UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549






FORM 10-K







(Mark
      One)x
                              Annual
      Report Pursuant to Section 13 or 15(d) of theSecurities
      Exchange Act of 1934For
      the fiscal year ended December 31, 2008or
  o
                            Transition
      Report Pursuant to Section 13 or 15(d) of theSecurities
      Exchange Act of 1934






For
the transition period from
                
to




Commission
File Number: 333-145949




American
Realty Capital Trust, Inc.


(Exact
name of registrant as specified in its charter)





Maryland
            
            71-1036989(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)106
      York Road, Jenkintown, PA
            
            19046(Address
      of principal executive offices)
            
            (Zip
      Code)(215)
      887-2189(Registrant’s
      telephone number, including area code)Securities
      registered pursuant to section 12(b) of the Act:NoneSecurities
      registered pursuant to section 12(g) of the Act:Common
      stock, $.01 par value per share(Title
      of class)




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o    No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o    No 
x




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




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




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.






Large accelerated
      filer o
            Accelerated filer
      oNon-accelerated
      filer  x
      (Do not check if a smaller reporting company)
            Smaller reporting
      company o


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




There is
no established market for the Registrant’s shares of common stock. The
Registrant is currently conducting the ongoing initial public
offering of its shares of common stock pursuant to a Registration
Statement on Form S-11, which shares are being sold at $10.00 per
share, with discounts available for certain categories of purchasers. The
aggregate market value of the common shares held by non-affiliates as of
June 30, 2008 (the last business day of the registrant’s most recently
completed second fiscal quarter) was approximately $918,652.




As of
February 27, 2009, the registrant had 1,507,481 shares of common stock
outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




The
Registrant incorporates by reference portions of its Definitive Proxy Statement
for the 2009 Annual Meeting of Stockholders, which is expected to be filed no
later than April 29, 2009, into Part III of this Form 10-K to the
extent stated herein.










AMERICAN
REALTY CAPITAL TRUST, INC.


FORM 10-K


Year
Ended December 31, 2008




PagePART
IItem 1.
                  Business
                  
                  2Item 1A.
                  Risk
Factors
                  
                  6Item 1B.
                  Unresolved Staff
      Comments
                  
                  22Item 2.
                  Properties
                  
                  22Item 3.
                  Legal
      Proceedings
                  
                  24Item 4.
                  Submission of Matters to a Vote of
      Security Holders
                  
                  24PART IIItem 5.
                  Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
                  
                  25Item 6.
                  Selected Financial
      Data
                  
                  28Item 7.
                  Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
                  
                  29Item 7A.
                  Quantitative and Qualitative
      Disclosures about Market Risk
                  
                  36Item 8.
                  Financial Statements and
      Supplementary Data
                  
                  36Item 9.
                  Changes in and Disagreements With
      Accountants on Accounting and Financial Disclosure
                  
                  36Item 9A(T).
                  Controls and
      Procedures
                  
                  36Item 9B.
                  Other
      Information
                  
                  37PART IIIItem 10.
                  Directors, Executive Officers and
      Corporate Governance
                  
                  37Item 11.
                  Executive
      Compensation
                  
                  37Item
12.
                  Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
                  
                  37Item 13.
                  Certain Relationships and Related
      Transactions, and Director Independence
                  
                  37Item 14.
                  Principal Accounting Fees and
      Services
                  
                  37PART IVItem 15.
                  Exhibits and Financial
      Statement Schedules
                  
                  38Signatures
                  
                  41




i




Forward-Looking
Statements




Certain
statements included in this annual report on Form 10-K are forward-looking
statements. Those statements include statements regarding the intent, belief or
current expectations of American Realty Capital Trust, Inc. and members of our
management team, as well as the assumptions on which such statements are based,
and generally are identified by the use of words such as “may,” “will,” “seeks,”
“anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should”
or similar expressions. Actual results may differ materially from those
contemplated by such forward-looking statements. Further, forward-looking
statements speak only as of the date they are made, and we undertake no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time, unless required by law.




The
following are some of the risks and uncertainties, although not all risks and
uncertainties, that could cause our actual results to differ materially from
those presented in our forward-looking statements:




•
            
            We
      and our advisor have a limited operating history and our advisor has
      limited experience operating a public company. This inexperience makes our
      future performance difficult to
predict.




•
            
            All
      of our executive officers are also officers, managers and/or holders of a
      direct or indirect controlling interest in our advisor, our dealer manager
      and other American Realty Capital-affiliated entities. As a result, our
      executive officers, our advisor and its affiliates face conflicts of
      interest, including significant conflicts created by our advisor’s
      compensation arrangements with us and other investors advised by American
      Realty Capital affiliates and conflicts in allocating time among these
      investors and us. These conflicts could result in unanticipated
      actions.




•
            
            Because
      investment opportunities that are suitable for us may also be suitable for
      other American Realty Capital-advised programs or investors, our advisor
      and its affiliates face conflicts of interest relating to the purchase of
      properties and other investments and such conflicts may not be resolved in
      our favor, meaning that we could invest in less attractive assets, which
      could reduce the investment return to our
  stockholders.




•
            
            While
      we are investing the proceeds of our ongoing initial public offering, the
      competition for the type of properties we desire to acquire may cause our
      distributions and the long-term returns of our investors to be lower than
      they otherwise would.




•
            
            We
      depend on tenants for our revenue, and, accordingly, our revenue is
      dependent upon the success and economic viability of our
      tenants.




•
            
            Increases
      in interest rates could increase the amount of our debt payments and limit
      our ability to pay distributions to our stockholders.•
            
            We
      may not generate cash flows sufficient to pay our dividends to
      stockholders, as such we may be forced to borrow at higher rates or depend
      on our advisor  to waive reimbursement of certain expenses and fees
      to fund our operations.




All
forward-looking statements should be read in light of the risks identified in
Part I, Item IA of this annual report on Form
10-K.









PART I




Item 1. Business.




Organization




American
Realty Capital Trust, Inc. (the “Company”) was incorporated in August 2007
as a Maryland corporation that intends to qualify as a real estate investment
trust (“REIT”) for federal income tax purposes beginning with the taxable year
that ended December 31, 2008.  As a REIT, we generally are not subject to
corporate-level income taxes.  To maintain our REIT status, we are
required, among other requirements, to distribute annually at least 90% of our
“REIT taxable income,” as defined by the Internal Revenue Code of 1986, as
amended (the “Code”), to our stockholders.  If we fail to qualify as a REIT
in any taxable year, we would be subject to federal income tax on our taxable
income at regular corporate tax rates.


The
Company acquires and operates commercial properties. All such properties may be
acquired and operated by the Company alone or jointly with another
party.  We purchased our first property and commenced our real estate
operations in March 2008. As of December 31, 2008, the Company owned 92
properties comprising approximately 713,000 square feet of freestanding, single
tenant commercial space. As of December 31, 2008, these properties were 100%
occupied.


In
September 2007, we filed a registration statement on Form S-11 with the
Securities and Exchange Commission (the “SEC”) to offer a minimum of 750,000
shares and a maximum of 150,000,000 shares of common stock for sale to the
public. The SEC declared our registration statement effective in January 2008,
and we launched our ongoing initial public offering in March 2008 upon retaining
Realty Capital Securities, LLC, an affiliate of the advisor, to serve as the
dealer manager of the offering (the “Dealer Manager”). The Dealer Manager is
responsible for marketing our shares in the ongoing initial public
offering.




The
Company is managed by American Realty Capital Advisor, LLC (the “Advisor”) and
American Realty Capital Properties, LLC, which serves as the Company’s property
manager (the “Property Manager”). These affiliates, along with the Dealer
Manager, receive compensation and fees for services related to the ongoing
offering and for the investment and management of the Company’s assets. These
entities receive fees during the offering, acquisition, operational and
liquidation stages.





In March
2008 we broke escrow in our ongoing initial public offering and accepted
subscriptions for 899,679 shares valued at approximately $9.0 million. As
of December 31, 2008, the Company issued 1,276,814 shares of common stock,
including shares issued through under our Dividend Reinvestment Plan (the
“DRIP”) and 339,077 shares issued in connection with an acquisition in
March 2008. Total gross proceeds from these issuances were $11,720,112. As of
December 31, 2008, the aggregate value of all share issuances and subscriptions
outstanding was $14,829,622 based on a per share value of $10.00 (or $9.50 per
share for shares issued under the Distribution Reinvestment Plan (the “DRIP”).
This amount includes stock subscriptions of $2,069,367 which are maintained
by the Company’s third-party escrow agent, to be released when certain escrow
requirements have been achieved.





Substantially
all of the Company’s business is conducted through American Realty Capital
Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The
Company is the sole general partner of and owns a 99.01% partnership interest in
the OP. The Advisor is the sole limited partner and owner of 0.99% (minority
interest) of the partnership interests of the OP.  The limited partner
interests have the right to convert Operating Partnerships units into cash or,
at the option of the Company, an equal number of common shares of the Company,
as allowed by the limited partnership agreement.





2





Investment
Objectives




We invest
in commercial real estate properties. Our primary investment objectives
are:





•
            to
      provide current income for investors through the payment of cash
      distributions; and





•
            to
      preserve and return investors’ capital
  contributions.




We also
seek capital gain from our investments. Investors may be able to obtain a return
on all or a portion of their capital contribution in connection with the sale of
an investor’s shares if we list our shares on an exchange. We cannot assure
investors that we will attain any of these objectives. See “Risk
Factors.”




Our core
investment strategy for achieving these objectives is to acquire, own and manage
a portfolio of free standing commercial properties that are leased to a
diversified group of credit worthy companies on a single tenant, net lease
basis. Net leases generally require the tenant to pay substantially all of the
costs associated with operating and maintaining the property such as
maintenance, insurance, taxes, structural repairs and all other operating and
capital expenses (referred to as “triple-net leases”).




We will
seek to list our shares of common stock for trading on a national securities
exchange only if a majority of our directors believe listing would be in our
best interests. We do not intend to list our shares at this time. We do not
anticipate that there will be any market for our common stock until our shares
are listed or quoted. In making the decision to apply for listing of our shares
to provide other forms of liquidity, such as selling our properties and other
assets either on a portfolio basis or individually or engaging in a business
combination transaction, our board of directors will evaluate whether listing
the shares, liquidating or another transaction would be in our best interests.
It cannot be determined at this time the circumstances, if any, under which the
board of directors would determine to list the shares. If we do not list our
shares of common stock on the New York Stock Exchange or NASDAQ Stock Market by
December 1, 2018, we intend to either:





•
            seek
      stockholder approval of an extension or amendment of this listing
      deadline; or





•
            seek
      stockholder approval to adopt a plan of liquidation of the
      corporation.




If we
sought and did not obtain stockholder approval of an extension or amendment to
the listing deadline, we intend then to adopt a plan of liquidation and begin an
orderly sale of our properties.




Our board
of directors may revise our investment policies, which we describe in more
detail below, without the concurrence of our stockholders. Our independent
directors will review our investment policies, which we discuss in detail below,
at least annually to determine that our policies are in the best interest of our
stockholders.




Acquisition
and Investment Policies




The
Company seeks to build a diversified portfolio comprised primarily of
free-standing single-tenant bank branch, convenience store, retail, office and
industrial properties that are double-net and triple-net leased to investment
grade (S&P BBB- or better) and other creditworthy tenants. Triple-net (NNN)
leases typically require the tenant to pay substantially all of the costs
associated with operating and maintaining the property such as maintenance,
insurance, taxes, structural repairs and all other operating and capital
expenses. Double-net (NN) leases typically provide that the landlord is
responsible for maintaining the roof and structure, or other structural aspects
of the property, while the tenant is responsible for all remaining expenses
associated with the property. We will seek to build a portfolio where at least
50% of the portfolio will be comprised of properties leased to investment grade
tenants. While most of our investment will be directly in such properties, we
may also invest in entities that own or invest in such properties. We shall
strive to assemble a portfolio of real estate that is diversified by industry,
geography, tenants, credits, and use. We do not anticipate any single tenant or
geographic concentration to comprise more than 10% of our portfolio. We
anticipate that our portfolio will consist primarily of freestanding,
single-tenant properties net leased for use as bank branches, convenience
stores, retail, office and industrial establishments. Although we expect our
portfolio will consist primarily of freestanding, single-tenant properties, we
will not forgo opportunities to invest in other types of real estate investments
that meet our overall investment objectives.




