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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006



| ̈ | Transition Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from to

Commission file number 000-50727



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ARC CORPORATE REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)



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|                                         |  |                                        
|---------------------------------------- |  | ---------------------------------------
|Maryland                                 |  | 22-3247622                             
|(State of Organization)                  |  | (I.R.S. Employer Identification Number)
|                                         | 
|1401 Broad Street Clifton, New Jersey    |  | 07013                                  
|(Address of principal executive offices) |  | (Zip Code)                             

Registrants telephone number, including area code: (973) 249-1000



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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).    Yes ̈No  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exhcnage
Act.):    Yes ̈No  x

As of May 10, 2006, there were 3,181,540 Class A Common Shares of Beneficial Interest outstanding, par value $0.001 per share.



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

Form 10-Q

Index



|                                                                                                        |  |                                                                                       |  |   
|------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|Item 1.                                                                                                 |  | Financial Statements                                                                  |  |   
|Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005                      |  | 3                                                                                    
|Consolidated Statements of Income (Loss) for the three months ended March 31, 2006 and 2005 (unaudited) |  | 4                                                                                    
|Consolidated Statements of Shareholders Equity for the three months ended March 31, 2006 (unaudited)   |  | 5                                                                                    
|Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited)    |  | 6                                                                                    
|Notes to Consolidated Financial Statements (unaudited)                                                  |  | 7                                                                                    
|                                                                                                        |  |                                                                                      
|Item 2.                                                                                                 |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 22
|                                                                                                        |  |                                                                                      
|Item 3.                                                                                                 |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28
|                                                                                                        |  |                                                                                      
|Item 4.                                                                                                 |  | Controls and Procedures                                                               |  | 29
|                                                                                                        | 
|PART II: OTHER INFORMATION                                                                              |  | 30                                                                                   
|                                                                                                        |  |                                                                                      
|Item 1.                                                                                                 |  | Legal Proceedings                                                                     |  | 30
|                                                                                                        |  |                                                                                      
|Item 2.                                                                                                 |  | Changes in Securities, Use of Proceeds and Issuers Purchases of Equity Securities     |  | 30
|                                                                                                        |  |                                                                                      
|Item 3.                                                                                                 |  | Defaults Upon Senior Securities                                                       |  | 30
|                                                                                                        |  |                                                                                      
|Item 4.                                                                                                 |  | Submission of Matters to a Vote of Security Holders                                   |  | 30
|                                                                                                        |  |                                                                                      
|Item 5.                                                                                                 |  | Other Information                                                                     |  | 30
|                                                                                                        |  |                                                                                      
|Item 6.                                                                                                 |  | Exhibits and Reports                                                                  |  | 30
|                                                                                                        | 
|SIGNATURES                                                                                              |  | 31                                                                                   



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##### Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARC CORPORATE REALTY TRUST, INC.

Consolidated Balance Sheets

As of March 31, 2006 (Unaudited) and December 31, 2005



|                                                                                                                            |  |      |            |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                            |  | 2006 |            |   | 2005 |  
|Assets                                                                                                                      |  |      |            |   |      |   |            |  
|Property:                                                                                                                   |  |      |            |   |      |   |            |  
|Land                                                                                                                        |  | $    | 11,220,810 |   |      | $ | 12,412,227 |  
|Building and improvements                                                                                                   |  |      | 31,691,826 |   |      |   | 36,653,540 |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|                                                                                                                            |  |      | 42,912,636 |   |      |   | 49,065,767 |  
|Less: accumulated depreciation                                                                                              |  |      | 6,728,243  |   |      |   | 7,151,201  |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|                                                                                                                            |  |      | 36,184,393 |   |      |   | 41,914,566 |  
|                                                                                                                            |  |     
|Investment in unconsolidated subsidiaries and undivided interests                                                           |  |      | 7,712,520  |   |      |   | 7,693,231  |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|Total property and investments                                                                                              |  |      | 43,896,913 |   |      |   | 49,607,797 |  
|                                                                                                                            |  |     
|Assets held for sale                                                                                                        |  |      | 5,804,233  |   |      |   |           |  
|                                                                                                                            |  |     
|Cash and cash equivalents, including restricted cash of $559,194 and $517,707 for 2006 and 2005, respectively               |  |      | 1,049,765  |   |      |   | 1,229,560  |  
|                                                                                                                            |  |     
|Deferred rent receivable                                                                                                    |  |      | 928,138    |   |      |   | 1,198,693  |  
|                                                                                                                            |  |     
|Rent receivable                                                                                                             |  |      | 317,920    |   |      |   | 195,088    |  
|                                                                                                                            |  |     
|Notes receivable-tenants                                                                                                    |  |      | 310,468    |   |      |   | 322,923    |  
|                                                                                                                            |  |     
|Prepaid expenses and other assets, net                                                                                      |  |      | 262,985    |   |      |   | 270,002    |  
|                                                                                                                            |  |     
|Deferred financing and other fees, net of accumulated amortization of $689,947 and $729,927 for 2006 and 2005,
respectively |  |      | 191,396    |   |      |   | 271,389    |  
|                                                                                                                            |  |     
|Deferred leasing costs, net of accumulated amortization of $134,059 and $130,518 for 2006 and 2005, respectively            |  |      | 78,408     |   |      |   | 81,949     |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|Total assets                                                                                                                |  | $    | 52,840,226 |   |      | $ | 53,177,401 |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|Liabilities and Shareholders Equity                                                                                        |  |      |            |   |      |   |            |  
|                                                                                                                            |  |     
|Liabilities:                                                                                                                |  |      |            |   |      |   |            |  
|Mortgage notes payable                                                                                                      |  | $    | 20,474,785 |   |      | $ | 26,395,027 |  
|Lines of credit                                                                                                             |  |      | 1,610,000  |   |      |   |           |  
|Liabilities related to assets held for sale                                                                                 |  |      | 4,106,834  |   |      |   |           |  
|Dividends payable-Class B                                                                                                   |  |      | 162,776    |   |      |   |           |  
|Due to related parties                                                                                                      |  |      | 45,061     |   |      |   | 45,061     |  
|Unearned rental revenue                                                                                                     |  |      | 31,250     |   |      |   | 31,250     |  
|Accounts payable and accrued expenses                                                                                       |  |      | 687,877    |   |      |   | 580,567    |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|Total liabilities                                                                                                           |  |      | 27,118,583 |   |      |   | 27,051,905 |  
|                                                                                                                            |  |     
|Minority interest                                                                                                           |  |      | 32,649     |   |      |   | 32,072     |  
|                                                                                                                            |  |     
|Shareholders Equity:                                                                                                       |  |      |            |   |      |   |            |  
|Common shares: $.001 par value per share; authorized, 40,000,000 shares                                                     |  |      |            |   |      |   |            |  
|Class A shares-5,000,000 authorized; 3,181,540 issued and outstanding                                                       |  |      | 3,182      |   |      |   | 3,182      |  
|Class B shares-5,000,000 authorized; 166,397 issued and outstanding                                                         |  |      | 166        |   |      |   | 166        |  
|Additional paid-in capital                                                                                                  |  |      | 32,106,429 |   |      |   | 32,106,429 |  
|Deferred compensation plans                                                                                                 |  |      | 1,445,579  |   |      |   | 747,930    |  
|Accumulated distributions in excess of net income                                                                           |  |      | (7,866,362 | ) |      |   | (6,764,283 | )
|                                                                                                                            |  |      |            |   |      |   |            |  
|Total shareholders equity                                                                                                  |  |      | 25,688,994 |   |      |   | 26,093,424 |  
|                                                                                                                            |  |      |            |   |      |   |            |  
|Total liabilities and shareholders equity                                                                                  |  | $    | 52,840,226 |   |      | $ | 53,177,401 |  
|                                                                                                                            |  |      |            |   |      |   |            |  

The accompanying notes to consolidated financial statements are an integral part of these statements.



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

Consolidated Statements of Income (Loss)

(Unaudited)



|                                                                        |  |                             |           |   |      |   |           |  
|----------------------------------------------------------------------- |  | --------------------------- | --------- | - | ---- | - | --------- | -
|                                                                        |  | Three Months Ended March 31 |          
|                                                                        |  | 2006                        |           |   | 2005 |  
|Revenues:                                                               |  |                             |           |   |      |   |           |  
|Rental revenues                                                         |  | $                           | 1,242,789 |   |      | $ | 1,233,823 |  
|Real estate tax reimbursements                                          |  |                             | 180,501   |   |      |   | 184,863   |  
|Interest income                                                         |  |                             | 12,610    |   |      |   | 31,147    |  
|                                                                        |  |                             |           |   |      |   |           |  
|Total revenues                                                          |  |                             | 1,435,900 |   |      |   | 1,449,833 |  
|                                                                        |  |                             |           |   |      |   |           |  
|Expenses:                                                               |  |                             |           |   |      |   |           |  
|Interest expense                                                        |  |                             | 398,154   |   |      |   | 449,082   |  
|Depreciation and amortization                                           |  |                             | 233,200   |   |      |   | 234,252   |  
|Asset management fees-affiliate                                         |  |                             | 165,785   |   |      |   | 174,619   |  
|Real estate taxes                                                       |  |                             | 180,501   |   |      |   | 175,916   |  
|Property operating expenses                                             |  |                             | 60,097    |   |      |   | 86,192    |  
|General and administrative expenses                                     |  |                             | 38,898    |   |      |   | 45,065    |  
|Stock based compensation                                                |  |                             | 697,649   |   |      |   | 112,189   |  
|Professional expenses                                                   |  |                             | 101,542   |   |      |   | 117,546   |  
|(Gain) on interest rate cap, net                                        |  |                             | (3,065    | ) |      |   | (2,622    | )
|Other expenses                                                          |  |                             |          |   |      |   | 10,528    |  
|State and local taxes                                                   |  |                             | 2,849     |   |      |   | 8,017     |  
|                                                                        |  |                             |           |   |      |   |           |  
|Total expenses                                                          |  |                             | 1,875,610 |   |      |   | 1,410,784 |  
|                                                                        |  |                            
|Minority interests in earnings from subsidiaries                        |  |                             | (63,117   | ) |      |   | (51,683   | )
|Equity in income of unconsolidated subsidiaries and undivided interests |  |                             | 263,990   |   |      |   | 304,641   |  
|Gain on sale of investment in unconsolidated subsidiary                 |  |                             |          |   |      |   | 400,000   |  
|                                                                        |  |                             |           |   |      |   |           |  
|(Loss) income from continuing operations                                |  |                             | (238,837  | ) |      |   | 692,007   |  
|                                                                        |  |                            
|Income (loss) from discontinued operations                              |  |                             | 63,111    |   |      |   | (97,496   | )
|                                                                        |  |                             |           |   |      |   |           |  
|Net (loss) income allocable to Class A and Class B common shareholders  |  | $                           | (175,726  | ) |      | $ | 594,511   |  
|                                                                        |  |                             |           |   |      |   |           |  
|Basic:                                                                  |  |                             |           |   |      |   |           |  
|Net (loss) income per share from continuing operations                  |  | $                           | (0.07     | ) |      | $ | 0.21      |  
|Net income (loss) per share from discontinued operations                |  |                             | 0.02      |   |      |   | (0.03     | )
|                                                                        |  |                             |           |   |      |   |           |  
|Net (loss) income per share                                             |  | $                           | (0.05     | ) |      | $ | 0.18      |  
|                                                                        |  |                             |           |   |      |   |           |  
|Diluted:                                                                |  |                             |           |   |      |   |           |  
|Net (loss) income per share from continuing operations                  |  | $                           | (0.07     | ) |      | $ | 0.17      |  
|Net income (loss) per share from discontinued operations                |  |                             | 0.02      |   |      |   | (0.02     | )
|                                                                        |  |                             |           |   |      |   |           |  
|Net (loss) income per share                                             |  | $                           | (0.05     | ) |      | $ | 0.15      |  
|                                                                        |  |                             |           |   |      |   |           |  
|Weighted average shares outstanding-basic                               |  |                             | 3,348,000 |   |      |   | 3,348,000 |  
|Weighted average shares outstanding-diluted                             |  |                             | 3,348,000 |   |      |   | 4,042,000 |  

The accompanying notes to consolidated financial statements are an integral part of these statements.



