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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



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

Commission file number 000-50727

For the fiscal year ended December 31,
2006



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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

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

Class A Common Stock

(Title of Class)



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

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 Exchange
Act).     Yes ̈No  x

As of March 15, 2007, the aggregate market value of shares of Class A Common Stock held by non affiliates of the registrant was $43,974,977.

The number of shares of the registrants shares of Class A common stock, $.001 par value, outstanding as of March 15, 2007
was 3,181,540.



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TABLE OF CONTENTS



|         |  |            |  |                                                                                       |  |     
|-------- |  | ---------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |            |  |                                                                                       |  | Page
|Part I   |  |            |  |                                                                                       |  |     
|         |  | Item 1.    |  | Business                                                                              |  | 2   
|         |  | Item 1A.   |  | Risk Factors                                                                          |  | 4   
|         |  | Item 2.    |  | Properties                                                                            |  | 7   
|         |  | Item 3.    |  | Legal Proceedings                                                                     |  | 18  
|         |  | Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 18  
|         |  |            | 
|Part II  |  |            |  |                                                                                       |  |     
|         |  | Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 19  
|         |  | Item 6.    |  | Selected Financial Data                                                               |  | 21  
|         |  | Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 22  
|         |  | Item 7A.   |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 31  
|         |  | Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 32  
|         |  | Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 53  
|         |  | Item 9A.   |  | Controls and Procedures                                                               |  | 53  
|         |  | Item 9B.   |  | Other Information                                                                     |  | 53  
|         |  |            | 
|Part III |  |            |  |                                                                                       |  |     
|         |  | Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 54  
|         |  | Item 11.   |  | Executive Compensation                                                                |  | 56  
|         |  | Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 58  
|         |  | Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 59  
|         |  | Item 14.   |  | Principal Accountant Fees and Services                                                |  | 61  
|         |  |            | 
|Part IV  |  |            |  |                                                                                       |  |     
|         |  | Item 15.   |  | Exhibits and Financial Statement Schedules                                            |  | 62  
|         |  |           
|         |  | Signatures |  | 63                                                                                   
|         |  |            | 
|         |  | Ex-21.1:   |  | Subsidiaries of ARC Corporate Realty Trust, Inc.                                      |  |     
|         |  | Ex-31.1:   |  | Certification                                                                         |  |     
|         |  | Ex-31.2:   |  | Certification                                                                         |  |     
|         |  | Ex-32.1:   |  | Certification                                                                         |  |     
|         |  | Ex-32.2:   |  | Certification                                                                         |  |     



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##### Table of Contents

PART I



|ITEM 1. | BUSINESS
|------- | --------

Cautionary Statements Concerning Forward-Looking
Statements

Certain information included or incorporated by reference in this Form 10-K 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-K.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-K may not occur and our actual results could differ materially from those anticipated or implied in the forward-looking
statements.

General

ARC
Corporate Realty Trust®, Inc., a Maryland
corporation (ACRT), was formed in June 1993 and qualifies to be taxed as a real estate investment trust (REIT) under federal tax laws. ACRT is managed by its advisor, ARC Capital Advisors, L.P., an affiliate of
Mr. 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.

Business Strategy

ACRTs principal business strategy was the acquisition of credit lease properties throughout the United States. Credit lease properties are general purpose retail, office and industrial properties which are each leased to one or more
creditworthy tenants under a long term lease. The leases require tenants to pay most or all of the operating costs of the property, including, but not limited to, real estate taxes and insurance, and generally provide for periodic fixed increases in
base rent or additional rent based on some index tied to inflation or a percentage of tenant sales.

Each investment is secured by both the
direct corporate obligation of the creditworthy tenant as well as the underlying value of the real estate.

On February 8, 2006, the
board of directors approved the adoption of a Plan of Liquidation and Dissolution (the Plan). The Plan was subject to the approval of ACRTs Common stockholders, by two-thirds vote.

On October 12, 2006, ACRTs shareholders approved the Plan. Effective October 12, 2006, ACRT changed its basis of accounting from the
going concern basis to the liquidation basis of accounting, which required ACRT to record all of its assets and liabilities at fair market value at October 12, 2006 and at each subsequent reporting period.

The Plan calls for the orderly sale of all our assets and the payment of (or provision for) our liabilities and expenses, as well as the establishment or
a reserve to fund our contingent liabilities and anticipated expenses. The principal purpose of the liquidation is to maximize stockholder value by liquidating our assets and distributing net proceeds of the liquidation to our shareholders. ACRT
intends to continue to market the remaining properties and to sell these properties on the most favorable terms possible. ACRT believes this marketing process is likely to maximize the consideration received for these properties. ACRT will continue
to evaluate the marketing process throughout the liquidation process, however, in order to ensure the sale of the remaining properties in the most economically attractive manner. At such time as ACRT has sold its properties, satisfied its
liabilities, and distributed the net proceeds of the sales to the stockholders, ACRT will cancel all outstanding shares of Common Stock, file Articles of Dissolution with the State Department of Assessments and Taxation of Maryland and ACRT will
cease to exist. ACRT expects to complete the liquidation within 24 months from the adoption of the Plan by the stockholders, which was October 12, 2006.



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On August 10, 2005, ACRT sold the Philadelphia, Pennsylvania property leased to Barnes and Noble to
an affiliate.

On May 23, 2006, ACRT sold its partnership interest in Fort Washington Fitness, LP which owns the property in Fort
Washington, Pennsylvania leased to LA Fitness, to its joint venture partner.

On June 15, 2006, the property located in Overland Park,
Kansas leased to Borders Books and Bed, Bath and Beyond was sold to an unrelated third party.

On October 6, 2006, the property
located in Norcross, Georgia leased to AT&T was sold to an unrelated third party.

On October 25, 2006, ACRT sold its tenant
in common interest in the Paramus, New Jersey property leased to Babys R Us, Levitz Furniture and Wade, Odell, Wade to a related party.

On January 25, 2007, ACRT reached an agreement with its joint venture partners for the sale of its partnership interest in the New York, New York property leased to National Amusement and Toys R US (see Legal Item 3). The sale is
expected to take place in the first quarter of 2007, however there is no assurance that the sale will be completed.

On January 29,
2007, the due diligence period for the Sacramento, California property leased to Sports Authority expired. The sale of this property for $8,250,000 is expected to take place in the first quarter of 2007, however there is no assurance that the sale
will be completed.

ACRT is currently marketing all other properties for sale and has received certain offers and nonbinding letters of
intent from prospective purchasers. As described in Item 2 Properties, ACRT is currently negotiating with certain prospective buyers for other properties. Please see Item 2 Properties for more detail.

As of December 31, 2006, the estimated Net Asset Value per common share for the Class A and Class B shareholders is $13.34.

Financing Strategy

ACRT acquired
certain properties on an all-cash basis, by borrowing a portion of the purchase price through non-recourse, long-term fixed rate financing or by drawing upon ACRTs secured credit facility. Long-term fixed rate financing generally was
approximately 65% of the purchase price. ACRT believed that leverage enhanced shareholder returns and was appropriate for credit lease properties because the income has historically been reliable and predictable. Aggregate borrowings did not exceed
75% of the value of all properties, as determined by ACRT, unless such excess was approved by a majority of the Independent Directors.

On
February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the Plan). On October 12, 2006, ACRTs shareholders approved the Plan on October 12, 2006. As a result of the
Plan, ACRT did not renew its lines of credit. 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. Stockholders may receive one or more
liquidating dividends over the course of the liquidation. The amount of the distribution and the timing of the distribution will be determined by the sale of the properties.

Pursuant to the Plan, ACRT made its last regular quarterly dividend payments on January 31, 2006. The dividend payment totaled $763,577. On
November 29, 2006, ACRT distributed $162,776 to Class B shareholders. This dividend payment represented the Class B shareholders 2005 dividend declared by the board of directors on February 8, 2006. On January 31, 2007, ACRT made its
first liquidating dividend to both Class A and Class B shareholders of $2.00 per share.

Other

ACRT operates in one industry segment, investments in credit lease properties.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

ACRT is subject to many risks in
the operation of its business and implementation of the Plan of Liquidation, including the risk factors set forth below.

Risks Related to the Plan
of Liquidation

There can be no assurances concerning the prices at which our portfolio properties will be sold.

We cannot give any assurances as to the price at which any of the properties we currently hold will be sold. Real estate market values are constantly
changing and fluctuate with changes in interest rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and a number of other factors, both local and national. In addition, environmental
contamination or unknown liabilities, if any, at ACRTs properties may adversely impact the sales price of those assets. As a result, the actual prices at which we are able to sell our properties may be less than anticipated in connection with
the adoption and approval of the Plan of Liquidation, which would result in the amount available for distributions to our stockholders being less than the amount anticipated in connection with the adoption and approval of the Plan of Liquidation.
The amount available for distributions may also be reduced if the expenses we incur in selling our portfolio properties are greater than anticipated.

The value of our portfolio properties may be adversely affected by environmental contamination.

Discovery of environmental
contamination at one or more of our portfolio properties may have a material adverse effect on the value of the subject properties and ACRT. The value of one or more portfolio properties may be adversely affected and ACRT may be exposed to material
liability as a result of 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. 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 our
tenants, which would adversely affect the value of our properties and subject ACRT to liabilities which would reduce the amount of distributions payable to our stockholders. The sale of a portfolio property will not terminate ACRTs exposure to
liability resulting from environmental contamination at that property. In the event of such liability, ACRTs assets may continue to be subject to the liability.

One of our portfolio properties is subject to pending or threatened legal proceedings which may affect the value at which we can dispose of this property or delay disposition of this property.

ACRT owns a 51% tenant-in-common interest in a property located in Rochelle Park, NJ, which is leased to the Bergen County Board of Social Services
(BCBSS), which has a right of first refusal with respect to a sale of the property. The estimated net value of ACRTs interest in this property is approximately $4.8 million. BCBSS agreed to purchase ACRTs interest and our
partners interest, but this agreement was subsequently terminated. Despite our efforts to resolve this matter through negotiation with BCBSS, we have been unable to do so, and BCBSS has suggested that it may seek to take title to the property
through a condemnation proceeding at a value less than its current market value. We cannot predict what the outcome of this dispute will be, when it will be resolved or what costs ACRT will incur in the course of resolving the dispute.

If BCBSS seeks to take title to the property through a condemnation proceeding and succeeds in doing so, the proceeding will result in a determination
of the value to be paid to the owners of the property. This value may be more or less than the fair market value of this property determined by our Board of Directors. In a condemnation proceeding, ACRT would not have the potential benefit of
competing offers to purchase the property, which may result in more favorable terms of sale. We would not have available the alternative of deciding not to sell the property if we determine that the proposed terms of sale are not in the best
interests of our stockholders. Accordingly, the condemnation process may result in a disposition of the property on terms, which are less favorable than those which could otherwise be obtained.

There can be no assurance that ACRT will be able to make distributions pursuant to the Plan of Liquidation.

We cannot assure you that ACRT will be successful in disposing of properties for values equaling or exceeding those currently estimated by ACRT, or
provide assurances as to the timing of such dispositions. If the values of ACRTs assets decline or the costs and expenses related to such sales or related to the liquidation process, exceed those which are currently estimated by ACRT,
liquidation pursuant to the Plan of Liquidation may yield distributions in lesser amounts than we have projected. No assurances can be made as to the actual amount and timing of distributions, which could be made over a substantial period of time.

The Board of Directors may amend the Plan of Liquidation even if you approve it if they determine that doing so is in the best interest of ACRT and our
stockholders.

Our Board of Directors may amend the Plan of Liquidation without stockholder approval if they determine that doing so is
in the best interest of ACRT and our stockholders. Thus, we may decide to conduct the liquidation differently than described in the



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Proxy Statement. Further, the Board of Directors may decide not to proceed with liquidation and terminate the Plan of Liquidation without further action by
our stockholders.

We own certain of our portfolio properties jointly with other parties whose consent to sale of the properties we may not be able to
obtain.

ACRT jointly owns five properties. The jointly owned properties and ACRTs percentage ownership therein are set forth
under the heading Item 2Properties. We estimate that the net market value of ACRTs interests in these properties, based on our Board of Directors determination of the fair market value and the amount of indebtedness
secured by these properties as of December 31, 2006, is approximately $11.0 million, which is approximately 27% of the aggregate net value of our property portfolio. Because of the nature of joint ownership, sale of these properties will
require ACRT and its co-owners to agree on the terms of each property sale before such sale can be effected. The principal terms of sale on which we must reach agreement with the joint owners include sale price, payment terms, closing contingencies
for the benefit of the buyer and post-closing obligations of the sellers to reimburse the buyer for losses incurred as a result of a breach of a representation or warranty made by the sellers with respect to the property. There can be no assurance
that ACRT and its co-owners will agree on satisfactory sales terms for any of the properties. If the parties are unable to agree, the matter could ultimately go before a court of law, and a judicial partition could be sought. These legal proceedings
would entail additional expense and delay in completing the sale of the jointly owned property.

We may fail to continue to qualify as a REIT, which
would reduce the amount of any potential distributions.

The estimated amount of the liquidating distributions per share set forth in
this Annual Report assumes that ACRT will continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the Code) during the entire liquidation process and, therefore, no provision has been made for federal income
taxes. There can be no assurance that ACRT will be able to maintain its REIT qualification. If we lose our REIT status, we would be taxable as a corporation for federal income tax purposes and would be liable for federal income taxes at the
corporate rate with respect to our entire income from operations and from liquidating sales and distribution of our assets for the taxable year in which our qualification as a REIT terminates and in any subsequent years.

Stockholders may be liable to our creditors for the amount received from us if our reserves are inadequate.

Under Maryland law, if we make distributions to our stockholders and fail to maintain an adequate contingency reserve for payment of our expenses and
liabilities, each stockholder could be held liable for payment to our creditors of such amounts owed to creditors, which we fail to pay. The liability of any stockholder would be limited to the amount of such liquidating distributions previously
received by such stockholder from us. Accordingly, in such event, a stockholder could be required to return all such distributions received from ACRT. If a stockholder has paid taxes on liquidating distributions previously received, a repayment of
all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholders repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. Any contingency reserve
established by us may not be adequate to cover any expenses and liabilities.

As of December 31, 2006, ACRTs total liabilities
were approximately $31.8 million, of which approximately $17.5 million consisted of loans secured by properties we own. Our obligations under these loans will be either paid off in full or assumed by the buyers in connection with the sales of these
properties. The remaining liabilities consist principally of accounts payable for expenses incurred both in the ordinary course of operating our business and reserves in connection with preparation for liquidation (approximately $13.6 million). We
have established a contingency account which is reflected in the estimated $13.34 per share aggregate liquidating distributions we have used for purposes of disclosures in this Annual Report. The contingency account, in the amount of $1 million, is
intended to fund payment of expenses we expect to incur in the course of implementing the liquidation. This amount also affords ACRT a reserve against possible decreases in property values attributable to changing market conditions. We continuously
monitor expenses and any other foreseeable liabilities ACRT may incur in implementing the Plan of Liquidation to ensure that adequate reserves are maintained to discharge these liabilities in full.

Risks Related to the Investment Company Act of 1940

We may become
subject to the Investment Company Act of 1940

If we invest our cash and/or cash equivalents in investment securities, we may be subject
to regulation under the Investment Company Act of 1940, as amended (the 1940 Act). If we are deemed to be an investment company under the 1940 Act because of our investment securities holdings, we must register as an investment company
under the 1940 Act. As a registered investment company, we would be subject to the further regulatory oversight of the Division of Investment Management of the Commission, and our activities would be subject to substantial regulation under the 1940
Act. In addition, in order to come within certain exemptive rules under the 1940 Act, at least 75% of our directors would need to be independent under the 1940 Act and we would need to have an independent chairman. We would seek to hire
an investment adviser registered under the Investment Advisers Act of 1940 to manage our assets, and such investment adviser would be entitled to management fees. We would also require the services of a custodian to maintain our securities, which
custodian would be entitled to custodial fees. In addition to registering with the Commission, we would need to file annual, semi-annual and quarterly reports with the Commission, and distribute annual and semi-annual reports to our stockholders.



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Although we do not intend to become an investment company and we intend to limit the investments of our
assets to government securities and other investments that do not subject us to regulation under the 1940 Act, if we were deemed to have invested in investment securities and did not register under the 1940 Act, we would be in violation of the 1940
Act and we would be prohibited from engaging in business or selling our securities and could be subject to civil and criminal actions for doing so. In addition, our contracts would be voidable and a court could appoint a receiver to take control of
us and liquidate us. Therefore, our classification as an investment company could materially adversely affect our business, results of operations and financial condition.



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|ITEM 2. | PROPERTIES
|------- | ----------

As of December 31, 2006, ACRT had
21 leases with credit tenants in 16 properties located within, or in a suburb of, the following markets: Atlanta, Georgia; Charlotte, North Carolina; Memphis, Tennessee; New York City, New York; Rochelle Park, New Jersey; Woodcliff Lake, New Jersey;
Montgomeryville, Pennsylvania; Levittown, Pennsylvania; Plymouth, Indiana; Wichita, Kansas; San Antonio, Texas; and Sacramento, California.

The following is a summary of ACRTs properties as of December 31, 2006. The 2006 Annual Base Rent represents the cash rents received for the year ended December 31, 2006. For additional information, see Description of
Properties.



|                                 |  |                     |  |        |  |               |  |                            |           |                             |      |                         |     
|-------------------------------- |  | ------------------- |  | ------ |  | ------------- |  | -------------------------- | --------- | --------------------------- | ---- | ----------------------- | ----
|Tenant                           |  | Location            |  | Type   |  | SquareFootage |  | 2006 Cash RentReceived (1) |           | PrimaryLease TermExpiration |      | ExtensionOptionsThrough
|A.C. Moore                       |  | Montgomeryville, PA |  | Retail |  | 25,497        |  |                            | 433,452   |                             | 2013 |                         | 2028
|BCBSS                            |  | Rochelle Park, NJ   |  | Office |  | 80,000        |  |                            | 928,202   |                             | 2014 |                         | None
|CaroMont(2)                      |  | Charlotte, NC area  |  | Office |  | 45,430        |  |                            | 607,387   |                             | 2015 |                         | 2035
|Circuit City                     |  | Wichita, KS         |  | Retail |  | 37,591        |  |                            | 284,145   |                             | 2017 |                         | 2042
|GART Sports                      |  | Sacramento, CA      |  | Retail |  | 40,145        |  |                            | 520,031   |                             | 2015 |                         | 2035
|Giant Food, Inc.                 |  | Levittown, PA       |  | Retail |  | 40,100        |  |                            | 66,406    |                             | 2007 |                         | None
|Great Atlantic & Pacific Tea Co. |  | Woodcliff Lake, NJ  |  | Retail |  | 70,000        |  |                            | 198,384   |                             | 2021 |                         | 2061
|Hollywood Video                  |  | Marietta, GA        |  | Retail |  | 7,488         |  |                            | 154,388   |                             | 2011 |                         | 2021
|National Amusements, Inc.(4)     |  | New York, NY        |  | Retail |  | 74,282        |  |                            | 809,674   |                             | 2019 |                         | 2044
|OfficeMax                        |  | Lilburn, GA         |  | Retail |  | 23,532        |  |                            | 229,437   |                             | 2016 |                         | 2036
|OfficeMax                        |  | Wichita, KS         |  | Retail |  | 30,446        |  |                            | 205,237   |                             | 2012 |                         | 2037
|Sears                            |  | San Antonio, TX     |  | Retail |  | 34,414        |  |                            | 323,492   |                             | 2010 |                         | 2020
|The Sports Authority             |  | Lilburn, GA         |  | Retail |  | 43,393        |  |                            | 357,992   |                             | 2016 |                         | 2036
|Thomasville Furniture            |  | Montgomeryville, PA |  | Retail |  | 15,544        |  |                            | 248,868   |                             | 2013 |                         | 2023
|Toys R Us(3) (4)                 |  | New York, NY        |  | Retail |  | 63,702        |  |                            | 472,881   |                             | 2019 |                         | 2039
|United Technologies, Inc.        |  | Plymouth, IN        |  | Indus. |  | 105,600       |  |                            | 375,000   |                             | 2010 |                         | 2015
|Walgreens Co.( 3)                |  | Memphis, TN         |  | Retail |  | 14,294        |  |                            | 159,115   |                             | 2012 |                         | 2042
|                                 |  |                     |  |        |  |               |  |                            |           |                             |      |                         |     
|TOTAL:                           |  |                     |  |        |  | 751,458       |  | $                          | 6,374,091 |                             |      |                         |     
|                                 |  |                     |  |        |  |               |  |                            |           |                             |      |                         |     

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|(1) | Represents ACRTs share of the cash rent received as of December 31, 2006. ACRT only owns
partial interests in the following properties: BCBSS (51%); Circuit City (70%); Great Atlantic and Pacific Tea Co. (11.2%); OfficeMax (70%); and Giant Food (20%).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Four locations in the greater Charlotte, North Carolina area.
|--- | -------------------------------------------------------------

|(3) | Contains two leases.
|--- | --------------------

|(4) | As a result of the legal proceedings, ACRT was not entitled to any distributions from this property in
2006. See Item 3. Legal Proceedings.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

As of December 31, 2006, the scheduled lease maturities for each of the next ten years
are as follows:



|                        |  |                 |  |               |  |                    
|----------------------- |  | --------------- |  | ------------- |  | -------------------
|Year Ended December 31, |  | Number ofLeases |  | SquareFootage |  | 2006Annual BaseRent
|2007                    |  | 1               |  | 40,100        |  | 66,406             
|2008                    |  |                |  |              |  |                   
|2009                    |  | 1               |  | 1,750         |  | 17,368             
|2010                    |  | 2               |  | 140,014       |  | 698,492            
|2011                    |  | 1               |  | 7,488         |  | 154,388            
|2012                    |  | 2               |  | 44,740        |  | 346,984            
|2013                    |  | 2               |  | 41,041        |  | 674,760            
|2014                    |  | 1               |  | 80,000        |  | 928,202            
|2015                    |  | 5               |  | 85,575        |  | 1,127,418          
|2016                    |  | 2               |  | 66,925        |  | 587,429            



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Description of Properties

A.C. Moore and Thomasville Furniture/Montgomery Property

Description.
The Montgomeryville property is located in Montgomeryville, Pennsylvania at Route 309 and Stump Road and is located directly in front of a 500,000 square foot shopping center anchored by Target, Giant Food, Barnes and Noble, Comp USA and Bed Bath
and Beyond, effectively making it an out parcel to this larger development. The property is approximately 62% leased to A.C. Moore for an initial term of 10 years and approximately 38% leased to Thomasville Furniture for an initial term of 10 years.
A.C. Moore occupies 25,497 square feet and Thomasville Furniture occupies 15,544 square feet. The property is a 41,041 square foot retail facility on approximately 3.2 acres of land and was constructed in 2003. Parking is provided for approximately
180 spaces.

A.C. Moore Lease. The property is approximately 62% leased to A.C. Moore for use as a retail facility.
The initial term of the 10 year lease commenced in January 2004 and expires in December 2013. The tenant has four successive options to extend the term for additional periods of five years each. Base rent for the initial term is $433,449 per year.
During the first year of the initial term the tenant receives a rent credit of $187,500. Base rent increases by approximately 5% for the first option period and approximately 10% for each subsequent option period. Tenant must maintain casualty and
liability insurance. The tenant must reimburse ACRT for its pro rata share of real estate taxes and common area charges. ACRT is responsible for roof, roof drainage, exterior walls and structure.

Thomasville Lease.The property is approximately 38% leased to Thomasville for use as a retail facility. The initial term of the 10 year
lease commenced in January 2004 and expires in December 2013. The tenant has 2 successive options to extend the term for additional periods of five years each. Base rent for the first five years of the initial term is $248,868 per year and increases
to $273,750 per year for the last five years of the initial term. The base rent increases to $301,125 and $331,300 per year for the first and second option periods, respectively. Tenant must maintain casualty and liability insurance. The tenant must
reimburse ACRT for its pro rata share of real estate taxes and common area charges. ACRT is responsible for roof, HVAC, structure and slab.

Disposition.In March 2007, sold this property to unrelated third party for approximately $9,700,000 (see Notes to Consolidated Financial Statements No. 15).

AT&T Wireless/Norcross (Atlanta) Property

Description. The property was located within the Oakbrook Business Park in Norcross (Atlanta), Georgia, and was leased to AT&T Wireless PCS, Inc. for an initial term of 12 years. The building was a 22,359 square foot
one-story brick, masonry and glass structure that was constructed in 1996 on approximately two acres of land. Parking was provided for 57 spaces.

Lease. The property was 100% leased to AT&T Wireless PCS, Inc., a wholly owned subsidiary of AT&T Corporation, for an initial term of 12 years for general office purposes. The initial term of the lease commenced in
June 1996 and was to expire in May 2008. The base rent was $212,411 and the rent increased approximately 10% every three years. The tenant was responsible for all real estate taxes, insurance, utilities and expenses of the building with the
exception of roof and structural repairs.

Disposition. On October 6, 2006, ACRT sold the property for $2,270,000.