Borrowing
Policies




Our
Advisor believes that utilizing borrowing is consistent with our investment
objective of maximizing the return to investors. By operating on a leveraged
basis, we will have more funds available for investment in properties. This will
allow us to make more investments than would otherwise be possible, resulting in
a more diversified portfolio. There is no limitation on the amount we may borrow
against any single improved property. However, under our charter, we are
required to limit our borrowings to 75% of the greater of the aggregate cost
(before deducting depreciation or other non-cash reserves) or the aggregate fair
market value of our gross assets as of the date of any borrowing (and to 300% of
our net assets (as defined in our charter)), unless excess borrowing is approved
by a majority of the independent directors and disclosed to our stockholders in
the next quarterly report along with the justification for such excess
borrowing. In the event that we issue preferred stock that is entitled to a
preference over the common stock in respect of distributions or liquidation or
is treated as debt under accounting principles generally accepted in the United
States of America (“GAAP”), we will include it in the leverage restriction
calculations, unless the issuance of the preferred stock is approved or ratified
by our stockholders. We expect that during the period of the offering we will
request that our independent directors approve borrowings in excess of this
limitation since we will then be in the process of raising our equity capital to
acquire our portfolio. However, we anticipate that our overall leverage
following our offering stage will be within our charter limit.




3




The
Advisor will use its best efforts to obtain financing on the most favorable
terms available to us. All of our financing arrangements must be approved by a
majority of our board members including a majority of our independent directors.
Lenders may have recourse to assets not securing the repayment of the
indebtedness.




Our
operating partnership may, with the approval from our independent board of
directors, utilize unsecured revolving equity lines in connection with property
acquisitions as opportunities present themselves, which equity shall be repaid
as we raise common equity.  Currently, we have two such equity
lines:  (1) up to $10 million dollars provided by certain managing
principals of American Realty Capital II, LLC, which as of December 31, 2008 has
been called to the extent of $6.5 million, and (2) up to $10 million dollars
provided by a joint venture between Cambr Company, Inc. and certain managing
principals of American Realty Capital II, LLC, which as of December 31, 2008 has
been called to the extent of $8.4 million.




In
addition, short-term equity facilities may be obtained from third parties on a
case-by-case basis as acquisition opportunities present themselves simultaneous
with our capital raising efforts. We view the use of short-term equity
facilities as an efficient and accretive means of acquiring real estate in
advance of raising equity capital. Accordingly, we can take advantage of buying
opportunities as we expand our fund raising activities.  A third party
contributed a total of approximately $8 million of preferred but unsecured
equity towards the acquisition of the two of our property
acquisitions.  The preferred equity in one of our property
acquisitions is convertible into shares of common stock in the
Company.




Distribution
Policy




To
maintain our qualification as a REIT, we are required to make aggregate annual
distributions to our stockholders of at least 90% of our annual taxable income
(which does not necessarily equal net income as calculated in accordance with
GAAP. Our board of directors may authorize distributions in excess of those
required for us to maintain REIT status depending on our financial condition and
such other factors as our board of directors deems relevant. We calculate our
monthly distributions based upon daily record and distribution declaration dates
so investors may be entitled to distributions immediately upon purchasing our
shares.




On
February 25, 2008, our board of directors declared a distribution for each
monthly period commencing 30 days subsequent to acquiring our initial portfolio
of real estate investments, payable in cash on the 2nd day following each month
end to stockholders of record at the close of business each day during the
applicable period. We acquired our initial real estate investment on March 5,
2008.  Accordingly, our daily dividend commenced accruing on April 5,
2008.  The REIT’s initial distribution payment was paid to
shareholders on May 21, 2008 representing dividends accrued from April 5, 2008
through April 30, 2008.  Subsequently, we modified the payment date to
the 2nd day following each month end to stockholders of record at the close of
business each day during the applicable period.  The distribution is
calculated based on stockholders of record each day during the applicable period
at a rate of $0.00178082191 per day, and equals a daily amount that, if paid
each day for a 365-day period, would equal a 6.5% annualized rate based on the
share price of $10.00.  During the year
ended December 31, 2008, distributions paid totaled $445,284, inclusive of
$149,725 of common shares issued under the dividend reinvestment
plan.  As of December 31, 2008, cash used to pay our distributions was
entirely generated from funds received from operating activities and fee waivers
from our advisor.  Our distributions have not been paid from any other
sources.  We have continued to pay distributions to our shareholders each
month since our initial dividend payment.





On
November 5, 2008, the board of directors approved an increase in its annual cash
distribution from $.65 to $.67 per share. Based on a $10.00 share price, this 20
basis point increase, effective January 2, 2009, is an annualized distribution
rate of 6.7%.





The
following is a chart of monthly distributions declared and paid since the
commencement of the offering:





Total
                          
                          
                          Cash
                          
                          
                          Distribution Reinvestment
      PlanApril
                          
                          $
                          –
                          
                          
                          $
                          –
                          
                          
                          $
                          –May
                          
                          
                          30,262
                          
                          
                          
                          22,008
                          
                          
                          
                          8,253June
                          
                          
                          49,638
                          
                          
                          
                          35,283
                          
                          
                          
                          14,354July
                          
                          
                          55,042
                          
                          
                          
                          34,788
                          
                          
                          
                          20,255August
                          
                          
                          57,584
                          
                          
                          
                          36,519
                          
                          
                          
                          21,064September
                          
                          
                          61,395
                          
                          
                          
                          39,361
                          
                          
                          
                          22,035October
                          
                          
                          61,425
                          
                          
                          
                          41,078
                          
                          
                          
                          20,347November
                          
                          
                          65,496
                          
                          
                          
                          43,646
                          
                          
                          
                          21,850December
                          
                          
                          64,443
                          
                          
                          
                          42,877
                          
                          
                          
                          21,567Total
                          
                          $
                          445,284
                          
                          
                          $
                          295,559
                          
                          
                          $
                          149,725





4




The
Company pays the Advisor an annualized asset management fee of 1.0% based on the
aggregate contract purchase price of all properties. Through December 31, 2008,
the Company paid no such fees to the Advisor. The Advisor has elected to waive
its asset management fee through December 31, 2008, and will determine if such
fees will be waived in subsequent periods on a quarter-to-quarter basis. Such
waived fees for the period ended December 31, 2008 equal approximately
$733,086.  If the Advisor had not agreed to waive the asset management
fee, we would not have had sufficient cash to fund our
distributions.  Had this been the case, additional borrowings would
have been incurred to fund our monthly distributions.




Tax
Status




We plan
to make an election to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code, effective for our taxable year ended December 31, 2008.
We believe that, commencing with such taxable year, we are organized and operate
in such a manner as to qualify for taxation as a REIT under the Internal Revenue
Code. We intend to continue to operate in such a manner to qualify for taxation
as a REIT, but no assurance can be given that we will operate in a manner so as
to qualify or remain qualified as a REIT. Pursuant to our charter, our board of
directors has the authority to make any tax elections on our behalf that, in
their sole judgment, are in our best interest. This authority includes the
ability to elect not to qualify as a REIT for federal income tax purposes or,
after qualifying as a REIT to revoke or otherwise terminate our status as a
REIT. Our board of directors has the authority under our charter to make these
elections without the necessity of obtaining the approval of our stockholders.
In addition, our board of directors has the authority to waive any restrictions
and limitations contained in our charter that are intended to preserve our
status as a REIT during any period in which our board of directors has
determined not to pursue or preserve our status as a REIT.




Competition




The
United States commercial real estate investment market continues to be highly
competitive. We actively compete with many other entities engaged in the
acquisition and operation of commercial properties. As such, we compete for a
limited supply of properties and financing for these properties that meet our
investment criteria. Investors include large institutional investors, pension
funds, REITs, insurance companies, as well as foreign and private investors.
These entities may have greater financial resources than we do. This increased
competition in the commercial real estate and finance markets may limit the
number of suitable properties available to us and result in higher pricing,
lower yields and an increased cost of funds. These factors could also result in
delays in the investment of proceeds from our ongoing initial public
offering.




Regulations




Our investments are subject to various
federal, state, local and foreign laws, ordinances and regulations, including,
among other things, zoning regulations, land use controls, environmental
controls relating to air and water quality, noise pollution and indirect
environmental impacts such as increased motor vehicle activity.  We believe
that we have all permits and approvals necessary under current law to operate
our investments.




5




Environmental




As an
owner of real estate, we are subject to various environmental laws of federal,
state and local governments. Compliance with existing laws has not had a
material adverse effect on our financial condition or results of operations, and
management does not believe it will have such an impact in the future. 
However, we cannot predict the impact of unforeseen environmental contingencies
or new or changed laws or regulations on properties in which we hold an
interest, or on properties that may be acquired directly or indirectly in the
future.




Employees




We have
no direct employees.  The employees of the Advisor and other affiliates
perform a full range of real estate services for us, including acquisitions,
property management, accounting, legal, asset management, wholesale brokerage
and investor relations services.




We are
dependent on these affiliates for services that are essential to us, including
the sale of shares of our common stock, asset acquisition decisions, property
management and other general administrative responsibilities.  In the event
that these companies were unable to provide these services to us, we would be
required to provide such services ourselves or obtain such services from other
sources.




Financial
Information About Industry Segments




Our
current business consists of owning, managing, operating, leasing, acquiring,
investing in and disposing of real estate assets.  All of our consolidated
revenues are from our consolidated real estate properties.  We internally
evaluate operating performance on an individual property level and view all of
our real estate assets as one industry segment, and, accordingly, all of our
properties are aggregated into one reportable segment.




Available
Information




We
electronically file annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and all amendments to those
reports with the SEC.  We also have filed with the SEC a registration
statement in connection with our current offering.  Copies of our filings
with the SEC may be obtained from the website maintained for us and our
affiliates at www.americanrealtycap.comor
from the SEC’s website at www.sec.gov .  Access to
these filings is free of charge.  We are not incorporating our website or
any information from the website into this Form 10-K.




Item 1A. Risk Factors.
  Risks
Related to an Investment in American Realty Capital Trust, Inc.
  We
have limited operating history and established financing sources, and the prior
performance of real estate investment programs sponsored by affiliates of our
advisor may not be an indication of our future results.
  We have
limited operating history and investors should not rely upon the past
performance of other real estate investment programs sponsored by affiliates of
our advisor to predict our future results. We were incorporated on August 17,
2007. We have made limited investments in real estate.  Although Mr.
Schorsch, Mr. Kahane and other members of our advisor’s management have
significant experience in the acquisition, finance, management and development
of commercial real estate, the prior performance of real estate investment
programs sponsored by affiliates of Mr. Schorsch, Mr. Kahane and our advisor may
not be indicative of our future results.
  Moreover,
neither our advisor nor we have any established financing sources. Presently,
our advisor is funded by capital contributions from American Realty Capital II,
LLC, a company wholly owned by Mr. Schorsch, Mr. Kahane, Mr. Budko, Mr. Weil and
Mr. Block. If our capital resources, or those of our advisor, are insufficient
to support our operations, we will not be successful.
  Investors
should consider our prospects in light of the risks, uncertainties and
difficulties frequently encountered by companies that are, like us, in their
early stage of development. To be successful in this market, we must, among
other things:
 
 •
              identify
      and acquire investments that further our investment
      strategies;
 
 •
              increase
      awareness of the American Realty Capital Trust, Inc. name within the
      investment products market;
 
 •
              expand
      and maintain our network of licensed securities brokers and other
      agents;
 
 •
              attract,
      integrate, motivate and retain qualified personnel to manage our
      day-to-day operations;
 
 •
              respond
      to competition for our targeted real estate properties and other
      investments as well as for potential investors;
  and
 