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ARC CORPORATE REALTY TRUST, INC.

Consolidated Statements of Shareholders Equity

For the three months ended March 31, 2006 (unaudited)



|                                       |  |                     |       |                     |   |                          |  |                           |            |                                                |   |           |                          |   |            |   |  |   |            |  
|-------------------------------------- |  | ------------------- | ----- | ------------------- | - | ------------------------ |  | ------------------------- | ---------- | ---------------------------------------------- | - | --------- | ------------------------ | - | ---------- | - |  | - | ---------- | -
|                                       |  | Class ACommonShares |       | Class BCommonShares |   | AdditionalPaid-inCapital |  | DeferredCompensationPlans |            | AccumulatedDistributionsin Excess of NetIncome |   |           | TotalShareholdersEquity |  
|Balance, December 31, 2005             |  | $                   | 3,182 |                     | $ | 166                      |  | $                         | 32,106,429 |                                                | $ | 747,930   |                          | $ | (6,764,283 | ) |  | $ | 26,093,424 |  
|Increase in deferred compensation, net |  |                     |      |                     |   |                         |  |                           |           |                                                |   | 697,649   |                          |   |           |   |  |   | 697,649    |  
|Net loss                               |  |                     |       |                     |   |                         |  |                           |           |                                                |   |          |                          |   | (175,726   | ) |  |   | (175,726   | )
|Dividends                              |  |                     |       |                     |   |                         |  |                           |           |                                                |   |          |                          |   | (926,353   | ) |  |   | (926,353   | )
|                                       |  |                     |       |                     |   |                          |  |                           |            |                                                |   |           |                          |   |            |   |  |   |            |  
|Balance, March 31, 2006                |  | $                   | 3,182 |                     | $ | 166                      |  | $                         | 32,106,429 |                                                | $ | 1,445,579 |                          | $ | (7,866,362 | ) |  | $ | 25,688,994 |  
|                                       |  |                     |       |                     |   |                          |  |                           |            |                                                |   |           |                          |   |            |   |  |   |            |  

The accompanying notes to consolidated financial statements are an integral part of these statements.



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ARC CORPORATE REALTY TRUST, INC.

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2006 and 2005

Unaudited



|                                                                                         |  |      |            |   |      |   |            |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                         |  | 2006 |            |   | 2005 |  
|Cash Flows from Operating Activities:                                                    |  |      |            |   |      |   |            |  
|Net (loss) income                                                                        |  | $    | (175,726   | ) |      | $ | 594,511    |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |      |            |   |      |   |            |  
|Depreciation and amortization                                                            |  |      | 256,972    |   |      |   | 287,391    |  
|Stock based compensation                                                                 |  |      | 697,649    |   |      |   | 112,189    |  
|Amortization of acquired unfavorable leases                                              |  |      |           |   |      |   | (57,263    | )
|Impairment charge                                                                        |  |      |           |   |      |   | 275,000    |  
|Gain on sale of investment in unconsolidated subsidiary                                  |  |      |           |   |      |   | (400,000   | )
|(Gain) Loss on interest rate cap                                                         |  |      | (3,065     | ) |      |   | 8,937      |  
|Write off of TMD minority interest                                                       |  |      |           |   |      |   | 10,528     |  
|Minority interest in earnings of subsidiaries                                            |  |      | 63,117     |   |      |   | 51,683     |  
|Equity in income of unconsolidated subsidiaries and undivided interests                  |  |      | (263,990   | ) |      |   | (304,641   | )
|(Increase) decrease in assets:                                                           |  |      |            |   |      |   |            |  
|Rent receivable                                                                          |  |      | (122,832   | ) |      |   | (97,044    | )
|Deferred rent receivable                                                                 |  |      | 35,353     |   |      |   | (23,337    | )
|Prepaid expenses and other assets                                                        |  |      | 3,311      |   |      |   | (120,316   | )
|Increase (decrease) in liabilities:                                                      |  |      |            |   |      |   |            |  
|Accounts payable and accrued expenses                                                    |  |      | 130,810    |   |      |   | 81,166     |  
|Unearned rental revenue                                                                  |  |      |           |   |      |   | 129,493    |  
|                                                                                         |  |      |            |   |      |   |            |  
|Net cash provided by operating activities                                                |  |      | 621,599    |   |      |   | 548,297    |  
|                                                                                         |  |      |            |   |      |   |            |  
|Cash Flows from Investing Activities:                                                    |  |      |            |   |      |   |            |  
|Proceeds from sale of investment in unconsolidated subsidiary                            |  |      |           |   |      |   | 400,000    |  
|Distributions from unconsolidated subsidiaries and undivided interests                   |  |      | 244,700    |   |      |   | 289,786    |  
|Decrease in notes receivable                                                             |  |      |           |   |      |   | 800,000    |  
|Decrease in notes receivable-tenants                                                     |  |      | 12,455     |   |      |   | 11,217     |  
|                                                                                         |  |      |            |   |      |   |            |  
|Net cash provided by investing activities                                                |  |      | 257,155    |   |      |   | 1,501,003  |  
|                                                                                         |  |      |            |   |      |   |            |  
|Cash Flows from Financing Activities:                                                    |  |      |            |   |      |   |            |  
|Mortgage principal amortization                                                          |  |      | (228,540   | ) |      |   | (191,641   | )
|Payoff of principal on mortgage note payable                                             |  |      | (1,608,367 | ) |      |   |           |  
|Net increase (decrease) on lines of credit                                               |  |      | 1,610,000  |   |      |   | (875,000   | )
|Deferred financing and other fees                                                        |  |      | (5,525     | ) |      |   |           |  
|Distributions to minority interest                                                       |  |      | (62,540    | ) |      |   | (62,540    | )
|Dividends paid                                                                           |  |      | (763,577   | ) |      |   | (763,577   | )
|                                                                                         |  |      |            |   |      |   |            |  
|Net cash used in financing activities                                                    |  |      | (1,058,549 | ) |      |   | (1,892,758 | )
|                                                                                         |  |      |            |   |      |   |            |  
|Net (Decrease) Increase in Cash and Cash Equivalents                                     |  |      | (179,795   | ) |      |   | 156,542    |  
|Cash and Cash Equivalents, Beginning of Period                                           |  |      | 1,229,560  |   |      |   | 860,299    |  
|                                                                                         |  |      |            |   |      |   |            |  
|Cash and Cash Equivalents, End of Period                                                 |  | $    | 1,049,765  |   |      | $ | 1,016,841  |  
|                                                                                         |  |      |            |   |      |   |            |  
|Supplement Disclosure of Cash Flow Information:                                          |  |      |            |   |      |   |            |  
|Cash payments for interest                                                               |  | $    | 474,970    |   |      | $ | 571,352    |  
|                                                                                         |  |      |            |   |      |   |            |  
|Non Cash Financing Activities:                                                           |  |      |            |   |      |   |            |  
|Dividends payable-Class B                                                                |  | $    | 162,776    |   |      | $ |           |  
|                                                                                         |  |      |            |   |      |   |            |  

The accompanying notes to consolidated financial statements are an integral part of these statements.



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



|1. | GENERAL
|-- | -------

ARC Corporate Realty Trust, Inc. and
subsidiaries (ACRT) is a corporation which was formed under the laws of the State of Maryland on June 25, 1993. ACRT operates in a manner intended to enable it to qualify as a real estate investment trust (REIT) under
Sections 856-860 of the Internal Revenue Code (the Code).ACRT is managed by its advisor, ARC Capital Advisors L.P. (Advisor), which performs services for ACRT pursuant to the terms of an advisory agreement (the
Advisory Agreement) (Note 12). ACRT was formed to purchase geographically diverse credit lease properties which are general purpose retail, office and industrial properties each 100% leased to one or more creditworthy tenants under a
long term lease that generally requires tenants to pay most or all of the operating costs of the property including real estate taxes and insurance.

Through March 31, 2006, ACRT raised $33,678,336 of gross proceeds (net of stock retirements) representing 3,181,540 Class A shares from 674 investors which, net of offering costs, has yielded $30,545,106 to ACRT. In addition, ACRT
has raised $1,781,735 of gross proceeds representing 166,397 Class B shares from one investor, which net of offering costs, has yielded $1,564,671 to ACRT.

On December 20, 2004, ACRT entered into a Contract of Purchase and Sale (the Agreement), by and among ACRT, certain affiliates of ACRT and HPI/NL Investors LLC (the Purchaser). The
Agreement provides for the sale to the Purchaser of 14 of ACRTs 21 properties and a limited partnership interest in an entity that owns a property.

On June 30, 2005, the Agreement became subject to termination. On November 30, 2005, ACRT entered into a Termination and Release Agreement with the Purchaser. The Termination and Release Agreement called for
the payment of $150,000 to ACRT from the deposit escrow and an additional payment to ACRTof $37,450 as reimbursement of survey and other costs related to the Agreement. In exchange ACRT released the Purchaser from any further obligations under the
Agreement.

In addition to the above, during 2005, ACRT, pursuant to various rights of first refusal and purchase options, entered into
various contracts to sell investments not included in the above Agreement, as amended. The purchasers of these investments include joint venture partners, minority interest holders, tenants in common and affiliates of the Advisor. The investments
included in these various contracts are:

New York, NY (partnership interest) (see Note 20)

Fort Washington, PA (partnership
interest)

Paramus,
NJ (partnership interest)

ACRT anticipates that the sale of these investments will close in 2006. Based on the current sales prices, ACRT
anticipates that all investments will be sold for amounts in excess of their carrying amounts and, therefore, will result in a gain for financial reporting purposes.

On January 25, 2005, the tenant in the Rochelle Park, NJ property, who had filed suit against ACRT, signed a stipulation of settlement agreeing to dismiss the suit against ACRT. As part of the settlement, the
tenant entered into a contract to purchase

ACRTs 51% tenant in common interest and the remaining 49% tenant in common interest not
owned by ACRT for $19,500,000.This contract was subsequently terminated.

ACRT is again in negotiations with the tenant on
purchasing the property. However, at this time ACRT and the tenant have not been able to agree on a purchase price and the tenant, a quasi government entity, has threatened to condemn.

On August 10, 2005, ACRT sold the Philadelphia, Pennsylvania property leased to Barnes and Noble (see Note 3).

On February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the Plan). The Plan is
subject to the approval of ACRTs common stockholders, by two-thirds vote. ACRT intends to sell its real estate properties on an orderly basis, to pay or provide for its liabilities and to distribute its remaining cash to its shareholders.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



| | a. | Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) and include the accounts of ACRT, its wholly-owned subsidiaries and those majority-owned subsidiaries in which ACRT can exercise control. Investments in non-
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



| | controlled entities, which include Triangle Plaza II, LLC (Note 4), Fort Washington Fitness, L.P. (Note 5), Levittown ARC, LP (Note 6), Willow Grove ACRT,
LLC (Note 9) and ARC International Fund II, LP (Note 10) are accounted for under the equity method of accounting. Additionally, ACRTs undivided interests in the Rochelle Park property (Note 7) and the Paramus property (Note 8) are accounted
for under the equity method, as ACRT maintains joint control over the properties. Under the equity method, ACRTs investment increases as a result of contributions and its allocable share of net income and decreases as a result of distributions
and its allocable share of net loss. All significant intercompany balances and transactions have been eliminated in consolidation and in the use of the equity method of accounting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Interim Financial Statements (unaudited)  The unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary
to present fairly the financial condition and results of operations for the interim periods. For a more complete understanding of ACRTs operations and financial position, reference is made to the financial statements (including notes thereto)
previously filed with the Securities and Exchange Commission with ACRTs Form 10-K for the year ended December 31, 2005.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Use of Estimates - The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Properties - Properties are carried at cost which includes the purchase price, acquisition fees, and any other costs incurred in acquiring the properties.
Buildings are depreciated on a straight-line basis over their estimated useful lives, which are 40 years. Maintenance and repairs are charged to expense as incurred. Replacements and betterments, which significantly extend the useful lives of a
property, are capitalized. In accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, ACRT is amortizing certain intangible costs associated with property acquisitions
over the lives of the leases underlying the properties (see Note 2e).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Purchase Accounting for the Acquisition of Real EstateIn accordance with SFAS No. 141, commencing with properties acquired after
June 30, 2002, the fair value of real estate acquired is allocated to the acquired tangible assets, consisting of land and building and identified intangible assets and liabilities, consisting of the value of above-market and below-market
leases, other value of in-place leases and value of tenant relationships, based in each case on of the tangible assets of an acquired property (which includes land and building) is determined by valuing the property as if it were vacant, and the
as-if vacant value is then allocated to land and building based on managements determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying
costs during the expected lease up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost
rental revenues during expected lease up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease
values are recorded based on the difference between the current in-place lease rent and managements estimate of current market rent.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property over (ii) the estimated fair value of the
property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on managements evaluation of the specific characteristics of each tenants lease. The
value of in-place leases and customer relationships are amortized to expense over the remaining non-cancelable periods of the respective leases.



| | f. | Impairment - ACRT continually assesses the recoverability of its properties by determining whether the costs can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured by comparing the carrying amounts to the fair values of such properties. The evaluation includes reviewing anticipated cash flows of the properties, based on current leases in
place, coupled with an estimate of proceeds to be realized upon sale. However, estimating future sales proceeds is highly subjective and such estimates could differ materially from actual results.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SFAS No. 144 Accounting for the Impairment or Disposal of Long Lived Assets updates and clarifies the accounting and reporting for
the impairment of assets held in use and to be disposed of. The Statement, among other things, requires ACRT to classify the operations of properties to be disposed of as discontinued operations.