Barnes and Noble/Philadelphia Pennsylvania, Property

Description. The property was located on approximately 0.4 acres on Rittenhouse
Square between 18thand 17thStreet in Philadelphia, Pennsylvania. The property was owned through a condominium ownership and was 100% leased under a long-term lease to Barnes and Noble Inc. The property was constructed in 1925,
renovated in 1994 and is 22,743 square feet.

Lease. The initial lease term of 20 years commenced in 1997 and was to expire
in March 2017. The rent per square foot for 2004 was $27.20. The tenant was responsible for its pro rata share of real estate taxes, insurance, utilities and expenses of the building. ACRT was responsible for structural repairs including roof, slab
and foundation.

Disposition. On August 10, 2005, ACRT sold the property for $7,734,375.

BCBSS/Rochelle Park Property

Description. The property is located in Rochelle Park, New Jersey at the intersection of Route 17 and Passaic Street in the Park 17 Office Center. The location is approximately one-half mile from the intersection of Route 17,
Route 4, the Garden State Parkway, and the Garden State Regional Mall. The property is leased to the Bergen County Board of Social Services (BCBSS) for an initial term of 19 years. The building was built in 1989 on 2.543 acres of land
and contains three levels of office space, totaling 80,000 square feet and parking on two levels. Total parking on the premises is 312 spaces.



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Lease. The property is 100% leased to the BCBSS for use as an office building. BCBSS is an
independent corporate government agency established by Bergen County in 1932 to provide social services for Bergen County and is funded by the county, state and federal governments. The initial lease term of approximately 15 years commenced on
October 1, 1989. However, pursuant to an amendment to the lease in 1993, the tenant exercised all of its renewal options so that the lease now expires on September 30, 2014. The rent was $1,540,000 per year through September 1999; is
currently $1,820,000 per year through September 2009; and will be $1,840,000 per year through September 2014. The landlord was responsible for a refurbishment allowance in October 2004 not to exceed $500,000. The tenant is responsible for utilities,
all operating expenses in excess of the base year amount of $190,565 and real estate taxes in excess of the base year amount of $105,271. The tenant has a right of first refusal with respect to a sale of the building.

Proposed Transaction.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 agreed 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.
The contract was subsequently terminated. No further action has been taken.

Disposition.ACRT currently has a
nonbinding letter of intent to sell this property for $20,500,000 to an unrelated third party, however there is no assurance that the sale will take place.

Borders Books and Bed Bath & Beyond/Overland Park Property

Description. The property
was located at the intersection of 119th Street and Metcalf Avenue in Overland Park (Kansas City), Kansas, and was part of a shopping center, which included a Chilis restaurant, a Boston Market restaurant, an Old Navy clothing store, an Ethan
Allen furniture store and a multiplex movie theater. The property was 63% leased to Bed Bath and Beyond of Overland Park, Inc. for an initial term of 15 years and 37% leased to Borders Inc. for an initial term of 15 years. Bed Bath &
Beyond occupied 50,028 square feet and Borders Books occupied 30,000 square feet. The property was an 80,028 square foot retail facility on 7.168 acres of land and was constructed in 1995. Parking was provided for approximately 516 spaces.

Bed Bath & Beyond Lease. The property was approximately 63% leased to Bed Bath & Beyond of Overland Park,
Inc. for use as a retail facility. The lease was guaranteed by the parent company, Bed Bath & Beyond, Inc. The initial lease term of 15 years commenced in August 1995 and was to expire in January 2011. The tenant had three successive
options to extend the term of the lease for additional periods of five years each with rent increases of 10% for each five-year period. Base rent was $575,322 and the rent increased to $632,854 in year six and to $695,889 in year eleven for the
duration of the term. The tenant was responsible for maintenance of its premises. ACRT was responsible for structural elements including the roof, flashings, exterior walls and floor slab and all utility lines and connections servicing the premises
but located outside thereof. Maintenance of HVAC systems was ACRTs responsibility for the first twelve months and thereafter was the tenants sole responsibility. The tenant was obligated to pay its pro-rata share of common area charges
and reimbursed ACRT for its pro-rata share of real estate taxes and insurance premiums. The tenant was responsible for all utility usage charges.

The tenant had been granted an exclusive with respect to several of the parcels comprising the shopping center for its sale of linens and domestics, bathroom accessories, housewares, home furnishings, wall and floor coverings, decorative
accessories, closet and shelving systems, and other items typically sold in Bed Bath & Beyond stores. Other merchants in the parcels affected by the restrictions may sell the same items on an incidental basis.

Borders Inc. Lease. The property was 37% leased to Borders, Inc. for use as a retail facility. The lease to Borders, Inc. was guaranteed by
the parent company, Borders Group Inc. The initial lease term of 15 years commenced in November 1995 and was to expire in January 2011. The tenant had five successive options to extend the term for additional periods of five years each with rent
increases of 7.5% for each five year period. Initial base rent was $330,000 and the rent increased to $354,000 in year six and to $381,000 in year eleven for the duration of the term. In addition, supplemental annual rent was paid to ACRT in
repayment of an improvement allowance granted to the tenant at an interest rate of 10.5% per year over the initial term of the lease in equal monthly installments.

The tenant was responsible for maintenance of the premises with the exception of the roof, floor slab, parapets, flashing, outer walls, capital improvements, structural portions, and underground utility installations,
electrical conduits and wire. The tenant was obligated to reimburse ACRT for the tenants pro-rata share of common area charges, real estate taxes and insurance premiums. With regard to common area maintenance and real estate taxes, the tenant
received a Most Favored Tenant status whereby the tenant will receive the most favorable terms of any tenant on the property. The tenant was responsible for all utility charges.

The tenant had been granted an exclusive on the property for the sale of books, periodicals, video products and/or music products unless the subject
matter is directly related but ancillary to the primary use of another tenant and not more than 100 square feet are devoted to the display of such items.



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Disposition. On June 15, 2006, ACRT sold this property for $13,600,000.

CaroMont/Charlotte Area Properties

Description. The properties consist of four medical office buildings located in the Greater Charlotte, North Carolina metropolitan area. Specific information concerning the size, location and material lease terms are
summarized in the table below. Each property is 100% leased to CaroMont Medical Group, Inc. for a term of 15 years. Each property consists of a single story building constructed from masonry and glass with a steel frame. Parking for each property
meets or exceeds municipal requirements.

Leases. Each property is 100% leased to CaroMont Medical Group, Inc. for medical,
dental and general office purposes pursuant to four separate leases. The leases commenced January 2001 and expire in December 2015. The rent shown below is net to ACRT as the tenant is responsible for all real estate taxes, insurance premiums,
utilities and all other building operation expenses. The tenant is also responsible for performing all on-site maintenance of the properties.

The initial annual rent is increased by 1.5% in each subsequent year. Each lease offers the tenant two ten-year renewal options with the annual rental continuing to increase at the aforesaid specified rate.

Each lease grants the tenant an option to expand the building at a lease rate which is based upon prevailing interest rates, amortization schedules and
ACRTs cost of financing such expansion at the time the tenant exercises its expansion option. In the event the premises are expanded, ACRT has the right to extend the term of the particular lease so that a minimum of fifteen years remain on
the term. The tenant has a right of first offer in the event ACRT wishes to sell a property.



|                                                  |  |                  |  |                      |  |            |  |                  |        
|------------------------------------------------- |  | ---------------- |  | -------------------- |  | ---------- |  | ---------------- | -------
|Location                                          |  | Lot Size (acres) |  | Building Size (s.f.) |  | Lease Term |  | 2006 Annual Rent
|2711 X-Ray Dr. CaroMont Hosp. Campus Gastonia, NC |  | 3.38             |  | 18,654               |  | 15 years   |  | $                | 261,243
|                                                  |  |                  |  |                     
|209 Park St. Belmont, NC                          |  | 2.57             |  | 14,829               |  | 15 years   |  | $                | 191,700
|                                                  |  |                  |  |                     
|700 N. Main St. Stanley, NC                       |  | 3.12             |  | 8,323                |  | 15 years   |  | $                | 107,595
|                                                  |  |                  |  |                     
|214 N. Cleveland Ave. Kings Mountain, NC          |  | 3.10             |  | 3,624                |  | 15 years   |  | $                | 46,849 

Disposition. In 2001, ACRT sold three of the original seven properties for
$1,724,206, net of closing costs and broker commissions. In March 2007, ACRT sold the remaining properties to an unrelated third party for approximately $9,206,000 (see Notes to Consolidated Financial Statements No. 15).

Circuit City and OfficeMax/Wichita Property

Description. The property is located at the intersection of Kellogg Drive (Highway 54) and Ridge Road in Wichita, Kansas, and is part of a shopping center which presently includes a Kohls department store. The property
is approximately 55% leased to Circuit City Stores, Inc. for an initial term of 20 years and approximately 45% leased to OfficeMax, Inc. for an initial term of 15 years. Circuit City occupies 37,591 square feet and OfficeMax occupies 30,446 square
feet. The property is a 68,037 square foot retail facility on 5.92 acres of land and was constructed in 1996. Parking is provided for 574 spaces.

Circuit City Lease. The property is 55% leased to Circuit City for use as a retail facility. The initial lease term of approximately 20 years commenced in November 1996 and expires in January 2017. Tenant has five successive
options to extend the term of the lease for additional periods of five years each. Initial base rent was $368,392 and the rent increased in year six to $405,983, and increases every five years thereafter by the lesser of 10% or the percentage
increase in the Consumer Price Index. The increases to base rent during the renewal terms are determined by the same formula. The tenant is responsible for maintenance of its premises excluding the structural elements and roof. The tenant must also
pay its pro-rata share of common area charges and will reimburse ACRT for its pro-rata share of real estate taxes. The tenant is responsible for all utility usage charges and insurance premiums.

The tenant has been granted an exclusive in the shopping center for the sale of consumer, office and automotive electronics products, computer hardware
or software and entertainment media, cellular telephones, and household appliances, subject only to the rights of Kohls, a tenant in an adjacent shopping center not owned by ACRT.



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OfficeMax Lease. The property is 45% leased to OfficeMax, Inc. to be used as a retail
facility. The initial lease term of 15 years commenced in February 1997 and expires in January 2012. The tenant has five successive options to extend the term for additional periods of five years each. Initial base rent was $277,972 and the rent
increased to $293,195 in year six and will increase to $308,418 in year eleven for the duration of the term. Rent during the extension periods increase approximately 4.7% for each five-year period. The tenant is responsible for maintenance of the
premises with the exception of the roof, structural elements and parking lot repairs and in the final three years of the lease. ACRT is responsible for HVAC and sprinkler replacement. The tenant must reimburse ACRT for the tenants
proportionate share of common area maintenance costs, insurance premiums and real estate taxes. With regard to special assessments, the tenant has a cap of $.16 per square foot and no liability for payments after 1999. The sellers agreed to fund any
shortfall on account of the tenants cap on special assessments.

The tenant has been granted an exclusive in the shopping center for
the sale of office, home office, school or business supplies or equipment; office furniture, electronics and copy center. The lease, however, recognizes the priority of Circuit Citys and Kohls pre-existing use. There is a possibility
that the exclusive rights granted to OfficeMax against the portion of the shopping center occupied by Kohls would not be enforceable against a subsequent tenant occupying Kohls premises after a termination of the Kohls lease. In
the event the OfficeMax exclusive is violated, tenant has the right to terminate the lease or pay a reduced rental. If this occurs, the sellers agreed to subordinate their right to distributions such that ACRT would get all of the cash flow from the
property, including the sellers portion thereof. OfficeMax also has a co-tenancy clause, which allows it to pay a reduced rental in the event both Circuit City and Kohls no longer occupy the shopping center and no suitable replacement
can be found.

Disposition.In March 2007,ACRT sold this property to an unrelated third party for
approximately $8,760,000 (see Notes to Consolidated Financial Statements No. 15).

Federal Express/Memphis Property

Description. The property was located in the MIAC Industrial Park at the intersection of Memphis International
Airport Center Drive and Prescott Boulevard. The property was adjacent to Memphis International Airport and was approximately one-half mile from Federal Express World Headquarters. The property was 100% leased to Federal Express Corporation for an
initial term of ten years. The property was a 30,000 square foot one-story brick, glass, and concrete tilt wall steel frame structure on 4.13 acres which was constructed in 1994. The paved parking area had 145 spaces.

Lease. The property was 100% leased to Federal Express Corporation for use as an office/training center. The initial lease term of
approximately 10 years commenced in February 1994 and expired in February 2004. The tenant had one renewal option of five years. The rent was $279,300 per year during the first five years of the initial term and $296,100 during the final five years
of the initial term. On January 15, 2004, ACRT entered into a lease extension on this property through February 14, 2009 at the following rents: February 2004 to February 2007, $210,000 per year and February 2007 to February 2009, $240,000
per year. In addition, ACRT was obligated to pay a tenant improvement allowance of $146,971 to the tenant. The tenant was responsible for utilities, non-structural maintenance and repairs, insurance, common area maintenance, landscaping and property
taxes.

Federal Express had the option during the initial term of the lease to lease an addition to the building of up to 7,500 square feet
to be erected in order to enlarge the floor area of the building; provided, however, that if the tenant exercised its right to expand on or after the eighth anniversary of the commencement date, tenant had to simultaneously exercise its option to
renew. The basic rent under the lease was to be increased by an amount mutually agreeable to landlord and tenant for the period from the date of completion of the expansion.

Disposition. On April 30, 2004, the property was sold for approximately $2,325,000.

GART Sports/Sacramento Property

Description. The Sacramento property is located in Sacramento, California at 1700 Challenge Way (a/k/a 1700 Arden Way) and located across from the Arden Way regional mall. The property is 100% leased to GART Sports Company
(GART), the successor by merger to Sportmart, Inc., for an initial term of 20 years for use as a retail facility. The store, on the 2.97 acre property, is a 40,145 square foot one-story concrete block structure, with a wood and stucco
veneer, which was constructed in 1985. The paved parking area has 112 spaces with the right to use additional parking spaces at the adjacent site.

Lease. The property is 100% leased to GART for use as a retail sale facility for sporting goods, athletic apparel and related goods. In 2003, GART merged with The Sports Authority. The initial lease term of approximately 20
years commenced in August 1994 and expires in January 2015. The tenant has two renewal options of 10 years each. The base rent was $462,250 per year until January 31, 2005 and then increased on February 1, 2005 based upon a formula tied to
increases in the Consumer Price Index to a maximum of $520,031 for the duration of the initial lease term. The tenant is responsible for utilities, structural and non-structural maintenance and repairs, insurance, common area maintenance,
landscaping and property taxes.



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The tenant has been granted a right of first offer, effective after the second lease year, in the event
landlord desires to sell the property. ACRT is obligated to first offer the tenant the right to purchase the property on terms and conditions that ACRT would accept on the open market. If the tenant declines to purchase the property, ACRT has the
right to sell the property to any third party on substantially the same terms and conditions offered to the tenant within 120 days after notice of the tenants decision not to purchase. If the 120 day period expires, or if ACRT wishes to sell
the property on terms and conditions which are materially different, ACRT must again offer the property to the tenant.

ACRT is prohibited
from entering into a lease with another tenant for a use involving the sale of sporting goods, sports apparel and athletic footwear within a two-mile radius of the property. In the event of a taking by the state through eminent domain or other
similar action of (1) any portion of the building, (2) 15% of the parking area, or (3) which results in a permanent denial of access from Arden Way, the lease provides for payment of the first $5,160,000 of any condemnation award to
ACRT, and for the excess to be split evenly between ACRT and the tenant.

Disposition.In March 2007, ACRT sold this property
to an unrelated third party for $8,250,000 (see Notes to Consolidated Financial Statements No. 15).

Great Atlantic and Pacific Tea
Co./Woodcliff Lake, New Jersey Property

Description. The property is located on approximately 7.26 acres at 500
Chestnut Ridge Road, Woodcliff Lake, New Jersey. The 70,000 square foot property is 100% leased under a long-term lease to The Great Atlantic and Pacific Tea Co.

Lease. The property is 100% leased to the Great Atlantic and Pacific Tea Co. for an initial term of 25 years commencing in February 1996. The rent per square foot for 2004 is $24.47. The tenant is
responsible for real estate taxes, insurance, utilities and expenses of the building.

Disposition.ACRT is currently
marketing this property for sale.

Hollywood Video/Marietta (Atlanta) Property

Description. The property is located at Route 120 and Barrett Parkway in Marietta (Atlanta), Georgia. The property is an out parcel of a
shopping center, which is anchored by a Target store. The property is leased to Hollywood Entertainment Corporation for an initial term of 15 years. The 7,488 square foot retail facility on 0.75 acres of land is constructed of brick, masonry and
glass and was completed in December 1996. There is on-site parking with 46 spaces.

Lease. The property is 100% leased to
Hollywood Entertainment Corporation for use as a Hollywood Video store. The initial lease term of 15 years commenced in December 1996 and expires in December 2011. The tenant has two five-year renewal options. The initial annual base rent was
$138,031 for the first five years with an adjustment in year six to $154,388, which was based upon the percentage increase in the Consumer Price Index for All Urban Consumers, provided that the increase did not exceed 12% of the annual rent during
the first five-year period. Annual base rent during the renewal terms are determined in accordance with the same formula. The tenant is responsible for all real estate taxes, insurance premiums, utilities, operating expenses and roof and structure
maintenance.

Disposition. In March 2007,ACRT sold this property to an unrelated third party for approximately
$2,206,000 (see Notes to Consolidated Financial Statements No. 15).

LA Fitness/Ft. Washington Property

Description. The property was located in Ft. Washington, Montgomery County, Pennsylvania on seven acres of land at the intersection of
Virginia Drive and Office Center Drive. The approximately 41,000 square foot building was completed in December 2003 and was leased to L.A. Fitness with a January 2004 rent commencement date. There was on-site parking with 289 spaces.

Lease.The property was 100% leased to L.A. Fitness International. The initial lease term of fifteen years commenced in January 2004. The
tenant had three five-year renewal options at an increased rental. The base rent for years one through five was $741,600. The rent increased every five years by the lesser of CPI or 10%. The tenant was responsible for all property expenses and real
estate taxes.

Acquisition.ACRT held a 50% limited partnership interest in Fort Washington Fitness, LP, a Pennsylvania
limited partnership. The remaining 50% partnership interest in Fort Washington Fitness, LP was held by Cedar Shopping Centers, Inc., an NYSE-listed REIT (CDR). ACRT was entitled to a 12% preferred return on its equity investment and has
a priority with respect to refinancing and sale proceeds distributed to the partners.



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Disposition. On May 23, 2006, ACRT sold its partnership interest in this property for
$2,500,000.

Toys R Us and National Amusements, Inc./New York City Property

Description. The property is located in New York City (Queens), New York on the
Whitestone Expressway at the intersection of 28thAvenue. The property is leased to Toys R Us under two separate
leases for a Toys R Us and Kids R Us facility and National Amusements, Inc. In 2003, Kids R Us announced it would cease operations. It closed this location on May 1, 2004, and subsequently subleased this location to Office Depot. The property
was built and completed in July 1999 and consists of approximately 139,000 square feet located on 9.75 acres of land. The building has two levels with the movie theater occupying the entire second level. There are 1,200 spaces available for parking
including off-site parking.

Toys R Us Leases. The property is approximately 45% leased to Toys R Us NY LLC for use as a
retail facility. Toys R Us executed two separate leases, one for 43,999 square feet for use as a Toys R Us store and the other for 19,703 square feet for use as a Kids R Us store. The leases are guaranteed by the parent company, Toys R Us Delaware,
Inc. The initial lease term of 20 years commenced upon the completion of construction in July 1999 and expires in July 2019. The tenant has four successive options to extend the term of the leases for additional periods of five years each with rent
increases for each five-year period. Minimum base rent initially is $1,082,934 per year for years 1 through 5 and the rent increases to the lesser of:



| |  |  | the product of the minimum base rent for year one and twice the percentage increase in the Consumer Price Index or
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the following minimum base rentals:
| | - |  | -----------------------------------



| |  |  | $1,191,227 per year for years 6 through 11;
| | - |  | -------------------------------------------



| |  |  | $1,310,350 per year for years 11 through 15; and
| | - |  | ------------------------------------------------



| |  |  | $1,441,576 per year for years 16 through 20.
| | - |  | --------------------------------------------

During the renewal periods, the tenant would also be obligated to pay percentage rent if sales exceed certain specified breakpoints. The tenant is responsible for maintaining the premises and the landlord is responsible for the structural
elements including the roof and parking areas. The tenant must pay its pro-rata share of common charges and will reimburse the landlord for its pro-rata share of real estate taxes and insurance premiums. The tenant is responsible for all utility
charges.

Toys R Us has been granted an exclusive for the sale of items customarily carried by a modern toy store and childrens
specialty store and the exclusive also applies to certain other property owned by Triangle Equities, Inc. (Triangle), ACRTs joint venture partner in this transaction and developer of the project. Triangle has agreed to hold ACRT
harmless in the event this exclusive is breached as a result of activities on its other properties.

National Amusements, Inc.
Lease. The property is approximately 55% leased to National Amusements, Inc. for use as a 12-screen multiplex movie theater. The initial lease term of 20 years commenced upon the tenants occupancy in May 1999 and expires in May 2019.
The tenant has five successive options to extend the term of the lease for additional periods of five years each with rent increases of approximately 9% for each five-year period. Base rent will be:



| |  |  | $1,983,487 for the first 5 years;
| | - |  | ---------------------------------



| |  |  | $2,024,175 in year 6;
| | - |  | ---------------------



| |  |  | $2,206,175 in years 7 through 11; and
| | - |  | -------------------------------------



| |  |  | $2,404,508 in years 12 through 15, for the duration of the term.
| | - |  | ----------------------------------------------------------------

The tenant is also obligated to pay percentage rent on 8% to 10% of gross sales above specified breakpoints. The tenant is responsible for maintenance of its premises and the landlord is responsible for the structural
elements including the roof and parking areas. The tenant must pay its pro-rata share of common charges and will reimburse the landlord for its pro-rata share of real estate taxes and insurance premiums. The tenant is responsible for all utility
charges.

The tenant has been granted an exclusive with respect to the property for its use as a movie theater.

Joint Venture. In June 1998, ACRT acquired a 40% interest in Triangle Plaza II LLC, a New York limited liability company (TP II LLC).
The remaining 60% of the TP II LLC interests are held by Triangle. The day-to-day management of the property will be



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performed by an entity controlled by Triangle. ACRT is entitled to a 12% preferred return on its equity invested and has a preferred position with respect to
refinancing or sales proceeds distributed. ACRT has a right of first refusal and tag along rights if Triangle desires to sell all or a portion of the property or Triangles interest in TP II LLC.

Proposed Transaction.On March 25, 2005, Whitestone Triangle LP (Whitestone), a wholly owned subsidiary of ACRT and the
40% owner of the New York City property, brought suit against its joint venture partner 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.

On October 5, 2006, the New York State Supreme Court ruled that ACRT must sell its Triangle investment for $5.469 million and required ACRT to
return the distributions it received in 2005 of $340,869 with accrued interest.

On January 25, 2007, ACRT reached an agreement with
its joint venture partner to sell its investment for $5.469 million. Under the agreement, ACRT will retain the $340,869 in distributions received in 2005.

In March 2007, ACRT sold its partnership interest to its joint venture partner for $5,469,000 (see Notes to Consolidated Financial Statements No. 15).

The Sports Authority and OfficeMax/Lilburn (Atlanta) Property

Description. The property is located at U.S. Highway 78 and Payton Drive, in Lilburn (Atlanta), Gwinnett County, Georgia. The property is approximately 65% leased to The Sports Authority for an initial
lease term of 20 years and approximately 35% leased to OfficeMax for an initial lease term of 20 years. The Sports Authority occupies 43,393 square feet and OfficeMax occupies 23,532 square feet for a total of 66,925 square feet on approximately
seven acres of land. The building was constructed in 1996 and consists of steel frame and masonry construction. Parking is provided for approximately 340 parking spaces.

The Sports Authority Lease. The property is approximately 65% leased to The Sports Authority for use as a retail facility. In 2003, The Sports Authority and GART Sports Company merged. The initial lease
term of 20 years commenced on May 23, 1996, and expires on May 31, 2016. The tenant has four successive options to extend the term of the lease for additional periods of five years each. Base rent for the initial term was $357,992. Base
rent increases by 5% for each five-year option period. The tenant is responsible for maintaining its premises, including its roof and parking areas, as well as all utility charges. The tenant must maintain casualty and liability insurance; however,
the tenant may self-insure its obligations to restore so long as its net worth exceeds $100,000,000. The tenant will reimburse ACRT for its pro-rata share of all real estate taxes. ACRT is responsible for maintenance and repair of the structure and
underground utilities and for parking area replacement.

The tenant has been given an exclusive for the sale of sporting goods, including
athletic sportswear and apparel, athletic footwear and general recreational merchandise.

OfficeMax Lease. The property is
approximately 35% leased to OfficeMax for use as a retail facility. The initial lease term of 20 years commenced June 6, 1996, and expires on June 30, 2016. The tenant has four successive options to extend the term of the lease for
additional periods of five years each. Base rent for the initial term is $229,437. Base rent increases $11,766 for each five-year option period. The tenant is responsible for maintaining the premises, building systems and all utility charges. The
tenant will reimburse ACRT for its pro-rata share of all real estate taxes, casualty insurance premiums and parking area maintenance. ACRT is responsible for maintenance and repair of the roof and structure and for parking area replacement.