 •
              continue
      to build and expand our operations structure to support our
      business.
  6
  We cannot
guarantee that we will succeed in achieving these goals, and our failure to do
so could cause investors to lose all or a portion of their
investments.
  Because
this is a blind pool offering, investors will not have the opportunity to
evaluate all of our investments before we make them, which makes an investment
in us more speculative.
  Since inception, we have acquired only
a limited number of properties. Additionally, we will not provide investors with
information to evaluate our investments prior to our acquisition of properties.
We will seek to invest substantially all of the offering proceeds available for
investment, after the payment of fees and expenses, in the acquisition of
freestanding, single-tenant commercial properties net leased to investment grade or other
creditworthy tenants. We may also, in the discretion of our advisor, invest in
other types of real estate or in entities that invest in real estate. We will
acquire or invest in properties located only in the United States and the
Commonwealth of Puerto Rico. In addition, our advisor may make or invest in
mortgage, bridge or mezzanine loans or participations therein on our behalf if
our board of directors determines, due to the state of the real estate market or
in order to diversify our investment portfolio or otherwise, that such
investments are advantageous to us. We have established policies relating to the
creditworthiness of tenants of our properties, but our board of directors will
have wide discretion in implementing these policies, and investors will not have
the opportunity to evaluate potential tenants.
  There
is no public trading market for our shares and there may never be one;
therefore, it will be difficult for investors to sell their shares.
  There
currently is no public market for our shares and there may never be one. If
investors are able to find a buyer for their shares, investors may not sell
their shares unless the buyer meets applicable suitability and minimum purchase
standards. Our charter also prohibits the ownership of more than 9.8% of the
aggregate of our stock or of any class or series of our stock by a single
investor, unless exempted by our board of directors, which may inhibit large
investors from desiring to purchase their shares. Moreover, our share repurchase
program includes numerous restrictions that would limit investors’ ability to
sell their shares to us. Our board of directors may reject any request for
repurchase of shares, or amend, suspend or terminate our share repurchase
program upon 30 days’ notice. Therefore, it will be difficult for them to sell
their shares promptly or at all. If they are able to sell their shares, they
will likely have to sell them at a substantial discount to the price they paid
for the shares. It also is likely that their shares would not be accepted as the
primary collateral for a loan. Investors should purchase the shares only as a
long-term investment because of the illiquid nature of the shares.
  If
we, through American Realty Capital Advisors, LLC, are unable to find suitable
investments, then we may not be able to achieve our investment objectives or pay
distributions.
  Our
ability to achieve our investment objectives and to pay distributions is
dependent upon the performance of American Realty Capital Advisors, LLC, our
advisor, in acquiring our investments, selecting tenants for our properties and
securing independent financing arrangements. Investors must rely entirely on the
management ability of American Realty Capital Advisors, LLC and the oversight of
our board of directors. We cannot be sure that American Realty Capital Advisors,
LLC will be successful in obtaining suitable investments on financially
attractive terms or that, if it makes investments on our behalf, our objectives
will be achieved. If we, through American Realty Capital Advisors, LLC, are
unable to find suitable investments, we will hold the proceeds of the offering
in an interest-bearing account or, invest the proceeds in short-term,
investment-grade investments.
  We
may suffer from delays in locating suitable investments, which could adversely
affect our ability to make distributions and the value of their
investment.
  We could suffer from delays in locating
suitable investments, particularly as a result of our reliance on our advisor at
times when management of our advisor is simultaneously seeking to locate
suitable investments for other affiliated programs. Delays we encounter in the
selection, acquisition and, in the event we develop properties, development of
income-producing properties, likely would adversely affect our ability to make
distributions and the value of their overall returns. In such event, we may pay
all or a substantial portion of our distributions from the proceeds of the
offering or from borrowings in anticipation of future cash flow, which may constitute a return of their
capital. Distributions from the proceeds of the offering or from borrowings also
could reduce the amount of capital we ultimately invest in properties. This, in
turn, would reduce the value of investors’ investment. In particular, where we
acquire properties prior to the start of construction or during the early stages
of construction, it will typically take several months to complete construction
and rent available space. Therefore, they could suffer delays in the receipt of
cash distributions attributable to those particular properties. If American
Realty Capital Advisors, LLC is unable to obtain suitable investments, we will
hold the proceeds of the offering in an interest-bearing account or invest the
proceeds in short-term, investment-grade investments. If we cannot invest
proceeds from the offering within a reasonable amount of time, or if our board
of directors determines it is in the best interests of our stockholders, we will
return the uninvested proceeds to investors.
  If
we are unable to raise substantial funds, we will be limited in the number and
type of investments we may make, the value of investors’ investment in us will
fluctuate with the performance of the specific properties we
acquire.
  Our
offering is being made on a best efforts basis, whereby the brokers
participating in the offering are only required to use their best efforts to
sell our shares and have no firm commitment or obligation to purchase any of the
shares. As a result, the amount of proceeds we raise in our offering may be
substantially less than the amount we would need to achieve a broadly
diversified property portfolio. If we are unable to raise substantially more
than the minimum offering amount, we will make fewer investments resulting in
less diversification in terms of the number of investments owned, the geographic
regions in which our investments are located and the types of investments that
we make. In such event, the likelihood of our profitability being affected by
the performance of any one of our investments will increase. For example, in the
event we only sell a small amount in excess of 750,000 shares, we may be able to
make only a few investments. If we only are able to make a few investments, we
would not achieve any asset diversification. Additionally, we are not limited in
the number or size of our investments or the percentage of net proceeds we may
dedicate to a single investment. Investors’ investment in our shares will be
subject to greater risk to the extent that we lack a diversified portfolio of
investments. In addition, our inability to raise substantial funds would
increase our fixed operating expenses as a percentage of gross income, and our
financial condition and ability to pay distributions could be adversely
affected.
  7
  If
our advisor loses or is unable to obtain key personnel, our ability to implement
our investment strategies could be delayed or hindered, which could adversely
affect our ability to make distributions and the value of investors’
investment.
  Our
success depends to a significant degree upon the contributions of certain of our
executive officers and other key personnel of our advisor, including Nicholas S.
Schorsch and William M. Kahane, each of whom would be difficult to replace. Our
advisor does not have an employment agreement with any of these key personnel
and we cannot guarantee that all, or any particular one, will remain affiliated
with us and/or our advisor. If any of our key personnel were to cease their
affiliation with our advisor, our operating results could suffer. Further, we do
not intend to separately maintain key person life insurance on Mr. Schorsch or
any other person. We believe that our future success depends, in large part,
upon our advisor’s ability to hire and retain highly skilled managerial,
operational and marketing personnel. Competition for such personnel is intense,
and we cannot assure investors that our advisor will be successful in attracting
and retaining such skilled personnel. If our advisor loses or is unable to
obtain the services of key personnel, our ability to implement our investment
strategies could be delayed or hindered, and the value of investors’ investment
may decline.
  Our
rights and the rights of our stockholders to recover claims against our
officers, directors and our advisor are limited, which could reduce investors’
and our recovery against them if they cause us to incur losses.
  Maryland law provides that a director
has no liability in that capacity if he or she performs his or her duties in
good faith, in a manner he or she reasonably believes to be in the corporation’s
best interests and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. Our charter, in the case of our
directors, officers, employees and agents, and the advisory agreement, in the
case of our advisor, generally require us to indemnify our directors, officers,
employees and agents and our advisor and its affiliates for actions taken by
them in good faith and without negligence or misconduct. Additionally, our
charter limits the liability of our directors and officers subject to the
conditions imposed by Maryland law, subject to the limitations required by
the Statement of Policy Regarding Real Estate Investment Trusts published by the
North American Securities Administrators Associations, also known as the NASAA
REIT Guidelines. Although our charter does not allow us to exonerate and
indemnify our directors and officers to a greater extent than permitted under
Maryland law and the NASAA REIT Guidelines, we and our stockholders may have
more limited rights against our directors, officers, employees and agents, and
our advisor and its affiliates, than might otherwise exist under common law,
which could reduce investors’ and our recovery against them. In addition, we may
be obligated to fund the defense costs incurred by our directors, officers,
employees and agents or our advisor in some cases which would decrease the cash
otherwise available for distribution to investors.
  Risks Related to Conflicts of
Interest
  We will
be subject to conflicts of interest arising out of our relationships with our
advisor and its affiliates, including the material conflicts discussed
below.
  American
Realty Capital Advisors, LLC will face conflicts of interest relating to the
purchase and leasing of properties, and such conflicts may not be resolved in
our favor, which could adversely affect our investment
opportunities.
  Affiliates
of our advisor may sponsor other real estate investment programs in the future.
We may buy properties at the same time and/or in the same geographic areas as
one or more of the other American Realty Capital-sponsored programs managed by
officers and key personnel of American Realty Capital Advisors, LLC. There is a
risk that American Realty Capital Advisors, LLC will choose a property that
provides lower returns to us than a property purchased by another American
Realty Capital-sponsored program. We cannot be sure that officers and key
personnel acting on behalf of American Realty Capital Advisors, LLC and on
behalf of managers of other American Realty Capital-sponsored programs will act
in our best interests when deciding whether to allocate any particular property
to us. Also, we may acquire properties from, or sell properties to, other
American Realty Capital-sponsored programs, and although we will do so
consistent with our investment procedures, objectives and policies, transactions
entered between us and our affiliates will not be subject to arm’s-length
negotiations, which could mean that the acquisitions may be on terms less
favorable to us than those negotiated with unaffiliated parties. However, our
charter provides that the purchase price of any property acquired from an
affiliate may not exceed its fair market value as determined by a qualified
independent appraiser selected by our independent directors. In addition, a
majority of our directors, including a majority of independent directors, who
have no financial interest in the transaction, must determine that the
transaction is fair and reasonable to us and that the transaction is at a price
to us not greater than the cost to our affiliate or, if the price to us exceeds
the cost paid by our affiliate, that there is substantial justification for the
excess cost. Furthermore, if one of the other American Realty Capital-sponsored
programs attracts a tenant that we are competing for, we could suffer a loss of
revenue due to delays in locating another suitable tenant. Investors will not
have the opportunity to evaluate the manner in which these conflicts of interest
are resolved before or after making their investment. Similar conflicts of
interest may apply if our advisor determines to make or purchase mortgage,
bridge or mezzanine loans or participations therein on our behalf, since other
American Realty Capital-sponsored programs may be competing with us for these
investments.
  8
  American
Realty Capital Advisors, LLC faces conflicts of interest relating to joint
ventures, which could result in a disproportionate benefit to the other venture
partners at our expense.
  We may enter into joint ventures with
other American Realty Capital-sponsored programs for the acquisition,
development or improvement of properties. American Realty Capital Advisors, LLC
may have conflicts of interest in determining which American Realty
Capital-sponsored program should enter into any particular joint venture
agreement. The co-venturer may have economic or business interests or goals that
are or may become inconsistent with our business interests or goals. In
addition, American Realty Capital Advisors, LLC may face a conflict in
structuring the terms of the relationship between our interests and the interest
of the affiliated co-venturer and in managing the joint venture. Since American
Realty Capital Advisors, LLC and its affiliates will control both the affiliated
co-venturer and, to a certain extent, us, agreements and transactions
between the co-venturers with
respect to any such joint venture will not have the benefit of arm’s-length
negotiation of the type normally conducted between unrelated co-venturers, which
may result in the co-venturer receiving benefits greater than the benefits that
we receive. In addition, we may assume liabilities related to the joint venture
that exceeds the percentage of our investment in the joint
venture.
  American
Realty Capital Advisors, LLC and its officers and employees and certain of our
key personnel face competing demands relating to their time, and this may cause
our operating results to suffer.
  American
Realty Capital Advisors, LLC and its officers and employees and certain of our
key personnel and their respective affiliates are key personnel, general
partners and sponsors of other real estate programs having investment objectives
and legal and financial obligations similar to ours and may have other business
interests as well. Because these persons have competing demands on their time
and resources, they may have conflicts of interest in allocating their time
between our business and these other activities. All of our executive officers
will spend at least a majority of their time involved in our operations and
Messrs. Budko, Block and Weil will spend substantially all of their time
involved in our operations. However, during times of intense activity in other
programs and ventures, they may devote less time and fewer resources to our
business than is necessary or appropriate. If this occurs, the returns on our
investments may suffer.
  Our
officers face conflicts of interest related to the positions they hold with
affiliated entities, which could hinder our ability to successfully implement
our business strategy and to generate returns to investors.
  Each of
our executive officers, including Nicholas S. Schorsch, who also serves as the
chairman of our board of directors, and William M. Kahane, president and chief
operating officer, also are officers of our advisor, our property manager and
other affiliated entities. As a result, these individuals owe fiduciary duties
to these other entities and their stockholders and limited partners, which
fiduciary duties may conflict with the duties that they owe to us or our
stockholders. Their loyalties to these other entities could result in actions or
inactions that are detrimental to our business, which could harm the
implementation of our business strategy and our investment and leasing
opportunities. Conflicts with our business and interests are most likely to
arise from involvement in activities related to (a) allocation of new
investments and management time and services between us and the other entities,
(b) our purchase of properties from, or sale of properties, to affiliated
entities, (c) the timing and terms of the investment in or sale of an asset, (d)
development of our properties by affiliates, (e) investments with affiliates of
our advisor, (f) compensation to our advisor, and (g) our relationship with our
dealer manager and property manager. If we do not successfully implement our
business strategy, we may be unable to generate cash needed to make
distributions to investors and to maintain or increase the value of our
assets.
  American
Realty Capital Advisors, LLC faces conflicts of interest relating to the
incentive fee structure under our advisory agreement, which could result in
actions that are not necessarily in the long-term best interests of our
stockholders.
  Under our advisory agreement, American
Realty Capital Advisors, LLC or its affiliates will be entitled to fees that are
structured in a manner intended to provide incentives to our advisor to perform
in our best interests and in the best interests of our stockholders. However,
because our advisor does not maintain a significant equity interest in us and is
entitled to receive substantial minimum compensation regardless of performance,
our advisor’s interests are not wholly aligned with those of our stockholders.
In that regard, our advisor could be motivated to recommend riskier or more
speculative investments in order for us to generate the specified levels of
performance or sales proceeds that would entitle our advisor to fees. In
addition, our advisor’s or its affiliates’ entitlement to fees upon the sale of
our assets and to participate in sale proceeds could result in our advisor
recommending sales of our investments at the earliest possible time at which
sales of investments would produce the level of return that would entitle the
advisor to compensation relating to such sales, even if continued ownership of
those investments might be in our best long-term interest. Our advisory
agreement will require us to pay a performance-based termination fee to our
advisor or its affiliates in the event that we terminate the advisor prior to
the listing of our shares for trading on an exchange or, absent such listing, in
respect of its participation in net sales proceeds. To avoid paying this fee,
our independent directors may decide against terminating the advisory agreement
prior to our listing of our shares or disposition of our investments even if,
but for the termination fee, termination of the advisory agreement would be in
our best interest. In addition, the requirement to pay the fee to the advisor or
its affiliates at termination could cause us to make different investment or
disposition decisions than we would otherwise make, in order to satisfy our
obligation to pay the fee to the terminated advisor. Moreover, our advisor will
have the right to terminate the advisory agreement upon a change of control of
our company and thereby trigger the payment of the performance fee, which could
have the effect of delaying, deferring or preventing the change of
control.
  There
is no separate counsel for us and our affiliates, which could result in
conflicts of interest.
  Proskauer
Rose LLP acts as legal counsel to us and also represents our advisor and some of
its affiliates. There is a possibility in the future that the interests of the
various parties may become adverse and, under the Code of Professional
Responsibility of the legal profession, Proskauer Rose LLP may be precluded from
representing any one or all of such parties. If any situation arises in which
our interests appear to be in conflict with those of our advisor or its
affiliates, additional counsel may be retained by one or more of the parties to
assure that their interests are adequately protected. Moreover, should a
conflict of interest not be readily apparent, Proskauer Rose LLP may
inadvertently act in derogation of the interest of the parties which could
affect our ability to meet our investment objectives.
  9
  We
may have increased exposure to liabilities from litigation as a result of our
participation in the Section 1031 Exchange Program, which increases the risks
investors face as stockholders.
  An
affiliate of American Realty Capital Advisors, LLC, our advisor, has developed a
program to facilitate real estate acquisitions for persons (“1031 Participants”)
who seek to reinvest proceeds from a real estate sale and qualify that
reinvestment for like-kind exchange treatment under Section 1031 of the Internal
Revenue Code (“Section 1031 Exchange Program”).  The Section 1031
Exchange Program involves a private placement of co-tenancy interests in real
estate. There are significant tax and securities disclosure risks associated
with these private placement offerings of co-tenancy interests to 1031
Participants. For example, in the event that the Internal Revenue Service
conducts an audit of the purchasers of co tenancy interests and successfully
challenges the qualification of the transaction as a like-kind exchange,
purchasers of co-tenancy interests may file a lawsuit against the entity
offering the co- tenancy interests and its sponsors. We anticipate providing
certain financial guarantees in the event co-tenancy interests in such offerings
are not sold and could therefore be named in or otherwise required to defend
against lawsuits brought by 1031 Participants. Any amounts we are required to
expend for any such litigation claims may reduce the amount of funds available
for distribution to investors. In addition, disclosure of any such litigation
may limit our future ability to raise additional capital through the sale of
stock or borrowings.
  We
are subject to risks associated with co-tenancy arrangements that are not
otherwise present in a real estate investment; these risks could reduce the
value of our co-tenancy investments and investors’ overall return.
  Our
participation in the Section 1031 Exchange Program involves an obligation to
purchase any co-tenancy interests in a property that remain unsold at the
completion of a Section 1031 Exchange Program private placement offering.
Accordingly, we could be required to purchase the unsold co-tenancy interests
and thus become subject to the risks of ownership of properties in a co-tenancy
arrangement with unrelated third parties.
  Ownership
of co-tenancy interests involves risks not otherwise present with an investment
in real estate such as the following:
 