8



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



In 2005, the property located in Philadelphia, Pennsylvania, leased to Barnes and Noble, was
designated as to be disposed and an impairment charge of $287,259 was recorded, which included a disposition fee of $116,016. This property was sold on August 10, 2005 for aggregate net proceeds of $7,362,720, which resulted in no gain or loss
for financial reporting purposes.

In 2006, the properties located in Charlotte, North Carolina leased to CaroMont Medical Group Inc. were
designated to be disposed. Based on the current sales prices, ACRT anticipates that the properties will be sold to an affiliate of the Advisor for amounts in excess of their carrying amounts and, therefore, will result in a gain for financial
reporting purposes. At March 31, 2006, aggregate assets held for sale (primarily property) was $5,804,233 and related liabilities (primarily mortgage notes payable) was $4,106,834.

The following presents the operating results for the properties to be disposed of in 2006 and 2005 for the three months ended March 31, 2006 and
2005:



|                  |  |                               |         |      |   |         |  
|----------------- |  | ----------------------------- | ------- | ---- | - | ------- | -
|                  |  | Three Months Ended March. 31, |        
|                  |  | 2006                          |         | 2005 |  
|Revenues          |  | $                             | 156,761 |      | $ | 432,432 |  
|Net Income (Loss) |  |                               | 63,111  |      |   | (97,496 | )



| | g. | Properties Held for Sale ACRT accounts for properties held for sale in accordance with SFAS No. 144. SFAS No. 144 requires that the assets and
liabilities of properties that meet various criteria in SFAS No. 144 be presented separately in the balance sheet with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued
operations in the statements of income (loss).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. | Cash and Cash EquivalentsCash and cash equivalents consist of highly liquid investments with an original maturity of three months or less.
Restricted cash represents cash maintained for real estate taxes, insurance and capital expenditures.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash and cash
equivalent balances may exceed insurable limits. ACRT believes it mitigates risk by investing in or through major financial institutions.



| | i. | Rent Receivable ACRT continuously monitors collections from its tenants and makes a provision for estimated losses based upon historical
experience and any specific tenant collection issues that ACRT has identified.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j. | Amortization - Deferred financing costs are amortized using the straight-line method over the life of the related mortgage or line of credit. Deferred leasing
costs are amortized using the straight-line method over the life of the related lease. Capitalized costs related to ACRTs equity investments are amortized over the estimated useful life of the underlying real estate assets.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | k. | Income Taxes - ACRT operates in a manner intended to enable it to qualify as a REIT under Sections 856-860 of the Code. Under these sections, a real estate
investment trust which distributes at least 90% of its real estate investment trust taxable income to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to
its shareholders. ACRT pays state taxes, which are not significant, as applicable.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l. | Revenue Recognition - Rental revenue from tenant operating leases which provide for scheduled rental increases are recognized on a straight-line basis over the
term of the respective leases.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gains on sales of real estate are recognized pursuant to the provisions of SFAS No. 66,
Accounting for Sales of Real Estate. The specific timing of the sale is measured against various criteria in SFAS No. 66 related to the terms of the transactions and any continuing involvement in the form of management or
financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met.



| | m. | Derivative Instruments and Hedging Activities - ACRT follows the provisions of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended. The Statement generally requires that all derivative instruments be reflected in the consolidated financial statements at their estimated fair value. Changes in the fair value of non-hedging instruments are
reported in current period earnings.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



| | n. | Earnings Per Share Basic net income per share is computed by dividing net income allocable to Class A and B common shareholders by the
weighted average number of shares outstanding during the period. Diluted net income per share amounts are similarly computed but include the effect, when dilutive, of in the money common share options.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a reconciliation of the denominator of the basic and diluted weighted average number of common shares outstanding.



|                                                                                           |  |                                            |  |      
|------------------------------------------------------------------------------------------ |  | ------------------------------------------ |  | -----
|                                                                                           |  | Three Months Ended March 31,(In thousands)
|                                                                                           |  | 2006                                       |  | 2005 
|Total weighted average Class A common shares                                               |  | 3,182                                      |  | 3,182
|                                                                                           |  |                                           
|Total weighted average Class B common shares                                               |  | 166                                        |  | 166  
|                                                                                           |  |                                            |  |      
|Weighted average number of common shares used in calculation of basic earnings per share   |  | 3,348                                      |  | 3,348
|                                                                                           |  |                                           
|Shares issuable on excersise of warrants                                                   |  |                                           |  | 104  
|Shares issuable upon exercise of stock options (15% of outstanding common shares)          |  |                                           |  | 590  
|                                                                                           |  |                                            |  |      
|Weighted average number of common shares used in calculation of diluted earnings per share |  | 3,348                                      |  | 4,042



| | o. | Recent Accounting Pronouncements In December 2004, the FASB issued Statement No. 123 (revised 2004), Accounting for Stock-Based Compensation
(SFAS 123R) which supersedes Accounting Principals Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,and its related implementation guidance. SFAS 123R establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entities
equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share based payments transactions. SFAS 123R requires a
public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period in which an employee is required to provide
services in exchange for the award. SFAS 123R is effective for fiscal years beginning after January 1, 2006, based on new rules issued by the Securities and Exchange Commission. The adoption of this pronouncement did have any material impact on
ACRTs consolidated financial statements.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In March 2005, the FASB issued Interpretation No. 47, Accounting
for Conditional Asset Retirement Obligations-an Interpretation of SFAS Statement No. 143 (FIN 47). FIN 47 clarifies the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived asset
when the timing and/or method of settlement are conditional on a future event. FIN 47 is effective for fiscal years ending after December 15, 2005. ACRT adopted FIN 47 on December 31, 2005. The adoption did not have any impact on
ACRTs consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections which replaces Accounting Principles Board Opinions No. 20 Accounting Changes and SFAS No. 3 Reporting Accounting Changes in Interim Financial Statements An Amendment of APB Opinion
No. 28. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle
and the reporting of a correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In June 2005, the FASB ratified the Emerging Issues Task Forces (EITF) consensus on EITF 04-05, Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited
partnership or a similar entity. It was effective after June 29, 2005, for all newly formed limited partnerships and for any pre-existing partnerships that modify their partnership agreements after that date. General partners of



10



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



all other limited partnerships will apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after
December 15, 2005. The adoption of EITF 04-05 did not have any impact on ACRTs consolidated financial position or results of operations.

In 2005, the EITF released Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements (EITF 05-6), which clarifies the period over which leasehold improvements should be amortized. EITF 05-6
requires all leasehold improvements to be amortized over the shorter of the useful life of the assets, or the applicable lease term, as defined. The applicable lease term is determined on the date the leasehold improvements are acquired and includes
renewal periods for which exercise is reasonably assured. EITF 05-6 was effective for leasehold improvements acquired in reporting periods beginning after June 29, 2005. The impact of the adoption of EITF 05-6 did not have a material impact on
ACRTs consolidated financial position or results of operations.



| | p. | Stock-based CompensationOn May 21, 2004, ACRT shareholders approved revisions to ACRTs 1997 Stock Option Plan which extended the life
of ACRTs stock options from ten to fifteen years and removed all restrictions on their exercise on April 1, 2008 or upon the occurrence of certain earlier events. However, the total number of options exercised cannot exceed fifteen
percent of the outstanding shares at the exercise date.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accordingly, ACRT will recognize compensation expense ratably over
the vesting period for variable stock awards previously granted under the plan.

Compensation expense was calculated thru December 31,
2005 using a market price of $12.00 based on ACRTs last stock offering which expired on December 31, 2003, and the option price of $8.50 per option. The compensation expense calculation was adjusted in the first quarter of 2006 to reflect
the current projected liquidation values on the shares of $13.50 a share. For the three months ended March 31, 2006 and 2005, ACRT recognized stock based compensation expense totaling $697,649 and $112,189, respectively.



| | q. | Fair Value of Financial Instruments
| | -- | -----------------------------------

Cash
Equivalents, Notes Receivable, Rent Receivable and Accounts Payable and Accrued Expenses

ACRT estimates that the fair value
approximates carrying value due to the relatively short maturities of the instruments.

Mortgage Notes Payable and Lines of Credit

ACRT determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the
current borrowing rates for instruments of similar maturities. Based on this analysis, ACRT has determined that the fair value of the variable rate instruments approximates their carrying values and the fixed rate instruments are $12.9 million at
2006 and 2005, respectively.



| | r. | Industry Segments ACRT operates in one industry segment, investments in credit lease properties.
| | -- | -------------------------------------------------------------------------------------------------



| | s. | Environmental Matters - Based upon managements ongoing review of its properties, management is not aware of any environmental conditions with
respect to any of ACRTs properties, which would be reasonably likely to have a material adverse effect on ACRT. There can be no assurance, however, that the discovery of environmental conditions which were previously unknown, changes in law,
the conduct of tenants or activities relating to properties in the vicinity of ACRTs properties, will not expose ACRT to material liability in the future. Changes in law increasing the potential liability for environmental conditions existing
on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of ACRTs tenants, which would adversely affect ACRTs
consolidated financial condition and results of operations.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | t. | Reclassifications - Certain reclassifications were made to prior period amounts to conform with the current period presentation.
| | -- | --------------------------------------------------------------------------------------------------------------------------------



11



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



|3. | PROPERTIES AND PROPERTY INVESTMENTS
|-- | -----------------------------------

The following
acquisitions, investments and disposals were consummated during 2006 and 2005:

On January 3, 2005, an affiliate of the Advisor
exercised its right to purchase ACRTs property located in Philadelphia, PA for approximately $7.7 million. ACRT has recorded an impairment charge of $287,259 in connection with the transaction in 2005. On August 10, 2005, ACRT sold the
Philadelphia, Pennsylvania property leased to Barnes and Noble for $7,734,375 resulting in net proceeds to ACRT of $7,362,720 after costs and expenses, which resulted in no gain or loss for financial reporting purposes.

On February 15, 2005, the Willow Grove outstanding loan balance of $800,000 was repaid plus all outstanding and accrued interest, and as a result,
ACRTs investment in Willow Grove was zero. Additionally, ACRT sold its member interest in Willow Grove to the other Willow Grove member and an affiliate of the Advisor for net proceeds and a gain of $400,000.