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The tenant has been given an exclusive for the sale of office products, including school products,
business supplies and equipment and office furniture and electronics.

Disposition. In March 2007,ACRT sold this
property to an unrelated third party for $7,929,000 (see Notes to Consolidated Financial Statements No. 15).

Sears/San Antonio
Property

Description. The property is located at Northwest Loop 410 in San Antonio, Texas. The property is leased
to Sears, Roebuck and Co. for an initial term of 15 years and consists of a one-story steel frame retail facility with an aluminum and glass storefront on 3.48 acres. The property was constructed in October 1995 and consists of 34,414 square feet
with a paved parking area of 168 spaces.

Lease. The property is 100% leased to Sears, Roebuck and Co. for use as a Sears
Homelife Furniture Store retail sales facility. The initial lease term of approximately 15 years commenced upon completion of construction in October 1995 and expires in September 2010. The tenant has two renewal options of five years each at an
increased rental. The base rent as of the commencement date was $289,077; rent increased in the sixth year to $306,285 and in eleventh year to $323,492. The tenant is responsible for the cost of all insurance premiums, and real estate taxes and
maintenance of the buildings interior and heating, ventilation and air conditioning system. Tenant is also responsible for the costs of exterior and public area maintenance, subject to a cap of $.78 per square foot that increases by 6%
annually. ACRT is responsible for repair and replacement of the buildings structure, roof, parking areas and certain building systems. On July 11, 2001, the Sears Homelife store was closed. On October 1, 2001, the tenant vacated the
property. Sears Roebuck & Co., as the guarantor on the lease, has continued to pay rent on a current basis and, as of November 2003, it has subleased this property to BEL Furniture Co. for the remainder of the original lease term.

Disposition.ACRT is currently marketing this property for sale.

United Technologies Automotive/Plymouth Property

Description. The property is located in Plymouth, Indiana, within the 700-acre Plymouth Industrial Development Park, near the intersection of Routes 30 and 31. The building was constructed under a
build-to-suit lease for United Technologies Automotive, Inc. (UTA) and was completed in August 1994. The 105,600 square foot building on approximately 30 acres of land is being used by UTA as a distribution center.

Lease. The property is 100% leased to UTA. The lease is guaranteed by UTAs parent company, United Technologies Corporation. The
initial lease term of 15 years commenced in December 1995 and expires in December 2010. The lease may be renewed by the tenant for either a five-year period with two additional option periods of five years each on the same terms as the lease; or for
a 10-year period with one additional option period for five years on the same terms and conditions as in the lease except that the rental increases in the option period are 6% for the first five years and 7.5% each five years thereafter. The initial
base rent was $315,000, which increases approximately 6% every three years. The tenant is responsible for all property expenses and real estate taxes.

The tenant has an option to expand the building at a lease rate, which is based upon interest rates, amortization schedules and costs at the time of the expansion. If the tenant elects to expand the building and ACRT
agrees to fund the cost, the lease term will extend to a date fifteen years from the completion of the expansion. The tenant has a right of first offer in the event ACRT wishes to sell the property at a mutually agreeable price.

Disposition.ACRT is currently marketing this property for sale.

Walgreen/Memphis Property

Description. The property is located
approximately six miles northeast of downtown Memphis, Tennessee at the intersection of Range Line Street and James Road in Shelby County. The property is approximately 88% leased to Walgreen Co. for an initial term of 50 years and 12% leased to H
& R Block, Eastern Tax Services, Inc. for an initial term of four years. The property is a freestanding masonry retail facility of 14,294 square feet on 1.149 acres, which was constructed in 1993. The paved parking area has 55 spaces.

Walgreen Lease. The property is 88% leased to Walgreen Co. for use as a retail facility. The initial lease term of 50 years
commenced in January 1993 and expires in December 2042. Tenant has the option to terminate the lease after the 20th lease year and every five years thereafter. The lease calls for fixed rent of $141,747 per year and there is a provision for
additional percentage rent, which is capped at an amount equal to the fixed rent. The tenant is responsible for insurance premiums, utilities and some non-structural maintenance and repairs to the interior of the premises. The landlord is
responsible for repairs to the exterior and structural portions of the premises.



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H & R Block Lease. The property is 12% leased to H & R Block, Eastern Tax Services,
Inc., a national franchise which offers tax preparation services. The initial lease term of four years commenced in May 1994 and expired in May 1998; however, the lease was extended through April 2009. The tenant has no other renewal options. The
rent was $15,750 per year until May 1998 and then increased to $16,538. In May 2003, the rent increased to $17,027. The renewal extending the lease through 2009 increases the rent to $17,538 per year. The tenant is responsible for utilities, all
non-structural repairs, insurance and property taxes. The landlord is responsible for structural and roof repairs.

Disposition. In March 2007,ACRT sold this property to an unrelated third party for $2,200,000 (see Notes to Consolidated Financial Statements No. 15).

Giant Food/Levittown, Pennsylvania Property

Description. The property is located on New Falls Road, near the intersection with New Rogers Road (SR 413) in Levittown, Bucks County, Pennsylvania. The property is leased for an initial term of twenty years and consists of a
single story steel frame retail facility on 4.7 acres. The property was constructed in 1987 and is approximately 40,100 square feet.

Lease. The property is 100% leased to Giant Food Store, a subsidiary of Royal Ahold, N.V. The initial term of twenty years commenced in 1987 and expires in August of 2007. The annual base rent is $332,028. The tenant is
responsible for all real estate taxes, insurance, utilities and expenses of the building with the exception of roof and structure.

The
tenant has outgrown this location and may be relocating to a new store. Under the terms of the lease, ACRT has the option, but not the obligation, to terminate the lease twelve months after the tenant vacates the building. The tenant does not have
the right to sublet without the consent of ACRT. The tenant is required to pay rent and expenses of the building until August of 2007. ACRT believes that the current rent being paid by Giant, which was negotiated in 1987, is below market and ACRT
expects to be able to re-rent the property at higher rents prior to 2007 when the lease expires.

Acquisition. In March 2003,
ACRT formed Levittown-ARC, LP and acquired the property. ACRT invested $200,000 for a 20% limited partnership interest in Levittown-ARC LP and the remaining 80% interest is owned by third party investors. ACRT also receives an additional 32% of the
available cash flow or capital proceeds in excess of a 9% preferred return to the limited partners.

Disposition.ACRT is
currently marketing this property for sale.

Levitz, Babies R Us, Wade Odell Wade/Paramus, New Jersey Property

Description. The property was located on approximately 13 acres on Route 17 in Paramus, New Jersey. The property was 100% leased under
long-term leases. The property was constructed in 1974, renovated in 1998 and was approximately 154,000 square feet.

Levitz
Lease. The property was leased to Levitz Furniture under a long-term lease that was at below market rent. Levitz occupied 91,103 square feet of two-story retail space for an initial term expiring in 2019 at a rent of $12.49 per square foot.
Levitz was responsible for all property expenses. On October 11, 2005, Levitz declared bankruptcy under Chapter 11 of the U.S. Bankruptcy code. At the time of declaration, rent totaling $99,572 related to October was unpaid. All subsequent
months were paid. On June 16, 2006, Levitz paid all outstanding rents related to October 2005.

Babies R Us Lease. The
property was leased to Babies R Us under a long-term lease that was at below market rent. Babies R Us occupied 39,220 square feet of single story retail space for an initial term expiring in 2018 at a rent of $14.74 per square foot.

Wade Odell Wade Lease. The property was leased to Wade Odell Wade under a five-year lease term at market rent. Wade Odell Wade, a United
Van Lines padded van service, occupied 23,355 square feet of warehouse space at the rear of the building for an initial term expiring in 2007 at a rent of $7.50 per square foot.

DispositionOn October 25, 2006, ACRT sold its tenant in common interest in this property to a related party for approximately
$9,121,000.

Willow Grove Property

Description. The development property was located in Willow Grove, Pennsylvania at the intersection of Route 611 and Route 276. The 12 acre site was expected to be developed as a hotel and theme
restaurant park.

Acquisition. 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 had a 25% member interest in Willow Grove, LLC. Additionally, Willow Grove ACRT was to fund up to a maximum of $550,000 in the form of a
loan ( Willow



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Grove Loan), to Willow Grove, LLC at an interest rate of 12% per year 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 in excess of the maximum amount of the Willow Grove Loan.

At any time prior to the commencement of construction but in no event later than 30 months from the date of execution of the operating agreement, the
managing member had the option to purchase Willow Grove ACRTs ownership interest for an amount equal to (a) the greater of $250,000 or the highest outstanding loan balance not to exceed $550,000 plus (b) payment of any outstanding
loans, plus accrued interest, made by Willow Grove ACRT. Additionally, Willow Grove ACRT had the option to sell its 25% ownership interest to the managing member at the earlier of 30 months from the date of the execution of the operating agreement
or the completion of the project and receipt of a certificate of occupancy for an amount equal to (a) the greater of $250,000 or the highest outstanding loan balance not to exceed $550,000 and (b) repayment of any loan, plus accrued
interest, made by Willow Grove ACRT.

On October 5, 2004, the operating agreement with Willow Grove, LLC was amended to increase the
maximum loan amount to $650,000. All other terms and conditions set forth in the original agreement remain unchanged. On October 6, 2004, $100,000 was paid to Willow Grove LLC bringing the 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. As of December 31, 2004, Willow Grove ACRT had made loans totaling $800,000 under this agreement.

Disposition. 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 on the term of the loan, as stated in the original agreement. After repayment of the loan
balance, ACRTs investment in Willow Grove was zero. Additionally, ACRT agreed to sell its membership interest in Willow Grove to the other Willow Grove member and an affiliate of the Advisor for $400,000, resulting in a gain of $400,000 for
financial reporting purposes. The transaction was completed on February 15, 2005.



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|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

On August 22, 2004, ACRT
was named as a defendant in a suit involving the tenant in the Rochelle Park, NJ property. The tenants suit claims, among other issues, that they were not given proper notice to effect their right of first refusal in connection with the
tenant-in-common sale of a portion of the property in March of 2003. On January 25, 2005, the tenant in the Rochelle Park, NJ property 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. No further action has been
taken.

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 appealed this ruling.

On October 5, 2006, the New York State Supreme Court ruled that ACRT must sell its
Triangle investment for $5.4 million and required ACRT to return a distribution it received in 2005 of $340,869 with accrued interest. On January 25, 2007, ACRT and its joint venture partner reached an agreement whereby ACRT will sell its
partnership interest in the New York property for $5,469,450 and ACRT will retain all distributions received in 2005.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

ACRT filed its definitive Schedule 14A and mailed a Proxy Statement regarding shareholder approval of a Plan of Complete Liquidation and Dissolution to its shareholders on September 11, 2006. On October 12, 2006, at a special
meeting of shareholders called for such purpose, the Plan of Complete Liquidation and Dissolution was approved by the shareholders. The vote at the special meeting was 2,451,316 (73.22% of outstanding shares) in favor of the Plan of Liquidation,
59,233 shares (1.77% of outstanding shares) against the Plan of Liquidation and 40,600 shares (1.21% of outstanding shares) abstained.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | ---------------------------------------------------------------------

As of March 15, 2007, there were approximately 674 holders of record of the shares of Class A common stock and one holder of record of the shares of Class B common stock. ACRTs shares of common stock
are not listed for trading on a national securities exchange or included for quotation on the Nasdaq Stock Market. If ACRTs capital stock is not listed for trading on a national securities exchange or included for quotation on the Nasdaq Stock
Market on or before March 31, 2006, dependent upon market and other conditions, the Board of Directors intends to explore liquidity strategies, including, but not limited to, adopting a plan of liquidation, subject to market conditions and
shareholder approval, pursuant to which ACRTs properties generally would be liquidated in an orderly fashion designed to return the most value to shareholders. Any such plan of liquidation will be effected as may be determined by the Board of
Directors to be in the best interests of ACRTs shareholders.

The Board of Directors recommended, and the shareholders approved, at
the annual meeting held in May 2004, an extension of ACRTs liquidity date described above. The Board of Directors asked to have this date extended by five years, to 2011 to 2013, instead of 2006 to 2008. The Board retained the ability to
implement a liquidity strategy earlier than that time if it determines that it would be in the best interests of the shareholders to do so.

On February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the Plan). The Plan was subject to the approval of ACRTs Common stockholders, by the affirmative vote of
two-thirds of the outstanding shares.

On October 12, 2006, ACRTs shareholders approved the Plan. Effective October 12,
2006, ACRT will change its basis of accounting from the going concern basis to the liquidation basis of accounting, which requires ACRT to record all of its assets and liabilities at fair market value at October 12, 2006 and at each subsequent
reporting period.

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.

Equity Compensation Plan Information

Our equity compensation plan information as of December 31, 2006, is as follows:



|                                                   |  |                                                                                             |  |                                                                            |      |                                                                                                                                                         |       
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Plan Category                                      |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted averageexercise price
of outstanding options, warrants and rights |      | Number of securities remaining available for future issuance under equity compensation plans(excluding securities reflected in the to be issued column)
|Equity compensation plans approved by shareholders |  | 675,000                                                                                     |  | $                                                                          | 8.50 |                                                                                                                                                         | 75,000

On December 21, 2006, the board of directors terminated the existing ACRT Stock Options program and replaced
it with a Stock Option Settlement Agreement. Under the Stock Option Settlement Agreement, no dividends are paid to the holders of the Settlement Agreement until existing the Class A and Class B shareholders receive liquidating dividends in the
amount of $8.50 for four of the directors (the original option exercise price) and $10.00 for one director, after which the holders of the Stock Option Settlement Agreement will receive dividends with the existing Class A and Class B
shareholders. ACRT estimates that its aggregate obligation under all Stock Options Settlement Agreements is $2,923,160.

Warrants

Chauner Securities, Inc. served as the managing broker-dealer in connection with a private placement of ACRTs
Class A Common Stock in 1998 and 1999. In connection with that offering, ACRT issued 33,490 stock warrants to Chauner Securities, Inc. to purchase 33,490 shares of Class A Common Stock at an exercise price of $9.30 per share. The stock
warrants were to expire in 2008.



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##### Table of Contents

Pursuant to the terms of the agreement with the managing broker-dealer for ACRTs third private
placement offering which began on May 23, 2003, ACRT will issue to Chauner Securities, Inc., the managing brokerdealer or its designees, stock warrants equal to 7% of the total shares sold by the soliciting dealers. The stock warrants had
a term of 10 years and an exercise price of $10.98. As of December 31, 2006, Chauner Securities is entitled to approximately 71,000 stock warrants.

On January 15, 2007, ACRT terminated the existing Warrants and replaced them with a Warrant Settlement Agreement. Under the Warrant Option Settlement agreement, no dividends are made to the Warrant Settlement Agreement holders until
existing the Class A and Class B shareholders receive liquidating distributions in the amount of $9.30 or $10.98 (the original Warrant exercise prices) after which the holders of the Warrant Settlement Agreement receive distribution in line
with the existing Class A and Class B shareholders. ACRT estimates that its aggregate obligation under all Warrant Settlement Agreements is $303,992.

Income Taxes

ACRT has elected to be treated as a real estate investment trust (REIT) under the
applicable provisions of the Internal Revenue Code of 1986, as amended. In order to qualify as a REIT, ACRT is required to distribute to shareholders at least 90% of its taxable income and to meet certain asset and income tests, as well as certain
other requirements. ACRT has met and will continue to meet these requirements necessary to be treated as a REIT.

For federal income tax
purposes, distributions may consist of ordinary income dividends, nontaxable return of capital, capital gains or a combination thereof. Distributions in excess of ACRTs current and accumulated earnings and profits (calculated for tax purposes)
will constitute a nontaxable return of capital rather than a dividend and will reduce the shareholders basis in his or her shares of common stock for tax purposes. To the extent that a distribution exceeds both ACRTs current and accumulated
earnings and profits and the shareholders basis in his or her shares, the amount of such excess will generally be treated as gain from the sale or exchange of that shareholders shares. ACRT annually notifies shareholders of the
taxability of distributions paid during the preceding year. The following table sets forth the taxability of distributions paid in 2006, 2005, and 2004:



|                                         |  |       |   |  |       |   |  |       |  
|---------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                                         |  | 2006  |   |  | 2005  |   |  | 2004  |  
|Ordinary Income                          |  | 34.66 | % |  | 67.59 | % |  | 66.82 | %
|15% rate gain                            |  | 40.77 | % |  | 12.43 | % |  |      |  
|25% rate gain                            |  | 24.57 | % |  | 2.67  | % |  |      |  
|Percent non taxable as return of capital |  |      | % |  | 17.31 | % |  | 33.18 | %



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following table
presents selected historical financial data for each of the five years in the period ended December 31, 2006, which data has been derived from our audited financial statements for those years. For the year 2006 the periods shown represent the
the period January 1, 2006 through October 11, 2006 under the Going Concern Basis and the period October 12, 2006 through December 31, 2006 under the Liquidation Basis. You should read the following selected financial data
together with Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited financial statements included in this annual report.



|                                                                  |  |                                             |        |                                           |   |       |      |  |   |        |   |  |      |        |      |  |   |        |  |   |       
|----------------------------------------------------------------- |  | ------------------------------------------- | ------ | ----------------------------------------- | - | ----- | ---- |  | - | ------ | - |  | ---- | ------ | ---- |  | - | ------ |  | - | ------
|                                                                  |  |                                             |        | As of and for the Year Ended December 31,
|                                                                  |  | 2006                                        |        | 2006                                      |   |       | 2005 |  |   | 2004   |   |  | 2003 |        | 2002
|                                                                  |  | (Liquidation Basis)                         |        | (Going Concern Basis)                    
|                                                                  |  | (In Thousands Except for Per Share Amounts)
|Income Statement Data:                                            |  |                                             |        |                                           |   |       |      |  |   |        |   |  |      |        |      |  |   |        |  |   |       
|Revenues                                                          |  | $                                           | 1,107  |                                           | $ | 3,270 |      |  | $ | 4,380  |   |  | $    | 3,849  |      |  | $ | 3,763  |  | $ | 5,377 
|Expenses                                                          |  |                                             | 716    |                                           |   | 4,255 |      |  |   | 4,390  |   |  |      | 4,326  |      |  |   | 3,639  |  |   | 5,108 
|Operating profit (loss)                                           |  |                                             |       |                                           |   | (985  | )    |  |   | (10    | ) |  |      | (477   | )    |  |   | 124    |  |   | 269   
|Equity in income of unconsolidated subsidiaries                   |  |                                             | 134    |                                           |   | 343   |      |  |   | 1,162  |   |  |      | 1,185  |      |  |   | 814    |  |   | 551   
|Gain on sale of unconsolidated subsidiary                         |  |                                             |       |                                           |   | 1,546 |      |  |   | 400    |   |  |      |       |      |  |   |       |  |   |      
|Minority interest in earnings of subsidiaries                     |  |                                             | 15     |                                           |   | 53    |      |  |   | 58     |   |  |      | 53     |      |  |   | 100    |  |   | 296   
|Income from discontinued operations                               |  |                                             |       |                                           |   | 3,635 |      |  |   | 450    |   |  |      | 1,014  |      |  |   | 849    |  |   | 920   
|Net income                                                        |  |                                             |       |                                           |   | 4,486 |      |  |   | 1,944  |   |  |      | 1,669  |      |  |   | 1,687  |  |   | 1,444 
|Adjustments for liquidation basis of accounting                   |  |                                             | 15,261 |                                           |   |      |      |  |   |       |   |  |      |       |      |  |   |       |  |   |      
|Net change in net assets attributable to holders of common shares |  |                                             | 15,771 |                                           |   |      |      |  |   |       |   |  |      |       |      |  |   |       |  |   |      
|Net income per common share from continuing operations-basic      |  |                                             |       |                                           |   | 0.25  |      |  |   | 0.45   |   |  |      | 0.20   |      |  |   | 0.33   |  |   | 0.24  
|Net income per common share from discontinued operations basic   |  |                                             |       |                                           |   | 1.09  |      |  |   | 0.13   |   |  |      | 0.30   |      |  |   | 0.34   |  |   | 0.43  
|Net income per share basic                                       |  |                                             |       |                                           |   | 1.34  |      |  |   | 0.58   |   |  |      | 0.50   |      |  |   | 0.67   |  |   | 0.67  
|                                                                  |  |                                             |        |                                           |   |      
|Balance Sheet Data:                                               |  |                                             |        |                                           |   |       |      |  |   |        |   |  |      |        |      |  |   |        |  |   |       
|Investment in real estate                                         |  | $                                           | 54,225 |                                           |   |       |      |  | $ | 41,915 |   |  | $    | 53,183 |      |  | $ | 45,945 |  | $ | 49,467
|Investment in unconsolidated subsidiaries and undivided interests |  |                                             | 11,761 |                                           |   |       |      |  |   | 7,693  |   |  |      | 7,797  |      |  |   | 7,390  |  |   | 4,973 
|Total assets                                                      |  |                                             | 78,000 |                                           |   |       |      |  |   | 53,177 |   |  |      | 65,318 |      |  |   | 58,635 |  |   | 59,664
|Mortgages, notes payable and credit facility                      |  |                                             | 17,526 |                                           |   |       |      |  |   | 26,395 |   |  |      | 34,625 |      |  |   | 29,529 |  |   | 41,556
|Reserve for estimated costs during period of liquidation          |  |                                             | 13,611 |                                           |   |       |      |  |   |       |   |  |      |       |      |  |   |       |  |   |      
|Total liabilities                                                 |  |                                             | 31,783 |                                           |   |       |      |  |   | 27,052 |   |  |      | 38,369 |      |  |   | 30,532 |  |   | 42,465
|Cash distributions per common share                               |  |                                             |       |                                           |   |       |      |  |   | 0.96   |   |  |      | 0.96   |      |  |   | 0.84   |  |   | 0.80  
|Weighted average shares outstanding -basic                        |  |                                             |       |                                           |   |       |      |  |   | 3,348  |   |  |      | 3,348  |      |  |   | 2,518  |  |   | 2,165 
|Weighted average shares outstanding -diluted                      |  |                                             |       |                                           |   |       |      |  |   | 3,954  |   |  |      | 3,954  |      |  |   | 2,551  |  |   | 2,165 



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##### Table of Contents

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

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 Mr. 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.

As of December 31, 2006, ACRT had 21 leases with credit tenants in 16 properties encompassing 751,458 rentable square feet. The properties are 69%
leased to retail tenants, 17% to office tenants and the remaining 14% to industrial or warehouse tenants. No properties were purchased in 2006 or 2005.

ACRTs revenues and cash flows are generated from property rent receipts and reimbursements of operating costs of the properties, including real estate taxes and insurance.

Through 2011, ACRT has five leases expiring totaling 189,352 rentable square feet and which generated, adjusted for ACRTs pro rata interest,
approximately $936,700 in rental revenue for the year ended December 31, 2006. The primary risks ACRT will incur in re-leasing these properties are: (1) the period of time required to find a new tenant, (2) whether rental rates will
be lower than the previous lease covering the property, (3) leasing costs, if any, incurred when re-leasing the property and (4) the payment of operating costs, such as real estate taxes and insurance, while the property is vacant. ACRT
will address these risks by communicating frequently with the tenant well in advance of the lease termination date to better understand the tenants needs and requirements and, if needed, by using local brokers in the re-leasing process. In
addition, ACRT focuses on buying general purpose real estate with exceptional locations, which can be leased to other tenants without significant modification to the properties. No assurance can be given that once a property becomes vacant it will
subsequently be re-leased.

On February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution
(the Plan). The Plan was subject to the approval of ACRTs Common stockholders, by the affirmative vote of two-thirds of the outstanding shares. 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.

On October 12, 2006, ACRTs shareholders approved
the Plan. Effective October 12, 2006, ACRT changed its basis of accounting from the going concern basis to the liquidation basis of accounting, which required ACRT to record all of its assets and liabilities at fair market value at
October 12, 2006 and at each subsequent reporting period.

In 2004, ACRT sold one property located in Memphis, Tennessee leased to
Federal Express Corp. for approximately $2,325,000.

On August 10, 2005, the Philadelphia, Pennsylvania property leased to Barnes and
Noble was sold to an affiliate for approximately $7,734,000.

On May 23, 2006, ACRT sold its partnership interest in Fort Washington
Fitness , LP which owns the property in Fort Washington, Pennsylvania leased to LA Fitness, to its joint venture partner for $2,500,000.

On June 15, 2006, the property located in Overland Park, Kansas leased Borders Books and Bed, Bath and Beyond, was sold to an unrelated third party for $13,600,000.

On October 6, 2006, the property located in Norcross, Georgia leased to AT&T was sold to an unrelated third party for $2,270,000.

On October 25, 2006, ACRT sold its tenant in common interest in the Paramus, New Jersey property leased to Babys R Us, Levitz Furniture and
Wade, Odell, Wade to a related party for approximately $9,121,000.