 •
              the
      risk that a co-tenant may at any time have economic or business interests
      or goals that are inconsistent with our business interests or
      goals;
 
 •
              the
      risk that a co-tenant may be in a position to take action contrary to our
      instructions or requests or contrary to our policies or objectives;
      or
 
 •
              the
      possibility that a co-tenant might become insolvent or bankrupt, which may
      be an event of default under mortgage loan financing documents, or allow
      the bankruptcy court to reject the tenants-in-common agreement or
      management agreement entered into by the co-tenants owning interests in
      the property.
  Any of the above might subject a
property to liabilities in excess of those contemplated and thus reduce
investors’ returns. In the event that our interests become adverse to those of
the other co-tenants, we may not have the contractual right to purchase the
co-tenancy interests from the other co-tenants. Even if we are given the
opportunity to purchase such co-tenancy interests in the future, we cannot
guarantee that we will have sufficient funds available at the time to purchase
co-tenancy interests from the 1031 Participants. We might want to sell our
co-tenancy interests in a given property at a time when the other cotenants in
such property do not desire to sell their interests. Therefore, we may not be
able to sell our interest in a property at the time we would like to sell. In
addition, we anticipate that it will be much more difficult to find a willing
buyer for our co-tenancy interests in a property than it would be to find a
buyer for a property we owned entirely.
  Our
participation in the Section 1031 Exchange Program may limit our ability to
borrow funds in the future; this could reduce the number of investments we can
make and limit our ability to make distributions to investors.
  Institutional
lenders may view our obligations under agreements to acquire unsold co-tenancy
interests in properties as a contingent liability against our cash or other
assets, which may limit our ability to borrow funds in the future. Lenders
providing lines of credit may restrict our ability to draw on our lines of
credit by the amount of our potential obligation. Further, our lenders may view
such obligations in such a manner as to limit our ability to borrow funds based
on regulatory restrictions on lenders that limit the amount of loans they can
make to any one borrower. These events could limit our operating flexibility and
our ability to make distributions to investors.
  Risks Related to The Offering and Our
Corporate Structure
  The
limit on the number of shares a person may own may discourage a takeover that
could otherwise result in a premium price to our stockholders.
  Our
charter, with certain exceptions, authorizes our directors to take such actions
as are necessary and desirable to preserve our qualification as a REIT. Unless
exempted by our board of directors, no person may own more than 9.8% in value of
the aggregate our outstanding stock or more than 9.8% in value or number of
shares, whichever is more restrictive) of any class or series of our outstanding
shares. This and other restrictions in our charter on the ownership and transfer
of our stock may have the effect of delaying, deferring or preventing a change
in control of us, including an extraordinary transaction (such as a merger,
tender offer or sale of all or substantially all of our assets) that might
provide a premium price for holders of our common stock.
 10
 Our
charter permits our board of directors to issue stock with terms that may
subordinate the rights of common stockholders or discourage a third party from
acquiring us in a manner that might result in a premium price to our
stockholders.
  Our
charter permits our board of directors to issue up to 250,000,000 shares of
stock. In addition, our board of directors, without any action by our
stockholders, may amend our charter from time to time to increase or decrease
the aggregate number of shares or the number of shares of any class or series of
stock that we have authority to issue. Our board of directors may classify or
reclassify any unissued preferred stock and establish the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms or conditions of repurchase of any such
stock. Thus, our board of directors could authorize the issuance of preferred
stock with terms and conditions that could have a priority as to distributions
and amounts payable upon liquidation over the rights of the holders of our
common stock. Preferred stock could also have the effect of delaying, deferring
or preventing a change in control of us, including an extraordinary transaction
(such as a merger, tender offer or sale of all or substantially all of our
assets) that might provide a premium price for holders of our common
stock.
  Maryland
law prohibits certain business combinations, which may make it more difficult
for us to be acquired and may limit an investor’s ability to exit the
investment.
  Under
Maryland law, “business combinations” between a Maryland corporation and an
interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business combinations
include a merger, consolidation, share exchange or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity
securities. An interested stockholder is defined as:
  •
              any
      person who beneficially owns 10% or more of the voting power of the
      corporation’s shares; or
 
 •
              an
      affiliate or associate of the corporation who, at any time within the
      two-year period prior to the date in question, was the beneficial owner of
      10% or more of the voting power of the then outstanding voting stock of
      the corporation.
  A person
is not an interested stockholder under the statute if the board of directors
approved in advance the transaction by which he or she otherwise would have
become an interested stockholder. However, in approving a transaction, the board
of directors may provide that its approval is subject to compliance, at or after
the time of approval, with any terms and conditions determined by the
board.
  After the
five-year prohibition, any business combination between the Maryland corporation
and an interested stockholder generally must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at
least:
 
 •
              80%
      of the votes entitled to be cast by holders of outstanding shares of
      voting stock of the corporation;
and
 
 •
              two-thirds
      of the votes entitled to be cast by holders of voting stock of the
      corporation other than shares held by the interested stockholder with whom
      or with whose affiliate the business combination is to be effected or held
      by an affiliate or associate of the interested
  stockholder.
  These
super-majority vote requirements do not apply if the corporation’s stockholders
receive a minimum price, as defined under Maryland law, for their shares in the
form of cash or other consideration in the same form as previously paid by the
interested stockholder for its shares. The business combination statute permits
various exemptions from its provisions, including business combinations that are
exempted by the board of directors prior to the time that the interested
stockholder becomes an interested stockholder. Pursuant to the statute, our
board of directors has exempted any business combination involving American
Realty Capital Advisors, LLC or any affiliate of American Realty Capital
Advisors, LLC. Consequently, the five-year prohibition and the super-majority
vote requirements will not apply to business combinations between us and
American Realty Capital Advisors, LLC or any affiliate of American Realty
Capital Advisors, LLC. As a result, American Realty Capital Advisors, LLC and
any affiliate of American Realty Capital Advisors, LLC may be able to enter into
business combinations with us that may not be in the best interest of our
stockholders, without compliance with the super-majority vote requirements and
the other provisions of the statute. The business combination statute may
discourage others from trying to acquire control of us and increase the
difficulty of consummating any offer.
  Maryland
law also limits the ability of a third-party to buy a large stake in us and
exercise voting power in electing directors.
  The
Maryland Control Share Acquisition Act provides that “control shares” of a
Maryland corporation acquired in a “control share acquisition” have no voting
rights except to the extent approved by the corporation’s disinterested
stockholders by a vote of two-thirds of the votes entitled to be cast on the
matter. Shares of stock owned by interested stockholders, that is, by the
acquirer, by officers or by directors who are employees of the corporation, are
excluded from shares entitled to vote on the matter. “Control shares” are voting
shares of stock that would entitle the acquirer to exercise voting power in
electing directors within specified ranges of voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A “control share acquisition”
means the acquisition of control shares. The control share acquisition statute
does not apply (a) to shares acquired in a merger, consolidation or share
exchange if the corporation is a party to the transaction or (b) to acquisitions
approved or exempted by the articles of incorporation or bylaws of the
corporation. Our bylaws contain a provision exempting from the Control Share
Acquisition act any and all acquisitions of our common stock by American Realty
Capital Advisors, LLC or any affiliate of American Realty Capital Advisors, LLC.
This statute could have the effect of discouraging offers from third parties to
acquire us and increasing the difficulty of successfully completing this type of
offer by anyone other than our affiliates or any of their
affiliates.
 11
 If
we are required to register as an investment company under the Investment
Company Act, we could not continue our business, which may significantly reduce
the value of an investor’s investment.
  We are
not registered as an investment company under the Investment Company Act of
1940, as amended (the “Investment Company Act”), pursuant to an exemption in
Section 3(c)(5)(C) of the Investment Company Act and certain No-Action Letters
from the Securities and Exchange Commission. Pursuant to this exemption, (a) at
least 55% of our assets must consist of real estate fee interests or loans
secured exclusively by real estate or both; (b) at least 25% of our assets must
consist of loans secured primarily by real estate (this percentage will be
reduced by the amount by which the percentage in (a) above is increased); and
(c) up to 20% of our assets may consist of miscellaneous investments. We intend
to monitor compliance with these requirements on an ongoing basis. If we were
obligated to register as an investment company, we would have to comply with a
variety of substantive requirements under the Investment Company Act imposing,
among other things:
 
 •
              limitations
      on capital structure;
 
 •
              restrictions
      on specified investments;
 
 •
              prohibitions
      on transactions with affiliates;
and
 
 •
              compliance
      with reporting, record keeping, voting, proxy disclosure and other rules
      and regulations that would significantly change our
      operations.
  In order
to maintain our exemption from regulation under the Investment Company Act, we
must engage primarily in the business of buying real estate, and these
investments must be made within a year after the offering ends. If we are unable
to invest a significant portion of the proceeds of the offering in properties
within one year of the termination of the offering, we may avoid being required
to register as an investment company by temporarily investing any unused
proceeds in government securities with low returns. This would reduce the cash
available for distribution to investors and possibly lower investors’
returns.
  To
maintain compliance with the Investment Company Act exemption, we may be unable
to sell assets we would otherwise want to sell and may need to sell assets we
would otherwise wish to retain. In addition, we may have to acquire additional
income or loss generating assets that we might not otherwise have acquired or
may have to forgo opportunities to acquire interests in companies that we would
otherwise want to acquire and would be important to our investment strategy. If
we were required to register as an investment company but failed to do so, we
would be prohibited from engaging in our business, and criminal and civil
actions could be brought against us. In addition, our contracts would be
unenforceable unless a court were to require enforcement, and a court could
appoint a receiver to take control of us and liquidate our
business.
  Investors
are bound by the majority vote on matters on which they are entitled to vote,
and therefore, an investor’s vote on a particular matter may be superseded by
the vote of others.
  Investors
may vote on certain matters at any annual or special meeting of stockholders,
including the election of directors. However, investors will be bound by the
majority vote on matters requiring approval of a majority of the stockholders
even if they do not vote with the majority on any such matter.
  If
investors do not agree with the decisions of our board of directors, they only
have limited control over changes in our policies and operations and may not be
able to change such policies and operations.
  Our board
of directors determines our major policies, including our policies regarding
investments, financing, growth, debt capitalization, REIT qualification and
distributions. Our board of directors may amend or revise these and other
policies without a vote of the stockholders. Under the Maryland General
Corporation Law and our charter, our stockholders have a right to vote only on
the following:
 