The following proforma operating information for the three months ended March 31, 2006 and 2005 has been prepared as if all ACRT acquisitions and
dispositions in 2006 and 2005 had been consummated as of January 1, 2005. The information does not purport to be indicative of what the operating results of ACRT would have been had the acquisitions and dispositions been consummated on
January 1, 2005. Proforma results are as follows:



|                                    |  |                                                              |       |   |      |   |      
|----------------------------------- |  | ------------------------------------------------------------ | ----- | - | ---- | - | -----
|                                    |  | Three Months Ended March 31,(000s except per share amounts)
|                                    |  | 2006                                                         |       |   | 2005
|Revenues                            |  | $                                                            | 1,436 |   |      | $ | 1,449
|Net (Loss) Income                   |  |                                                              | (239  | ) |      |   | 692  
|                                    |  |                                                             
|Net (Loss) Income per share  basic |  |                                                              | (.07  | ) |      |   | .21  
| diluted                           |  |                                                              | (.07  | ) |      |   | .17  



|4. | INVESTMENT IN TRIANGLE PLAZA II
|-- | -------------------------------

On June 9,
1998, ACRT, through a wholly owned subsidiary, acquired a 40% interest in Triangle Plaza II, LLC (Triangle), for an initial equity investment of $4,473,900 at completion. Triangle owns a 139,294-square-foot retail complex in College
Point

(Queens), New York City which was completed in July 1999. The complex is leased to Toys R UsDelaware Inc. (for use as a Toys R
Us and Kids R Us facility) and National Amusements, Inc. In March of 2000, Triangle purchased the land under the property for approximately $10,200,000. The land was previously subject to a ground lease.

ACRTs investment in Triangle includes costs capitalized by ACRT in the amount of $901,829. This amount, which includes the acquisition fee of
$572,520, which was paid to the Advisor per the Advisory Agreement, and capitalized interest totaling $308,830, is not reflected in the underlying equity of Triangle and is being amortized over the estimated useful life of the underlying asset,
which is 39 years. Amortization expense in the amount of $5,781 has been recorded in each of 2006 and 2005 and charged against ACRTs equity in income of unconsolidated subsidiaries and undivided interests, which appears on the accompanying
consolidated statements of income. ACRT earns a 12% preferred return on its investment in Triangle in the form of distributions and, after a similar preferred return to the other member, receives 40% of distributable cash flow attributable to base
rent and recoveries and 20% of all percentage rents. ACRT received distributions of $0 and $146,986 from cash flows attributable to base rent and recoveries for the three months ended March 31, 2006 and 2005, respectively.

In September 2000, Triangle refinanced the property. The refinancing produced excess distributable capital proceeds of $1,433,409, of which $1,427,156 was
distributed to ACRT in 2000, thereby reducing ACRTs contributed capital to $3,046,744.

In March 2005, ACRT brought suit against its
joint venture partner regarding the exercise of a right of first refusal on the purchase of ACRTs interest in the property (see Note 20).

The following is the summary balance sheet information of Triangle as of September 30, 2005 (unaudited). The September 30, 2005 data is the most recent available:



|                                         |  |                |           
|---------------------------------------- |  | -------------- | ----------
|                                         |  | Sept. 30, 2005
|Total Assets                             |  | $              | 29,308,041
|Total Liabilities                        |  |                | 25,811,210
|                                         | 
|ACRTs Investment (as of March 31, 2006) |  |                | 3,802,027 



12



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



The following is the summary income statement information of Triangle for the three months ended
September 30, 2005 and March 31, 2005. The September 30, 2005 data is the most recent available:



|                              |  |                    |           |               |   |          
|----------------------------- |  | ------------------ | --------- | ------------- | - | ---------
|                              |  | Three Months Ended
|                              |  | Sept. 30,2005      |           | March 31,2005
|Rental Revenue                |  | $                  | 1,046,987 |               | $ | 1,226,419
|Interest and Other Income     |  |                    | 2,239     |               |   | 1,567    
|Operating Expenses            |  |                    | 228,160   |               |   | 390,793  
|Interest Expense              |  |                    | 476,121   |               |   | 468,811  
|Depreciation and Amortization |  |                    | 177,720   |               |   | 177,723  
|                              |  |                    |           |               |   |          
|Net Income                    |  | $                  | 167,225   |               | $ | 190,659  
|                              |  |                    |           |               |   |          
|                              |  |                   
|ACRTs Equity in Earnings     |  | $                  | 118,790   |               | $ | 118,763  
|                              |  |                    |           |               |   |          

ACRT estimated its share of Triangles equity in earnings for the three months ended
March 31, 2006 based upon the equity in earnings for the period ended September 30, 2005.



|5. | INVESTMENT IN FORT WASHINGTON
|-- | -----------------------------

On December 24,
2002, ACRT through a wholly owned subsidiary, acquired a 50% limited partnership interest in Fort Washington Fitness, LP (Fort Washington) for $1,000,000 plus the assumption of its pro rata share of the debt and acquisition fees. ACRT
does not have any additional funding obligations to Fort Washington. Fort Washington owns a property located in Fort Washington, Pennsylvania, which consists of a 41,000-square-foot LA Fitness Center (built by LA Fitness, the tenant). The property
was completed in November 2003 and the LA Fitness lease has a rent commencement date of January 2, 2004.

ACRTs investment in
Fort Washington includes the acquisition fee of $105,000 paid to the Advisor per the Advisory Agreement, which is not reflected in the underlying equity of Fort Washington. This amount is being amortized over the estimated useful life of the
underlying asset.

ACRT will earn a 12% preferred return on its investment in Fort Washington from the date of investment in the form of
distributions and, after a similar preferred return to the other partners, will receive 50% of the remaining distributable cash flow. ACRT received distributions of $145,000 and $30,000 for the three months ended March 31, 2006 and 2005,
respectively.

The following is the summary balance sheet information of Fort Washington as of March 31, 2006 and December 31,
2005:



|                  |  |               |           |                  |   |          
|----------------- |  | ------------- | --------- | ---------------- | - | ---------
|                  |  | March 31,2006 |           | December 31,2005
|Total Assets      |  | $             | 6,295,411 |                  | $ | 6,397,442
|Total Liabilities |  |               | 4,926,346 |                  |   | 4,932,413
|                  |  |              
|ACRTs Investment |  |               | 875,193   |                  |   | 991,349  

The following is the summary income statement information of Fort Washington for the three months
ended March 31, 2006 and 2005:



|                              |  |                              |         |      |   |        
|----------------------------- |  | ---------------------------- | ------- | ---- | - | -------
|                              |  | Three Months Ended March 31,
|                              |  | 2006                         |         | 2005
|Rental Revenue                |  | $                            | 185,400 |      | $ | 185,400
|Operating Expenses            |  |                              | 6,460   |      |   | 3,708  
|Interest Expense              |  |                              | 89,060  |      |   | 79,763 
|Depreciation and Amortization |  |                              | 30,845  |      |   | 2,303  
|                              |  |                              |         |      |   |        
|Net Income                    |  | $                            | 59,035  |      | $ | 69,626 
|                              |  |                              |         |      |   |        
|                              |  |                             
|ACRTs Equity in Earnings     |  | $                            | 28,844  |      | $ | 34,140 
|                              |  |                              |         |      |   |        

ACRT expects to sell its investment in this property in 2006.



13



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



|6. | INVESTMENT IN LEVITTOWN
|-- | -----------------------

On March 7, 2003,
ACRT acquired a 20% limited partnership interest in Levittown ARC, LP (Levittown) for $200,000 plus the assumption of its pro rata share of the debt and acquisition fees. ACRT does not have any additional funding obligations to
Levittown. Levittown owns a property located in Levittown, Pennsylvania which is currently leased to Giant Food, Inc.

ACRTs
investment in Levittown includes the acquisition fee of $17,408 paid to the Advisor per the Advisory Agreement, which is not reflected in the underlying equity of Levittown. This amount is being amortized over the estimated useful life of the
underlying asset, which is 39 years.

ACRT will earn a 9% preferred return on its investment in Levittown in the form of distributions and,
after a similar preferred return to the other limited partners, all distributions in excess of 9% are allocated 50% to the limited partners and 50% to Levittown ARC Residual Partners, of which ACRT owns 63%. ACRT has received $4,500 in distributions
for the three months ended March 31, 2006 and 2005, respectively.

The following is the summary balance sheet information of Levittown
as of March 31, 2006 and December 31, 2005:



|                  |  |               |           |                  |   |          
|----------------- |  | ------------- | --------- | ---------------- | - | ---------
|                  |  | March 31,2006 |           | December 31,2005
|Total Assets      |  | $             | 3,199,747 |                  | $ | 3,230,738
|Total Liabilities |  |               | 2,505,470 |                  |   | 2,530,074
|                  |  |              
|ACRTs Investment |  |               | 158,694   |                  |   | 160,197  

The following is the summary income statement information of Levittown for the three months ended
March 31, 2006 and 2005:



|                                 |  |                               |        |      |   |        |  
|-------------------------------- |  | ----------------------------- | ------ | ---- | - | ------ | -
|                                 |  | Three Months Ended March. 31, |       
|                                 |  | 2006                          |        | 2005 |  
|Rental Revenue                   |  | $                             | 83,007 |      | $ | 83,007 |  
|Operating Expenses               |  |                               | 4,583  |      |   | 6,171  |  
|Interest Expense                 |  |                               | 28,718 |      |   | 45,224 |  
|Depreciation and Amortization    |  |                               | 34,155 |      |   | 34,155 |  
|                                 |  |                               |        |      |   |        |  
|Net Income (Loss)                |  | $                             | 5,551  |      | $ | (2,543 | )
|                                 |  |                               |        |      |   |        |  
|                                 |  |                              
|ACRTs Equity in Earnings (Loss) |  | $                             | 2,998  |      | $ | (621   | )
|                                 |  |                               |        |      |   |        |  

ACRT expects to sell its investment in this property in 2006.



|7. | INVESTMENT IN ROCHELLE PARK PROPERTY
|-- | ------------------------------------

On
April 1, 2003, ACRT converted its 51% limited partnership interest in Rochelle Park Investors, LP into a 51% undivided interest in the property held by Rochelle ACRT 1, LLC and Rochelle ACRT 2, LLC, both wholly owned subsidiaries of ACRT.

This conversion resulted in the deconsolidation of Rochelle Park Investors LP in the consolidated financial statements of ACRT. ACRTs
undivided interest is reflected on the consolidated financial statements under the equity method of accounting.



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



On April 1, 2003, the property was refinanced. The refinancing produced excess distributable
capital proceeds of approximately $2,200,000, which were distributed to ACRT. ACRT has received distributions of $26,000 and $46,000 for the three months ended March 31, 2006 and 2005, respectively.

The following is the combined summary balance sheet information of Rochelle ACRT 1 and 2s 51% undivided interests as of March 31, 2006 and
December 31, 2005:



|                  |  |               |           |   |                  |   |           |  
|----------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                  |  | March 31,2006 |           |   | December 31,2005 |  
|Total Assets      |  | $             | 4,941,674 |   |                  | $ | 4,974,889 |  
|Total Liabilities |  |               | 5,563,371 |   |                  |   | 5,591,252 |  
|                  |  |              
|ACRTs Investment |  |               | (542,274  | ) |                  |   | (561,090  | )

The following is the combined summary income statement information of Rochelle ACRT 1 and 2s
51% undivided interests for the three months ended March 31, 2006 and 2005:



|                              |  |                               |         |      |   |        
|----------------------------- |  | ----------------------------- | ------- | ---- | - | -------
|                              |  | Three Months Ended March. 31,
|                              |  | 2006                          |         | 2005
|Rental Revenue                |  | $                             | 283,487 |      | $ | 271,213
|Gain on Interest Rate Cap     |  |                               | 17,722  |      |   | 51,676 
|Operating Expenses            |  |                               | 131,416 |      |   | 125,869
|Interest Expense              |  |                               | 84,896  |      |   | 72,655 
|Depreciation and Amortization |  |                               | 40,081  |      |   | 40,081 
|                              |  |                               |         |      |   |        
|Net Income (Loss)             |  | $                             | 44,816  |      | $ | 84,284 
|                              |  |                               |         |      |   |        

ACRT expects to sell its investment in this property in 2006.



|8. | INVESTMENT IN PARAMUS PROPERTY
|-- | ------------------------------

On May 21,
2003, ACRT acquired, through Paramus ACRT, LLC (a wholly owned subsidiary), a 40% undivided interest in a 154,768 square foot retail and warehouse property located in Paramus, New Jersey for $2,400,000 cash plus the assumption of its pro rata share
of the debt and acquisition fees. The property is leased to Babys R Us, Levitz Furniture and Wade Odell Wade Padded Van Services. ACRT has received $69,200 and $62,300 in distributions for the three months ended March 31, 2006 and 2005,
respectively.