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##### Table of Contents

Overview of Liquidation Basis of Accounting

ACRT has adopted the liquidation basis of accounting for all periods subsequent to October 12, 2006, the date on which its shareholders approved our
plan of liquidation. Accordingly, on October 12, 2006 its assets were adjusted to their estimated fair value and our liabilities, including estimated costs associated with implementing the Plan, were adjusted to their estimated settlement
amounts. All nonmonetary assets such as deferred rent receivable, deferred financing fees and deferred leasing costs were written off. The minority interest in ACRTs Overland Park, Kansas and Wichita, Kansas property were adjusted to reflect
the minority interest at its settlement value based upon the valuation of the related assets and liabilities.

Below is a Consolidated
Statement of Net Assets as of October 12, 2006 under the liquidation basis of accounting and the Consolidated Balance Sheet under the going concern basis of accounting.



|                                                                  |  |                   |            |                     |   |           
|----------------------------------------------------------------- |  | ----------------- | ---------- | ------------------- | - | ----------
|                                                                  |  | Liquidation Basis |            | Going Concern Basis
|Assets                                                            |  |                   |            |                     |   |           
|Investment in real estate                                         |  | $                 | 54,224,928 |                     | $ | 27,474,527
|Investment in unconsolidated subsidiaries and undivided interests |  |                   | 14,778,222 |                     |   | 6,835,578 
|Assets held for sale                                              |  |                   |           |                     |   | 5,809,281 
|Cash and cash equivalents                                         |  |                   | 8,137,588  |                     |   | 8,137,588 
|Restricted cash                                                   |  |                   | 432,128    |                     |   | 432,128   
|Deferred rent receivable                                          |  |                   |           |                     |   | 463,790   
|Rent receivable                                                   |  |                   | 201,167    |                     |   | 201,167   
|Prepaid expenses and other assets, net                            |  |                   | 102,127    |                     |   | 297,659   
|Deferred financing and other fees                                 |  |                   |           |                     |   | 151,247   
|Deferred leasing costs                                            |  |                   |           |                     |   | 32,710    
|                                                                  |  |                   |            |                     |   |           
|Total Assets                                                      |  | $                 | 77,876,160 |                     | $ | 49,835,675
|                                                                  |  |                   |            |                     |   |           
|                                                                  |  |                  
|Liabilities                                                       |  |                   |            |                     |   |           
|Mortgage notes payable                                            |  | $                 | 17,640,260 |                     | $ | 13,615,260
|Liabilities related to assets held for sale                       |  |                   |           |                     |   | 4,034,317 
|Dividends payable  Class B                                       |  |                   | 162,776    |                     |   | 162,776   
|Due to related parties                                            |  |                   | 140,514    |                     |   | 140,514   
|Due to joint venture partners                                     |  |                   | 392,907    |                     |   | 392,907   
|Unearned rental revenue                                           |  |                   | 317,096    |                     |   | 317,096   
|Accounts payable and accrued expenses                             |  |                   | 394,666    |                     |   | 385,349   
|Reserve for estimated costs during period of liquidation          |  |                   | 13,610,650 |                     |   |          
|                                                                  |  |                   |            |                     |   |           
|Total Liabilities                                                 |  |                   | 32,658,869 |                     |   | 19,048,219
|                                                                  |  |                   |            |                     |   |           
|Minority Interest                                                 |  |                   | 1,521,419  |                     |   | 37,819    
|                                                                  |  |                   |            |                     |   |           
|                                                                  |  |                  
|Net Assets in Liquidation/Shareholders Equity                    |  | $                 | 43,695,872 |                     | $ | 30,749,637
|                                                                  |  |                   |            |                     |   |           

The following adjustments and write-offs were made to convert the Consolidated Balance Sheet to
the October 12, 2006 Consolidated Statement of Net Assets in Liquidation.



| | - | a $21,238,679 write-up of land and building to estimated fair market value and the elimination of assets held for sale which are now included in property.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | a $8,426,806 write-up of our investments in unconsolidated subsidiaries and undivided interest to estimated fair market value.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | - | a $13,610,650 liquidation reserve for costs associated with the implementation and execution of the liquidation including settlement of ACRTs options and warrants, mortgage
settlement costs, property closing costs, commissions, professional fees, contingencies and transfer taxes related to the sale of properties, and incentive fees and disposition fees due to the Advisor.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | a $1,498,468 write-up of the minority interest to record our joint venture partners share of the net assets of the consolidated entities at fair value.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | a $431,438 charge for the write-off of deferred mortgage, leasing and financing costs.
| | - | --------------------------------------------------------------------------------------



| | - | a $709,400 charge for the write-off of deferred rent receivables.
| | - | -----------------------------------------------------------------



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##### Table of Contents

Critical Accounting Policies

Liquidation Basis of Accounting

As a result of ACRTs board of directors
adoption of a plan of liquidation and its approval by its stockholders , ACRT adopted the liquidation basis of accounting as of October 12, 2006. Our discussion and analysis of our financial condition and results of operations is based on our
financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on
historical experience and other various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Real Estate - Held for Sale.The valuation of real estate held for sale as of December 31, 2006 is based on fair value which was determined by either current contracts for sale or estimates of sales values based on an
independent appraisal of the real estate or indications of value based upon the marketplace.

Reserve for Estimated Costs during the Period of
Liquidation.Under the liquidation basis of accounting, we are required to estimate and accrue the costs associated with implementing the plan of liquidation. These amounts can vary significantly due to, among other factors, the timing and
amounts associated with discharging known and contingent liabilities and costs associated with cessation of operations. The costs are estimated and are expected to be paid over the liquidation period. (see Overview of Liquidation Basis of
Accounting).

The following table represents the reserve for estimated costs during the period of liquidation as of December 31, 2006:



|                                   |  |   |           
|---------------------------------- |  | - | ----------
|Disposition fee due to Advisor     |  | $ | 2,099,803 
|Incentive fee due to Advisor       |  |   | 3,306,205 
|Mortgage retirement costs          |  |   | 1,969,318 
|Property sales commissions         |  |   | 1,308,498 
|Settlement of options and warrants |  |   | 3,227,152 
|Other                              |  |   | 1,699,674 
|                                   |  |   |           
|Total                              |  | $ | 13,610,650
|                                   |  |   |           

Going Concern Basis of Accounting

Prior to the approval of the Plan by ACRTs shareholders on October 12, 2006, ACRT prepared its financial statements under the going concern
basis of accounting. ACRTs accompanying financial statements for periods prior to October 12, 2006 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.



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##### Table of Contents

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. 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.

During the years ended December 31, 2005 and 2004, ACRT incurred an impairment charge of
$287,259 and $52,521 on the Philadelphia, Pennsylvania property leased to Barnes and Noble and the Memphis, Tennessee property leased to Federal Express Corp., respectively.

Liquidity and Capital Resources

ACRTs ability to meet our obligations in the
near term is derived from the continued collection of rental payments under the terms of our rental leases. ACRTs leases require the tenants to pay most if not all of the operating cost of the properties, including, but not limited to, real
estate taxes and insurance and generally provide for the periodic fixed increase in base rent or additional rent based on some index tied to inflation or a percentage of tenant sales. All mortgages outstanding are secured by the individual property
and are retired as the property is sold.

On February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation
and Dissolution (the Plan). On October 12, 2006, ACRTs shareholders approved the Plan. 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.

ACRT currently estimates that it will be able to pay its obligations pursuant to the plan of liquidation, from
the continued collection of rental payments and from the sale of the properties thereof.

ACRT has allowed its existing line of credit of
$5.5 million to expire as it anticipates cash from the sale of properties and the cash from the continued collection of rent from unsold properties to be more than adequate to meet its needs.

The Plan calls for the orderly sale of all our assets and the payment of (or provision for) our liabilities and expenses, as well as the establishment or
a reserve to fund out contingent liabilities and anticipated expenses. The principal purpose of the liquidation is to maximize stockholder value by liquidating assets and distributing net proceeds of the liquidation to shareholders. ACRT intends to
continue to market the remaining properties and to sell these properties on the most favorable terms possible. ACRT believes this marketing process is likely to maximize the consideration received for these properties. ACRT will continue to evaluate
the marketing process throughout the liquidation process, however, in order to ensure the sale of the remaining properties in the most economically attractive manner. At such time as ACRT has sold all of its properties, satisfied its liabilities,
and distributed the net proceeds of the sales to the stockholders, ACRT will cancel all outstanding shares of Common Stock, file Articles of Dissolution with the State Department of Assessments and Taxation of Maryland and ACRT will cease to exist.
ACRT expects to complete the liquidation within 24 months from the adoption of the Plan by the stockholders, which was October 12, 2006.

On August 10, 2005, the Philadelphia, Pennsylvania property leased to Barnes and Noble was sold to an affiliate for approximately $7,734,000.



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##### Table of Contents

On May 23, 2006, ACRT sold its partnership interest in Fort Washington Fitness, LP which owns the
property in Fort Washington, Pennsylvania leased to LA Fitness, to its joint venture partner for $2,500,000.

On June 15, 2006, the
property located in Overland Park, Kansas leased to Borders Books and Bed, Bath and Beyond was sold to an unrelated third party for $13,600,000.

On October 6, 2006, the property located in Norcross, Georgia leased to AT&T was sold to an unrelated third party for $2,270,000.

On October 25, 2006, ACRT sold its tenant in common interest in the Paramus, New Jersey property leased to Babys R Us, Levitz Furniture and Wade, Odell, Wade to a related party for approximately $9,121,000.

On January 25, 2007, ACRT reached an agreement with our joint venture partners for the sale of our partnership interest in the New York, New York
property leased to National Amusement and Toys R US. (see Legal Item 3). The sale is expected to take place in the first quarter of 2007, however there is no assurance that the sale will be completed.

On January 29, 2007, the due diligence period for the Sacramento, California property leased to Sports Authority expired. The sale of this property
for $8,250,000 is expected to take place in the first quarter of 2007, however there is no assurance that the sale will be completed.

ACRT
is currently marketing all other properties for sale and has received certain offers and nonbinding letters of intent from prospective purchasers. As described in Item 2 Properties, ACRT is currently negotiating with certain prospective buyers
for other properties. Please see Item 2 Properties for more detail.

Dividends. In connection with its intention to
continue to qualify as a REIT for federal income tax purposes, ACRT expects to continue paying dividends to its shareholders. Under the Plan, ACRT intends to sell its real estate properties and to pay or provide for its liabilities and to distribute
its remaining cash to its shareholders. These dividends are expected to be paid from operating cash flows and from the sale of properties.

Dividends paid to Class A common shareholders were $763,577 in 2006 as ACRT suspended dividends payments in anticipation of the approval of the Plan. Dividends were $3.054 million in 2005 compared to $2.975 million in 2004, and $1.839
million in 2003. The increase is due both to an increase in the number of outstanding shares and an increase in the dividend rate to $0.24 per quarter during the second half of 2003. As a result of the Plan, stockholders may receive one or more
liquidating dividends over the course of the liquidation. The amount of the dividend and the timing of the dividends will be determined by the sale of the properties.

In 2006, dividends for 2005 were declared and paid to Class B shareholders totaling 162,769. In 2005, ACRT paid to the Class B shareholder dividends totaling $280,846 of which $118,077 were declared for the year
ending December 31, 2003 and $162,769 were for the year ending December 31, 2004.

Under the Plan, all future dividends will be
funded by the sale of properties and the rent collected from the unsold properties. Cash flows from operations as reported in the Consolidated Statements of Cash Flows were $3.297 million, $3.364 million and $3.614 million for 2006, 2005 and 2004,
respectively.

Net cash provided by investing activities was $20.900 million in 2006 and $8.609 million in 2005 and net cash used in
investing activities was $6.291 million in 2004. Cash used or provided in investing activities is related primarily to investments in real estate properties, investments in joint ventures or sales of same. Therefore, the fluctuation in investing
activities relates primarily to the timing of investments and dispositions.

Net cash used in financing activities was $13.447 million in
2006 and $11.698 million in 2005 , net cash provided by financing activities were $1.545 million in 2004. Cash provided by or used in financing activities during each year was primarily attributable to proceeds from equity offerings, mortgage
financings, and advances under the secured credit facility. Net cash used was for repayments under the secured credit facility, dividends paid and debt service payments.

Debt Service Requirements

ACRTs principal liquidity needs are payments of
interest and principal on outstanding indebtedness. As of December 31, 2006, a total of five of ACRTs nine consolidated properties were subject to outstanding mortgages which had an aggregate principal amount outstanding of $17.526
million, including $7.976 million in variable interest rate mortgages. As of December 31, 2006, the weighted averaged interest rate on ACRTs outstanding mortgages was 7.93%. The scheduled principal payments for the next five years are as
follows:



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##### Table of Contents

|     |  |   |        
|---- |  | - | -------
|2007 |  | $ | 611,968
|2008 |  |   | 576,742
|2009 |  |   | 453,255
|2010 |  |   | 479,848
|2011 |  |   | 316,286

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



|     |  |   |          
|---- |  | - | ---------
|2007 |  | $ | 3,897,539
|2009 |  |   | 3,747,919
|2011 |  |   | 3,823,982

The interest rates on ACRTs outstanding indebtedness range from 6.86% to 8.65%. The ability
of ACRT to make its balloon payments will depend upon its ability to refinance the mortgages related thereto, to sell the related property or obtain access to other 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 has also purchased interest rate caps in connection with its variable rate mortgage on the Sacramento, California
property. The interest rate cap is coterminous with the mortgage and its notional amount is equal to the outstanding principal balance for the mortgage on the Sacramento mortgage. ACRT intends to continue to mitigate its interest rate risk by using
interest rate caps or swaps in the future.

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 three of the fourteen 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.

Results of Operations



|                                                                        |  |                        |       |           |   |           |  |                         |       |  |           |       |   |  |   |      |  
|----------------------------------------------------------------------- |  | ---------------------- | ----- | --------- | - | --------- |  | ----------------------- | ----- |  | --------- | ----- | - |  | - | ---- | -
|                                                                        |  | Combined PeriodsEnding |       | Year      |   | Year      |  | Favorable (Unfavorable) |      
|Selected Income Statement Data                                          |  | December 31, 2006      |       | Dec. 2005 |   | Dec. 2004 |  | 2006-2005               |       |  | 2005-2004 |      
|                                                                        |  | (Dollars in thousands) |      
|Rental revenue                                                          |  | $                      | 4,168 |           | $ | 4,207     |  | $                       | 3,745 |  | $         | (39   | ) |  | $ | 462  |  
|Interest income                                                         |  |                        | 209   |           |   | 23        |  |                         | 103   |  |           | 186   |   |  |   | (80  | )
|Miscellaneous income                                                    |  |                        |      |           |   | 150       |  |                         |      |  |           | (150  | ) |  |   | 150  |  
|Interest expense                                                        |  |                        | 1,274 |           |   | 1,258     |  |                         | 1,257 |  |           | (16   | ) |  |   | (1   | )
|Depreciation and amortization expense                                   |  |                        | 569   |           |   | 763       |  |                         | 751   |  |           | 194   |   |  |   | (12  | )
|Management fees-affiliate                                               |  |                        | 623   |           |   | 685       |  |                         | 693   |  |           | 62    |   |  |   | 8    |  
|Property operating expenses                                             |  |                        | 578   |           |   | 599       |  |                         | 586   |  |           | 21    |   |  |   | (13  | )
|General and administrative                                              |  |                        | 115   |           |   | 113       |  |                         | 178   |  |           | (2    | ) |  |   | 65   |  
|Stock based compensation                                                |  |                        | 1,097 |           |   | 449       |  |                         | 299   |  |           | (648  | ) |  |   | (150 | )
|Professional expenses                                                   |  |                        | 685   |           |   | 485       |  |                         | 495   |  |           | (200  | ) |  |   | 10   |  
|Other expenses                                                          |  |                        | 30    |           |   | 38        |  |                         | 67    |  |           | 8     |   |  |   | 29   |  
|Minority interest in earnings of subsidiaries and undivided interests   |  |                        | 68    |           |   | 58        |  |                         | 53    |  |           | (10   | ) |  |   | (5   | )
|Equity in income of unconsolidated subsidiaries and undivided interests |  |                        | 477   |           |   | 1,162     |  |                         | 1,185 |  |           | (685  | ) |  |   | (23  | )
|Gain on sale of investment in unconsolidated subsidiary                 |  |                        | 1,546 |           |   | 400       |  |                         |      |  |           | 1,146 |   |  |   | 400  |  
|Income from discontinued operations                                     |  |                        | 3,635 |           |   | 450       |  |                         | 1,015 |  |           | 3,185 |   |  |   | (565 | )
|Net income before adjustments for liquidation basis of accounting       |  |                        | 4,996 |           |   | 1,944     |  |                         | 1,669 |  |           | 3,052 |   |  |   | 275  |  

Comparison of the Combined Periods ended December 31, 2006 to Year Ended December 31, 2005

Upon stockholders approval of the plan of liquidation on October 12, 2006, ACRT adopted the liquidation basis of
accounting. This basis of accounting is very different from the going concern basis of accounting. Therefore, it is very difficult to draw meaningful direct comparisons between results of operations for the calendar year when ACRT used a single
accounting basis-namely 2005 (going concern basis) and the calendar year 2006 which is comprised of combined fiscal periods where it used different bases- January 1, 2006 to October 11, 2006 (going concern basis) and October 12, 2006
to December 31, 2006 (liquidation basis). Although direct comparisons between the 2005 calendar year and the combined fiscal periods of January 1, 2006 to October 11, 2006 and October 12, 2006 to December 31, 2006 are
presented above, readers are cautioned to keep the changed accounting basis in mind when reviewing the comparisons.



27



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##### Table of Contents

Rental revenue decreased by $39,000 due mainly to lower rental revenue attributable to the
Montgomeryville property.

Interest income increased by $186,000 due to higher cash balances on hand in 2006 and higher interest rates on
those balances.

Miscellaneous income decreased by $150,000 due to fee paid for the termination of the HPI contract in 2005.

Interest expense increased by $16,000 due mainly to higher interest rates in 2006 offset by lower debt due to lower balances outstanding on the lines of
credit.

Depreciation and amortization expense decreased by $194,000 due to the change from Going Concern Basis to Liquidation Basis on
October 12, 2006. The change resulted in the discontinuation of depreciation expenses on ACRTs properties effective October 12, 2006.

Management fees- affiliate expense decreased by $62,000 due to sales of properties in 2006 and 2005.

Stock
based compensation increased by $648,000 due to changes in the estimated fair value of ACRTs common stock from $12.00 to $13.50 per share in 2006.

Professional expenses increased by $200,000 due to higher legal and accounting fees associated with the Proxy preparation and to higher accounting fees associated with the change from Going Concern Basis to
Liquidation Basis.

Other expenses decreased by $8,000 due primarily to interest due mainly to lower loss on the Interest Rate Cap.

Equity in income of unconsolidated subsidiaries and undivided interests decreased by $685,000 due to $494,000 related to the
discontinuance of the equity method of accounting for Triangle and the reversal of prior period estimates of ACRTs share of the Triangle investment and $42,000 due to the sale in 2006 of the Paramus and Fort Washington investments and $140,000
to lower income on the Rochelle Park investment due to losses on the interest rate cap and higher interest expense.

Income from
discontinued operations increased by $3,185,000 due mainly to the gain on sale of the Overland Park, Kansas property.

Comparison of Year Ended
December 31, 2005 to Year Ended December 31, 2004

Rental revenue increased by $462,000, of which $368,000 is
attributable to the Montgomeryville, PA property, and $53,000 is attributed to higher rents on the Sacramento, CA property due to a CPI rent increase and $42,000 in higher real estate tax reimbursements. The increase in real estate tax reimbursement
is offset by a similar increase in real estate tax expense.

Interest income decreased by $80,000 due to lower income from the Integral
loan which was repaid in September 2004 and the Willow Grove loan which was repaid in February 2005.

Miscellaneous income increased by
$150,000 attributable to the termination of the HPI sale contract.

Depreciation and amortization expense increased by $12,000 due mainly
to the amortization of the financing fees associated with the Montgomeryville line of credit, which was established in June 2004. Property operating expenses increased by $13,000 due mainly to higher real estate taxes.

General and administrative expense decreased by $65,000 due mainly to lower printing costs due to changes in the printing of the annual report and lower
travel expense and board of director fees due to one less board meeting in 2005.

Stock based compensation increased by $150,000 due to
modifications made in May 2004 to the 1997 Stock Option Plan.

Professional expenses decreased by $10,000 due to higher legal and
accounting fees in 2004 associated with ACRTs initial SEC reporting requirements, offset by higher professional fees associated with of sale of various assets and increased legal fees associated with proxy preparations and lawsuits in 2005.
Other expenses decreased $29,000 due to lower loss on the interest rate cap of $37,000, offset by $8,000 higher state taxes mainly due to the Philadelphia, PA property.

Equity in income of unconsolidated subsidiaries and undivided interests decreased by $23,000 due to lower income from the Triangle property due to lower percentage rent and lower income from the Fort Washington
property due to higher interest expense, offset by a full year of income on the Woodcliff Lake property.



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Gain on sale of investment in unconsolidated subsidiaries is attributable to the sale of the Willow Grove
member interest in 2005.

Income from discontinued operations decreased by $565,000 due mainly to the impairment charge on the Philadelphia
property and to costs associated with the sale and having less than eight months of operations in 2005 versus 10 months in 2004 and from the inclusion in 2004 of income from the Memphis, TN property leased to Federal Express which was sold in April
2004 and to lower income on the Charlotte, NC property leased to Caromont Medical due to higher interest expense.

Inflation

A majority of ACRTs long-term leases contain provisions to mitigate the adverse impact of inflation on its operating
results. Such provisions include clauses entitling ACRT to receive scheduled fixed base rent increases and base rent increases based upon the consumer price index. In addition, most of ACRTs leases require the tenants to pay operating
expenses, including maintenance, real estate taxes, insurance and utilities, thereby reducing ACRTs exposure to increases in costs and operating expenses resulting from inflation.

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.

Recently
Issued Accounting Standards

On December 24, 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and, accordingly, should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was issued in January 2003. An enterprises obligation to absorb a majority of the economic
risks of a variable interest entity (VIE), measured as its expected losses, or, if no party has an obligation to absorb a majority of the VIEs economic risks to receive a majority of the VIEs economic rewards, measured as its
expected residual returns, requires the entity to consolidate the VIE. The enterprise that consolidates the VIE is termed the primary beneficiary in FIN 46R. ACRT adopted the requirements of FIN 46R related to certain of its investments as of
March 31, 2004. FIN 46R did not have any impact on ACRTs consolidated financial position or results of operations.

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 not 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



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accounting principle and the reporting of a correction of an error. The adoption of this statement had no impact on ACRTs consolidated financial
position or results of operations.

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 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 a
material 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 adoption of EITF 05-6 did not have a material impact on ACRTs consolidated financial position or results of operations.

In June 2006, FASB issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
No. 109. FIN 48 provides guidance on recognition and measurement of uncertainties in income taxes and is applicable for fiscal years beginning after December 15, 2006. The adoption is not anticipated to have a material impact on
ACRTs consolidated financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The Statement explains key concepts that are needed to apply the definition, including market
participants, the markets in which the company would exchange the asset or liability, and the valuation premise that follows from assumptions market participants would make about the use of an asset. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods with those fiscal years. Management is currently evaluating the impact of SFAS No. 157 on the consolidated financial statements.

In September 2006, the SEC Staff issued SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108). SAB 108 provides guidance for SEC registrants on how the effects of uncorrected errors originating in previous years should be considered when quantifying errors in the current year. SAB 108 was issued to
eliminate diversity in practice for quantifying uncorrected prior year misstatements (including prior year unadjusted audit differences) and to address weaknesses in methods commonly used to quantify such misstatements (i.e., the
rollover and iron curtain methods). SAB 108 does not amend the SECs existing guidance for evaluating the materiality of errors included in SAB 99,Materiality. SAB 108 provides transitional guidance that allows
registrants to report the effect of adoption as a cumulative effect adjustment to beginning of year retained earnings. If a cumulative effect adjustment is reported, it must be reported as of the beginning of the first fiscal year ending after
November 15, 2006 (January 1, 2006 for calendar year-end companies). The initial application of the guidance did not have a significant impact on ACRTs consolidated financial statements.

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, LP (sold in May 2006), Levittown ARC, LP, Willow Grove ACRT, LLC (sold in February 2005) and ARC International Fund II, LP and its undivided interests in the
Rochelle Park property and the Paramus property (sold in October 2006).

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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Contractual Obligations



|                           |  |                        |            |                  |   |           |  |           |           |          |   |           |  |   |          
|-------------------------- |  | ---------------------- | ---------- | ---------------- | - | --------- |  | --------- | --------- | -------- | - | --------- |  | - | ---------
|                           |  | Payments due by period
|Contractual Obligations    |  | Total                  |            | Less than 1 Year |   | 1-3 Years |  | 3-5 Years |           | 5+ Years
|Long-Term Debt Obligations |  | $                      | 17,526,024 |                  | $ | 4,509,507 |  | $         | 5,257,764 |          | $ | 4,256,970 |  | $ | 3,501,783
|                           |  |                        |            |                  |   |           |  |           |           |          |   |           |  |   |          

7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ACRTs exposure to market risk relates
to its variable rate debt. As of December 31, 2006 and 2005, ACRT had two variable rate mortgages outstanding totaling $7.976 million and $8.215 million, respectively. These mortgages bear interest at LIBOR plus 206 basis points (7.38% per year
at December 31, 2006 on $3.968 million) to LIBOR plus 225 basis points (7.57% at December 31, 2006 on $4.008 million). Had the LIBOR rate been 100 basis points higher during 2006, ACRTs net income would have been reduced by
approximately $80,000. ACRT also entered into an interest rate cap agreement on a notional amount equal to the $3.968 million mortgage balance at December 31, 2006, which effectively caps the LIBOR rate at 7.45% per year.