 •
              the
      election or removal of directors;
 
 •
              amendments
      of our charter (including a change in our investment objectives), except
      certain amendments that do not adversely affect the rights, preferences
      and privileges of our stockholders;•
              our
      liquidation or dissolution;
 
 •
              a
      reorganization of our company, as provided in our charter;
    and
 
 •
              mergers,
      consolidations or sales or other dispositions of substantially all of our
      assets, as provided in our charter.
  All other
matters are subject to the discretion of our board of directors.
  Our
board of directors may change our investment policies without stockholder
approval, which could alter the nature of investors’ investments.
  Our
charter requires that our independent directors review our investment policies
at least annually to determine that the policies we are following are in the
best interest of the stockholders. These policies may change over time. The
methods of implementing our investment policies may also vary, as new real
estate development trends emerge and new investment techniques are developed.
Our investment policies, the methods for their implementation, and our other
objectives, policies and procedures may be altered by our board of directors
without the approval of our stockholders. As a result, the nature of investors’
investments could change without investors’ consent.
  Investors
are limited in their ability to sell their shares pursuant to our share
repurchase program and may have to hold their shares for an indefinite period of
time.
  Our board
of directors may amend the terms of our share repurchase program without
stockholder approval. Our board of directors also is free to suspend or
terminate the program upon 30 days notice or to reject any request for
repurchase. In addition, the share repurchase program includes numerous
restrictions that would limit investors’ ability to sell their shares.
Generally, investors must have held their shares for at least one year in order
to participate in our share repurchase program. If our board of directors
authorizes a repurchase from legally available funds, we will limit the number
of shares repurchased pursuant to our share repurchase program as follows: (a)
during any calendar year, the number of shares we will redeem will be limited to
5% of the weighted average number of shares outstanding during the prior year
(shares requested for repurchase upon the death of a stockholder will not be
subject to this limitation); and (b) funding for the repurchase of shares will
be limited to (i) the net proceeds we receive from the sale of shares under our
distribution reinvestment plan, (ii) proceeds from the sales of shares in our
continuous offering, and (iii) other available allocated operating funds. These
limits might prevent us from accommodating all repurchase requests made in any
year.  These restrictions severely limit investors’ ability to sell
their shares should they require liquidity, and limit their ability to recover
the value they invested or the fair market value of their shares.
 12
 We
established the offering price on an arbitrary basis; as a result, the actual
value of investors’ investments may be substantially less than what they
pay.
  Our board
of directors has arbitrarily determined the selling price of the shares
consistent with comparable real estate investment programs in the market, and
such price bears no relationship to our book or asset values, or to any other
established criteria for valuing issued or outstanding shares. Because the
offering price is not based upon any independent valuation, the offering price
is not indicative of the proceeds that investors would receive upon
liquidation.
  Because
the dealer manager is one of our affiliates, investors will not have the benefit
of an independent review of the prospectus or us as customarily performed in
underwritten offerings.
  The
dealer manager, Realty Capital Securities, LLC, is one of our affiliates and
will not make an independent review of us or the offering. Accordingly,
investors will have to rely on their own broker-dealer to make an independent
review of the terms of the offering. If their broker-dealer does not conduct
such a review, they will not have the benefit of an independent review of the
terms of the offering. Further, the due diligence investigation of us by the
dealer manager cannot be considered to be an independent review and, therefore,
may not be as meaningful as a review conducted by an unaffiliated broker-dealer
or investment banker.
  Investors’
interest in us will be diluted if we issue additional shares.
  Existing
stockholders and potential investors in the offering do not have preemptive
rights to any shares issued by us in the future. Our charter currently
authorizes us to issue up to 250,000,000 shares of stock, of which 240,000,000
shares are designated as common stock and 10,000,000 are designated as preferred
stock.
  Subject
to any limitations set forth under Maryland law, our board of directors may
increase the number of authorized shares of stock, increase or decrease the
number of shares of any class or series of stock designated, or reclassify any
unissued shares without the necessity of obtaining stockholder approval. All of
such shares may be issued in the discretion of our board of directors. Existing
stockholders and investors purchasing shares in the offering likely will suffer
dilution of their equity investment in us, in the event that we (a) sell shares
in the offering or sell additional shares in the future, including those issued
pursuant to our distribution reinvestment plan, (b) sell securities that are
convertible into shares of our common stock, (c) issue shares of our common
stock in a private offering of securities to institutional investors, (d) issue
shares of our common stock upon the exercise of the options granted to our
independent directors, (e) issue shares to our advisor, its successors or
assigns, in payment of an outstanding fee obligation as set forth under our
advisory agreement, or (f) issue shares of our common stock to sellers of
properties acquired by us in connection with an exchange of limited partnership
interests of American Realty Capital Operating Partnership, L.P., existing
stockholders and investors purchasing shares in the offering will likely
experience dilution of their equity investment in us. In addition, the
partnership agreement for American Realty Capital Operating Partnership, L.P.
contains provisions that would allow, under certain circumstances, other
entities, including other American Realty Capital-sponsored programs, to merge
into or cause the exchange or conversion of their interest for interests of
American Realty Capital Operating Partnership, L.P. Because the limited
partnership units of American Realty Capital Operating Partnership, L.P. may, in
the discretion of our board of directors, be exchanged for shares of our common
stock, any merger, exchange or conversion between American Realty Capital
Operating Partnership, L.P. and another entity ultimately could result in the
issuance of a substantial number of shares of our common stock, thereby diluting
the percentage ownership interest of other stockholders. Because of these
reasons, amongst others, investors should not expect to be able to own a
significant percentage of our shares.
  Payment
of fees to American Realty Capital Advisors, LLC and its affiliates reduces cash
available for investment and distribution.
  American
Realty Capital Advisors, LLC and its affiliates will perform services for us in
connection with the offer and sale of the shares, the selection and acquisition
of our investments, and the management and leasing of our properties, the
servicing of our mortgage, bridge or mezzanine loans, if any, and the
administration of our other investments. They are paid substantial fees for
these services, which reduces the amount of cash available for investment in
properties or distribution to stockholders.
  We
may be unable to pay or maintain cash distributions or increase distributions
over time.
  There are
many factors that can affect the availability and timing of cash distributions
to stockholders. Distributions will be based principally on cash available from
our operations. The amount of cash available for distributions is affected by
many factors, such as our ability to buy properties as offering proceeds become
available, rental income from such properties, and our operating expense levels,
as well as many other variables. Actual cash available for distributions may
vary substantially from estimates. With no prior operating history, we cannot
assure investors that we will be able to pay or maintain our current anticipated
level of distributions or that distributions will increase over time. We cannot
give any assurance that rents from the properties will increase, that the
securities we buy will increase in value or provide constant or increased
distributions over time, or that future acquisitions of real properties,
mortgage, bridge or mezzanine loans or any investments in securities will
increase our cash available for distributions to stockholders. Our actual
results may differ significantly from the assumptions used by our board of
directors in establishing the distribution rate to stockholders. We may not have
sufficient legally available cash from operations to make a distribution
required to qualify for or maintain our REIT status. We may increase borrowing
or use proceeds from the offering to make distributions, each of which could be
deemed to be a return of investors’ capital. We may make distributions from the
proceeds of the offering or from borrowings in anticipation of future cash flow.
Any such distributions will constitute a return of capital and may reduce the
amount of capital we ultimately invest in properties and negatively impact the
value of investors’ investment.
 13
 General
Risks Related to Investments in Real Estate
  Our
operating results will be affected by economic and regulatory changes that have
an adverse impact on the real estate market in general, and we cannot assure
investors that we will be profitable or that we will realize growth in the value
of our real estate properties.
  Our
operating results are subject to risks generally incident to the ownership of
real estate, including:
 
 •
              changes
      in general economic or local
conditions;
 
 •
              changes
      in supply of or demand for similar or competing properties in an
      area;
 
 •
              changes
      in interest rates and availability of permanent mortgage funds that may
      render the sale of a property difficult or
  unattractive;
 
 •
              changes
      in tax, real estate, environmental and zoning laws;
  and
 