The following is the summary balance sheet information of the Paramus ACRTs 40% undivided interest as of March 31,
2006 and December 31, 2005:



|                  |  |               |           |                  |   |          
|----------------- |  | ------------- | --------- | ---------------- | - | ---------
|                  |  | March 31,2006 |           | December 31,2005
|Total Assets      |  | $             | 8,135,111 |                  | $ | 8,164,397
|Total Liabilities |  |               | 5,746,348 |                  |   | 5,765,331
|ACRTs Investment |  |               | 2,644,460 |                  |   | 2,659,051

The following is the summary income statement information of the Paramus ACRTs 40% undivided
interest for the three months ended March 31, 2006 and 2005:



|                              |  |                              |         |      |   |        
|----------------------------- |  | ---------------------------- | ------- | ---- | - | -------
|                              |  | Three Months Ended March 31,
|                              |  | 2006                         |         | 2005
|Rental Revenue                |  | $                            | 244,818 |      | $ | 244,034
|Operating Expenses            |  |                              | 36,114  |      |   | 35,234 
|Interest Expense              |  |                              | 107,393 |      |   | 108,574
|Depreciation and Amortization |  |                              | 45,102  |      |   | 45,102 
|                              |  |                              |         |      |   |        
|Net Income                    |  | $                            | 56,209  |      | $ | 55,124 
|                              |  |                              |         |      |   |        
|                              |  |                             
|ACRTs Equity in Earnings     |  | $                            | 54,609  |      | $ | 53,524 
|                              |  |                              |         |      |   |        

ACRT expects to sell its investment in this property in 2006.



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



|9. | INVESTMENT IN WILLOW GROVE
|-- | --------------------------

On October 3,
2003, ACRT, through Willow Grove ACRT, LLC (Willow Grove ACRT), a wholly owned subsidiary of ACRT, entered into an operating agreement with Willow Grove, LLC. Willow Grove ACRT has a 25% member interest in Willow Grove, LLC.
Additionally, Willow Grove ACRT will fund up to a maximum of $550,000 in the form of a loan (the Willow Grove Loan), to Willow Grove, LLC at an interest rate of 12% per annum payable monthly. The Willow Grove Loan was to mature on
April 1, 2006. The purpose of the Willow Grove Loan was to fund pre-construction costs in connection with the development of 12 acres of land located in Willow Grove, Pennsylvania. The Willow Grove Loan was secured by a second mortgage on 42
acres of land held by an affiliate of the managing member of Willow Grove, LLC. Willow Grove ACRT was not required to make any capital contributions beyond the maximum amount of the Willow Grove Loan.

On October 5, 2004, the operating agreement with Willow Grove, LLC was amended to increase the maximum loan amount to $650,000. On October 21,
2004, the operating agreement with Willow Grove, LLC was further amended to increase the maximum loan amount to $800,000. All other terms and conditions set forth in the original agreement remain unchanged.

On January 20, 2005, the board of directors agreed to amend the Willow Grove agreement to accept repayment of the outstanding loan balance of
$800,000 plus all outstanding and accrued interest within ninety days in lieu of waiting the remaining fifteen months outstanding, as stated in the original agreement. After the repayment, ACRTs investment in Willow Grove was zero.
Additionally, ACRT agreed to sell its member interest in Willow Grove to the other Willow Grove member and an affiliate of the Advisor for net proceeds and a gain of $400,000. This transaction was completed on February 15, 2005.



|10. | INVESTMENT IN ARC INTERNATIONAL FUND II, LP
|--- | -------------------------------------------

On
March 31, 2004, ACRT acquired an 11.2% limited partnership interest in ARC International Fund II, LP (ARC International) for $691,000 plus the assumption of its prorata share of the debt and acquisition fees. ACRT does not have any
additional funding obligations to ARC International. ARC International owns a property located in Woodcliff Lake, New Jersey, which is leased to Great Atlantic and Pacific Tea Co.

ACRTs investment in ARC International includes the acquisition fee of $62,655, paid to the Advisor per the Advisory Agreement,which is not
reflected in the underlying equity of ARC International. This amount is being amortized over the estimated useful life of the underlying asset, which is 39 years.

ACRT will earn a 9.0% return on its investment in ARC International in the form of distributions.

The
following is the summary balance sheet information of ARC International as of March 31, 2006 and December 31, 2005:



|                  |  |               |            |                  |   |           
|----------------- |  | ------------- | ---------- | ---------------- | - | ----------
|                  |  | March 31,2006 |            | December 31,2005
|Total Assets      |  | $             | 19,959,286 |                  | $ | 20,011,100
|Total Liabilities |  |               | 12,085,030 |                  |   | 12,143,461
|                  |  |              
|ACRTs Investment |  |               | 774,420    |                  |   | 760,487   

The following is the summary income statement information of ARC International for the three
months ended Mrach 31, 2006 and 2005:



|                              |  |                              |         |      |   |        
|----------------------------- |  | ---------------------------- | ------- | ---- | - | -------
|                              |  | Three Months Ended March 31,
|                              |  | 2006                         |         | 2005
|Rental Revenue                |  | $                            | 443,336 |      | $ | 448,929
|Operating Expenses            |  |                              | 25,919  |      |   | 23,433 
|Interest Expense              |  |                              | 210,745 |      |   | 213,298
|Depreciation and Amortization |  |                              | 78,687  |      |   | 78,688 
|                              |  |                              |         |      |   |        
|Net Income                    |  | $                            | 127,985 |      | $ | 133,510
|                              |  |                              |         |      |   |        
|                              |  |                             
|ACRTs Equity in Earnings     |  | $                            | 13,932  |      | $ | 14,551 
|                              |  |                              |         |      |   |        



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



|11. | NOTE RECEIVABLE -TENANTS
|--- | ------------------------

ACRT has a note
receivable from a tenant totaling $310,468 and $322,923 at March 31, 2006 and December 31, 2005, respectively. The note bears interest at 10.5% and principal and interest are due monthly. Future minimum principal payments due to ACRT are
$39,376, $57,544, $63,884, $70,924 and $78,740 in 2006, 2007, 2008, 2009 and 2010.



|12. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

The Advisor performs
services for ACRT pursuant to the terms of the Advisory Agreement. Such services include serving as ACRTs investment and financial advisor and providing consultation, analysis and supervision of ACRTs activities in acquiring, financing,
managing and disposing of properties. The Advisor also performs and supervises the various administrative duties of ACRT such as maintaining the books and records. The Chairman and President of ACRT is an affiliate of the Advisor.

For the three months ended March 31, 2006 and 2005, ACRT incurred the following fees and reimbursements payable to the Advisor:

Acquisition Fee - The acquisition fee is equal to 3% of the purchase price of the investment. No acquisition fees were incurred in 2006 or
2005.

Financing FeeThe financing fee is generally equal to .5% of the principal amount financed. No financing
fees were incurred in 2006 or 2005.

Asset Management Fees - Asset management fees of $165,785 and $174,619 for the three
months ended March 31, 2006 and 2005, respectively, were incurred and are payable to the Advisor. The annual asset management fee is equal to 1% of the first

$36,049,000 of ACRTs average invested assets (the base amount, as defined in the Advisory Agreement). One half of this fee, the subordinated asset management fee, is withheld by ACRT until the shareholders have
been paid the Preferred Return (as defined in the Advisory Agreement). For assets in excess of the first $36,049,000, the asset management fee is equal to 0.5% of the ACRTs average invested assets. Pursuant to the Advisory Agreement, beginning
in 1999, average invested assets were subject to periodic valuation performed by a third party (as defined in the Advisory Agreement). It was agreed by the Advisor, that the 2004 valuation, which would have resulted in an increase in asset
management fees, would not be used to calculate the asset management fees. Accordingly, asset management fees were calculated using the 2003 valuation.

Unpaid asset management fees included in due to related parties on the consolidated balance sheets were $45,061 at March 31, 2006 and December 31, 2005, respectively.

Disposition Fee On August 10, 2005, ACRT incurred a disposition fee in the amount of $116,015 on the sale of the Philadelphia,
Pennsylvania property leased to Barnes and Noble. The disposition fee on this sale was equal to 1.5% of the contract sales price. The disposition fee is generally equal to 3% of the contract sales price of each portfolio property, provided that 50%
of the disposition fee will be paid only if the property is sold at a gain, pursuant to the Advisory Agreement.

Incentive Fee ACRT has also agreed to pay the Advisor incentive compensation in the amount of 20% of amounts distributed to our stockholders after our stockholders have received distributions equal to the amount of their initial investment in
shares of Common Stock plus a preferred return of 8%.

Stock Ownership - As of March 31, 2006, principals of the Advisor
owned 44,760 shares of Class A Common Stock, which represents approximately 1.4% of the outstanding shares of Class A Common Stock of ACRT. The total amounts purchased, net of commissions, were $414,030.



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



Miscellaneous - ACRT agreed to reimburse the Advisor $1,250 per month for various legal
functions connected with stock transfers and filings of ACRT. The reimbursements were discontinued in May 2005. These reimbursements totaled $0 and $3,750 for the three months ended March 31, 2006 and 2005, respectively, and are included in
professional expenses on the accompanying consolidated statements of income.



|13. | LEASES
|--- | ------

ACRT is entitled to certain rentals
relating to the properties it owns. In addition to the base rent, the tenants are generally required to pay all operating costs related to the properties. Future minimum annual base rentals due under the non-cancelable operating leases in effect as
of March 31, 2006, are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2006       |  | $ | 4,101,232 
|2007       |  |   | 5,493,356 
|2008       |  |   | 5,360,035 
|2009       |  |   | 5,264,818 
|2010       |  |   | 4,800,943 
|Thereafter |  |   | 18,178,659
|           |  |   |           
|           |  | $ | 43,199,043
|           |  |   |           

ACRT seeks to reduce its operating and leasing risks through diversification achieved by geographic
distribution of its properties, tenant industry diversification, avoiding dependency on a single property and the creditworthiness of its tenants. For the three months ended March 31, 2006 and 2005, the following tenants accounted for greater
than 10% of rental revenues:



|                     |  |      |   |  |      |  
|-------------------- |  | ---- | - |  | ---- | -
|                     |  | 2006 |   |  | 2005 |  
|Sports Authority     |  | 15.7 | % |  | 13.7 | %
|Bed, Bath and Beyond |  | 12.5 |   |  | 11.2 |  
|Barnes and Noble     |  |     |   |  | 11.2 |  
|CaroMont Medical     |  | 11.2 |   |  | 10.0 |  



|14. | MORTGAGES PAYABLE
|--- | -----------------

ACRT had fixed rate mortgages
totaling $16,448,855 and $18,179,843 at March 31, 2006 and at December 31, 2005, respectively. These mortgages are secured by the respective properties with a total net book value of $18,906,894 and $21,358,469 at March 31, 2006 and
at December 31, 2005, respectively. The fixed rate mortgages have interest rates ranging from 6.86% to 8.65% and have maturities at various dates through July 1, 2017.

On January 6, 2006, the fixed rate mortgage on the San Antonio, Texas property of $1,608,000 matured and was repaid. The repayment was made by
drawing down $1,610,000 on ACRTs existing line of credit.

On March 1, 2006, the fixed rate mortgage on the Overland Park, Kansas
property of $6,627,000 matured and was extended for 120 days. On April 11, 2006 the loan on the Overland Park, Kansas property of $6,628,000 matured and was repaid. The repayment was made by securing a $1,600,000 short term loan on the property
and by drawing down $5,065,000 on ACRTs line of credit on the Montgomeryville, Pennsylvania property.

ACRT had variable rate
mortgages totaling $8,109,263 and $8,215,184 at March 31, 2006 and December 31, 2005, respectively. The mortgages carry variable interest rates of 206 and 225 basis points over LIBOR (4.62 % at March 31, 2006). The variable rate
mortgages are secured by two properties with a combined net book value of $9,128,493 and $9,171,429 at March 31, 2006 and December 31, 2005, respectively.