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|ITEM 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



|                                                                                                                                                                                                                                                                                           |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|Index to Financial Statements                                                                                                                                                                                                                                                              |  | Page
|Report of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                    |  | 33  
|                                                                                                                                                                                                                                                                                           | 
|Consolidated Statement of Net Assets as of December 31, 2006 (Liquidation Basis) and
Consolidated Balance Sheets as of December 31, 2005 (Going Concern Basis)                                                                                                                             |  | 34  
|                                                                                                                                                                                                                                                                                           | 
|Consolidated Statement of Changes in Net Assets for the Period October 12, 2006 to
December 31, 2006 (Liquidation Basis) and the Consolidated Statements of Income for the Period January 1,
2006 to October 11, 2006 and the Years Ended December 31, 2005 and 2004 (Going Concern
Basis) |  | 35  
|                                                                                                                                                                                                                                                                                           | 
|Consolidated Statements of Shareholders Equity for the Period January 1, 2006
to October 11, 2006 and the Years Ended December 31, 2005 and 2004 (Going Concern Basis)                                                                                                                    |  | 36  
|                                                                                                                                                                                                                                                                                           | 
|Consolidated Statements of Cash Flows for the Period October 12, 2006 to December 31, 2006
(Liquidation Basis) and for the period January 1, 2006 to October 11, 2006 (Going Concern Basis), and for
the Years Ended December 31, 2005 and 2004 (Going Concern Basis)                      |  | 37  
|                                                                                                                                                                                                                                                                                           | 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                 |  | 38  
|                                                                                                                                                                                                                                                                                           | 
|Schedule III-Real Estate and Accumulated Depreciation as of December 31, 2006                                                                                                                                                                                                              |  | 52  



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

ARC Corporate Realty Trust, Inc.:

We have audited the accompanying consolidated balance sheet of ARC Corporate Realty Trust, Inc. and subsidiaries as of December 31, 2005, the related
consolidated statements of income, stockholders equity, and cash flows for the years ended December 31, 2005 and 2004, and the consolidated statements of income, stockholders equity, and cash flows for the period from
January 1, 2006 to October 11, 2006. In addition, we have audited the statement of net assets in liquidation as of December 31, 2006, and the related consolidated statements of changes in net assets in liquidation and cash flows in
liquidation for the period from October 12, 2006 to December 31, 2006. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance generally accepted auditing standards as established by the Auditing
Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As
described in Note 3 to the consolidated financial statements, the stockholders of ARC Corporate Realty Trust, Inc. approved a plan of liquidation on October 12, 2006, and the Company commenced liquidation shortly thereafter. As a result, the
Company has changed its basis of accounting for periods subsequent to October 12, 2006, from the going concern basis to a liquidation basis.

In our
opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ARC Corporate Realty Trust, Inc. as of December 31, 2005, the results of its operations and its cash flows for
the years ended December 31, 2005 and 2004, and for the period from January 1, 2006 to October 11, 2006, its net assets in liquidation as of December 31, 2006, and the changes in its net assets in liquidation and cash flows in
liquidation for the period from October 12, 2006 to December 31, 2006, in conformity with U.S. generally accepted accounting principles.



|                  
|------------------
|/s/ KPMG LLP      
|                  
|New York, New York
|                  
|March 15, 2007    



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ARC CORPORATE REALTY TRUST, INC.

Consolidated Statement of Net Assets (Liquidation Basis) as of December 31, 2006 and

Consolidated Balance
Sheet as of December 31, 2005 (Going Concern Basis)



|                                                                                        |  |                     |            |                       |   |            |  
|--------------------------------------------------------------------------------------- |  | ------------------- | ---------- | --------------------- | - | ---------- | -
|                                                                                        |  | 2006                |            | 2005                  |  
|                                                                                        |  | (Liquidation Basis) |            | (Going Concern Basis) |  
|Property                                                                                |  |                     |            |                       |   |            |  
|Investment in real estate                                                               |  |                     | 54,224,928 |                       |   | 41,914,566 |  
|                                                                                        |  |                    
|Investment in unconsolidated subsidiaries and undivided interests                       |  |                     | 11,761,277 |                       |   | 7,693,231  |  
|                                                                                        |  |                     |            |                       |   |            |  
|Total investment in property held for sale and investments                              |  |                     | 65,986,205 |                       |   | 49,607,797 |  
|                                                                                        |  |                    
|Cash and cash equivalents                                                               |  |                     | 11,462,671 |                       |   | 711,853    |  
|                                                                                        |  |                    
|Restricted cash                                                                         |  |                     | 436,717    |                       |   | 517,707    |  
|                                                                                        |  |                    
|Deferred rent receivable                                                                |  |                     |           |                       |   | 1,198,693  |  
|                                                                                        |  |                    
|Rent receivable                                                                         |  |                     | 65,970     |                       |   | 195,088    |  
|                                                                                        |  |                    
|Prepaid expenses and other assets, net                                                  |  |                     | 48,041     |                       |   | 592,925    |  
|                                                                                        |  |                    
|Deferred financing and other fees, net of accumulated amortization of $729,927 for 2005 |  |                     |           |                       |   | 271,389    |  
|                                                                                        |  |                    
|Deferred leasing costs, net of accumulated amortization of $130,518 for 2005            |  |                     |           |                       |   | 81,949     |  
|                                                                                        |  |                     |            |                       |   |            |  
|Total assets                                                                            |  | $                   | 77,999,604 |                       | $ | 53,177,401 |  
|                                                                                        |  |                     |            |                       |   |            |  
|Liabilities:                                                                            |  |                     |            |                       |   |            |  
|Mortgage notes payable                                                                  |  | $                   | 17,526,024 |                       | $ | 26,395,027 |  
|Due to related parties                                                                  |  |                     | 180,245    |                       |   | 45,061     |  
|Unearned rental revenue                                                                 |  |                     | 1,462      |                       |   | 31,250     |  
|Accounts payable and accrued expenses                                                   |  |                     | 464,182    |                       |   | 580,567    |  
|Reserve for estimated costs during period of liquidation                                |  |                     | 13,610,650 |                       |   |           |  
|                                                                                        |  |                     |            |                       |   |            |  
|Total liabilities                                                                       |  |                     | 31,782,563 |                       |   | 27,051,905 |  
|                                                                                        |  |                    
|Minority interest                                                                       |  |                     | 1,541,625  |                       |   | 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      |  
|Class B shares-5,000,000 authorized; 166,397 issued and outstanding                     |  |                     |           |                       |   | 166        |  
|Additional paid-in capital                                                              |  |                     |           |                       |   | 32,106,429 |  
|Deferred compensation plans                                                             |  |                     |           |                       |   | 747,930    |  
|Accumulated distributions in excess of net income                                       |  |                     |           |                       |   | (6,764,283 | )
|                                                                                        |  |                     |            |                       |   |            |  
|Total shareholders equity                                                              |  |                     |            |                       |   | 26,093,424 |  
|                                                                                        |  |                     |            |                       |   |            |  
|Total liabilities and shareholders equity                                              |  |                     |            |                       | $ | 53,177,401 |  
|                                                                                        |  |                     |            |                       |   |            |  
|Net Assets in Liquidation (available to holders of common shares)                       |  | $                   | 44,675,416 |                       |   |            |  
|                                                                                        |  |                     |            |                       |   |            |  

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



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ARC CORPORATE REALTY TRUST, INC.

Consolidated Statement of Changes in Net Assets for the Period October 12, 2006 to December 31, 2006 (Liquidation Basis)

And Consolidated Statements of Income for the Period January 1, 2006 to October 11, 2006 and for the Years Ended

December 31, 2005 and 2004 (Going Concern Basis)



|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|----------------------------------------------------------------------- |  | ------------ | ------------------- | --------------------------- | --------------- | ------------------------- | --------------- | ------------------------------- | --------- | ---- | - | --------- |  | - | ---------
|                                                                        |  |              |                     |                             |                 |                           |                 | Twelve Months Ended December 31
|                                                                        |  | Combined2006 |                     | Period 10/12/06 To 12/31/06 |                 | Period 1/1/06 To 10/11/06 |                 | 2005                            |           | 2004
|                                                                        |  |              | (Liquidation Basis) |                             | (Going Concern) |                           | (Going Concern)
|Revenues:                                                               |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Rental revenues                                                         |  | $            | 3,723,807           |                             | $               | 913,890                   |                 | $                               | 2,809,917 |      | $ | 3,772,909 |  | $ | 3,329,606
|Real estate tax reimbursements                                          |  |              | 444,054             |                             |                 | 101,764                   |                 |                                 | 342,290   |      |   | 434,266   |  |   | 415,759  
|Interest income                                                         |  |              | 209,439             |                             |                 | 91,451                    |                 |                                 | 117,988   |      |   | 22,980    |  |   | 103,228  
|Miscellaneous income                                                    |  |              |                    |                             |                 |                          |                 |                                 |          |      |   | 150,000   |  |   |         
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Total revenues                                                          |  |              | 4,377,300           |                             |                 | 1,107,105                 |                 |                                 | 3,270,195 |      |   | 4,380,155 |  |   | 3,848,593
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Expenses:                                                               |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Interest expense                                                        |  |              | 1,273,490           |                             |                 | 265,133                   |                 |                                 | 1,008,357 |      |   | 1,257,566 |  |   | 1,257,262
|Depreciation and amortization                                           |  |              | 569,263             |                             |                 |                          |                 |                                 | 569,263   |      |   | 762,731   |  |   | 750,604  
|Management fees-affiliate                                               |  |              | 623,381             |                             |                 | 123,235                   |                 |                                 | 500,146   |      |   | 684,702   |  |   | 693,132  
|Real estate taxes                                                       |  |              | 447,534             |                             |                 | 104,860                   |                 |                                 | 342,674   |      |   | 441,005   |  |   | 433,510  
|Property operating expenses                                             |  |              | 130,905             |                             |                 | 23,908                    |                 |                                 | 106,997   |      |   | 158,499   |  |   | 152,099  
|General and administrative expenses                                     |  |              | 114,647             |                             |                 | 28,764                    |                 |                                 | 85,883    |      |   | 112,894   |  |   | 177,876  
|Stock based compensation                                                |  |              | 1,097,058           |                             |                 |                          |                 |                                 | 1,097,058 |      |   | 448,758   |  |   | 299,172  
|Professional expenses                                                   |  |              | 684,991             |                             |                 | 156,087                   |                 |                                 | 528,904   |      |   | 485,632   |  |   | 494,602  
|Loss on interest rate cap, net                                          |  |              | 3,965               |                             |                 | 1,065                     |                 |                                 | 2,900     |      |   | 4,103     |  |   | 41,624   
|State and local taxes                                                   |  |              | 25,857              |                             |                 | 13,352                    |                 |                                 | 12,505    |      |   | 34,557    |  |   | 25,934   
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Total expenses                                                          |  |              | 4,971,091           |                             |                 | 716,404                   |                 |                                 | 4,254,687 |      |   | 4,390,447 |  |   | 4,325,815
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Minority interests in earnings of subsidiaries                          |  |              | 68,109              |                             |                 | 14,640                    |                 |                                 | 53,469    |      |   | 58,365    |  |   | 53,380   
|Equity in income of unconsolidated subsidiaries and undivided interests |  |              | 476,768             |                             |                 | 134,188                   |                 |                                 | 342,580   |      |   | 1,162,243 |  |   | 1,184,828
|Gain on sale of investment in unconsolidated subsidiary                 |  |              | 1,546,204           |                             |                 |                          |                 |                                 | 1,546,204 |      |   | 400,000   |  |   |          
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Income from continuing operations                                       |  |              | 1,361,072           |                             |                 | 510,249                   |                 |                                 | 850,823   |      |   | 1,493,586 |  |   | 654,226  
|                                                                        |  |              |                     |                             |                
|Income from discontinued operations                                     |  |              | 3,634,685           |                             |                 |                          |                 |                                 | 3,634,685 |      |   | 450,291   |  |   | 1,014,533
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Net income allocable to Class A and Class B shareholders                |  |              | 4,995,757           |                             |                 | 510,249                   |                 | $                               | 4,485,508 |      | $ | 1,943,877 |  | $ | 1,668,759
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Adjustments for liquidation basis of accounting                         |  |              | 15,260,518          |                             |                 | 15,260,518                |                 |                                 |           |      |   |           |  |   |          
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Net change in net assets available to holders of common shares          |  | $            | 20,256,275          |                             | $               | 15,770,767                |                 |                                 |           |      |   |           |  |   |          
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Net income per share from continuing operations - basic                 |  |              |                     |                             |                 |                           |                 | $                               | 0.25      |      | $ | 0.45      |  | $ | 0.20     
|Net income per share from discontinued operations - basic               |  |              |                     |                             |                 |                           |                 |                                 | 1.09      |      |   | 0.13      |  |   | 0.30     
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Net income per share - basic                                            |  |              |                     |                             |                 |                           |                 | $                               | 1.34      |      | $ | 0.58      |  | $ | 0.50     
|                                                                        |  |              |                     |                             |                
|Net income per share from continuing operations - diluted               |  |              |                     |                             |                 |                           |                 | $                               | 0.21      |      | $ | 0.38      |  | $ | 0.17     
|Net income per share from discontinued operations - diluted             |  |              |                     |                             |                 |                           |                 |                                 | 0.92      |      |   | 0.11      |  |   | 0.26     
|                                                                        |  |              |                     |                             |                 |                           |                 |                                 |           |      |   |           |  |   |          
|Net income per share - diluted                                          |  |              |                     |                             |                 |                           |                 | $                               | 1.13      |      | $ | 0.49      |  | $ | 0.42     
|                                                                        |  |              |                     |                             |                
|Weighted average shares outstanding-basic                               |  |              |                     |                             |                 |                           |                 |                                 | 3,348,000 |      |   | 3,348,000 |  |   | 3,348,000
|Weighted average shares outstanding-diluted                             |  |              |                     |                             |                 |                           |                 |                                 | 3,954,000 |      |   | 3,954,000 |  |   | 3,954,000

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 Period January 1, 2006 to October 11, 2006

and for the Years Ended December 31, 2005 and 2004 (Going Concern Basis)



|                                         |  |                     |       |                     |   |                          |  |   |                           |   |                                     |   |           |                          |   |            |   |  |   |            |  
|---------------------------------------- |  | ------------------- | ----- | ------------------- | - | ------------------------ |  | - | ------------------------- | - | ----------------------------------- | - | --------- | ------------------------ | - | ---------- | - |  | - | ---------- | -
|                                         |  | Class ACommonShares |       | Class BCommonShares |   | AdditionalPaid-inCapital |  |   | DeferredCompensationPlans |   | Distributionsin Excess of NetIncome |   |           | TotalShareholdersEquity |  
|Balance, January 1, 2004                 |  | $                   | 3,182 |                     | $ | 166                      |  | $ | 32,131,223                |   |                                     | $ |          |                          | $ | (4,066,278 | ) |  | $ | 28,068,293 |  
|                                         |  |                     |       |                     |   |                         
|Offering costs                           |  |                     |      |                     |   |                         |  |   | (24,794                   | ) |                                     |   |          |                          |   |           |   |  |   | (24,794    | )
|                                         |  |                     |       |                     |   |                         
|Amortization of stock based compensation |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   | 299,172   |                          |   |            |   |  |   | 299,172    |  
|                                         |  |                     |       |                     |   |                         
|Net income                               |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   |          |                          |   | 1,668,759  |   |  |   | 1,668,759  |  
|                                         |  |                     |       |                     |   |                         
|Dividends                                |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   |          |                          |   | (3,093,564 | ) |  |   | (3,093,564 | )
|                                         |  |                     |       |                     |   |                          |  |   |                           |   |                                     |   |           |                          |   |            |   |  |   |            |  
|Balance, December 31, 2004               |  |                     | 3,182 |                     |   | 166                      |  |   | 32,106,429                |   |                                     |   | 299,172   |                          |   | (5,491,083 | ) |  |   | 26,917,866 |  
|                                         |  |                     |       |                     |   |                         
|Amortization of stock based compensation |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   | 448,758   |                          |   |           |   |  |   | 448,758    |  
|                                         |  |                     |       |                     |   |                         
|Net income                               |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   |          |                          |   | 1,943,877  |   |  |   | 1,943,877  |  
|                                         |  |                     |       |                     |   |                         
|Dividends                                |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   |          |                          |   | (3,217,077 | ) |  |   | (3,217,077 | )
|                                         |  |                     |       |                     |   |                          |  |   |                           |   |                                     |   |           |                          |   |            |   |  |   |            |  
|Balance, December 31, 2005               |  |                     | 3,182 |                     |   | 166                      |  |   | 32,106,429                |   |                                     |   | 747,930   |                          |   | (6,764,283 | ) |  |   | 26,093,424 |  
|                                         |  |                     |       |                     |   |                         
|Increase in deferred compensation, net   |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   | 1,097,058 |                          |   |           |   |  |   | 1,097,058  |  
|                                         |  |                     |       |                     |   |                         
|Net income                               |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   |          |                          |   | 4,485,508  |   |  |   | 4,485,508  |  
|                                         |  |                     |       |                     |   |                         
|Dividends                                |  |                     |      |                     |   |                         |  |   |                          |   |                                     |   |          |                          |   | (926,353   | ) |  |   | (926,353   | )
|                                         |  |                     |       |                     |   |                          |  |   |                           |   |                                     |   |           |                          |   |            |   |  |   |            |  
|Balance, October 11, 2006                |  | $                   | 3,182 |                     | $ | 166                      |  | $ | 32,106,429                |   |                                     | $ | 1,844,988 |                          | $ | (3,205,128 | ) |  | $ | 30,749,637 |  
|                                         |  |                     |       |                     |   |                          |  |   |                           |   |                                     |   |           |                          |   |            |   |  |   |            |  

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



36



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

Consolidated Statements of Cash Flows

For the Period October 12, 2006 to December 31, 2006 (Liquidation
Basis) and for the Period January 1, 2006 to October 11, 2006 (Going Concern Basis)

and the Years Ended December 31, 2005 and 2004
(Going Concern Basis)



|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ------------- | ------------------- | - | --------------------------- | --------------------- | ----------- | ------------------------- | --------------------- | - | ------------------------------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                         |  | Combined 2006 |                     |   | Period 10/12/06 to 12/31/06 |                       |             | Period 1/1/06 to 10/11/06 |                       |   | For the Years Ended December 31 |  
|                                                                                                         |  |               |                     |   | 2005                        |                       |             | 2004                      |                      
|                                                                                                         |  |               | (Liquidation Basis) |   |                             | (Going Concern Basis) |             |                           | (Going Concern Basis) |  
|Cash Flows from Operating Activities:                                                                    |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Net income/Net change in net assets                                                                      |  | $             | 20,256,275          |   |                             | $                     | 15,770,767  |                           |                       | $ | 4,485,508                       |   |  | $ | 1,943,877   |   |  | $ | 1,668,759  |  
|Adjustments to reconcile net income/net change in net assets to net cashprovided by operating activities |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Adjustments for liquidation basis of accounting                                                          |  |               | (15,260,518         | ) |                             |                       | (15,260,518 | )                         |                       |   |                                |   |  |   |            |   |  |   |           |  
|Depreciation and amortization                                                                            |  |               | 686,502             |   |                             |                       |            |                           |                       |   | 686,502                         |   |  |   | 1,100,835   |   |  |   | 1,246,354  |  
|Write off of deferred financing costs                                                                    |  |               | 20,952              |   |                             |                       |            |                           |                       |   | 20,952                          |   |  |   | 141,376     |   |  |   |           |  
|Amortization of stock based compensation                                                                 |  |               | 1,097,058           |   |                             |                       |            |                           |                       |   | 1,097,058                       |   |  |   | 448,758     |   |  |   | 299,172    |  
|Amortization of acquired unfavorable lease                                                               |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   | (139,772    | ) |  |   | (181,335   | )
|Minority interest in earnings of subsidiaries                                                            |  |               | 3,629,951           |   |                             |                       | 14,882      |                           |                       |   | 3,615,069                       |   |  |   | 224,611     |   |  |   | 222,350    |  
|Impairment charge on disposed property                                                                   |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   | 287,259     |   |  |   | 52,521     |  
|Gain on sale of properties                                                                               |  |               | (6,629,366          | ) |                             |                       |            |                           |                       |   | (6,629,366                      | ) |  |   |            |   |  |   |           |  
|Gain on sale of investment in unconsolidated subsidiary                                                  |  |               | (1,546,204          | ) |                             |                       |            |                           |                       |   | (1,546,204                      | ) |  |   | (400,000    | ) |  |   |           |  
|Write off TMD minority interest                                                                          |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   | 26,648      |   |  |   | 23,924     |  
|Loss on interest rate cap                                                                                |  |               | 3,965               |   |                             |                       | 1,065       |                           |                       |   | 2,900                           |   |  |   | 16,364      |   |  |   | 69,866     |  
|Equity in income of unconsolidated subsidiaries and undivided interests                                  |  |               | (476,768            | ) |                             |                       | (134,188    | )                         |                       |   | (342,580                        | ) |  |   | (1,162,243  | ) |  |   | (1,184,828 | )
|Distributions from unconsolidated subsidiaries and undivided interests                                   |  |               | 869,514             |   |                             |                       | 134,188     |                           |                       |   | 735,326                         |   |  |   | 1,266,449   |   |  |   | 1,530,778  |  
|(Increase) decrease in assets:                                                                           |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Restricted cash                                                                                          |  |               | 80,990              |   |                             |                       | (4,589      | )                         |                       |   | 85,579                          |   |  |   | (93,672     | ) |  |   | (45,779    | )
|Rent receivable                                                                                          |  |               | 129,118             |   |                             |                       | 135,197     |                           |                       |   | (6,079                          | ) |  |   | 41,779      |   |  |   | 9,849      |  
|Deferred rent receivable                                                                                 |  |               | 489,294             |   |                             |                       |            |                           |                       |   | 489,294                         |   |  |   | (68,539     | ) |  |   | (101,628   | )
|Prepaid expenses and other assets, net                                                                   |  |               | 1,353               |   |                             |                       | 53,022      |                           |                       |   | (51,669                         | ) |  |   | 1,451       |   |  |   | 6,669      |  
|Increase (decrease) in liabilities:                                                                      |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Due to related parties                                                                                   |  |               | 135,184             |   |                             |                       | 39,731      |                           |                       |   | 95,453                          |   |  |   |            |   |  |   | (43,469    | )
|Accounts payable and accrued expenses                                                                    |  |               | (160,094            | ) |                             |                       | 17,478      |                           |                       |   | (177,572                        | ) |  |   | (271,292    | ) |  |   | 9,462      |  
|Unearned rent revenue                                                                                    |  |               | (29,788             | ) |                             |                       | (315,634    | )                         |                       |   | 285,846                         |   |  |   |            |   |  |   | 31,250     |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Net cash provided by operating activities                                                                |  |               | 3,297,418           |   |                             |                       | 451,401     |                           |                       |   | 2,846,017                       |   |  |   | 3,363,889   |   |  |   | 3,613,915  |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Cash Flows from Investing Activities:                                                                    |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Payments for tenant improvements                                                                         |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (146,971   | )
|Proceeds from the sale of unconsolidated subsidiary                                                      |  |               | 5,512,219           |   |                             |                       | 3,160,239   |                           |                       |   | 2,351,980                       |   |  |   | 400,000     |   |  |   |           |  
|Net proceeds from sale of property                                                                       |  |               | 15,367,141          |   |                             |                       |            |                           |                       |   | 15,367,141                      |   |  |   | 7,362,720   |   |  |   | 2,310,027  |  
|Due to related party, net                                                                                |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (209,675   | )
|Acquisition of properties                                                                                |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (7,527,285 | )
|Investments in unconsolidated subsidiaries and undivided interests                                       |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (753,655   | )
|Increase in notes receivable                                                                             |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (650,000   | )
|Payoff of notes receivable                                                                               |  |               | 20,940              |   |                             |                       |            |                           |                       |   | 20,940                          |   |  |   | 800,000     |   |  |   | 645,000    |  
|Principal payments in notes receivable-tenants                                                           |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   | 46,685      |   |  |   | 42,052     |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Net cash provided by (used in) investing activities                                                      |  |               | 20,900,300          |   |                             |                       | 3,160,239   |                           |                       |   | 17,740,061                      |   |  |   | 8,609,405   |   |  |   | (6,290,507 | )
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Cash Flows from Financing Activities:                                                                    |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Mortgage notes principal amortization                                                                    |  |               | (652,737            | ) |                             |                       | (114,237    | )                         |                       |   | (538,500                        | ) |  |   | (765,144    | ) |  |   | (700,994   | )
|Payoff of principal on mortgage note                                                                     |  |               | (9,816,267          | ) |                             |                       |            |                           |                       |   | (9,816,267                      | ) |  |   | (5,217,712  | ) |  |   |           |  
|Borrowings under mortgage notes payable                                                                  |  |               | 1,600,000           |   |                             |                       |            |                           |                       |   | 1,600,000                       |   |  |   |            |   |  |   | 5,300,000  |  
|Lines of credit, net                                                                                     |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   | (2,247,613  | ) |  |   | 497,613    |  
|Purchase of interest rate cap                                                                            |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (56,500    | )
|Deferred financing and other fees                                                                        |  |               | (32,677             | ) |                             |                       |            |                           |                       |   | (32,677                         | ) |  |   |            |   |  |   | (264,222   | )
|Distributions to minority interest owners                                                                |  |               | (3,618,866          | ) |                             |                       | (9,544      | )                         |                       |   | (3,609,322                      | ) |  |   | (250,159    | ) |  |   | (250,159   | )
|Offering costs paid-Class A                                                                              |  |               |                    |   |                             |                       |            |                           |                       |   |                                |   |  |   |            |   |  |   | (5,310     | )
|Class A and B dividends paid                                                                             |  |               | (926,353            | ) |                             |                       | (162,776    | )                         |                       |   | (763,577                        | ) |  |   | (3,217,077  | ) |  |   | (2,975,487 | )
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Net cash (used in) provided by financing activities                                                      |  |               | (13,446,900         | ) |                             |                       | (286,557    | )                         |                       |   | (13,160,343                     | ) |  |   | (11,697,705 | ) |  |   | 1,544,941  |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Change in cash and cash equivalents                                                                      |  |               | 10,750,818          |   |                             |                       | 3,325,083   |                           |                       |   | 7,425,735                       |   |  |   | 275,589     |   |  |   | (1,131,651 | )
|Cash and cash equivalents, beginning of period                                                           |  |               | 711,853             |   |                             |                       | 8,137,588   |                           |                       |   | 711,853                         |   |  |   | 436,264     |   |  |   | 1,567,915  |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Cash and cash equivalents, end of period                                                                 |  | $             | 11,462,671          |   |                             | $                     | 11,462,671  |                           |                       | $ | 8,137,588                       |   |  | $ | 711,853     |   |  | $ | 436,264    |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Supplement Disclosure of Cash Flow Information:                                                          |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  
|Cash payments for interest                                                                               |  | $             | 1,743,106           |   |                             | $                     | 225,071     |                           |                       | $ | 1,518,035                       |   |  | $ | 2,208,793   |   |  | $ | 2,160,465  |  
|                                                                                                         |  |               |                     |   |                             |                       |             |                           |                       |   |                                 |   |  |   |             |   |  |   |            |  

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



|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 ARC Capital Advisors L.P. (Advisor), which performs services for ACRT pursuant to the advisory agreement (the Advisory Agreement) (Note
7). 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 December 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
February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the Plan). 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.

