect all the term policy(ies). Moreover, the information contained in this document reflects coverage as of 05/21/2007; except in the case of Pending and Expired policies. In which case, coverage is shown as of the Effective date or Expiration date respectively. This document is not an insurance policy and does not amend, alter or extend the coverage afforded by the listed policy(ies). The insurance afford the terms, exclusions and conditions of such policy(ies).