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



At March 31, 2006, the payment of principal under the fixed and variable rate mortgages for the
next five years and thereafter is as follows:



|           |  |                       |           |                 |   |            |  |   |           
|---------- |  | --------------------- | --------- | --------------- | - | ---------- |  | - | ----------
|           |  | ScheduledAmortization |           | BalloonPayments |   | Total     
|2006       |  | $                     | 513,027   |                 |   | 6,607,899  |  | $ | 7,120,926 
|2007       |  |                       | 541,533   |                 | $ | 3,897,539  |  |   | 4,439,072 
|2008       |  |                       | 576,742   |                 |   |           |  |   | 576,742   
|2009       |  |                       | 453,255   |                 |   | 3,747,919  |  |   | 4,201,174 
|2010       |  |                       | 479,848   |                 |   |           |  |   | 479,848   
|Thereafter |  |                       | 1,081,129 |                 |   | 6,659,227  |  |   | 7,740,356 
|           |  |                       |           |                 |   |            |  |   |           
|           |  | $                     | 3,645,534 |                 | $ | 20,912,584 |  | $ | 24,558,118
|           |  |                       |           |                 |   |            |  |   |           



|15. | DERIVATIVE INSTRUMENTS
|--- | ----------------------

On January 15, 2003,
in connection with ACRTs variable rate mortgage totaling $4,414,500 (Note 14), ACRT entered into an interest rate cap agreement with a third party. The cap is coterminous with the mortgage loan and its notional amount equals the outstanding
principal balance on the mortgage loan. The cap agreement was entered into as part of ACRTs management of

interest rate exposure and
effectively limits the amount of interest rate risk that may be taken on its variable rate mortgage. In accordance with SFAS No. 133, the interest rate cap is reflected at its fair value. The carrying amount of the interest rate cap, included
in prepaid expenses and other assets, net was reported as an asset of $9,851 and $6,786, as of March 31, 2006 and December 31, 2005, respectively, based on information supplied by the counter party to the cap contract, and the change in
the fair value of the interest rate cap of $3,065 and $2,622 has been recorded as a gain on interest rate cap, net on the accompanying consolidated statements of income (loss) for the three months ended March 31, 2006 and 2005, respectively.

On March 4, 2004, in connection with ACRTs variable rate mortgage totaling $5,300,000 (Note 14) on the Philadelphia,
Pennsylvania property leased to Barnes and Noble, ACRT entered into an interest rate cap agreement and an interest rate swap agreement with a third party. The cap was coterminous with the mortgage loan. The cap had a notional amount of $2,650,000.
In accordance with SFAS No. 133, the interest rate cap was reflected at its fair value. In connection with the sale of the Philadelphia, Pennsylvania property on August 10, 2005 (Note 3), the interest rate cap was written off.



|16. | LINES OF CREDIT
|--- | ---------------

On April 1, 2003, ACRT
renewed and converted its two credit facility agreements into a single credit facility. The new credit facility agreement totals $5,500,000 and replaces the previous credit facility agreements, which had total amounts available of $6,500,000.
Interest is payable at LIBOR plus 2% on the new credit facility and ACRT is also required to pay a commitment fee equal to 0.5% per annum on the unused portion of the commitment. The new facility is for a period of three years and amounts
available are reduced by $125,000 per quarter from its inception.

On April 30, 2004, with the sale of the Memphis, Tennessee property
leased to Federal Express Corp., the credit facility was reduced by $1,652,387 which represented the collateral value of this property in the loan agreement. In addition, the quarterly reduction in the amount available under the loan was reduced
from $125,000 to $84,150.

On April 1, 2006, this credit facility matured and was extended on a temporary basis for 60 days under the
existing terms.

The total amount available under this facility at March 31, 2006, after quarterly amortization and the sale of the
Memphis property, is $2,758,567 and $1,610,000 has been drawn, leaving a balance available for use of $1,148,567.

On June 17, 2004,
ACRT established an additional secured credit facility, which provides for additional borrowing of up to $5,500,000 and decreases by $100,000 per annum. This credit facility bears interest at LIBOR plus 225 basis points and matures in five years.
ACRT is required to pay an annual commitment fee equal to 0.5% on the unused portion of the facility. The total amount available under this facility at March 31, 2006 was $5,400,000.



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



|17. | STOCK OPTION PLANS
|--- | ------------------

ACRT established, with the
approval of the Shareholders, the 1997 Stock Option Plan (the Plan) for the purposes of encouraging and enabling ACRTs officers, employees, directors and advisors to acquire a proprietary interest in ACRT. The Plan provides for
administration by the Compensation Committee (the Committee) of the Board of Directors. A maximum of seven hundred and fifty thousand Class A common shares have been reserved under the Plan. The Plan authorized (i) the grant of
stock options that qualify as Incentive stock options (ISO) under section 422 of the Code (ii) the grant of stock options that do not so qualify and (iii) grants of shares upon the attainment of performance goals or subject to
restrictions.

Options granted under the Plan may be subject to various restrictions on exercise including vesting provisions and a
requirement that the Class A common shares be listed on a national exchange or quoted on NASDAQ and/or the requirement that the options when exercised will not constitute an amount greater than a specified percentage of ACRTs issued and
outstanding stock. On January 21, 1998, ACRT, pursuant to the Plan previously approved by the shareholders, granted 25,000 nonqualified stock options to purchase Class A common stock to the five non-employee directors and 650,000
nonqualified stock options to purchase Class A common stock to the advisor at an exercise price of $8.50. In January 2000 and October 2003, ACRT granted each of its three additional non-employee directors an option under the Option Plan to
purchase 5,000 shares of Class A common stock at an exercise price of $8.50. Each of these will vest as to 25% of such option for each full year that the non-employee Director has previously served and continues to serve as a Director of ACRT.
In 1998 and 2003, three non-employee directors holding a total of 15,000 stock options retired with their stock options unexercised. These stock options were retired and are available to be re-granted. The options are not exercisable unless and
until both of the following requirements are met: (a) either (i) the Class A common stock is listed for trading on any national securities exchange or quoted on any tier of the NASDAQ Stock Market or (ii) the occurrence of a
Change of Control of ACRT, as defined in the Plan, the sale of all or substantially all of ACRTs assets or adoption of a plan of liquidation by ACRT and (b) immediately prior to such exercise the number of shares of Class A common
stock issued and outstanding, as a result of the exercise of the options granted under the plan, shall not exceed fifteen percent of the issued and outstanding shares of Class A common stock. At March 31, 2006, no stock options under the
Plan have been exercised, all but 2,500 of the stock options granted have been vested and 75,000 are available for grant. Amendments to the Plan were recommended by the Board of Directors and approved by the shareholders of ACRT at the annual
meeting held in May 2004. The Plan now allows for grants of options until March 31, 2013. In addition, the current term of outstanding stock options awarded pursuant to the Plan were extended from 10 years to 15 years and all future stock
options awarded pursuant to the Plan will have a term that ends in 2013. The restrictions applicable to the exercise of the options will be removed effective April 1, 2008 or upon the occurrence of one of the events noted above.

Other Awards under the Option Plan. In addition to the incentive and non-qualified stock options available for grant under the Option Plan, the
compensation committee may also award:



| |  |  | stock appreciation rights;
| | - |  | --------------------------



| |  |  | restricted stock awards;
| | - |  | ------------------------



| |  |  | phantom stock unit awards; and
| | - |  | ------------------------------



| |  |  | performance share units.
| | - |  | ------------------------

There are options outstanding as
of March 31, 2006, and December 31, 2005 for 675,000 shares at a weighted exercise price of $8.50.

The following are disclosures
for common stock options outstanding at March 31, 2006:



|        |  |                     |      |                        |      |        |         |                |   |     
|------- |  | ------------------- | ---- | ---------------------- | ---- | ------ | ------- | -------------- | - | ----
|        |  | Options Outstanding |      | Exercisable Options   
|Number  |  | Exercise Price      |      | Remaining Life (Years) |      | Number |         | Exercise Price
|660,000 |  | $                   | 8.50 |                        | 2.00 |        | 660,000 |                | $ | 8.50
|10,000  |  |                     | 8.50 |                        | 4.00 |        | 10,000  |                |   | 8.50
|5,000   |  |                     | 8.50 |                        | 7.80 |        | 2,500   |                |   | 8.50
|        |  |                     |      |                        |      |        |         |                |   |     
|675,000 |  | $                   | 8.50 |                        |      |        | 672,500 |                | $ | 8.50
|        |  |                     |      |                        |      |        |         |                |   |     



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ARC CORPORATE REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(UNAUDITED)



Compensation expense was calculated thru December 31, 2005 using a market price of $12.00 based
on ACRTs last stock offering which expired on December 31, 2003, and the option price of $8.50 per option. The compensation expense calculation was adjusted in the first quarter of 2006 to reflect the current projected liquidation values
on the shares of $13.50 a share. For the three months ended March 31, 2006 and 2005, ACRT recognized stock based compensation expense totaling $697,649 and $112,189, respectively.



|18. | CREDIT EVENTS
|--- | -------------

On October 11, 2005, Levitz
Furniture, one of the tenants in the Paramus, New Jersey property, declared bankruptcy under Chapter 11 of the U.S. Bankruptcy code. At the time of declaration, rent totaling $99,572 related to October 2005 was unpaid and remains unpaid at this
time. All subsequent months have been paid.

On March 4, 2006, OfficeMax, one of the tenants in the Lilburn, Georgia property, closed
its store at this location. OfficeMax is still responsible for all rent payments and all minimum rent payments are current under the lease, which runs through 2016.



|19. | CLASS B COMMON STOCK
|--- | --------------------

In 2004, ACRT approved
dividends to the holders of Class B common stock for the year ending 2003. The dividends, totaling $118,077, were paid on April 25, 2005. In 2005, ACRT approved dividends to the holders of Class B common stock for the year ending 2004. These
dividends, totaling $162,769, were paid on April 25, 2005.

On February 8, 2006 the board of directors declared dividends to
common stock shareholders-class B for 2005 totaling $162,770. The payment of these dividends were subject to the receipt of various tax documents due from the class B shareholders, which should be provided in the second quarter of 2006.



|20. | LEGAL MATTER
|--- | ------------

On March 25, 2005, Whitestone
Triangle LP (Whitestone), a wholly owned subsidiary of ACRT, brought suit against its joint venture partner in the New York, NY property (Note 4) regarding the exercise of a right of first refusal to purchase ACRTs interest in the
property. On January 5, 2005, Whitestone sent to the joint venture partner a notice of right of first refusal to purchase Whitestones interest in the property at a price and other terms as set forth in the notice, subject to an attached
form of contract that required both shareholder and board of director approval. Subsequently, ACRT discovered that the calculation used to allocate capital proceeds in the contemplated sale, prepared by a third party, was incorrectly allocated and
as a result management and the board of directors of ACRT did not approve the terms of the sale. In addition, ACRT believes the joint venture partner, due to their unique insight into the value of the interest as the manager of the property, was
aware that the capital proceeds were incorrectly allocated. The joint venture partner has refused to accept a revised purchase price calculation, which necessitated ACRT bringing suit to halt the sale.

On April 1, 2005, ACRTs joint venture partner filed a separate lawsuit against Whitestone compelling a sale of ACRTs interest under the
terms of the original right of first refusal.

On October 31, 2005, ACRTs request for summary judgment against its joint venture
partner regarding the joint venture partners exercise of a right of first refusal to purchase ACRTs interest in the New York, NY property was denied. Summary judgment was found in favor of its joint venture partner in enforcement of the
right of first refusal to purchase ACRTs interest as now written. ACRT plans to appeal this ruling. ACRTs management does not believe that the ruling will have a material adverse impact on ACRTs consolidated financial position or
results of operations.



|21. | SUBSEQUENT EVENT
|--- | ----------------

On April 11, 2006, the loan
on the Overland Park, Kansas property of $6,628,000 matured and was repaid. The repayment was made by securing a $1,600,000 short term loan on the property and by drawing down $5,065,000 on ACRTs line of credit on the Montgomeryville,
Pennsylvania property.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF
OPERATIONS

Forward Looking Statements

Certain information included or incorporated by reference in this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act, and as such may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements, which
are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words may, will, should, expect, anticipate,
estimate, believe, intend, project, or the negative of these words or other similar words or terms. Factors which could have a material adverse effect on our operations and future prospects include,
but are not limited to, changes in economic conditions generally and the real estate market specifically, adverse developments with respect to our tenants, legislative/regulatory changes including changes to laws governing the taxation of REITs,
availability of debt and equity capital, interest rates, competition, supply and demand for properties in our current and proposed market areas and policies and guidelines applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained in this Form 10-Q.