 •
              periods
      of high interest rates and tight money
supply.
  These and
other reasons may prevent us from being profitable or from realizing growth or
maintaining the value of our real estate properties.
  Many
of our properties will depend upon a single tenant for all or a majority of
their rental income, and our financial condition and ability to make
distributions may be adversely affected by the bankruptcy or insolvency, a
downturn in the business, or a lease termination of a single
tenant.
  We expect
that many of our properties will be occupied by only one tenant or will derive a
majority of their rental income from one tenant and, therefore, the success of
those properties will be materially dependent on the financial stability of such
tenants. Lease payment defaults by tenants could cause us to reduce the amount
of distributions we pay. A default of a tenant on its lease payments to us would
cause us to lose the revenue from the property and force us to find an
alternative source of revenue to meet any mortgage payment and prevent a
foreclosure if the property is subject to a mortgage. In the event of a default,
we may experience delays in enforcing our rights as landlord and may incur
substantial costs in protecting our investment and re-letting the property. If a
lease is terminated, there is no assurance that we will be able to lease the
property for the rent previously received or sell the property without incurring
a loss. A default by a tenant, the failure of a guarantor to fulfill its
obligations or other premature termination of a lease, or a tenant’s election
not to extend a lease upon its expiration, could have an adverse effect on our
financial condition and our ability to pay distributions.
  If
a tenant declares bankruptcy, we may be unable to collect balances due under
relevant leases.
  Any of
our tenants, or any guarantor of a tenant’s lease obligations, could be subject
to a bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the
United States. Such a bankruptcy filing would bar all efforts by us to collect
pre-bankruptcy debts from these entities or their properties, unless we receive
an enabling order from the bankruptcy court. Post-bankruptcy debts would be paid
currently. If a lease is assumed, all pre-bankruptcy balances owing under it
must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would
have a general unsecured claim for damages. If a lease is rejected, it is
unlikely we would receive any payments from the tenant because our claim is
capped at the rent reserved under the lease, without acceleration, for the
greater of one year or 15% of the remaining term of the lease, but not greater
than three years, plus rent already due but unpaid. This claim could be paid
only in the event funds were available, and then only in the same percentage as
that realized on other unsecured claims.
  A tenant
or lease guarantor bankruptcy could delay efforts to collect past due balances
under the relevant leases, and could ultimately preclude full collection of
these sums. Such an event could cause a decrease or cessation of rental payments
that would mean a reduction in our cash flow and the amount available for
distributions to investors. In the event of a bankruptcy, we cannot assure
investors that the tenant or its trustee will assume our lease. If a given
lease, or guaranty of a lease, is not assumed, our cash flow and the amounts
available for distributions to investors may be adversely affected.
  A
high concentration of our properties in a particular geographic area, or that
have tenants in a similar industry, would magnify the effects of downturns in
that geographic area or industry.
  We expect that our properties will be
diverse according to geographic area and industry of our tenants. However, in
the event that we have a concentration of properties in any particular
geographic area, any adverse situation that
disproportionately affects that geographic area would have a magnified adverse
effect on our portfolio. Similarly, if our tenants are concentrated in a certain
industry or industries, any adverse effect to that industry generally would have
a disproportionately adverse effect on our portfolio.
 14
 If
a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy
proceeding, our financial condition could be adversely affected.
  We may
enter into sale-leaseback transactions, whereby we would purchase a property and
then lease the same property back to the person from whom we purchased it. In
the event of the bankruptcy of a tenant, a transaction structured as a
sale-leaseback may be re-characterized as either a financing or a joint venture,
either of which outcomes could adversely affect our business. If the
sale-leaseback were re-characterized as a financing, we might not be considered
the owner of the property, and as a result would have the status of a creditor
in relation to the tenant. In that event, we would no longer have the right to
sell or encumber our ownership interest in the property. Instead, we would have
a claim against the tenant for the amounts owed under the lease, with the claim
arguably secured by the property. The tenant/debtor might have the ability to
propose a plan restructuring the term, interest rate and amortization schedule
of its outstanding balance. If confirmed by the bankruptcy court, we could be
bound by the new terms, and prevented from foreclosing our lien on the property.
If the sale-leaseback were re-characterized as a joint venture, our lessee and
we could be treated as co-venturers with regard to the property. As a result, we
could be held liable, under some circumstances, for debts incurred by the lessee
relating to the property. Either of these outcomes could adversely affect our
cash flow and the amount available for distributions to investors.
  Properties
that have vacancies for a significant period of time could be difficult to sell,
which could diminish the return on investors’ investment.
  A
property may incur vacancies either by the continued default of tenants under
their leases or the expiration of tenant leases. If vacancies continue for a
long period of time, we will suffer reduced revenues which may result in less
cash to be distributed to stockholders. In addition, because properties’ market
values depend principally upon the value of the properties’ leases, the resale
value of properties with prolonged vacancies could suffer, which could further
reduce investors’ return.
  We
may obtain only limited warranties when we purchase a property and would have
only limited recourse in the event our due diligence did not identify any issues
that lower the value of our property.
  The
seller of a property often sells such property in its “as is” condition on a
“where is” basis and “with all faults,” without any warranties of
merchantability or fitness for a particular use or purpose. In addition,
purchase agreements may contain only limited warranties, representations and
indemnifications that will only survive for a limited period after the closing.
The purchase of properties with limited warranties increases the risk that we
may lose some or all of our invested capital in the property as well as the loss
of rental income from that property.
  We
may be unable to secure funds for future tenant improvements or capital needs,
which could adversely impact our ability to pay cash distributions to our
stockholders.
  When
tenants do not renew their leases or otherwise vacate their space, it is usual
that, in order to attract replacement tenants, we will be required to expend
substantial funds for tenant improvements and tenant refurbishments to the
vacated space. In addition, although we expect that our leases with tenants will
require tenants to pay routine property maintenance costs, we will likely be
responsible for any major structural repairs, such as repairs to the foundation,
exterior walls and rooftops. We will use substantially all of the offering’s
gross proceeds to buy real estate and pay various fees and expenses. We intend
to reserve only 0.1% of the gross proceeds from the offering for future capital
needs. Accordingly, if we need additional capital in the future to improve or
maintain our properties or for any other reason, we will have to obtain
financing from other sources, such as cash flow from operations, borrowings,
property sales or future equity offerings. These sources of funding may not be
available on attractive terms or at all. If we cannot procure additional funding
for capital improvements, our investments may generate lower cash flows or
decline in value, or both.
  Our
inability to sell a property when we desire to do so could adversely impact our
ability to pay cash distributions to investors.
  The real estate market is affected by
many factors, such as general economic conditions, availability of financing,
interest rates and other factors, including supply and demand, that are beyond
our control. We cannot
predict whether we will be able to sell any property for the price or on the
terms set by us, or whether any price or other terms offered by a prospective
purchaser would be acceptable to us. We cannot predict the length of time needed
to find a willing purchaser and to close the sale of a
property.
  We may be
required to expend funds to correct defects or to make improvements before a
property can be sold. We cannot assure investors that we will have funds
available to correct such defects or to make such improvements. Moreover, in
acquiring a property, we may agree to restrictions that prohibit the sale of
that property for a period of time or impose other restrictions, such as a
limitation on the amount of debt that can be placed or repaid on that property.
These provisions would restrict our ability to sell a property.
  We
may not be able to sell our properties at a price equal to, or greater than, the
price for which we purchased such property, which may lead to a decrease in the
value of our assets.
  Many of
our leases will not contain rental increases over time. Therefore, the value of
the property to a potential purchaser may not increase over time, which may
restrict our ability to sell a property, or in the event we are able to sell
such property, may lead to a sale price less than the price that we paid to
purchase the property.
  We
may acquire or finance properties with lock-out provisions, which may prohibit
us from selling a property, or may require us to maintain specified debt levels
for a period of years on some properties.
  Lock-out
provisions, which preclude pre-payments of a loan, could materially restrict us
from selling or otherwise disposing of or refinancing properties. These
provisions would affect our ability to turn our investments into cash and thus
affect cash available for distributions to investors. Lock out provisions may
prohibit us from reducing the outstanding indebtedness with respect to any
properties, refinancing such indebtedness on a non-recourse basis at maturity,
or increasing the amount of indebtedness with respect to such properties.
Lock-out provisions could impair our ability to take other actions during the
lock-out period that could be in the best interests of our stockholders and,
therefore, may have an adverse impact on the value of the shares, relative to
the value that would result if the lock-out provisions did not exist. In
particular, lock-out provisions could preclude us from participating in major
transactions that could result in a disposition of our assets or a change in
control even though that disposition or change in control might be in the best
interests of our stockholders.
 15
 Rising
expenses could reduce cash flow and funds available for future
acquisitions.
  Any
properties that we buy in the future will be subject to operating risks common
to real estate in general, any or all of which may negatively affect us. If any
property is not fully occupied or if rents are being paid in an amount that is
insufficient to cover operating expenses, we could be required to expend funds
with respect to that property for operating expenses. The properties will be
subject to increases in tax rates, utility costs, operating expenses, insurance
costs, repairs and maintenance and administrative expenses. While we expect that
many of our properties will be leased on a triple-net-lease basis or will
require the tenants to pay all or a portion of such expenses, renewals of leases
or future leases may not be negotiated on that basis, in which event we may have
to pay those costs. If we are unable to lease properties on a triple-net-lease
basis or on a basis requiring the tenants to pay all or some of such expenses,
or if tenants fail to pay required tax, utility and other impositions, we could
be required to pay those costs which could adversely affect funds available for
future acquisitions or cash available for distributions.
  Adverse
economic conditions will negatively affect our returns and
profitability.
  Our
operating results may be affected by the following market and economic
challenges, which may result from a continued or exacerbated general economic
slow down experienced by the nation as a whole or by the local economics where
our properties may be located:
 
 •
              poor
      economic conditions may result in tenant defaults under
      leases;
 
 •
              re-leasing
      may require concessions or reduced rental rates under the new leases;
      and
 
 •
              increased
      insurance premiums may reduce funds available for distribution or, to the
      extent such increases are passed through to tenants, may lead to tenant
      defaults. Increased insurance premiums may make it difficult to increase
      rents to tenants on turnover, which may adversely affect our ability to
      increase our returns.
  The
length and severity of any economic downturn cannot be predicted. Our operations
could be negatively affected to the extent that an economic downturn is
prolonged or becomes more severe.
 
 Economic
conditions may adversely affect our income.
  U.S. and
international markets are currently experiencing increased levels of volatility
due to a combination of many factors, including decreasing values of home
prices, limited access to credit markets, less consumer spending and fears of a
national and global recession. The effects of the current market dislocation may
persist as financial institutions continue to take the necessary steps to
restructure their business and capital structures. As a result, this economic
downturn has reduced demand for space and removed support for rents and property
values. Since we cannot predict when the real estate markets will recover, the
value of our properties may decline if current market conditions persist or
worsen.
  A
commercial property’s income and value may be adversely affected by national and
regional economic conditions, local real estate conditions such as an oversupply
of properties or a reduction in demand for properties, availability of “for
sale” properties, competition from other similar properties, our ability to
provide adequate maintenance, insurance and management services, increased
operating costs (including real estate taxes), the attractiveness and location
of the property and changes in market rental rates. The continued rise in energy
costs could result in higher operating costs, which may affect our results from
operations. Our income will be adversely affected if a significant number of
tenants are unable to pay rent or if our properties cannot be rented on
favorable terms. Additionally, if tenants of properties that we lease on a
triple-net basis fail to pay required tax, utility and other impositions, we
could be required to pay those costs, which would adversely affect funds
available for future acquisitions or cash available for distributions. Our
performance is linked to economic conditions in the regions where our properties
will be located and in the market for residential, office, retail and industrial
space generally. Therefore, to the extent that there are adverse economic
conditions in those regions, and in these markets generally, that impact the
applicable market rents, such conditions could result in a reduction of our
income and cash available for distributions and thus affect the amount of
distributions we can make to investors.
  If
we suffer losses that are not covered by insurance or that are in excess of
insurance coverage, we could lose invested capital and anticipated
profits.
  Generally,
each of our tenants will be responsible for insuring its goods and premises and,
in some circumstances, may be required to reimburse us for a share of the cost
of acquiring comprehensive insurance for the property, including casualty,
liability, fire and extended coverage customarily obtained for similar
properties in amounts that our advisor determines are sufficient to cover
reasonably foreseeable losses. Tenants of single-user properties leased on a
triple-net-lease basis typically are required to pay all insurance costs
associated with those properties. Material losses may occur in excess of
insurance proceeds with respect to any property, as insurance may not be
sufficient to fund the losses. However, there are types of losses, generally of
a catastrophic nature, such as losses due to wars, acts of terrorism,
earthquakes, floods, hurricanes, pollution or environmental matters, which are
either uninsurable or not economically insurable, or may be insured subject to
limitations, such as large deductibles or co-payments. Insurance risks
associated with potential terrorism acts could sharply increase the premiums we
pay for coverage against property and casualty claims. Additionally, mortgage
lenders in some cases have begun to insist that commercial property owners
purchase specific coverage against terrorism as a condition for providing
mortgage loans. It is uncertain whether such insurance policies will be
available, or available at reasonable cost, which could inhibit our ability to
finance or refinance our potential properties. In these instances, we may be
required to provide other financial support, either through financial assurances
or self-insurance, to cover potential losses. We may not have adequate, or any,
coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed
for a sharing of terrorism losses between insurance companies and the federal
government, and has been renewed until December 31, 2014. We cannot be certain
how this act will impact us or what additional cost to us, if any, could result.
If such an event damaged or destroyed one or more of our properties, we could
lose both our invested capital and anticipated profits from such
property.
 16
 Real
estate related taxes may increase and if these increases are not passed on to
tenants, our income will be reduced.
  Some
local real property tax assessors may seek to reassess some of our properties as
a result of our acquisition of the property. Generally, from time to time our
property taxes increase as property values or assessment rates change or for
other reasons deemed relevant by the assessors. An increase in the assessed
valuation of a property for real estate tax purposes will result in an increase
in the related real estate taxes on that property. Although some tenant leases
may permit us to pass through such tax increases to the tenants for payment,
there is no assurance that renewal leases or future leases will be negotiated on
the same basis. Increases not passed through to tenants will adversely affect
our income, cash available for distributions, and the amount of distributions to
investors.
  CC&Rs
may restrict our ability to operate a property.
  Some of
our properties are contiguous to other parcels of real property, comprising part
of the same commercial center. In connection with such properties, there are
significant covenants, conditions and restrictions, known as “CC&Rs,”
restricting the operation of such properties and any improvements on such
properties, and related to granting easements on such properties. Moreover, the
operation and management of the contiguous properties may impact such
properties. Compliance with CC&Rs may adversely affect our operating costs
and reduce the amount of funds that we have available to pay
distributions.
  Our
operating results may be negatively affected by potential development and
construction delays and resultant increased costs and risks.
  While we do not currently intend to do
so, we may use proceeds from the offering to acquire and develop properties upon
which we will construct improvements. We will be subject to uncertainties
associated with re-zoning for development, environmental concerns of
governmental entities and/or community groups, and our builder’s ability to
build in conformity with plans, specifications, budgeted costs, and timetables.
If a builder fails to perform, we may resort to legal action to rescind the
purchase or the construction contract or to compel performance. A builder’s
performance may also be affected or delayed by conditions beyond the
builder’s control. Delays in
completion of construction could also give tenants the right to terminate
preconstruction leases. We may incur additional risks when we make periodic
progress payments or other advances to builders before they complete
construction. These and other such factors can result in increased costs of a
project or loss of our investment. In addition, we will be subject to normal
lease-up risks relating to newly constructed projects. We also must rely on
rental income and expense projections and estimates of the fair market value of
property upon completion of construction when agreeing upon a price at the time
we acquire the property. If our projections are inaccurate, we may pay too much
for a property, and our return on our investment could
suffer.
  While we
do not currently intend to do so, we may invest in unimproved real property.
Returns from development of unimproved properties are also subject to risks
associated with re-zoning the land for development and environmental concerns of
governmental entities and/or community groups. Although we intend to limit any
investment in unimproved property to property we intend to develop, investors’
investments nevertheless are subject to the risks associated with investments in
unimproved real property.
  If
we contract with an affiliated development company for newly developed property,
we cannot guarantee that our earnest money deposit made to the development
company will be fully refunded.
  While we
currently do not have an affiliated development company, our sponsor and/or its
affiliates may form a development company. In such an event, we may enter into
one or more contracts, either directly or indirectly through joint ventures with
affiliates or others, to acquire real property from an affiliate of American
Realty Capital Advisors, LLC that is engaged in construction and development of
commercial real properties. Properties acquired from an affiliated development
company may be either existing income-producing properties, properties to be
developed or properties under development. We anticipate that we will be
obligated to pay a substantial earnest money deposit at the time of contracting
to acquire such properties. In the case of properties to be developed by an
affiliated development company, we anticipate that we will be required to close
the purchase of the property upon completion of the development of the property
by our affiliate. At the time of contracting and the payment of the earnest
money deposit by us, our development company affiliate typically will not have
acquired title to any real property. Typically, our development company
affiliate will only have a contract to acquire land, a development agreement to
develop a building on the land and an agreement with one or more tenants to
lease all or part of the property upon its completion. We may enter into such a
contract with our development company affiliate even if at the time of
contracting we have not yet raised sufficient proceeds in our offering to enable
us to close the purchase of such property. However, we will not be required to
close a purchase from our development company affiliate, and will be entitled to
a refund of our earnest money, in the following circumstances:
 17
 •
              our
      development company affiliate fails to develop the
    property;
 