On October 12, 2006, ACRTs shareholders approved the Plan. Effective
October 12, 2006, ACRT changed its basis of accounting from the going concern basis to the liquidation basis of accounting, which requires ACRT to record all of its assets and liabilities at fair market value at October 12, 2006 and at
each subsequent reporting period.

The Plan calls for the orderly sale of all of ACRTs assets and the payment of (or provision for)
our liabilities and expenses, as well as the establishment of a reserve to fund contingent liabilities and anticipated expenses. The principal purpose of the liquidation is to maximize stockholder value by liquidating ACRTs assets and
distributing net proceeds of the liquidation to its shareholders. ACRT intends to continue to market the remaining properties and to sell these properties on the most favorable terms possible. ACRTs believes this marketing process is likely to
maximize the consideration received for these properties. ACRT will continue to evaluate the marketing process throughout the liquidation process in order to ensure the sale of the remaining properties in the most economically attractive manner. At
such time as ACRT has sold its properties, satisfied its liabilities, and distributed the net proceeds of the sales to the stockholders, ACRT will cancel all outstanding shares of Common Stock, file Articles of Dissolution with the State Department
of Assessments and Taxation of Maryland and ACRT will cease to exist. ACRT expects to complete the liquidation within 24 months from the adoption of the Plan by the stockholders, which was October 12, 2006.

On August 10, 2005, ACRT sold the Philadelphia, Pennsylvania property leased to Barnes and Noble to an affiliate for approximately $7,734,000.

On May 23, 2006, ACRT sold its partnership interest in Fort Washington Fitness , LP which owns the property in Fort Washington,
Pennsylvania leased to LA Fitness, to its joint venture partner for $2,500,000.

On June 15, 2006, the property located in Overland
Park, Kansas leased Borders Books and Bed, Bath and Beyond, was sold to an unrelated third party for $13,600,000.

On October 6, 2006,
the property located in Norcross, Georgia leased to AT&T was sold to an unrelated third party for $2,270,000.

On October 25, 2006,
ACRT sold its tenant in common interest in the Paramus, New Jersey property leased to Babys R Us, Levitz Furniture and Wade, Odell, Wade to a related party for approximately $9,121,000.

On January 25, 2007, ACRT reached an agreement with its joint venture partner for the sale of its partnership interest in the New York, New York
property leased to National Amusement and Toys R US (see Note 5). The sale is expected to take place in the first quarter of 2007, however there is no assurance that the sale will be completed.



38



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##### Table of Contents

ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



On January 29, 2007, the due diligence period for the proposed sale of the Sacramento,
California property leased to Sports Authority expired. The sale of this property for $8,250,000 is expected to take place in the first quarter of 2007, however there is no assurance that the sale will be completed.

ACRT is currently marketing all other properties for sale and has received certain offers and nonbinding letters of intent from prospective purchasers
(Note 15).



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



| | a. | Basis of Presentation  Prior to the approval of the Plan by ACRTs shareholders on October 12, 2006, ACRT prepared its financial statements
under the going concern basis of accounting.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of ACRTs board of directors adoption of the Plan and its
approval by its stockholders on October 12, 2006, ACRT adopted the liquidation basis of accounting. Accordingly on that date, ACRTs assets were adjusted to their estimated fair value and ACRTs liabilities, including estimated costs
associated with implementing the Plan, were adjusted to their estimated settlement amounts. All non monetary assets such as deferred rent receivable, deferred financing fees and deferred leasing costs were written off. The minority interest in
ACRTs Overland Park, Kansas and Wichita, Kansas properties were adjusted to reflect the minority interest at its settlement value based upon the valuation of the related assets and liabilities.



| | b. | 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Properties  Prior to October 12, 2006, properties were carried at cost which included the purchase price, acquisition fees, and any other costs incurred in
acquiring the properties. Buildings were depreciated on a straight-line basis over their estimated useful lives, which were 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 was amortizing certain intangible costs associated
with property acquisitions over the lives of the leases underlying the properties (see Note 2e).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On October 12, 2006,
with the approval of the Plan by ACRTs shareholders, ACRTs properties were adjusted to their estimated fair value. The valuation of real estate held for sale as of December 31, 2006 is based on fair value which was determined by
either current contracts for sale and estimates of sales values based on an independent appraisal of the real estate and indications of value based upon the marketplace.



| | d. | Reserve for Estimated Costs during Period of LiquidationUnder the liquidation basis of accounting, ACRT is required to estimate and accrue the costs
associated with implementing the Plan. These amounts can vary significantly due to, among other factors, the timing and amounts associated with the discharging of known and contingent liabilities and costs associated with the cessation of
operations. The costs are estimated and are expected to be paid over the liquidation period (see Note 3 on of Liquidation Basis of Accounting).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Purchase Accounting for the Acquisition of Real EstateIn accordance with SFAS No. 141, commencing with properties acquired after
June 30, 2002 through October 12, 2006, the fair value of real estate acquired was 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) was
determined by valuing the property as if it were vacant, and the as-if vacant value was 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 included 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 included 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 estimated costs to execute similar leases including leasing commissions.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



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 were 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, was 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 was allocated between in-place lease values and tenant relationships based on
managements evaluation of the specific characteristics of each tenants lease. Prior to the adoption of the Plan, the value of in-place leases and customer relationships were amortized to expense over the remaining non-cancelable periods
of the respective leases.



| | f. | ImpairmentPrior to the adoption of the Plan, ACRT assessed the recoverability of its properties by determining whether the costs could be
recovered through projected undiscounted cash flows. The amount of impairment, if any, was measured by comparing the carrying amounts to the fair values of such properties. The evaluation included 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 updated and clarified the accounting and reporting
for the impairment of assets held in use and to be disposed of. The Statement, among other things, required ACRT to classify the operations of properties to be disposed of as discontinued operations.

During the year ended December 31, 2004, ACRT sold one property located in Memphis, Tennessee, previously designated as to be disposed and for which
an impairment charge of $52,521 had been recorded, for aggregate net proceeds of $2,310,027, which resulted in no gain or loss on the sale for financial reporting purposes.

During the year ended December 31, 2005, ACRT sold one property located in Philadelphia, Pennsylvania, previously designated as to be disposed and
for which 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.

The following presents the operating results for the properties sold for the applicable periods:



|                                    |  |                                     |  |                          |            |   |      |   |           |  
|----------------------------------- |  | ----------------------------------- |  | ------------------------ | ---------- | - | ---- | - | --------- | -
|                                    |  | For the Period                      |  | Years Ended December 31, |           
|                                    |  | January 1, 2006 to October 11, 2006 |  | 2005                     |            |   | 2004 |  
|Revenues                            |  | $  1,276,236                        |  | $                        | 3,055,757  |   |      | $ | 3,346,626 |  
|Expenses                            |  | (709,316)                           |  |                          | (2,439,220 | ) |      |   | 2,163,123 |  
|Gain on sale of property            |  | 6,629,366                           |  |                          |           |   |      |   |          |  
|Minority interest                   |  | (3,561,601)                         |  |                          | (166,246   | ) |      |   | (168,970  | )
|                                    |  |                                     |  |                          |            |   |      |   |           |  
|Income from discontinued operations |  | $ 3,634,685                         |  | $                        | 450,291    |   |      | $ | 1,014,534 |  
|                                    |  |                                     |  |                          |            |   |      |   |           |  



| | g. | 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.



| | h. | 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i. | Amortization Prior to the adoption of the Plan, deferred financing and other fees were amortized using the straight-line method over the life of the
related mortgage or line of credit. Deferred leasing costs were amortized using the straight-line method over the life of the related lease. Capitalized costs related to ACRTs equity investments were amortized over the estimated useful life of
the underlying real estate assets.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



On October 12, 2006 with the approval of the Plan the ACRTs shareholders, all deferred
costs were written-off.



| | j. | 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.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | k. | Revenue Recognition  Prior to the adoption of the Plan, rental revenue from tenant operating leases which provide for scheduled rental increases were
recognized on a straight-line basis over the term of the respective leases.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On October 12, 2006, with the approval of
the Plan by the ACRTs shareholders, all previously recorded deferred rent receivable was written off and rental revenue is recognized in accordance with the contractual terms of the 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.



| | l. | 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | m. | Earnings Per Share Prior to the adoption of the Plan, basic net income per share was 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 were 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.



|                                                                                           |  |                               |  |                          |  |      
|------------------------------------------------------------------------------------------ |  | ----------------------------- |  | ------------------------ |  | -----
|                                                                                           |  | For the Period                |  | Years Ended December 31,
|                                                                                           |  | January 1 to October 11, 2006 |  | 2005                     |  | 2004 
|                                                                                           |  | (in thousands)               
|Total weighted average Class A common shares                                               |  | 3,182                         |  | 3,182                    |  | 3,182
|Total weighted average Class B common shares                                               |  | 166                           |  | 166                      |  | 166  
|                                                                                           |  |                               |  |                          |  |      
|Weighted average number of common shares used in calculation of basic earnings per share   |  | 3,348                         |  | 3,348                    |  | 3,348
|                                                                                           |  |                               | 
|Shares issuable on exercise of warrants                                                    |  | 104                           |  | 104                      |  | 104  
|Shares issuable upon exercise of stock options (15% of outstanding common shares)          |  | 502                           |  | 502                      |  | 502  
|                                                                                           |  |                               |  |                          |  |      
|Weighted average number of common shares used in calculation of diluted earnings per share |  | 3,954                         |  | 3,954                    |  | 3,954
|                                                                                           |  |                               |  |                          |  |      



| | n. | Recent Accounting Pronouncements  On December 24, 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other
than voting rights and, accordingly, should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was issued in January 2003. An enterprises obligation to absorb a majority of the economic risks of a variable interest
entity (VIE), measured as its expected losses, or, if no party has an obligation to absorb a majority of the VIEs economic risks to receive a majority of the VIEs economic rewards, measured as its expected residual returns,
requires the entity to consolidate the VIE. The enterprise that consolidates the VIE is termed the primary beneficiary in FIN 46R. ACRT adopted the requirements of FIN 46R and the adoption did not have any impact on ACRTs consolidated
financial position or results of operations.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



In December 2004, the FASB issued SFAS No. 123R Accounting for Stock-Based
Compensation. The statement supersedes APB Opinion No. 25 Accounting for Stock Issued to Employees. The statement establishes standards for the accounting for transactions in which an entity exchanges its equity
instruments for goods or 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 entitys equity instruments or that may be settled by the
issuance of those equity instruments. The statement is effective as of the beginning of the first quarter of 2006. The adoption of this pronouncement did not have a material impact on ACRTs consolidated financial position or results of
operations.

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.
The adoption of this statement had no impact on ACRTs consolidated financial position or results of operations.

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 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 a material 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 adoption of EITF 05-6 did not have a material
impact on ACRTs consolidated financial position or results of operations.

In June 2006, FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes-an Interpretation of FASB No. 109. FIN 48 provides guidance on recognition and measurement of uncertainties in income taxes and is applicable for fiscal years beginning after
December 15, 2006. The adoption is not anticipated to have a material impact on ACRTs consolidated financial statements.

In
September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The Statement explains key
concepts that are needed to apply the definition, including market participants, the markets in which the company would exchange the asset or liability, and the valuation premise that follows from assumptions market participants would
make about the use of an asset. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods with those fiscal years. Management is currently evaluating the impact of SFAS No. 157 on the
consolidated financial statements.

In September 2006, the SEC Staff issued SAB 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides guidance for SEC registrants on how the effects of uncorrected errors originating in previous years should be considered when quantifying errors in
the current year.



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



SAB 108 was issued to eliminate diversity in practice for quantifying uncorrected prior year
misstatements (including prior year unadjusted audit differences) and to address weaknesses in methods commonly used to quantify such misstatements (i.e., the rollover and iron curtain methods). SAB 108 does not amend the
SECs existing guidance for evaluating the materiality of errors included in SAB 99,Materiality.

SAB 108 provides transitional
guidance that allows registrants to report the effect of adoption as a cumulative effect adjustment to beginning of year retained earnings. If a cumulative effect adjustment is reported, it must be reported as of the beginning of the first
fiscal year ending after November 15, 2006 (January 1, 2006 for calendar year-end companies). The cumulative effect adjustment may be reflected in the registrants Form 10-K for the year of adoption or, if adopted earlier, it may be
reflected in any Form 10-Q filed during the year of adoption. In any event, the cumulative effect adjustment should be calculated as of the first day of the fiscal year of adoption of SAB 108. The initial application of the guidance did not
have a significant impact on ACRTs consolidated financial statements.



| | o. | 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 recognizes compensation expense ratably over the
vesting period for variable stock awards previously granted under the plan. For the years ended December 31, 2006 and 2005, ACRT recognized stock based compensation expense totaling $1,097,058 and $448,758 respectively.

Compensation expense was calculated through 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 was adjusted in the first quarter of 2006 to reflect the current projected liquidation price of $13.50 a share.

On December 21, 2006, the board of directors terminated the existing ACRT Stock Options program and replaced it with a Stock Option Settlement
Agreement. Under the Stock Option Settlement Agreement, no dividends are paid to the holders of the Settlement Agreement until existing the Class A and Class B shareholders receive liquidating dividends in the amount of $8.50 (the original
option exercise price) after which the holders of the Stock Option Settlement Agreement will receive dividends with the existing Class A and Class B shareholders.



| | p. | 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 these instruments approximates their carrying values.



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



| | r. | 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 or would require accrual or disclosure in accordance with FIN47. 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



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



|3. | LIQUIDATION BASIS ACCOUNTING
|-- | ----------------------------

ACRT has adopted the
liquidation basis of accounting for all periods subsequent to October 12, 2006, the date on which the shareholders approved the Plan. Accordingly, on October 12, 2006 the assets were adjusted to their estimated fair value and the
liabilities, including estimated costs associated with implementing the Plan, were adjusted to their estimated settlement amounts. All non monetary assets such as deferred rent receivable, deferred financing fees and deferred leasing costs were
written off. The minority interest in ACRTs Overland Park, Kansas and Wichita, Kansas properties were adjusted to reflect the minority interest at its settlement value based upon the valuation of the related assets and liabilities.

Below are a Consolidated Statement of Net Assets as of October 12, 2006 under the liquidation basis of accounting and the Consolidated Balance
Sheet under the going concern basis of accounting.



|                                                                  |  |                   |            |                     |   |           
|----------------------------------------------------------------- |  | ----------------- | ---------- | ------------------- | - | ----------
|                                                                  |  | Liquidation Basis |            | Going Concern Basis
|Assets                                                            |  |                   |            |                     |   |           
|Investment in real estate                                         |  | $                 | 54,224,928 |                     | $ | 27,474,527
|Investment in unconsolidated subsidiaries and undivided interests |  |                   | 14,778,222 |                     |   | 6,835,578 
|Assets held for sale                                              |  |                   |           |                     |   | 5,809,281 
|Cash and cash equivalents                                         |  |                   | 8,137,588  |                     |   | 8,137,588 
|Restricted cash                                                   |  |                   | 432,128    |                     |   | 432,128   
|Deferred rent receivable                                          |  |                   |           |                     |   | 463,790   
|Rent receivable                                                   |  |                   | 201,167    |                     |   | 201,167   
|Prepaid expenses and other assets, net                            |  |                   | 102,127    |                     |   | 297,659   
|Deferred financing and other fees                                 |  |                   |           |                     |   | 151,247   
|Deferred leasing costs                                            |  |                   |           |                     |   | 32,710    
|                                                                  |  |                   |            |                     |   |           
|Total Assets                                                      |  | $                 | 77,876,160 |                     | $ | 49,835,675
|                                                                  |  |                   |            |                     |   |           
|Liabilities                                                       |  |                   |            |                     |   |           
|Mortgage notes payable                                            |  | $                 | 17,640,260 |                     | $ | 13,615,260
|Liabilities related to assets held for sale                       |  |                   |           |                     |   | 4,034,317 
|Dividends payable  Class B                                       |  |                   | 162,776    |                     |   | 162,776   
|Due to related parties                                            |  |                   | 140,514    |                     |   | 140,514   
|Due to joint venture partners                                     |  |                   | 392,907    |                     |   | 392,907   
|Unearned rental revenue                                           |  |                   | 317,096    |                     |   | 317,096   
|Accounts payable and accrued expenses                             |  |                   | 394,666    |                     |   | 385,349   
|Reserve for estimated costs during period of liquidation          |  |                   | 13,610,650 |                     |   |          
|                                                                  |  |                   |            |                     |   |           
|Total Liabilities                                                 |  |                   | 32,658,869 |                     |   | 19,048,219
|                                                                  |  |                   |            |                     |   |           
|Minority Interest                                                 |  |                   | 1,521,419  |                     |   | 37,819    
|                                                                  |  |                   |            |                     |   |           
|Net Assets in Liquidation/Shareholders Equity                    |  | $                 | 43,695,872 |                     | $ | 30,749,637
|                                                                  |  |                   |            |                     |   |           

The following adjustments and write-offs were made to convert the Consolidated Balance Sheet to
the October 12, 2006 Consolidated Statement of Net Assets in Liquidation.



| | - | a $21,238,679 write-up of land and building to estimated fair market value and the elimination of assets held for sale which are now included in property.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | a $8,426,806 write-up of our investments in unconsolidated subsidiaries and undivided interest to estimated fair market value.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | - | a $13,610,650 liquidation reserve for costs associated with the implementation and execution of the liquidation including settlement of ACRTs options and warrants, mortgage
settlement costs, property closing costs, commissions, professional fees, contingencies and transfer taxes related to the sale of properties, and incentive fees and disposition fees due to the Advisor.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



| | - | a $1,498,468 write-up of the minority interest to record our joint venture partners share of the net assets of the consolidated entities at fair value.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | a $431,438 charge for the write-off of deferred mortgage, leasing and financing costs.
| | - | --------------------------------------------------------------------------------------



| | - | a $709,400 charge for the write-off of deferred rent receivables.
| | - | -----------------------------------------------------------------

Under the liquidation basis of accounting, ACRT is required to estimate and accrue the costs associated with implementing the Plan. These amounts can vary significantly due to, among other factors, the timing and amounts associated with
discharging known and contingent liabilities and costs associated with cessation of operations. The costs are estimated and are expected to be paid over the liquidation period.

The following table represents the reserve for estimated costs during the period of liquidation as of December 31, 2006:



|                                   |  |   |           
|---------------------------------- |  | - | ----------
|Disposition fee due to Advisor     |  | $ | 2,099,803 
|Incentive fee due to Advisor       |  |   | 3,306,205 
|Mortgage retirement costs          |  |   | 1,969,318 
|Property sales commissions         |  |   | 1,308,498 
|Settlement of options and warrants |  |   | 3,227,152 
|Other                              |  |   | 1,699,674 
|                                   |  |   |           
|Total                              |  | $ | 13,610,650
|                                   |  |   |           



|4. | PROPERTIES AND PROPERTY INVESTMENTS
|-- | -----------------------------------

On
April 30, 2004, ACRT sold the Memphis, Tennessee property leased to Federal Express for $2,325,000 resulting in net proceeds to ACRT of approximately $2,310,000 after costs and expenses, which resulted in no gain or loss for financial reporting
purposes.

On January 3, 2005, an affiliate of the Advisor exercised its right to purchase ACRTs property located in
Philadelphia, PA leased to Barnes and Noble, 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 property for net proceeds to ACRT of
$7,362,720 after costs and expenses, which resulted in no gain or loss for financial reporting purposes.

On June 15, 2006, the
property located in Overland Park, Kansas leased Borders Books and Bed, Bath and Beyond, was sold to an unrelated third party for $13,600,000, which resulted in a gain for financial reporting purposes of $6,137,479.

On October 6, 2006, the property located in Norcross, Georgia leased to AT&T was sold to an unrelated third party for $2,270,000, which resulted
in a gain for financial reporting purposes of $491,887.

On March 13, 2007, the Sacramento, California property leased to Sports
Authority was sold for $8,250,000 to an unrelated third party (Note 15).

ACRT is currently marketing all other properties for sale and has
received certain offers and nonbinding letters of intent from prospective purchasers (Note 15).



|5. | INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES AND UNDIVIDED INTERESTS
|-- | -----------------------------------------------------------------

Prior to the adoption of the Plan on October 12, 2006, investments in non-controlled entities, which included the investments listed below, were accounted for under the equity method. 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 losses. After the adoption of the Plan on October 12, 2006, all
investments in non-controlled entities were adjusted to their estimated fair market value and any distributions received that are not a return on investment are recorded as income.

ACRTs investment in unconsolidated subsidiaries and undivided interest is as follows:



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



|                                                                                                     |  |            |   |  |              |            |   |      |   |           |      |  |   |           |  
|---------------------------------------------------------------------------------------------------- |  | ---------- | - |  | ------------ | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                     |  |            |   |  | December 31, |            |   |      |  
|                                                                                                     |  | % Interest |   |  | 2006         |            |   | 2005 |   |           |      | 
|Triangle Plaza II, LLC (Triangle)                                                                    |  | 40         | % |  | $            | 5,469,540  |   |      | $ | 3,683,237 |      |  |   |           |  
|Levittown ARC LP (Levittown)                                                                         |  | 20         | % |  |              | 627,341    |   |      |   | 160,196   |      |  |   |           |  
|Rochelle Park ACRT, LLC (Rochelle)                                                                   |  | 51         | % |  |              | 4,828,539  |   |      |   | (561,090  | )    |  |   |           |  
|Paramus ACRT, LLC (Paramus)                                                                          |  | 40         | % |  |              |           |   |      |   | 2,659,051 |      |  |   |           |  
|ARC International Fund II, LP (ARC International)                                                    |  | 11.2       | % |  |              | 835,857    |   |      |   | 760,488   |      |  |   |           |  
|Fort Washington Fitness, LP (Fort Washington)                                                        |  | 50         | % |  |              |           |   |      |   | 991,349   |      |  |   |           |  
|                                                                                                     |  |            |   |  |              |            |   |      |   |           |      |  |   |           |  
|Total                                                                                                |  |            |   |  | $            | 11,761,277 |   |      | $ | 7,693,231 |      |  |   |           |  
|                                                                                                     |  |            |   |  |              |            |   |      |   |           |      |  |   |           |  
|                                                                                                     | 
|ACRTs equity in income (loss) of unconsolidated subsidiaries and undivided interests is as follows: |  |            |   |  |             
|                                                                                                     |  |            |   | 
|                                                                                                     |  |            |   |  | 2006         |            |   | 2005 |   |           | 2004 | 
|Triangle Plaza II, LLC (Triangle)                                                                    |  | 40         | % |  | $            | (18,027    | ) |      | $ | 476,389   |      |  | $ | 497,605   |  
|Levittown ARC LP (Levittown)                                                                         |  | 20         | % |  |              | 1,912      |   |      |   | (2,477    | )    |  |   | (5,571    | )
|Rochelle Park ACRT, LLC (Rochelle)                                                                   |  | 51         | % |  |              | 152,484    |   |      |   | 293,287   |      |  |   | 303,143   |  
|Paramus ACRT, LLC (Paramus)                                                                          |  | 40         | % |  |              | 247,808    |   |      |   | 206,742   |      |  |   | 191,951   |  
|ARC International Fund II, LP (ARC International)                                                    |  | 11.2       | % |  |              | 45,188     |   |      |   | 57,561    |      |  |   | 42,347    |  
|Fort Washington Fitness, LP (Fort Washington)                                                        |  | 50         | % |  |              | 47,403     |   |      |   | 130,741   |      |  |   | 155,353   |  
|                                                                                                     |  |            |   |  |              |            |   |      |   |           |      |  |   |           |  
|Total                                                                                                |  |            |   |  | $            | 476,768    |   |      | $ | 1,162,243 |      |  | $ | 1,184,828 |  
|                                                                                                     |  |            |   |  |              |            |   |      |   |           |      |  |   |           |  

Certain of Partnership or LLC agreements for investments in real estate investment contain
provisions that stipulate a disproportionate sharing of cash flow among the investors after a specified rate of return has been achieved. Accordingly, the cash flow distributed to ACRT from an investment in real estate may not be proportionate to
ACRTs ownership interest.