The following should be read in conjunction with the unaudited consolidated
financial statements of ACRT including the respective notes thereto, all of which are included in this Form 10-Q.

General

ACRT was formed as a Maryland corporation in June 1993 and is an externally advised real estate investment trust (REIT) under the Internal Revenue Code of
1986. It has operated as a REIT since its inception. ACRT is managed by its advisor, ARC Capital Advisors, L.P., an affiliate of Robert Ambrosi, ACRTs Chairman, President and a director. The advisor performs services for ACRT pursuant to the
terms of an advisory agreement. Such services include serving as ACRTs investment and financial advisor and providing consultation, analysis and supervision of ACRTs activities in acquiring, financing, managing and disposing of
properties. The advisor also performs and supervises the various administrative duties of ACRT, such as maintaining its books and records.

ACRT was formed
to purchase geographically diverse credit lease properties, which are general purpose retail, office and industrial properties. Each property is 100% leased to one or more creditworthy tenants under a long-term lease that generally requires tenants
to pay most or all of the operating costs of the property, including real estate taxes and insurance.

On December 20, 2004, ACRT entered into a
Contract of Purchase and Sale (the Agreement), by and among ACRT, certain affiliates of ACRT and HPI/NL Investors LLC (the Purchaser). The Agreement provides for the sale to the Purchaser of 14 of ACRTs 21 properties
and a limited partnership interest in an entity that owns a property.

On June 30, 2005 the Agreement became subject to termination. On
November 30, 2005, ACRT entered into a Termination and Release Agreement with the Purchaser. The Termination and Release Agreement called for the payment of $150,000 to ACRT from the deposit escrow and an additional payment to ACRTof $37,450 as
reimbursement of survey and other costs related to the Agreement. In exchange ACRT released the Purchaser from any further obligations under the Agreement.

In addition to the above, during 2005, ACRT, pursuant to various rights of first refusal and purchase agreements, entered into various contracts to sell investments not included in the above Agreement. The purchasers of these properties
include joint venture partners, minority interest holders, tenants in common and affiliates of the Advisor. The investments included in these various contracts are:

New York, NY (partnership interest)

Fort Washington, PA (partnership
interest)

Paramus,
NJ (partnership interest)

ACRT anticipates that the sale of these investments will close in the first half of 2006. Based on the current sales prices,
ACRT anticipates that the above three investments will be sold for amounts in excess of their carrying amounts and, therefore, will result in a gain for financial reporting purposes.

On January 25, 2005, the tenant in the Rochelle Park, NJ property, who had filed suit against ACRT, signed a stipulation of settlement agreeing to dismiss the suit against ACRT. As part of the settlement, the
tenant entered into a contract to purchase ACRTs 51% tenant in common interest and the remaining 49% tenant in common interest not owned by ACRT for $19,500,000.This contract was subsequently terminated.



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##### Table of Contents

ACRT is again in negotiations with the tenant on purchasing the property. However, at this time ACRT and the tenant have
not been able to agree on a purchase price.

On February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and
Dissolution (the Plan). The Plan is subject to the approval of ACRTs Common stockholders, by two-thirds vote. ACRT intends to sell its real estate properties on an orderly basis, to pay or provide for its liabilities and to
distribute its remaining cash to its shareholders.

As of March 31, 2006, ACRT owned or had interests in 20 real estate properties encompassing
1,048,523 rentable square feet.

Critical Accounting Issues

ACRTs accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates
that effect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting policies which are important to the understanding of ACRTs financial condition and results of operations and which require
some of managements most difficult, subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which could change in a manner that would materially
affect managements future estimates with respect to such matters. Accordingly, future reported financial conditions and results could differ materially from the current financial condition and results of operations reported based on
managements current estimates.

Revenue Recognition.Rental revenue from tenant operating leases which provide for scheduled rental increases
are recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 13, on a straight-line basis over the term of the respective leases.

Gains on sales of real estate are recognized pursuant to the provisions of SFAS No. 66, Accounting for Sales of Real Estate. The specific timing of the sale is measured against various criteria in
SFAS No. 66 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance,
installment or cost recovery method, as appropriate, is applied until the sales criteria are met.

Rent Receivable.ACRT continuously monitors
collections from its tenants and makes a provision for estimated losses based upon historical experience and any specific tenant collection issues that ACRT has identified.

Purchase Accounting for the Acquisition of Real Estate.In accordance with SFAS No. 141, commencing with properties acquired after June 30, 2002, the fair value of real estate acquired is allocated to
the acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based
in each case on their fair values.

The fair value of the tangible assets of an acquired property (which includes land and building) is determined by
valuing the property as if it were vacant, and the as-if vacant value is then allocated to land and building based on managements determination of relative fair values of these assets. Factors considered by management in performing
these analyses include an estimate of carrying costs during the expected lease up periods, considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and
other operating expenses and estimates of lost rental revenues during expected lease up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are
recorded based on the difference between the current in-place lease rent and managements estimate of current market rent.

The aggregate value of
other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as
set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on managements evaluation of the specific characteristics of each tenants lease. The value of in-place leases and customer
relationships are amortized to expense over the remaining non-cancelable periods of the respective leases.

Industry Segments. ACRT currently
operates in one industry segment - investments in credit lease properties.

Impairment.ACRT continually assesses the recoverability of its
properties by determining whether the costs can be recovered through projected undiscounted cash flows. The amount of impairment, if any, is measured by comparing the carrying amounts to the fair values of such properties. Based on ACRTs
analysis, management does not believe that any of its properties are impaired. SFAS No.



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##### Table of Contents

144, Accounting for the Impairment or Disposal of Long Lived Assets, updates and clarifies the accounting and reporting for the impairment
of assets held in use and to be disposed of. The Statement, among other things, requires ACRT to classify the operations and cash flow of properties to be disposed of as discontinued operations.

For the three months ended March 31, 2006 and 2005, ACRT incurred an impairment charge of $0 and $275,000, respectively. The impairment charge in 2005 was on the
Philadelphia, Pennsylvania property leased to Barnes and Noble, which is included in discontinued operations.

ACRT accounts for properties held for sale
in accordance with SFAS No. 144. SFAS No. 144 requires that the assets and liabilities of properties that meet various criteria in SFAS No. 144 be presented separately in the balance sheet with assets and liabilities being separately
stated. The operating results of these properties are reflected as discontinued operations in the statement of income (loss).

Liquidity and Capital Resources

ACRTs main source of capital for growth has been the private placement equity market,
selective secured indebtedness, its secured credit facility and undistributed funds from operations. ACRT expects to continue to have access to and use these sources in the future; however, there are factors that may have a material adverse effect
on ACRTs access to capital sources. ACRTs ability to incur additional debt to fund acquisitions is dependent upon its existing leverage, the value of the assets ACRT is attempting to leverage and general economic conditions, which may be
outside managements control.

ACRTs $5.5 million variable rate secured line-of-credit facility, which is scheduled to expire in April 2006, is
available to finance acquisitions on a temporary basis until selective secured indebtedness can be obtained and to meet any short-term capital requirements. Interest is payable at the London Interbank Offered Rate (LIBOR) plus 2% on the
facility and ACRT is also required to pay a commitment fee equal to 0.5% per year on the unused portion of the commitment. On April 30, 2004, with the sale of the Memphis, Tennesse property leased to Federal Express Corp., the credit
facility was reduced by $1,652,387 which represented the collateral value of the Memphis property in the loan agreement. In addition, the quarterly reduction in the amount available under the loan was reduced from $125,000 to $84,150. The total
amount available under this facility at March 31, 2006, after quarterly amortization and the sale of the Memphis property, is $2,842,715 and $0 has been drawn.

On April 1, 2006, this credit facility matured and was extended on a temporary basis for 60 days under the existing terms. ACRT expects the line of credit to be renewed for a two year term in the next sixty days.

On June 17, 2004, ACRT established an additional secured credit facility, which provides for additional borrowing of up to $5,500,000 and decreases
by $100,000 per annum. This credit facility bears interest at LIBOR plus 2.25% and matures in five years. ACRT is required to pay an annual commitment fee equal to 0.5% on the unused portion of the facility. The total amount available under this
facility at March 31, 2006 was $5,400,000.

On April 11, 2006, $5,065,000 was drawn down on this secured credit facility and used to pay off the
loan on the Overland Park, Kansas property.

Since 1993, ACRT has raised, through the issuance of shares of Class A common stock, aggregate capital of
approximately $30.6 million, and through the issuance of shares of Class B common stock, aggregate capital of approximately $1.56 million. The capital raised was used primarily to acquire properties and to retire indebtedness.

During 2006, ACRT has not sold any additional Class A or Class B common shares. As a result of the Plan of Liquidation it is unlikely that ACRT will raise any
additional capital through the issuance of common stock. Furthermore, liquidity will be primarily based upon the sales of existing properties.

See the
comments under the General section regarding the sale of certain assets.

Dividends.On February 8, 2006 the board of directors approved the
adoption of a Plan of Liquidation and Dissolution (the Plan). The Plan is subject to the approval of ACRTs Common stockholders, by two-thirds vote. ACRT intends to sell its real estate properties on an orderly basis, to pay or
provide for its liabilities and to distribute its remaining cash to its shareholders.

Pursuant to the Plan, ACRT plans to stop future regular quarterly
dividend payments.

Dividends paid to common shareholders for the three months ended March 31, 2006 and 2005 were $763,577.

ACRT believes that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expense and regular debt service
obligations. In addition, ACRT anticipates that cash on hand and borrowings under its secured credit facilities will provide the necessary capital for its operations. Cash flows from operations as reported in the consolidated statements of cash
flows were $621,589 and $548,297 for the three months ended March 31, 2006 and 2005, respectively. The increase in cash flows from operations is primarily due to an increase in payables and a decrease in tenant receivables.



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Net cash provided by investing activities was $257,155 and $1,501,003 for the three months ended March 31, 2006 and
2005, respectively. Net cash provided by investing activities is related primarily to sale of properties or investments and repayments of notes receivable.

Net cash used in financing activities was $1,058,549 and $1,892,758 for the three months ended March 31, 2006 and 2005, respectively. Net cash used in financing activities 2005 was for dividends paid and debt service payments including
paydown of a mortgage loan and the line of credit.

Debt Service Requirements

ACRTs principal liquidity needs are payments of interest and principal on outstanding indebtedness. As of March 31, 2006, a total of seven of ACRTs
eleven consolidated properties were subject to outstanding mortgages which had an aggregate principal amount outstanding of $24.558 million, including $8.109 million in variable interest rate mortgages. As of March 31, 2006, the weighted
averaged interest rate on ACRTs outstanding mortgages was 7.28 %. The scheduled principal payments as of March 31, 2006 for the next five years are as follows:



|     |  |   |        
|---- |  | - | -------
|2006 |  | $ | 513,027
|2007 |  |   | 541,533
|2008 |  |   | 576,742
|2009 |  |   | 453,255
|2010 |  |   | 479,848

Balloon payment amounts, due in the next five years, excluding the secured credit
facility, are as follows:



|     |  |   |          
|---- |  | - | ---------
|2006 |  | $ | 6,607,899
|2007 |  |   | 3,897,539
|2009 |  |   | 3,747,919

In addition ACRT has a line of credit with $1,610,000 outstanding that matures in May 2006 and the Advisor is
negotiating with the lender to extend the line of credit.

The interest rates on ACRTs outstanding indebtedness range from 6.6% (variable rate at
March 31, 2006) to 8.65%. The ability of ACRT to make its balloon payments will depend upon its ability to refinance the mortgages related thereto, sell the related property, have amounts available under its secured credit facility or obtain
access to other sources of capital. The ability of ACRT to accomplish this will be affected by the availability and cost of mortgage debt at that time, ACRTs equity in the mortgaged properties, the financial condition of ACRT, the operating
history of the mortgaged properties, the then current tax laws and general national, regional and local economic conditions.