 •
              all
      or a specified portion of the pre-leased tenants fail to take possession
      under their leases for any reason;
or
 
 •
              we
      are unable to raise sufficient proceeds from our offering to pay the
      purchase price at closing.
  The
obligation of our development company affiliate to refund our earnest money will
be unsecured, and no assurance can be made that we would be able to obtain a
refund of such earnest money deposit from it under these circumstances since our
development company affiliate may be an entity without substantial assets or
operations. However, our development company affiliate’s obligation to refund
our earnest money deposit may be guaranteed by American Realty Capital
Properties, LLC, our property manager, which will enter into contracts to
provide property management and leasing services to various American Realty
Capital-sponsored programs, including us, for substantial monthly fees. As of
the time American Realty Capital Properties, LLC may be required to perform
under any guaranty, we cannot assure that American Realty Capital Properties,
LLC will have sufficient assets to refund all of our earnest money deposit in a
lump sum payment. If we were forced to collect our earnest money deposit by
enforcing the guaranty of American Realty Capital Properties, LLC, we will
likely be required to accept installment payments over time payable out of the
revenues of American Realty Capital Properties, LLC operations. We cannot assure
investors that we would be able to collect the entire amount of our earnest
money deposit under such circumstances.
  Competition
with third parties in acquiring properties and other investments may reduce our
profitability and the return on investors’ investment.
  We
compete with many other entities engaged in real estate investment activities,
including individuals, corporations, bank and insurance company investment
accounts, other REITs, real estate limited partnerships, and other entities
engaged in real estate investment activities, many of which have greater
resources than we do. Larger REITs may enjoy significant competitive advantages
that result from, among other things, a lower cost of capital and enhanced
operating efficiencies. In addition, the number of entities and the amount of
funds competing for suitable investments may increase. Any such increase would
result in increased demand for these assets and therefore increased prices paid
for them. If we pay higher prices for properties and other investments, our
profitability will be reduced and investors may experience a lower return on
their investments.
  Our
properties face competition that may affect tenants’ ability to pay rent and the
amount of rent paid to us may affect the cash available for distributions and
the amount of distributions.
  Our
properties typically are, and we expect will be, located in developed areas.
Therefore, there are and will be numerous other properties within the market
area of each of our properties that will compete with us for tenants. The number
of competitive properties could have a material effect on our ability to rent
space at our properties and the amount of rents charged. We could be adversely
affected if additional competitive properties are built in locations competitive
with our properties, causing increased competition for customer traffic and
creditworthy tenants. This could result in decreased cash flow from tenants and
may require us to make capital improvements to properties that we would not have
otherwise made, thus affecting cash available for distributions, and the amount
available for distributions to investors.
  Delays
in acquisitions of properties may have an adverse effect on an investor’s
investment.
  There may
be a substantial period of time before the proceeds of the offering are
invested. Delays we encounter in the selection, acquisition and/or development
of properties could adversely affect investors’ returns. Where properties are
acquired prior to the start of construction or during the early stages of
construction, it will typically take several months to complete construction and
rent available space. Therefore, investors could suffer delays in the payment of
cash distributions attributable to those particular properties.
  Costs
of complying with governmental laws and regulations, including those relating to
environmental matters, may adversely affect our income and the cash available
for any distributions.
  All real
property and the operations conducted on real property are subject to federal,
state and local laws and regulations relating to environmental protection and
human health and safety. These laws and regulations generally govern wastewater
discharges, air emissions, the operation and removal of underground and
above-ground storage tanks, the use, storage, treatment, transportation and
disposal of solid and hazardous materials, and the remediation of contamination
associated with disposals. Environmental laws and regulations may impose joint
and several liability on tenants, owners or operators for the costs to
investigate or remediate contaminated properties, regardless of fault or whether
the acts causing the contamination were legal. This liability could be
substantial. In addition, the presence of hazardous substances, or the failure
to properly remediate these substances, may adversely affect our ability to
sell, rent or pledge such property as collateral for future
borrowings.
  Some of
these laws and regulations have been amended so as to require compliance with
new or more stringent standards as of future dates. Compliance with new or more
stringent laws or regulations or stricter interpretation of existing laws may
require material expenditures by us. Future laws, ordinances or regulations may
impose material environmental liability. Additionally, our tenants’ operations,
the existing condition of land when we buy it, operations in the vicinity of our
properties, such as the presence of underground storage tanks, or activities of
unrelated third parties may affect our properties. In addition, there are
various local, state and federal fire, health, life-safety and similar
regulations with which we may be required to comply, and that may subject us to
liability in the form of fines or damages for noncompliance. Any material
expenditures, fines, or damages we must pay will reduce our ability to make
distributions and may reduce the value of investors’ investments.
  State and federal laws in this area are
constantly evolving, and we intend to monitor these laws and take commercially
reasonable steps to protect ourselves from the impact of these laws, including
obtaining environmental assessments of most properties that we acquire; however,
we will not obtain an independent third-party environmental assessment for every
property we acquire. In addition, any such assessment that we do obtain may not
reveal all environmental liabilities or that a prior owner of a property did not
create a material environmental condition not known to us. The cost of defending
against claims of liability, of compliance with environmental regulatory
requirements, of remediating any contaminated property, or of paying personal
injury claims would materially adversely affect our business, assets or results
of operations and, consequently, amounts available for distribution to
investors.
 18
 If
we sell properties by providing financing to purchasers, defaults by the
purchasers would adversely affect our cash flows.
  If we
decide to sell any of our properties, we intend to use our best efforts to sell
them for cash. However, in some instances we may sell our properties by
providing financing to purchasers. When we provide financing to purchasers, we
will bear the risk that the purchaser may default, which could negatively impact
our cash distributions to stockholders. Even in the absence of a purchaser
default, the distribution of the proceeds of sales to our stockholders, or their
reinvestment in other assets, will be delayed until the promissory notes or
other property we may accept upon the sale are actually paid, sold, refinanced
or otherwise disposed of. In some cases, we may receive initial down payments in
cash and other property in the year of sale in an amount less than the selling
price and subsequent payments will be spread over a number of years. If any
purchaser defaults under a financing arrangement with us, it could negatively
impact our ability to pay cash distributions to our stockholders.
  Our
recovery of an investment in a mortgage, bridge or mezzanine loan that has
defaulted may be limited.
  There is
no guarantee that the mortgage, loan or deed of trust securing an investment
will, following a default, permit us to recover the original investment and
interest that would have been received absent a default. The security provided
by a mortgage, deed of trust or loan is directly related to the difference
between the amount owed and the appraised market value of the property. Although
we intend to rely on a current real estate appraisal when we make the
investment, the value of the property is affected by factors outside our
control, including general fluctuations in the real estate market, rezoning,
neighborhood changes, highway relocations and failure by the borrower to
maintain the property. In addition, we may incur the costs of litigation in our
efforts to enforce our rights under defaulted loans.
  Our
costs associated with complying with the Americans with Disabilities Act may
affect cash available for distributions.
  Our
properties will be subject to the Americans with Disabilities Act of 1990 (the
“Disabilities Act”). Under the Disabilities Act, all places of public
accommodation are required to comply with federal requirements related to access
and use by disabled persons. The Disabilities Act has separate compliance
requirements for “public accommodations” and “commercial facilities” that
generally require that buildings and services, including restaurants and retail
stores, be made accessible and available to people with disabilities. The
Disabilities Act’s requirements could require removal of access barriers and
could result in the imposition of injunctive relief, monetary penalties, or, in
some cases, an award of damages. We will attempt to acquire properties that
comply with the Disabilities Act or place the burden on the seller or other
third party, such as a tenant, to ensure compliance with the Disabilities Act.
However, we cannot assure investors that we will be able to acquire properties
or allocate responsibilities in this manner. If we cannot, our funds used for
Disabilities Act compliance may affect cash available for distributions and the
amount of distributions to investors.
  Risks Associated with Debt
Financing
  We
may incur mortgage indebtedness and other borrowings, which may increase our
business risks.
  We expect
that in most instances, we will acquire real properties by using either existing
financing or borrowing new funds. In addition, we may incur mortgage debt and
pledge all or some of our real properties as security for that debt to obtain
funds to acquire additional real properties. We may borrow if we need funds to
satisfy the REIT tax qualification requirement that we distribute at least 90%
of our annual REIT taxable income to our stockholders. We may also borrow if we
otherwise deem it necessary or advisable to assure that we maintain our
qualification as a REIT for federal income tax purposes.
  Our
advisor believes that utilizing borrowing is consistent with our investment
objective of maximizing the return to investors. There is no limitation on the
amount we may borrow against any single improved property. However, under our
charter, we are required to limit our borrowings to 75% of the greater of the
aggregate cost (before deducting depreciation or other non-cash reserves) or the
aggregate fair market value of our gross assets as of the date of any borrowing,
unless excess borrowing is approved by a majority of the independent directors.
Our borrowings will not exceed 300% of our net assets, unless the excess is
approved by a majority of our independent directors, which is the maximum level
of indebtedness permitted under the NASAA REIT Guidelines. We expect that during
the period of the offering we will request that our independent directors
approve borrowings in excess of this limitation since we will then be in the
process of raising our equity capital to acquire our portfolio. As a result, we
expect that our debt levels will be higher until we have invested most of our
capital.
  If there
is a shortfall between the cash flow from a property and the cash flow needed to
service mortgage debt on a property, then the amount available for distributions
to stockholders may be reduced. In addition, incurring mortgage debt increases
the risk of loss since defaults on indebtedness secured by a property may result
in lenders initiating foreclosure actions. In that case, we could lose the
property securing the loan that is in default, thus reducing the value of
investors’ investments. For tax purposes, a foreclosure of any of our properties
would be treated as a sale of the property for a purchase price equal to the
outstanding balance of the debt secured by the mortgage. If the outstanding
balance of the debt secured by the mortgage exceeds our tax basis in the
property, we would recognize taxable income on foreclosure, but would not
receive any cash proceeds. In such event, we may be unable to pay the amount of
distributions required in order to maintain our REIT status. We may give full or
partial guarantees to lenders of mortgage debt to the entities that own our
properties. When we provide a guaranty on behalf of an entity that owns one of
our properties, we will be responsible to the lender for satisfaction of the
debt if it is not paid by such entity. If any mortgages contain
cross-collateralization or cross-default provisions, a default on a single
property could affect multiple properties. If any of our properties are
foreclosed upon due to a default, our ability to pay cash distributions to our
stockholders will be adversely affected which could result in our losing our
REIT status and would result in a decrease in the value of investors’
investments.
 19
 Current
state of debt markets could limit our ability to obtain financing which may have
a material adverse impact on our earnings and financial condition.
  The
commercial real estate debt markets are currently experiencing volatility as a
result of certain factors including the tightening of underwriting standards by
lenders and credit rating agencies and the significant inventory of unsold
Collateralized Mortgage Backed Securities in the market. Credit spreads for
major sources of capital have widened significantly as investors have demanded a
higher risk premium. This is resulting in lenders increasing the cost for debt
financing. Should the overall cost of borrowings increase, either by increases
in the index rates or by increases in lender spreads, we will need to factor
such increases into the economics of our acquisitions. This may result in our
acquisitions generating lower overall economic returns and potentially reducing
cash flow available for distribution.
  The
recent dislocations in the debt markets has reduced the amount of capital that
is available to finance real estate, which, in turn, (a) will no longer allow
real estate investors to rely on capitalization rate compression to generate
returns and (b) has slowed real estate transaction activity, all of which may
reasonably be expected to have a material impact, favorable or unfavorable, on
revenues or income from the acquisition and operations of real properties and
mortgage loans. Investors will need to focus on market-specific growth dynamics,
operating performance, asset management and the long-term quality of the
underlying real estate.
  In
addition, the state of the debt markets could have an impact on the overall
amount of capital investing in real estate which may result in price or value
decreases of real estate assets.
 