Triangle

On January 5, 2005, a subsidiary of ACRT (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.

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 Triangle. On October 5, 2006, the New York Supreme Court ruled that ACRT must sell its Triangle investment for $5.4 million and required ACRT to return a distribution it received in 2005 of $340,869 with accrued interest of
approximately $43,000. As a result of the October 5, 2006 court ruling, ACRT will not receive its share of earnings from Triangle in 2006 and has ceased accounting for Triangle on the equity method. On January 25, 2007, ACRT and its
joint venture partner reached an agreement whereby ACRT will sell its partnership interest in the New York property for $5.469 million and ACRT will retain all distributions received in 2005 (Note 15).

Willow Grove

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.

Rochelle Park



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



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. No further action has been taken. Rochelle Park has received $51,000 in distributions since October 12, 2006, which have been recorded as income.

ACRT currently has a nonbinding letter of intent to sell this property for $20,500,000 to a unrelated third party, however there is no assurance that
the sale will take place.

Fort Washington

On May 23, 2006, ACRT sold its partnership interest in Fort Washington Fitness LP, which owns the property in Fort Washington, Pennsylvania leased to LA Fitness, to its joint venture partner for $2,500,000 and
recognized a gain for financial reporting purposes of $1,546,204.

Paramus

On October 25, 2006, the investment in the Paramus, NJ property leased to Babys R Us, Levitz and Wade, Odell, Wade was sold to a related party
for $9,121,498.



|6. | NOTE RECEIVABLE
|-- | ---------------

ACRT had a note receivable from a
tenant totaling $322,923 at December 31, 2005, which was included in prepaid expenses and other assets, net on the accompanying consolidated balance sheet. The note bore interest at 10.5% and principal and interest payable were due monthly. On
June 15, 2006, the note and the property located in Overland Park, Kansas were sold.



|7. | 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. The Advisor is
entitled to acquisition, financing, disposition, incentive and asset management fees.

ACRT incurred asset management fees of $623,381,
$684,702 and $693,132 for the years ended December 31, 2006, 2005 and 2004, respectively. Unpaid asset management fees included in due to related parties on the consolidated statements of net assets and consolidated balance sheets were $180,245
and $45,061 as of December 31, 2006 and 2005, respectively.

On May 23, 2006, June 15, 2006, October 6, 2006
and October 25, 2006, ACRT incurred disposition fees in the amount of $148,020, $203,796, $68,100 and $273,644 on the sales of the Fort Washington, Pennsylvania investment, the Overland Park, Kansas property, the Norcross, Georgia property and
the Paramus, New Jersey investment, respectively. 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. Estimated disposition fees due to the Advisor in connection with the Plan of $2,099,803 have been accrued as part of the reserve for estimated costs during the period of liquidation.

ACRT has also agreed to pay the Advisor incentive compensation in the amount of 25% of amounts distributed to ACRTs stockholders after the
stockholders have received distributions equal to the amount of their initial investment in shares of Common Stock plus the preferred return of 8%. The accrued incentive fee included in reserve for estimated costs during period of liquidation on the
Consolidated Statement of Net Assets as of December 31, 2006 is approximately $3.188 million.



|8. | LEASES
|-- | ------



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



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 December 31, 2006, are as follows:



|           |  |   |           
|---------- |  | - | ----------
|2007       |  | $ | 4,133,444 
|2008       |  |   | 4,165,043 
|2009       |  |   | 4,187,626 
|2010       |  |   | 4,077,256 
|2011       |  |   | 3,479,484 
|Thereafter |  |   | 14,699,204
|           |  |   |           
|           |  | $ | 34,742,057
|           |  |   |           

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 years ended December 31, 2006, 2005 and 2004 the following tenants accounted
for greater than 10% of rental revenues:



|                     |  |      |   |  |      |   |  |      |  
|-------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                     |  | 2006 |   |  | 2005 |   |  | 2004 |  
|Sports Authority     |  | 18.0 | % |  | 14.1 | % |  | 13.4 | %
|Bed, Bath and Beyond |  |     |   |  | 11.3 |   |  | 11.5 |  
|Barnes and Noble     |  |     |   |  |     |   |  | 10.9 |  
|CaroMont Medical     |  | 12.7 |   |  | 10.1 |   |  | 10.3 |  
|A.C. Moore           |  | 10.0 |   |  | 10.0 |   |  |     |  
|OfficeMax            |  | 11.1 |   |  |     |   |  |     |  



|9. | MORTGAGES PAYABLE
|-- | -----------------

ACRT has fixed rate mortgages
totaling $9,549,718 and $18,179,843 at December 31, 2006 and 2005, respectively. The fixed rate mortgages have interest rates ranging from 6.86% to 8.65% and have maturities at various dates from December 31, 2007 through July 1,
2017.

ACRT has variable rate mortgages totaling $7,976,306 and $8,215,184 at December 31, 2006 and 2005, respectively. The mortgages
carry variable interest rates of 206 and 225 basis points over LIBOR (5.32% at December 31, 2006).

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



|           |  |                        |           |                  |   |            |  |   |           
|---------- |  | ---------------------- | --------- | ---------------- | - | ---------- |  | - | ----------
|           |  | Scheduled Amortization |           | Balloon Payments |   | Total     
|2007       |  | $                      | 611,968   |                  | $ | 3,897,539  |  | $ | 4,509,507 
|2008       |  |                        | 576,742   |                  |   |           |  |   | 576,742   
|2009       |  |                        | 453,255   |                  |   | 3,747,919  |  |   | 4,201,174 
|2010       |  |                        | 479,848   |                  |   |           |  |   | 479,848   
|2011       |  |                        | 316,286   |                  |   | 3,823,982  |  |   | 4,140,268 
|Thereafter |  |                        | 783,238   |                  |   | 2,835,247  |  |   | 3,618,485 
|           |  |                        |           |                  |   |            |  |   |           
|           |  | $                      | 3,221,337 |                  | $ | 14,304,687 |  | $ | 17,526,024
|           |  |                        |           |                  |   |            |  |   |           

On January 15, 2003, in connection with ACRTs variable rate mortgage totaling
$4,414,500, 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, was reported as an asset of $ 2,821 and $6,786, as of December 31, 2006 and 2005, respectively, based on information supplied by the counter
party to the cap contract, and the change in the fair value of the interest



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



rate cap of $3,965, $4,103 and $41,624 has been recorded as a loss, and included in loss on interest rate cap, net, on the accompanying consolidated
statements of income for the years ended December 31, 2006, 2005 and 2004, respectively .

On March 4, 2004, in connection with
ACRTs variable rate mortgage totaling $5,300,000 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 had a
notional amount of $2,650,000 and the cap was coterminous with the mortgage loan. In accordance with SFAS No. 133, the interest rate cap was reflected at its fair value. The change in the fair value of the interest rate cap of $28,242 has been
recorded as a loss, and included in discontinued operations for the year ended December 31, 2004. In connection with the sale of the Philadelphia, Pennsylvania property on August 10, 2005 (Note 4), the interest rate cap was terminated.

ACRT has estimated that they will incur mortgage settlement costs of $1,969,318 to early retire the mortgage payable due to its plan of
liquidation and has accrued such costs in its reserve for estimated costs during the period of liquidation.



|10. | LINES OF CREDIT
|--- | ---------------

On April 1, 2003, ACRT
obtained a new credit facility agreement totaling $5,500,000 which bore interest at LIBOR plus 2% and required a commitment fee equal to 0.5% per annum of the unused portion of the commitment. The new facility was for a period of three years
and amounts available were 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, 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. ACRT has determined that as a result of the Plan, this credit facility was no
longer necessary and was not renewed.

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 bore interest at LIBOR plus 225 basis points and was to mature on June 16, 2009. ACRT was required to pay an annual commitment fee equal to 0.5%
on the unused portion of the facility. With the approval of the Plan on October 12, 2006, this credit facility was also cancelled.



|11. | 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 were 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 December 31, 2005, 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. There are options outstanding as of December 31, 2005 for 675,000 shares at a weighted exercise price of $8.50.



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



Compensation expense was calculated through 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 years ended December 31, 2006, 2005 and 2004 ACRT recognized stock based compensation expense totaling $1,097,058, $448,758 and $299,172, respectively.

In connection with the adoption of the Plan, the board of directors terminated the existing ACRT Stock Options program and replaced it with a Stock Option
Settlement Agreement. Under the Stock Option Settlement Agreement, no dividends are paid to the holders of the Settlement Agreement until the existing Class A and Class B shareholders receive liquidating dividends in the amount of $8.50 for
four of the directors (the original option exercise price) and $10.00 for one director, after which the holders of the Stock Option Settlement Agreement will receive dividends with the existing Class A and Class B shareholders. A similar
agreement was reached with the holders of 104,785 warrants. As of December 31, 2006, the obligation under the warrant and stock option settlement agreements amounted to $3,227,152 and is included in reserve for estimated costs during the period
of liquidation.



|12. | DIVIDENDS TO SHAREHOLDERS
|--- | -------------------------

ACRT paid cash dividends
to Class A shareholders of $763,577, $3,054,308 and $2,975,487 in 2006, 2005 and 2004, respectively.



|                                         |  |      |        |   |      |   |        |      |  |   |        |  
|---------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                         |  | 2006 |        |   | 2005 |   |        | 2004 | 
|Total dividends per share                |  | $    | 0.24   |   |      | $ | 0.96   |      |  | $ | 0.96   |  
|Ordinary income                          |  |      | 34.66  | % |      |   | 67.59  | %    |  |   | 66.82  | %
|15% rate gain                            |  |      | 40.77  | % |      |   | 12.43  | %    |  |   |       |  
|25% rate gain                            |  |      | 24.57  | % |      |   | 2.67   | %    |  |   |       |  
|Percent non-taxable as return of capital |  |      |       |   |      |   | 17.31  | %    |  |   | 33.18  | %
|                                         |  |      |        |   |      |   |        |      |  |   |        |  
|                                         |  |      | 100.00 | % |      |   | 100.00 | %    |  |   | 100.00 | %
|                                         |  |      |        |   |      |   |        |      |  |   |        |  

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

On February 8, 2006, the board of directors declared dividends to
holders of Class B common stock for 2005 totaling $162,776. These dividends were paid on November 29, 2006.



|13. | CREDIT EVENTS
|--- | -------------

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



|14. | UNAUDITED QUARTERLY FINANCIAL DATA
|--- | ----------------------------------



|                                                       |  |                                               |       |   |         |   |         |  |   |          |   |  |   |      
|------------------------------------------------------ |  | --------------------------------------------- | ----- | - | ------- | - | ------- |  | - | -------- | - |  | - | -----
|                                                       |  | 2006 (3)                                     
|                                                       |  | 3/31/06                                       |       |   | 6/30/06 |   | 9/30/06 |  |   | 12/31/06
|                                                       |  | (dollars in thousands, except per share data)
|Revenues(1)                                            |  | $                                             | 1,014 |   |         | $ | 1,060   |  | $ | 1,075    |   |  | $ | 1,228
|Net income allocable to common shareholders            |  |                                               | (175  | ) |         |   | 4,755   |  |   | (392     | ) |  |   | 808  
|Net income allocable to common shareholders per share: |  |                                               |       |   |         |   |         |  |   |          |   |  |   |      
|Basic(2)                                               |  | $                                             | (0.05 | ) |         | $ | 1.37    |  | $ | (0.12    | ) |  | $ | 0.19 
|                                                       |  |                                               |       |   |         |   |         |  |   |          |   |  |   |      
|Diluted(2)                                             |  | $                                             | (0.05 | ) |         | $ | 1.13    |  | $ | (0.12    | ) |  | $ | 0.17 
|                                                       |  |                                               |       |   |         |   |         |  |   |          |   |  |   |      



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ARC CORPORATE REALTY TRUST, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006, 2005 AND 2004



|                                                       |  |                                               |       |         |   |         |  |          |       |  |   |      
|------------------------------------------------------ |  | --------------------------------------------- | ----- | ------- | - | ------- |  | -------- | ----- |  | - | -----
|                                                       |  | 2005                                         
|                                                       |  | 3/31/05                                       |       | 6/30/05 |   | 9/30/05 |  | 12/31/05
|                                                       |  | (dollars in thousands, except per share data)
|Revenues(1)                                            |  | $                                             | 1,059 |         | $ | 1,123   |  | $        | 1,033 |  | $ | 1,165
|Net income allocable to common shareholders            |  |                                               | 595   |         |   | 516     |  |          | 249   |  |   | 584  
|Net income allocable to common shareholders per share: |  |                                               |       |         |   |         |  |          |       |  |   |      
|Basic(2)                                               |  | $                                             | 0.18  |         | $ | 0.15    |  | $        | 0.07  |  | $ | .17  
|                                                       |  |                                               |       |         |   |         |  |          |       |  |   |      
|Diluted(2)                                             |  | $                                             | 0.15  |         | $ | 0.13    |  | $        | 0.06  |  | $ | .15  
|                                                       |  |                                               |       |         |   |         |  |          |       |  |   |      

---

|(1) | All periods have been adjusted to reflect the impact of properties classified as held for sale, which are reflected in discontinued operations in the consolidated statements of
income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The sum of the quarterly income per common share amounts may not equal the full year amounts primarily because the computations of the weighted average number of common shares
outstanding for each quarter and the full year are made independently.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The 2006 Quarterly Financial Data represents income before adjustments for liquidation basis.
|--- | ---------------------------------------------------------------------------------------------



|15. | SUBSEQUENT EVENTS
|--- | -----------------

On December 15, 2007, the board of
directors approved the first liquidation dividend of $2.00 per share payable on January 31, 2007 to shareholders of record on December 31, 2006. The liquidation dividend was paid on January 31, 2007.

On March 5, 2007, the Marietta, Georgia property leased to Hollywood Video, the Lilburne, Georgia property leased to Sports Authority and OfficeMax, the Memphis,
Tennessee property leased to Walgreens, the Wichita, Kansas property leased to OfficeMax and Circuit City, the Montgomeryville, Pennsylvania property leased to A.C. Moore and Thomasville Furniture and the Charlotte, North Carolina properties leased
to Caromont Medical Group were sold to an unrelated third party for $40,000,000.

On March 12, 2007, ACRT sold its partnership interest in the
Triangle Plaza to its joint venture for $5,469,000.

On March 13, 2007 ACRT sold the Sacramento, Georgia property leased to Gart Sports for
$8,250,000.



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REAL ESTATE AND ACCUMULATED DEPRECIATION

SCHEDULE III (000S OMITTED)

DECEMBER 31, 2006

Gross Amount at which carried at end of year (A)



|                       |  |                       |  |              |        |      |   |                            |  |       |        |                          |   |               |  |                  |   |                                          |      |  |           |  |   
|---------------------- |  | --------------------- |  | ------------ | ------ | ---- | - | -------------------------- |  | ----- | ------ | ------------------------ | - | ------------- |  | ---------------- | - | ---------------------------------------- | ---- |  | --------- |  | --
|Description            |  | Location              |  | Encumbrances |        | Land |   | Buildings and Improvements |  | Total |        | Accumulated Depreciation |   | Date Acquired |  | Date Constructed |   | Useful Life Used to Compute Depreciation
|Retail                 |  | Montgomeryville, PA   |  |              |       |      |   | 1,396                      |  |       | 5,195  |                          |   | 6,591         |  |                  |  |                                          | 2003 |  | 2003      |  | NA
|Office  (4 Buildings) |  | Charlotte, NC         |  |              | 4,008  |      |   | 1,224                      |  |       | 4,439  |                          |   | 5,663         |  |                  |  |                                          | 1996 |  | 1985      |  | NA
|Retail                 |  | Wichita, KS           |  |              | 4,032  |      |   | 1,279                      |  |       | 3,427  |                          |   | 4,706         |  |                  |  |                                          | 2000 |  | 1979/2000 |  | NA
|Retail                 |  | Sacramento, CA        |  |              | 3,968  |      |   | 1,085                      |  |       | 2,555  |                          |   | 3,640         |  |                  |  |                                          | 1994 |  | 1985      |  | NA
|Retail                 |  | Marietta, GA          |  |              |       |      |   | 506                        |  |       | 656    |                          |   | 1,162         |  |                  |  |                                          | 1997 |  | 1996      |  | NA
|Retail                 |  | San Antonio, TX       |  |              |       |      |   | 896                        |  |       | 1,428  |                          |   | 2,324         |  |                  |  |                                          | 1995 |  | 1995      |  | NA
|Retail                 |  | Lilburn, GA           |  |              | 4,075  |      |   | 1,944                      |  |       | 3,299  |                          |   | 5,243         |  |                  |  |                                          | 1997 |  | 1996      |  | NA
|Industrial             |  | Plymouth, IN          |  |              | 1,443  |      |   | 304                        |  |       | 2,243  |                          |   | 2,547         |  |                  |  |                                          | 1995 |  | 1994      |  | NA
|Retail                 |  | Memphis               |  |              |       |      |   | 267                        |  |       | 843    |                          |   | 1,110         |  |                  |  |                                          | 1994 |  | 1994      |  | NA
|                       |  | Fair Market Value Adj |  |              |       |      |   |                           |  |       | 21,239 |                          |   | 21,239        |  |                  |  |                                          |      |  |           |  |   
|                       |  |                       |  |              |        |      |   |                            |  |       |        |                          |   |               |  |                  |   |                                          |      |  |           |  |   
|                       |  |                       |  | $            | 17,526 |      | $ | 8,901                      |  | $     | 45,324 |                          | $ | 54,225        |  | $                |  |                                          |      |  |           |  |   
|                       |  |                       |  |              |        |      |   |                            |  |       |        |                          |   |               |  |                  |   |                                          |      |  |           |  |   

---

|(A) | The initial costs include the purchase price paid by ACRT and acquisition fees and expenses.
|--- | --------------------------------------------------------------------------------------------



|                                                                                 |  |              |        |   |      |   |         |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                 |  | December 31, |       
|                                                                                 |  | 2006         |        |   | 2005 |   |         | 2004 | 
|Reconciliation of Real Estate Owned:                                             |  |              |        |   |      |   |         |      |  |   |        |  
|Balance at the beginning of period                                               |  | $            | 49,065 |   |      | $ | 59,584  |      |  | $ | 51,820 |  
|Additions during the period                                                      |  |              |       |   |      |   |        |      |  |   | 10,519 |  
|Properties sold during the period                                                |  |              | (9,929 | ) |      |   | (10,519 | )    |  |   | (2,755 | )
|Accumulated depreciation netted against real estate                              |  |              | (6,150 | ) |      |   |        |      |  |   |       |  
|Fair market value adjustment                                                     |  |              | 21,239 |   |      |   |        |      |  |   |       |  
|                                                                                 |  |              |        |   |      |   |         |      |  |   |        |  
|Balance at end of the period                                                     |  | $            | 54,225 |   |      | $ | 49,065  |      |  | $ | 59,584 |  
|                                                                                 |  |              |        |   |      |   |         |      |  |   |        |  
|Reconciliation of Accumulated Depreciation:                                      |  |              |        |   |      |   |         |      |  |   |        |  
|Balance at the beginning of period                                               |  | $            | 7,151  |   |      | $ | 6,401   |      |  | $ | 5,875  |  
|Depreciation expense                                                             |  |              | 576    |   |      |   | 934     |      |  |   | 1,087  |  
|Accumulated depreciation of property sold during the period                      |  |              | (1,577 | ) |      |   | (184    | )    |  |   | (561   | )
|Accumulated depreciation eliminated on change to liquidation basis of accounting |  |              | (6,150 | ) |      |   |        |      |  |   |       |  
|                                                                                 |  |              |        |   |      |   |         |      |  |   |        |  
|Balance at end of the period                                                     |  | $            |       |   |      | $ | 7,151   |      |  | $ | 6,401  |  
|                                                                                 |  |              |        |   |      |   |         |      |  |   |        |  



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of ACRTs disclosure
controls and procedures (as defined in rule 13a-15 (e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this annual report on Form 10-K was made under
the supervision and with the participation of ACRTs management , including its Chief Executive Officer and its Chief Financial Officer. Based upon this evaluation, ACRTs Chief Executive Officer and its Chief Financial Officer have
concluded that ACRTs disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by ACRT in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and
reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by ACRT in reports filed or submitted under the Exchange Act is accumulated and communicated to ACRTs
management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have been no significant changes in ACRTs internal controls
over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) or in other factors that occurred during the period covered by this annual report on form 10-K that has materially affected or is reasonably likely to materially affect
ACRTs internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None



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PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
|-------- | ----------------------------------------------

As
of December 31, 2006, ACRT has seven Directors, five of whom are Independent Directors. The Directors and executive officers of ACRT are as follows:



|                          |  |                                               
|------------------------- |  | ----------------------------------------------
|NAME                      |  | OFFICE                                        
|Robert J. Ambrosi#        |  | Chairman, President and Class III Director    
|James Steuterman*+        |  | Class III Director                            
|Richard G. Kelley*+#      |  | Class II Director                             
|Garrett E. Sheehan*       |  | Class II Director                             
|Mervin H. Goldman, CPA*+# |  | Class I Director                              
|Dietmar Georg*            |  | Class I Director                              
|Marc Perel, CPA           |  | Executive Vice President and Class II Director
|Claudia Graff             |  | Vice President                                
|Joseph M. Morena          |  | Treasurer                                     
|Bruce Nelson, CPA         |  | Chief Financial Officer                       

---

|* | Independent Director
|- | --------------------

|+ | Member of the Audit Committee
|- | -----------------------------

|# | Member of the Compensation Committee
|- | ------------------------------------

Robert J. Ambrosi, 56, is Chairman, President and a Class III Director of ACRT, and President and founder of ARC Properties, Inc.,
an affiliate of the Advisor. Mr. Ambrosi has more than 25 years of experience in the acquisition, development and management of real estate projects internationally. He began his real estate career as a real estate investment analyst for the
Mutual Life Insurance Company of New York. From 1976 to 1978, he was Vice President of Marcil Properties, Inc. a Canadian-based investment company which concentrated on the acquisition of U.S. real estate on behalf of foreign-based investors.
Mr. Ambrosi is also the co-founder and President of Tibor Pivko + Company, a real estate company which acts as an advisor to foreign-based investors and has activities in the United States, Europe and the Middle East, and has acted as managing
principal in more than 50 separate real estate entities. Mr. Ambrosi is also President and owner of ARC Financial Services, Inc., which is a member of the NASD. Mr. Ambrosi has a Bachelor of Science degree in Engineering from the New
Jersey Institute of Technology, a Masters degree in Finance from Rutgers University and a Senior Certificate in Real Estate from New York University.

James M. Steuterman, 50, is a Class III Director of ACRT and is a Senior Vice President of Toll Brothers Realty Trust (Toll), a commercial development and management firm specializing in
retail, multi-family and office development. Mr. Steuterman joined Toll in 2002. Toll Brothers Realty Trust is an affiliate of Toll Brothers, Inc. (NYSE: TOL), a Fortune 1000 company and the nations leading builder of luxury homes. Prior
to joining Toll, Mr. Steuterman was the Chief Operating Officer of New Plan Excel Realty Trust (New Plan), a publicly traded real estate company with a national portfolio of property investments exceeding $3.0 billion. In addition,
Mr. Steuterman was a member of New Plans Board of Directors and its Investment Committee. Prior to 1984, Mr. Steuterman worked with Schnuck Markets, Inc., a regional grocery chain, and Baur Properties, a developer of suburban office
parks and warehouse space. Mr. Steuterman holds a Business degree from the University of Missouri and is an active member of the International Council of Shopping Centers and National Association of Real Estate Investment Trusts.