ACRT expects to continue to
use property specific, non-recourse mortgages as it believes that by properly matching a debt obligation, including the balloon maturity risk, with a lease expiration, ACRTs cash-on-cash returns increase and the exposure to residual valuation
risk is reduced.

ACRT has also purchased an interest rate cap in connection with its variable rate mortgage on the Sacramento, California property. The
Sacramento interest rate cap is coterminous with the mortgage and its notional amount equals the outstanding balance on the mortgage.

Lease Obligations

Since ACRTs tenants bear all or substantially all of the cost of property
operations and maintenance and repairs, ACRT does not anticipate significant need for cash for these costs. For two of the thirteen consolidated properties, ACRT has a certain level of property operating expense responsibility. To the extent there
is a vacancy in a property, ACRT would be obligated to pay for all operating expenses, including real estate taxes and insurance.



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Results of Operations for the Three Months Ended March 31, 2006 and 2005



|                                                                       |  |                        |       |   |      |   |       |                                 |  |   |      |  
|---------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ------------------------------- |  | - | ---- | -
|Selected Income Statement Data                                         |  | 2006                   |       |   | 2005 |   |       | Favorable(Unfavorable)2006-2005 | 
|                                                                       |  | (Dollars in thousands) |      
|Rental revenues and reimbursement                                      |  | $                      | 1,423 |   |      | $ | 1,419 |                                 |  | $ | 4    |  
|Interest income                                                        |  |                        | 13    |   |      |   | 31    |                                 |  |   | (18  | )
|Interest expense                                                       |  |                        | 398   |   |      |   | 449   |                                 |  |   | 51   |  
|Depreciation and amortization expense                                  |  |                        | 233   |   |      |   | 234   |                                 |  |   | 1    |  
|Asset management fees-affiliate                                        |  |                        | 165   |   |      |   | 175   |                                 |  |   | 10   |  
|Real estate taxes                                                      |  |                        | 181   |   |      |   | 176   |                                 |  |   | (5   | )
|Property operating expenses                                            |  |                        | 60    |   |      |   | 86    |                                 |  |   | 26   |  
|General and administrative expenses                                    |  |                        | 39    |   |      |   | 45    |                                 |  |   | 6    |  
|Stock based compensation                                               |  |                        | 698   |   |      |   | 112   |                                 |  |   | (586 | )
|Professional expenses                                                  |  |                        | 102   |   |      |   | 118   |                                 |  |   | 16   |  
|(Gain) on interest rate cap, net                                       |  |                        | (3    | ) |      |   | (3    | )                               |  |   |     |  
|Other expenses                                                         |  |                        | 3     |   |      |   | 19    |                                 |  |   | 16   |  
|Minority interest in earnings of subsidiaries                          |  |                        | 63    |   |      |   | 52    |                                 |  |   | (11  | )
|Equity in income of unconsolidated subsidiaries and undivided interest |  |                        | 264   |   |      |   | 305   |                                 |  |   | (41  | )
|Gain on sale of investment in unconsolidated subsidiaries              |  |                        |      |   |      |   | 400   |                                 |  |   | (400 | )
|Income (loss) from discontinued operations                             |  |                        | 63    |   |      |   | (97   | )                               |  |   | 160  |  
|Net (loss) income                                                      |  |                        | (176  | ) |      |   | 595   |                                 |  |   | (771 | )

Rental revenues increased by $4,000 due to a CPI rent increase on the Sacramento, California property.

Interest income decreased by $18,000 due mainly to lower interest income from the Willow Grove loan, which was repaid in February 2005.

Interest expense decreased by $51,000 primarily due to the payoff of the San Antonio, Texas mortgage on January 6, 2006 and the scheduled amortization that shifts
payments of interest to principal over the term of the mortgage, offset by higher interest rates.

Property operating expenses decreased by $26,000
primarily due to lower snow removal expense.

Stock based compensation increased by $586,000 due to changes in the estimated fair value of ACRTs
common stock from $12.00 to $13.50 per share.

Professional expenses decreased by $16,000 due to lower legal fees attributable to the potential sale of
various assets in 2005 offset by legal fees associated with lawsuits.

Minority interest in earnings of subsidiaries increased by $11,000 due to higher
income from joint venture properties consolidated by ACRT.

Equity in income of unconsolidated subsidiaries and undivided interests decreased by $41,000
due to higher interest expense and professional fees and lower gain on interest rate cap, net attributable to the Rochelle Park, New Jersey property.

Gain
on sale of investment in unconsolidated subsidiaries decreased by $400,000 as no property was sold in 2006 and in 2005 there was a gain on the sale of the ACRTs Willow Grove, Pennsylvania interest.

Income from discontinued operations increased by $160,000 due primarily to the CaroMont property in 2006 being held for sale which had a net income of $63,000, as
compared to the Philadelphia, Pennsylvania property in 2005 having a net loss of $97,000 due to impairment charges.

Environmental Matters

Based upon managements ongoing review of its properties, management is not aware of any environmental conditions with respect to any of
ACRTs properties, which would be reasonably likely to have a material adverse effect on ACRT. There can be no assurance, however, that the discovery of environmental conditions which were previously unknown, changes in law, the conduct of
tenants or



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##### Table of Contents

activities relating to properties in the vicinity of ACRTs properties, will not expose ACRT to material liability in the future. Changes in law
increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the
operations of ACRTs tenants, which would adversely affect ACRTs consolidated financial condition and results of operations.

Funds from
Operations

ACRT believes that Funds from Operations (FFO) enhances an investors understanding of ACRTs financial condition,
results of operations and cash flows. ACRT believes that FFO is an appropriate but limited measure of the performance of an equity REIT. FFO is defined in the April 2002 White Paper issued by the National Association of Real Estate
Investments Trusts, Inc. (NAREIT) as net income (or loss) computed in accordance with generally accepted accounting principles (GAAP), excluding gains (or losses) from the sales of property, plus depreciation and
amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO should not be considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined
in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP.

The
following table reflects the calculation of ACRTs FFO and cash flow activities for the three months ended March 31, 2006 and 2005.



|                                                                       |  |                |        |   |      |   |        |  
|---------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                       |  | 2006           |        |   | 2005 |  
|                                                                       |  | (In thousands) |       
|Net (loss) income allocable to Class A and Class B common shareholders |  | $              | (176   | ) |      | $ | 595    |  
|Minority interests share of net income                                 |  |                | 63     |   |      |   | 52     |  
|Gain on sale of investment in unconsolidated subsidiary                |  |                |       |   |      |   | (400   | )
|Depreciation and amortization of real estate                           |  |                | 201    |   |      |   | 200    |  
|Amortization of leasing commissions                                    |  |                | 4      |   |      |   | 4      |  
|Joint venture adjustment-depreciation and amortization of real estate  |  |                | 147    |   |      |   | 145    |  
|Joint venture adjustment-amortization of leasing commissions           |  |                | 6      |   |      |   | 6      |  
|                                                                       |  |                |        |   |      |   |        |  
|Funds from Operations                                                  |  |                | 245    |   |      |   | 602    |  
|Cash flow provided by operating activities                             |  |                | 622    |   |      |   | 548    |  
|Cash flow provided by investing activities                             |  |                | 257    |   |      |   | 1,501  |  
|Cash flow used in financing activities                                 |  |                | (1,059 | ) |      |   | (1,893 | )

Off-Balance Sheet Arrangements

Unconsolidated Real Estate Joint Ventures and Undivided Interests

ACRT has
investments in various real estate joint ventures with varying structures. These investments include ACRTs non-controlling interests in Triangle Plaza II, LLC, Fort Washington Fitness, L.P., Levittown ARC, LP, Willow Grove ACRT, LLC and ARC
International Fund II, LP and its undivided interests in the Rochelle Park property and the Paramus property. See Item 1 Notes 4 to 10 of Notes to Consolidated Financial Statements (unaudited) for information on these investments.

The properties owned by the joint ventures and the undivided interests are financed with individual non-recourse mortgage loans. Non-recourse mortgage debt is
generally defined as debt whereby the lenders sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by
the borrower or any of the members of the borrower, except for certain specified expectations listed in the particular loan documents. These exceptions generally relate to limited circumstances including breaches of material representations. ACRT
invests in joint ventures with third parties to increase portfolio diversification, reduce the amount of equity invested in any one property and to increase returns on equity due to the realization of advisory fees. See the footnotes to the
consolidated financial statements referenced above for summary balance sheet and income statement data.



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##### Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk

ACRTs exposure to market risk relates to its variable rate debt. At March 31, 2006, ACRT had two variable rate mortgages outstanding totaling $8.109 million and $1.610 million outstanding on its variable rate line of credit. The
mortgages bear interest at LIBOR plus 206 basis points (6.68% on $4.026 million) and LIBOR plus 225 basis points (6.87 % on $4.083 million) and the line of credit bear interest at LIBOR plus 200 basis points. Had the LIBOR rate been 100 basis points
higher during the three months ended March 31, 2006, ACRTs net income would have been reduced by approximately $24,000. ACRT also entered into an interest rate cap agreement on a notional amount equal to the $4.026 million mortgage
balance at March 31, 2006, which effectively caps the LIBOR rate at 7.45% per year.



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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures



| | (a) | Disclosure Controls and Procedures. ACRTs management, with the participation of ACRTs Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness
of ACRTs disclosure controls and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation,
ACRTs Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, ACRTs disclosure controls and procedures are effective.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Internal Control Over Financial Reporting



| | (b) | Internal Control Over Financial Reporting. There have not been any changes in ACRTs internal control over financial reporting during the third quarter to which this report
relates that have materially affected, or are reasonably likely to materially affect, ACRTs internal control over financial reporting.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART II - OTHER INFORMATION



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ITEM 1. |  | Legal Proceedings - On March 25, 2005, Whitestone Triangle LP (Whitestone), a wholly owned subsidiary of ACRT, brought suit against the joint venture partner in the New York,
NY property (see Note 4 of Notes to Consolidated Financial Statements) regarding the exercise of a right of first refusal to purchase ACRTs interest in the property. On January 5, 2005, Whitestone sent to the joint venture partner a
notice of right of first refusal to purchase Whitestoness interest in the property at a price and other terms as set forth in the notice, subject to an attached form of contract that required both shareholder and board of director approval.
Subsequently, ACRT discovered that the calculation used to allocate capital proceeds in the contemplated sale, prepared by a third party firm, was incorrectly allocated and as a result management and the board of directors of ACRT did not approve
the terms of the sale. In addition, ACRT believes the joint venture partner, due to their unique insight into the value of the interest as the manager of the property, was aware that the capital proceeds were incorrectly allocated. The joint venture
partner has refused to accept a revised purchase price calculation, which necessitated ACRT bringing suit to halt the sale.
|        | 
|        |  | On April 1, 2005, the joint venture partner filed a separate lawsuit against Whitestone compelling a sale of ACRTs interest under the terms of the original right of first
refusal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 
|        |  | On October 31, 2005, ACRTs request for summary judgment against its joint venture partner regarding the joint venture partners exercise of a right of first refusal to purchase
ACRTs interest in the New York, NY property was denied. Summary judgment was found in favor of its joint venture partner in enforcement of the right of first refusal to purchase ACRTs interest as now written. ACRT plans to appeal this
ruling. ACRTs management does not believe that the ruling will have a material adverse impact on ACRTs consolidated financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 
|ITEM 2. |  | Changes in Securities, Use of Proceeds and Issuers Purchase of Equity Securities- not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 
|ITEM 3. |  | Defaults Upon Senior Securities-not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 
|ITEM 4. |  | Submission of Matters to a Vote of Security Holders- not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 
|ITEM 5. |  | Other information- not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 
|ITEM 6. |  | Exhibits and Reports                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 
|        |  | 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 
|        |  | 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 
|        |  | 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 
|        |  | 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 10th day of May 2006.



ARC CORPORATE REALTY TRUST, INC.By:

/s/ Robert J. AmbrosiName:

Robert J. AmbrosiTitle:

Chairman and PresidentBy:

/s/ Bruce NelsonName:

Bruce NelsonTitle:

Chief Financial Officer




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