Richard G. Kelley, 75, is a Class II Director of ACRT and the former Chairman, Chief Executive Officer, and Director of Citizens
First National Bank. Mr. Kelley has more than 35 years of banking experience and has been Chairman, President, Chief Executive Officer, and Director of three commercial banks. He was president of the American Institute of Banking and was also a
presidential appointment as a full-time consultant for the U.S. Department of Commerce in Washington, D.C., and appointed by the Governor as a member of the State of New Jersey Banking Advisory Committee. Mr. Kelley attended the Rutgers
University Stonier Graduate School of Banking where he was president of his class, and subsequently, a faculty member and member of the Board of Regents. He has a Bachelor of Science degree in Management and a Juris Doctorate in Law from Quinnipiac
University where he is currently trustee, member of the Executive Committee and Chairman of the Academic Affairs Committee.

Garrett
E. Sheehan, 58, is a Class II Director of ACRT, and is presently Managing Director of Sentinel Real Estate Investment Corporation, a real estate advisory and investment management firm. Prior to joining Sentinel in 1999, he was a
Managing Director of Jones Lang Wootton, an international real estate services and advisory firm. In his ten years at Jones Lang Wootton, he was a broker/dealer affiliate, and a partner in its national Investment Sale and Finance Group. Prior to
joining Jones Lang Wootton, he was a Vice President of the Pivko Group and a Commercial Loan and Acquisition Officer for Travelers Insurance in its Real Estate Investment Department. He received a Bachelor of Arts degree from Trinity College in
Hartford, Connecticut and a graduate degree from Oxford University in England.



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Mervin H. Goldman, CPA,79 retired, is a Class I Director of ACRT and was formerly a
Senior Partner in, and founder of, the accounting firm of Dorfman, Goldman, Stobezki & Goldman, P.A. Mr. Goldman founded Dorfman & Goldman in 1974 and has over 20 years of experience in public accounting and financial
planning. Prior to 1974, Mr. Goldman held positions of Vice President of Finance and Operations and Treasurer for firms in the textile industry. In 1994, Mr. Goldman was appointed to the Advisory Board of Valley National Bank, in Wayne,
New Jersey. Mr. Goldman received a Bachelor of Science degree in Accounting from New York University. In addition to being a Certified Public Accountant, he is also a member of the New Jersey CPA Society and the American Institute of Certified
Public Accountants.

Dietmar Georg, 52, is a Class I Director and is a Managing Director and Principal of GLL Real
Estate Partners (GLL), an international real estate advisory and management firm which he formed with majority shareholders Lend Lease (London) and Assicurazioni Generali. Prior to forming GLL, Mr. Georg was a Managing Director of
HVB Capital Markets, Inc. (HVBCM), the New York-based U.S. investment banking subsidiary of Munich-based HypoVereinsbank, Germanys second largest bank and Europes largest real estate lender. He also serves as chief executive
of entities investing in retail and office properties. Mr. Georg is a frequent speaker at real estate conferences both in Germany and in the U.S. and has authored several articles in real estate, finance and business publications.
Mr. Georg has earned dual masters degrees in Business Administration, University of Giessen, and in Economics, Kansas State University, Manhattan, Kansas.

Marc Perel, CPA, 53, is a Class II Director and Executive Vice President of ACRT and has been Senior Vice President of ARC Properties, Inc. since 1985. From 1984 to 1985, Mr. Perel was employed by
Secured Properties, Inc., a real estate investment company. From 1977 to 1984, Mr. Perel was with Zimmerman & Co., a certified public accounting firm, where he became head of the firms real estate department in 1980 and a partner
in 1984. During that period, he was responsible for due diligence, property audits, investor reporting, tax planning and investment analysis. In addition to his accounting experience, Mr. Perel has experience in and continues to be involved
with real estate development and property management. Mr. Perel has a Bachelor of Science degree in Accounting from Long Island University and is a Certified Public Accountant.

Claudia Graff, 58, is Vice President of ACRT and Vice President of ARC Properties, Inc., since 1985 and has more than 17 years of
experience in the acquisition and analysis of credit lease properties. Ms. Graff is currently responsible for the screening of properties submitted to ACRT and the coordination of market research and valuation data. Prior to her involvement in
the real estate business, Ms. Graff was an office and systems administrator for the Security Mutual Life Insurance Company in Kearney, Nebraska.

Bruce Nelson, CPA, 52, is the Chief Financial Officer of ACRT and Controller of ARC Properties, Inc. Mr. Nelson, who is a Certified Public Accountant, holds a Bachelor of Science degree in
Accounting from William Paterson College of New Jersey and a Masters degree in Business Administration and Finance from Fairleigh Dickinson University. Prior to joining ACRT in 1996, Mr. Nelson held a variety of financial and accounting
positions, most recently as Controller and Treasurer for the Cirkus Real Estate Group, one of the largest real estate developers and property managers in New Jersey. Prior to that, Mr. Nelson was the Corporate Accounting Manager for Becton,
Dickinson & Co., a Fortune 500 company. Mr. Nelson is responsible for all accounting operations of ACRT.

Joseph M.
Morena, 53, is Treasurer of ACRT. Prior to joining ACRT in 1996, Mr. Morena was Vice President and Chief Financial Officer of Tel-Save Holdings Inc., a publicly traded telecommunications company. From 1980 to 1993,
Mr. Morena was Vice President and Treasurer of Air & Water Technologies Inc., a publicly traded international engineering and construction company. Mr. Morena has substantial experience in corporate finance, including capital
raising in the public IPO market, bank loan, public bond and private placement markets. Mr. Morena also has significant business management experience in the area of financial statement preparation and control, as well as communication of
financial performance to institutional investors. Mr. Morena is a graduate of New York University from which he received BS and MBA degrees in Banking and Finance.

Compensation of Directors

Each independent director receives annual compensation of
$5,000, a meeting fee of $1,000 for each Board meeting and a committee meeting fee of $500 for all committee members, plus costs of attending meetings. In addition, each Independent Director has been awarded an option under the Option Plan to
purchase 5,000 shares of Class A Common Stock. These options have been terminated pursuant to agreements providing for payment of the value they represent, at the time and to the same extent that liquidating distributions are paid to
shareholders.

Audit Committee

The Audit Committee has three members, Messrs. Goldman, Steuterman and Kelley. The Audit Committee meets on a quarterly basis. During its quarterly meetings, the Audit Committee reviews ACRTs financial statements and credit reports on
each of ACRTs tenants. In connection with the issuance of ACRTs annual and quarterly financial statements, the Audit Committee meets with ACRTs independent registered public accounting firm to discuss the financial statements and
any related issues with management. Each director who serves on the Audit Committee receives fees of $500 for each meeting attended. The Board of Directors has



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determined that Mr. Goldman is an Audit Committee independent financial expert as defined by Securities and Exchange Commission regulations.

Compensation Committee

The
Compensation Committee has three members, Messrs. Ambrosi, Goldman and Kelley. The Compensation Committee meets separately from the entire Board as needed but not less than annually. The Compensation Committee reviews the cash compensation of the
Directors and officers of ACRT as well as reviews non-cash compensation that may include stock options, restricted stock and stock appreciation rights pursuant to the 1997 Stock Option Plan. Each member of the Compensation Committee, other than
Mr. Ambrosi, receives fees of $500 for each meeting attended.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and certain
stockholders to file reports of ownership and transactions that result in changes in ownership of our equity securities on prescribed forms with the SEC.

Based solely on our review of the copies of these forms, we believe that during the year ended December 31, 2006, all directors and executive officers of ACRT made all necessary filings.

Code of Ethics

In light of the pending
liquidation, the Board of Directors has determined not to incur the expense associated with adopting a Code of Ethics applicable to ACRT Management.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The Advisor

ACRT is managed by its advisor, ARC Capital Advisors L.P, a Maryland limited partnership, which is affiliated with
Mr. Ambrosi, ACRTs President and Chairman. The Advisor performs services for ACRT pursuant to the terms of an advisory agreement (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. ACRT pays the Advisor fees pursuant to the Advisory Agreement as follows:



| |  |  | Acquisition fees equal to 3% of the purchase price of the property;
| | - |  | -------------------------------------------------------------------



| |  |  | Financing fees equal to .5% of the principal amount financed;
| | - |  | -------------------------------------------------------------



| |  |  | Annual asset management fees 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). In addition, on a yearly basis, the net asset value for all
properties used in the calculation of the annual asset management fee are recalculated by an outside, independent party and this revised net asset value is the basis used in the calculation of the annual asset management fee;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Disposition fees equal to 3% of the contract sales price of the property being sold; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Incentive compensation in the amount of 25% of amounts distributed to ACRTs stockholders after the stockholders have received distributions equal to the
amount of their initial investment in shares of Common Stock plus the preferred return of 8%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ACRT reimbursed the Advisor $1,250 per month for various legal functions connected with stock transfers and filings of ACRT. The reimbursements were not required
after May of 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ACRT has no employees because all of its management functions are performed by the Advisor with
oversight from the Board of Directors.

The term of the Advisory Agreement ends on December 31, 2010. The Advisory Agreement may be
terminated:



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| |  |  | immediately by ACRT for Cause;
| | - |  | ------------------------------



| |  |  | by the Advisor with at least 60 days written notice; or
| | - |  | --------------------------------------------------------



| |  |  | immediately with Good Reason by the Advisor.
| | - |  | --------------------------------------------

Good Reason is defined in the Advisory Agreement to mean either:



| |  |  | any failure by ACRT to obtain a satisfactory agreement from its successor to assume and agree to perform ACRTs obligations under the Advisory Agreement; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any material breach of the Advisory Agreement of any nature whatsoever by ACRT.
| | - |  | -------------------------------------------------------------------------------

Cause is defined in the Advisory Agreement to mean fraud, criminal conduct, willful misconduct, breach of fiduciary duty by the Advisor, a
material breach of the Advisory Agreement by the Advisor or the Bankruptcy of the Advisor.

The Advisory Agreement is not assignable
without the consent of the other party; however, either ACRT or the Advisor may assign or transfer the Advisory Agreement to a successor entity.

The Advisor and its Affiliates expect to engage in other business ventures and, as a result, their resources will not be dedicated exclusively to ACRTs business. However, pursuant to the Advisory Agreement, the Advisor must devote
sufficient resources to the administration of ACRT to discharge its obligations.

1997 Stock Option Plan

In March 1997, the Board of Directors adopted, and the shareholders of ACRT approved, ACRTs 1997 Stock Option Plan under which an aggregate of
750,000 shares of all classes of Common Stock were reserved for issuance. Shares issued under the Option Plan can be of Class A, Class B or Class C Common Stock. The Option Plan is intended to qualify as an incentive stock option
plan under Section 422 of the Code. Both incentive stock options and non-qualified stock options may be awarded under the Option Plan. Awards under the Option Plan may be granted to officers, employees, consultants and advisors of ACRT and its
subsidiaries. Administration of the Option Plan is vested in the Compensation Committee, which has the authority to interpret the Option Plan, select the persons to whom grants are to be made, designate the number of shares to be covered by each
grant, and determine the time or times and the manner in which each option will be exercisable and the duration of the exercise period.

Except for grants to 10% shareholders of ACRT, the maximum term of options granted under the Option Plan is 10 years. Provisions are made for the exercise of options upon the death, disability or termination of employment by the optionee.

With respect to options which are incentive stock options, and except with respect to 10% shareholders, the exercise price per share of
common stock that may be purchased under the stock option may be determined by the Compensation Committee at the time of grant but may not be less than the fair market value on the date of grant for an incentive stock option. The exercise price per
share for grants of non-qualified stock options to non-10% shareholders cannot be less than the par value of the shares of stock underlying the option.

If an optionee, at the time the option is granted, owns 10% or more of the total combined voting power of all classes of stock of ACRT or any subsidiary, the option price of an incentive option must be at least 110%
of the fair market value of the stock (determined at the time of grant) subject to the option and any such option will only be exercisable for five years from the date of grant.

On January 21, 1998, ACRT granted the Advisor a non-qualified option to purchase 725,000 shares of Class A Common Stock at an exercise price of
$8.50 per share. These options vested in four equal installments, beginning upon the date of grant and continuing upon the first, second and third anniversaries of the date of grant. On October 23, 2003, the Advisor agreed to amend its option
agreement whereby 75,000 options were cancelled. In accordance with the cancellation of those options, they became available for grant under the Stock Option Plan. On January 21, 1998, ACRT granted each of its five 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 per share. In January 2000, ACRT granted each of its two 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 per share. On October 23, 2003, Mr. Steuterman, a newly appointed non-employee Director, was granted a non-qualified option to purchase 5,000 shares of Class A
Common Stock at an exercise price of $8.50 per share. Each of these options 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. Upon termination of
service as a Director of ACRT, all options granted under the Option Plan are terminated. In 1998 and 2003, three non-employee Directors holding a total of 15,000 stock options retired with their



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stock options unexercised. These stock options were retired and are available to be re-granted. These options will vest in full immediately upon a change of
control (as defined in the option agreement) of ACRT. As of December 31, 2005, there were 75,000 shares of Common Stock available for grant under the Option Plan.

The vesting of all of the foregoing options will be accelerated upon a Change of Control (as defined in the Option Plan) of ACRT, the sale of all or substantially all of ACRTs assets, and/or the adoption of a
plan of liquidation by ACRT. However, an optionee may not exercise his options, regardless of any regular or accelerated vesting schedule provided by the option agreements, unless both of the following requirements are met:



| | (a) | Either
| | --- | ------



| | (1) | the shares of Class A Common Stock are listed for trading on any national securities exchange or is quoted on any tier of the Nasdaq Stock Market, including, without
limitation, the Nasdaq Stock Market, the Nasdaq Small-Cap Market or the Over-the-Counter Bulletin Board System or any other automated quotation service; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | the occurrence of a Change in Control of ACRT, the sale of all or substantially all of ACRTs assets, or the adoption of a plan of liquidation by ACRT; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | immediately prior to such exercise, the number of shares of Common Stock issued and outstanding as a result of the exercise of options granted under the Option Plan (including the
number of shares that the optionee desires to exercise) do not exceed 15% of the total number of then issued and outstanding shares of Common Stock.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For purposes of the foregoing calculation, the number of shares that the optionee desires to exercise will be included in the total number of then issued and outstanding shares of Common Stock.

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

Amendments
to the Stock Option Plan were recommended by the Board of Directors and approved by the shareholders of ACRT at the annual meeting held in May 2004. The Stock Option Plan now allows for grants of options until March 31, 2013. In addition, the
current term of outstanding stock options awarded pursuant to the Stock Option Plan were extended from 10 years to 15 years and all future stock options awarded pursuant to the Stock Option 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.

In connection with the adoption of the Plan, the
board of directors terminated the existing ACRT Stock Options program and replaced it with a Stock Option Settlement Agreement. Under the Stock Option Settlement Agreement, no dividends are paid to the holders of the Settlement Agreement until the
existing Class A and Class B shareholders receive liquidating dividends in the amount of $8.50 for four of the directors (the original option exercise price) and $10.00 for one director, after which the holders of the Stock Option Settlement
Agreement will receive dividends with the existing Class A and Class B shareholders. A similar agreement was reached with the holders of 104,785 warrants. As of December 31, 2006, the obligation under the warrant and stock option
settlement agreements amounted to $3,227,152 and is included in reserve for estimated costs during the period of liquidation.

Employment
Contracts

ACRT does not have any employees nor any employment agreements other than the Advisory Agreement with the Advisor.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

Class A Common Stock.As of December 31, 2006, there were 3,181,540 shares of Class A Common Stock outstanding. The following table sets forth, as of December 31, 2006, the beneficial
ownership of shares of:



| |  |  | each person who holds more than a 5% interest in ACRT;
| | - |  | ------------------------------------------------------



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| |  |  | the directors of ACRT;
| | - |  | ----------------------



| |  |  | the executive officers of ACRT; and
| | - |  | -----------------------------------



| |  |  | the directors and executive officers of ACRT as a group.
| | - |  | --------------------------------------------------------



|                                                |  |               |     |  |                                
|----------------------------------------------- |  | ------------- | --- |  | -------------------------------
|                                                |  | No. of Shares |     |  | Percentage ofOutstanding Shares
|Robert J. Ambrosi(1)                            |  | 33,074        | (2) |  | 1.0%                           
|James Steuterman                                |  |              | (2) |  |                               
|Richard G. Kelley                               |  | 2,702         | (2) |  | *                              
|Garrett E. Sheehan                              |  |              | (2) |  |                               
|Mervin H. Goldman                               |  | 4,000         | (2) |  | *                              
|Dietmar Georg                                   |  |              | (2) |  |                               
|Marc Perel                                      |  | 2,702         |     |  | *                              
|Claudia Graff                                   |  | 540           |     |  | *                              
|Joseph Morena                                   |  | 3,242         |     |  | *                              
|Bruce Nelson                                    |  | 5,202         |     |  | *                              
|                                                |  |               |     |  |                                
|All directors and executive officers as a group |  | 51,462        |     |  | 1.6%                           
|                                                |  |               |     |  |                                

---

|* | Represents less than 1% of the outstanding Shares.
|- | --------------------------------------------------

|(1) | The address for all persons named is 1401 Broad Street, Clifton, NJ 07013.
|--- | --------------------------------------------------------------------------

|(2) | Certain persons to whom ACRT granted stock options, including the Advisor which is controlled by
Mr. Ambrosi, have entered into Stock Option Settlement Agreements with ACRT, the terms of which are described in Item 5 under the heading Equity Plan Compensation Information. As a result of these agreements, the stock options
have been terminated and therefore are not reflected in this table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Class B Common Stock.As of December 31,
2006, there were 166,397 shares of Class B Common Stock outstanding. All of the currently issued and outstanding Class B Common Stock is beneficially owned by Working Capital Invest, N.V.

The Board of Directors has the authority to issue Class C Common Stock to management of ACRT and the Advisor. However, the Board of Directors intends to
issue Class C Common Stock only in the event of a threatened or actual takeover of ACRT. The Class C Common Stock has ten votes per share, and, if issued, could give management and/or the Advisor effective control over the affairs of ACRT, including
the election of all of the Directors of ACRT.

ACRT is not aware of any arrangements which may, at a subsequent date, result in a change in
control of ACRT, which would result in the issuance of Class C Common Stock.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The
Advisory Agreement

Many of the services to be performed by the Advisor in managing ACRTs day-to-day activities are
summarized below. This summary is provided to illustrate the material functions, which the Advisor will perform for ACRT as its advisor, and it is not intended to include all of the services which may be provided to ACRT by the Advisor or by third
parties. Under the terms of the Advisory Agreement, the Advisor undertakes to use its best efforts to present to ACRT investment opportunities consistent with its investment policies and objectives as adopted by ACRTs Board of Directors. In
its performance of this undertaking, the Advisor, subject to the authority of the Board, either directly or indirectly, will:



| |  |  | serve as ACRTs investment and financial advisor;
| | - |  | -------------------------------------------------



| |  |  | provide the daily management of ACRT, including perform and supervise the administrative functions of ACRT;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | investigate and select and, on behalf of ACRT, engage and conduct business with persons and entities to provide ACRT with services necessary or desirable for the
performance of its obligations, including, but not limited to, consultants, accountants, lenders, attorneys, brokers, insurance agents, property owners and banks;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in consultation with ACRTs officers and Directors, formulate and implement ACRTs financial and other policies and objectives;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide the Directors with periodic reports with respect to prospective investments;
| | - |  | ------------------------------------------------------------------------------------



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| |  |  | negotiate on ACRTs behalf with banks or lenders for loans and with broker-dealers for the sale of shares;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | obtain for, or provide to, ACRT services in connection with acquiring, managing and disposing of ACRTs properties or loans;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | provide or arrange for administrative services, personnel and other overhead items necessary to ACRTs business;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | provide ACRT with accounting and other financing reporting assistance;
| | - |  | ----------------------------------------------------------------------



| |  |  | maintain ACRTs books and records;
| | - |  | ----------------------------------



| |  |  | provide cash management services; and
| | - |  | -------------------------------------



| |  |  | provide such other services as may be required from time to time for the management of ACRT and its assets.
| | - |  | -----------------------------------------------------------------------------------------------------------

The term of the Advisory Agreement ends on December 31, 2010.

The Advisor must obtain the prior approval of the Directors, including a majority of the Independent Directors, for transactions involving:



| | (1) | investments in property made through joint venture arrangements with the Advisor or its affiliates;
| | --- | ---------------------------------------------------------------------------------------------------



| | (2) | investments in property which are not contemplated by the terms of ACRTs investment guidelines;
| | --- | ------------------------------------------------------------------------------------------------



| | (3) | transactions that present issues which involve conflicts of interest for the Advisor (other than payment of fees and expenses); and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | (4) | making or purchasing any loans on behalf of ACRT.
| | --- | -------------------------------------------------

Joint
ventures with the Advisor or its affiliates will only be permitted if:



| | (1) | the affiliate has a comparable investment objective as ACRT;
| | --- | ------------------------------------------------------------



| | (2) | there is no duplication of property management or other fees to the Advisor; and
| | --- | --------------------------------------------------------------------------------



| | (3) | the affiliate makes its investment on substantially the same terms and conditions as ACRT.
| | --- | ------------------------------------------------------------------------------------------

The cost of generating joint investments will be shared ratably among the participating investors and ACRT.

ACRT will reimburse the Advisor quarterly for certain operating, general and administrative expenses, including, without limitation, the following:



| |  |  | Offering Expenses (as defined in the Advisory Agreement);
| | - |  | ---------------------------------------------------------



| |  |  | all operating expenses (as defined in the Advisory Agreement) paid or incurred by ACRT;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | fees and expenses of outside counsel, accountants and auditors of ACRT;
| | - |  | -----------------------------------------------------------------------



| |  |  | payments to Directors and the expenses associated with meetings of the Directors and the shareholders;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | expenses incurred in connection with payment of distributions to shareholders;
| | - |  | ------------------------------------------------------------------------------



| |  |  | travel expenses for ACRT business; and
| | - |  | --------------------------------------



| |  |  | expenses of managing and operating the properties owned by ACRT, including insurance costs.
| | - |  | -------------------------------------------------------------------------------------------

ACRT will not reimburse the Advisor or its affiliates to the extent such amounts would exceed those which would be payable to non-affiliated third
parties in the same location for similar products or services.



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|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
following table presents audit fees charged by KPMG LLP for the years ended December 31, 2006 and 2005 and fees billed for other services rendered by KPMG LLP.



|                   |  |      |         |      |   |        
|------------------ |  | ---- | ------- | ---- | - | -------
|                   |  | 2006 |         | 2005
|Audit Fees         |  | $    | 150,000 |      | $ | 92,000 
|Audit Related Fees |  |      | 112,060 |      |   | 48,000 
|                   |  |      |         |      |   |        
|Total              |  | $    | 262,060 |      | $ | 140,000
|                   |  |      |         |      |   |        



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Part IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



|    |  |                                  |  |      
|--- |  | -------------------------------- |  | -----
|    |  |                                  |  | Page 
|(a) |  | (1) Financial Statements         |  | 34-37
|    |  | (2) Financial Statement Schedule |  | 52   
|    |  | (3) Exhibits                     |  | 62   



|            |  |                                                                                                                                                                                               
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                                       
|21.1        |  | Subsidiaries of ARC Corporate Realty Trust, Inc.                                                                                                                                              
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to rule 13a-14(a)/ 15d-14(a) of the Securities Exchange Act of 1934, 12 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(3)
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to rule 13a-14(a)/ 15d-14(a) of the Securities Exchange Act of 1934, 12 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(3)
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(2)                                          
|            | 
|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(2)                                          



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##### Table of Contents

SIGNATURES

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



ARC CORPORATE REALTY TRUST, INC.By:

/s/ Robert J. AmbrosiName:

Robert J. AmbrosiTitle:

Chairman and PresidentDate:

March 15, 2007By:

/s/ Bruce NelsonName:

Bruce NelsonTitle:

Chief Financial OfficerDate:

March 15, 2007


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



|                       |  |                                      
|---------------------- |  | -------------------------------------
|/s/ Robert J. Ambrosi 
|Name:                  |  | Robert J. Ambrosi                    
|Title:                 |  | Chairman and President               
|                      
|/s/ Bruce Nelson      
|Name:                  |  | Bruce Nelson                         
|Title:                 |  | Chief Financial Officer              
|                      
|/s/ Dietmar Georg     
|Name:                  |  | Dietmar Georg                        
|Title:                 |  | Director                             
|                      
|/s/ Mervin H. Goldman 
|Name:                  |  | Merv Goldman                         
|Title:                 |  | Director                             
|                      
|/s/ Richard G. Kelley 
|Name:                  |  | Richard G. Kelley                    
|Title:                 |  | Director                             
|                      
|/s/ Marc Perel        
|Name:                  |  | Marc Perel                           
|Title:                 |  | Director and Executive Vice President
|                      
|/s/ Garrett E. Sheehan
|Name:                  |  | Garrett E. Sheehan                   
|Title:                 |  | Director                             
|                      
|/s/ James Steuterman  
|Name:                  |  | James Steuterman                     
|Title:                 |  | Director                             

DATE: March 15, 2007



63