  High
mortgage rates may make it difficult for us to finance or refinance properties,
which could reduce the number of properties we can acquire and the amount of
cash distributions we can make.
  If we place mortgage debt on
properties, we run the risk of being unable to refinance the properties when the
loans come due, or of being unable to refinance on favorable terms. If interest
rates are higher when the properties are refinanced, we may not be able to
finance the properties and our income could be reduced. If any of these events occur, our cash
flow would be reduced. This, in turn, would reduce cash available for
distribution to investors and may hinder our ability to raise more capital by
issuing more stock or by borrowing more money.
  Lenders
may require us to enter into restrictive covenants relating to our operations,
which could limit our ability to make distributions to our
stockholders.
  In
connection with providing us financing, a lender could impose restrictions on us
that affect our distribution and operating policies and our ability to incur
additional debt. Loan documents we enter into may contain covenants that limit
our ability to further mortgage the property, discontinue insurance coverage or
replace American Realty Capital Advisors, LLC as our advisor. These or other
limitations may adversely affect our flexibility and our ability to achieve our
investment and operating objectives.
  Increases
in interest rates could increase the amount of our debt payments and adversely
affect our ability to pay distributions to our stockholders.
  We expect
that we will incur indebtedness in the future. To the extent that we incur
variable rate debt, increases in interest rates would increase our interest
costs, which could reduce our cash flows and our ability to pay distributions to
investors. In addition, if we need to repay existing debt during periods of
rising interest rates, we could be required to liquidate one or more of our
investments in properties at times that may not permit realization of the
maximum return on such investments.
  We
have broad authority to incur debt, and high debt levels could hinder our
ability to make distributions and could decrease the value of investors’
investments.
  Our
charter generally limits us to incurring debt no greater than 75% of the greater
of the aggregate cost (before deducting depreciation or other non-cash reserves)
or the aggregate fair market value of all of our assets as of the date of any
borrowing, unless any excess borrowing is approved by a majority of our
independent directors and disclosed to our stockholders in our next quarterly
report, along with a justification for such excess borrowing. We expect that
during the period of the offering we will request that our independent directors
approve borrowings in excess of this limitation since we will then be in the
process of raising our equity capital to acquire our portfolio. As a result, we
expect that our debt levels will be higher until we have invested most of our
capital. High debt levels would cause us to incur higher interest charges, would
result in higher debt service payments, and could be accompanied by restrictive
covenants. These factors could limit the amount of cash we have available to
distribute and could result in a decline in the value of investors’
investment.
  Federal Income Tax Risks
  Failure
to qualify as a REIT would adversely affect our operations and our ability to
make distributions.
  We will
elect to be taxed as a REIT beginning with the tax year ended December 31, 2008.
In order for us to qualify as a REIT, we must satisfy certain requirements set
forth in the Internal Revenue Code and Treasury Regulations and various factual
matters and circumstances that are not entirely within our control. We intend to
structure our activities in a manner designed to satisfy all of these
requirements. However, if certain of our operations were to be recharacterized
by the Internal Revenue Service, such recharacterization could jeopardize our
ability to satisfy all of the requirements for qualification as a REIT.
Proskauer Rose LLP, our legal counsel, has rendered its opinion that we will
qualify as a REIT, based upon our representations as to the manner in which we
are and will be owned, invest in assets and operate, among other things.
However, our qualification as a REIT will depend upon our ability to meet,
through investments, actual operating results, distributions and satisfaction of
specific rules, the various tests imposed by the Internal Revenue Code.
Proskauer Rose LLP will not review these operating results or compliance with
the qualification standards on an ongoing basis. This means that we may fail to
satisfy the REIT requirements in the future. Also, this opinion represents
Proskauer Rose LLP’s legal judgment based on the law in effect as of the date of
this prospectus. Proskauer Rose LLP’s opinion is not binding on the Internal
Revenue Service or the courts and we will not apply for a ruling from the
Internal Revenue Service regarding our status as a REIT. Future legislative,
judicial or administrative changes to the federal income tax laws could be
applied retroactively, which could result in our disqualification as a
REIT.
 20
 If we
fail to qualify as a REIT for any taxable year, we will be subject to federal
income tax on our taxable income at corporate rates. In addition, we would
generally be disqualified from treatment as a REIT for the four taxable years
following the year of losing our REIT status. Losing our REIT status would
reduce our net earnings available for investment or distribution to stockholders
because of the additional tax liability. In addition, distributions to
stockholders would no longer qualify for the dividends paid deduction, and we
would no longer be required to make distributions. If this occurs, we might be
required to borrow funds or liquidate some investments in order to pay the
applicable tax.
  Re-characterization
of sale-leaseback transactions may cause us to lose our REIT
status.
  We may
purchase properties and lease them back to the sellers of such properties. While
we will use our best efforts to structure any such sale-leaseback transaction so
that the lease will be characterized as a “true lease,” thereby allowing us to
be treated as the owner of the property for federal income tax purposes, the IRS
could challenge such characterization. In the event that any sale-leaseback
transaction is challenged and re-characterized as a financing transaction or
loan for federal income tax purposes, deductions for depreciation and cost
recovery relating to such property would be disallowed. If a sale-leaseback
transaction were so recharacterized, we might fail to satisfy the REIT
qualification “asset tests” or the “income tests” and, consequently, lose our
REIT status effective with the year of recharacterization. Alternatively, the
amount of our REIT taxable income could be recalculated which might also cause
us to fail to meet the distribution requirement for a taxable year.
  Investors
may have tax liability on distributions investors elect to reinvest in our
common stock.
  If
investors participate in our distribution reinvestment plan, they will be deemed
to have received, and for income tax purposes will be taxed on, the amount
reinvested in common stock to the extent the amount reinvested was not a
tax-free return of capital. As a result, unless they are a tax-exempt entity,
they may have to use funds from other sources to pay their tax liability on the
value of the common stock received.
  In
certain circumstances, we may be subject to federal and state income taxes as a
REIT, which would reduce our cash available for distribution to
investors.
  Even if
we qualify and maintain our status as a REIT, we may be subject to federal
income taxes or state taxes. For example, net income from the sale of properties
that are “dealer” properties sold by a REIT (a “prohibited transaction” under
the Internal Revenue Code) will be subject to a 100% tax. We may not be able to
make sufficient distributions to avoid excise taxes applicable to REITs. We may
also decide to retain income we earn from the sale or other disposition of our
property and pay income tax directly on such income. In that event, our
stockholders would be treated as if they earned that income and paid the tax on
it directly. However, stockholders that are tax-exempt, such as charities or
qualified pension plans, would have no benefit from their deemed payment of such
tax liability. We may also be subject to state and local taxes on our income or
property, either directly or at the level of American Realty Capital Operating
Partnership, L.P. or at the level of the other companies through which we
indirectly own our assets. Any federal or state taxes we pay will reduce our
cash available for distribution to investors.
  Legislative
or regulatory action could adversely affect investors.
  Because
our operations are governed to a significant extent by the federal tax laws, new
legislative or regulatory action could adversely affect investors.
  Investors
are urged to consult with their own tax advisors with respect to the status of
legislative, regulatory or administrative developments and proposals and their
potential effect on an investment in our common stock. Investors should also
note that our counsel’s tax opinion assumes that no legislation will be enacted
after the date of this prospectus that will be applicable to an investment in
our shares.
  Foreign
purchasers of our common stock may be subject to FIRPTA tax upon the sale of
their shares.
  A foreign person disposing of a U.S.
real property interest, including shares of a U.S. corporation whose assets
consist principally of U.S. real property interests, is generally subject to the
Foreign Investment in Real Property Tax of 1980, as amended, known as FIRPTA, on
the gain recognized on the disposition. Such FIRPTA tax does not apply, however,
to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically
controlled” if less than 50% of the REIT’s stock, by value, has been owned
directly or indirectly by persons who are not qualifying U.S. persons during a
continuous five-year period ending on the date of disposition or, if shorter,
during the entire period of the REIT’s existence. We cannot assure investors
that we will qualify as a “domestically controlled” REIT. If we were to fail to
so qualify, gain realized by foreign investors on a sale of our shares would be
subject to FIRPTA tax, unless our shares were traded on an established
securities market and the foreign investor did not at any time during a
specified testing period directly or indirectly own more than 5% of the value of
our outstanding common stock.
 21
 In
order to avoid triggering additional taxes and/or penalties, if investors intend
to invest in our shares through pension or profit-sharing trusts or IRAs,
investors should consider additional factors.
  If
investors are investing the assets of a pension, profit-sharing, 401(k), Keogh
or other qualified retirement plan or the assets of an IRA in our common stock,
they should satisfy themselves that, among other things:
 
 •
              their
      investment is consistent with their fiduciary obligations under ERISA and
      the Internal Revenue Code;
 
 •
              their
      investment is made in accordance with the documents and instruments
      governing investors plans or IRAs, including their plan’s investment
      policy;
 
 •
              their
      investment satisfies the prudence and diversification requirements of
      ERISA;
 
 •
              their
      investment will not impair the liquidity of the plan or
    IRA;
 
 •
              their
      investment will not produce UBTI for the plan or
  IRA;
 
 •
              they
      will be able to value the assets of the plan annually in accordance with
      ERISA requirements; and
 
 •
              their
      investment will not constitute a prohibited transaction under Section 406
      of ERISA or Section 4975 of the Internal Revenue
  Code.
   Item 1B. Unresolved Staff
Comments.
  We have
no unresolved staff comments.
  Item 2. Properties.
  General
  22
 As of
December 31, 2008, we owned 92 properties located in 5 states:
Pennsylvania, Massachusetts, Florida, Ohio, and New Jersey.  All of these
properties are freestanding, single-tenant properties 100% occupied with a
weighted average remaining lease term of 12.6 years as of December 31,
2008.  In the aggregate, these properties represent approximately 713,000
rentable square feet.
   The
following table presents certain additional information about the 92 properties
we own at December 31, 2008:
  Seller
      / Property Name
                                                                                  
                                                                                  Acquisition
      Date
                                                                                  
                                                                                  No.
      of Buildings
                                                                                  
                                                                                  Square
      Feet
                                                                                  
                                                                                  Remaining
      Lease Term (1)
                                                                                  
                                                                                  Net
      Operating Income (2)
                                                                                  
                                                                                  Base
      Purchase Price (3)
                                                                                  
                                                                                  Capitalization
      Rate (4)
                                                                                  
                                                                                  Purchase
      Price (5)Federal
      Express Distribution Center
                                                                                  
                                                                                  March
      2008
                                                                                  
                                                                                  1
                                                                                  
                                                                                  55,440
                                                                                  
                                                                                  9.9
                                                                                  
                                                                                  $
                                                                                  729,000
                                                                                  
                                                                                  $
                                                                                  9,694,000
                                                                                  
                                                                                  7.52%
                                                                                  
                                                                                  $
                                                                                  10,207,000Harleysville
      National Bank Portfolio
                                                                                  
                                                                                  March
      2008
                                                                                  
                                                                                  15
                                                                                  
                                                                                  177,774
                                                                                  
                                                                                  14.0
                                                                                  
                                                                                  
                                                                                  3,004,000
                                                                                  
                                                                                  
                                                                                  40,976,000
                                                                                  
                                                                                  7.33%
                                                                                  
                                                                                  
                                                                                  41,676,000Rockland
      Trust Company Portfolio
                                                                                  
                                                                                  May
      2008
                                                                                  
                                                                                  18
                                                                                  
                                                                                  121,057
                                                                                  
                                                                                  12.6
                                                                                  
                                                                                  
                                                                                  2,530,000
                                                                                  
                                                                                  
                                                                                  32,188,000
                                                                                  
                                                                                  7.86%
                                                                                  
                                                                                  
                                                                                  33,141,000National
      City Bank
                                                                                  
                                                                                  Sept.
      & Oct. 2008
                                                                                  
                                                                                  2
                                                                                  
                                                                                  8,403
                                                                                  
                                                                                  20.1
                                                                                  
                                                                                  
                                                                                  547,000
                                                                                  
                                                                                  
                                                                                  6,664,000
                                                                                  
                                                                                  8.21%
                                                                                  
                                                                                  
                                                                                  6,853,000Rite
      Aid
                                                                                  
                                                                                  September
      2008
                                                                                  
                                                                                  6
                                                                                  
                                                                                  74,919
                                                                                  
                                                                                  14.5
                                                                                  
                                                                                  
                                                                                  1,447,000
                                                                                  
                                                                                  
                                                                                  18,576,000
                                                                                  
                                                                                  7.79%
                                                                                  
                                                                                  
                                                                                  18,839,000PNC
      Bank Portfolio
                                                                                  
                                                                                  November
      2008
                                                                                  
                                                                                  50
                                                                                  
                                                                                  275,436
                                                                                  
                                                                                  9.9
                                                                                  
                                                                                  
                                                                                  3,108,000
                                                                                  
                                                                                  
                                                                                  42,286,000
                                                                                  
                                                                                  7.35%
                                                                                  
                                                                                  
                                                                                  44,628,000Total
                                                                                  
                                                                                  
                                                                                  
                                                                                  92
                                                                                  
                                                                                  713,029
                                                                                  
                                                                                  12.6
                                                                                  
                                                                                  $
                                                                                  11,365,000
                                                                                  
                                                                                  $
                                                                                  150,384,000
                                                                                  
                                                                                  7.56%
                                                                                  
                                                                                  $
                                                                                  155,344,000
 ________________________
 
 (1)
                -
      Remaining lease term as of December 31, 2008, in years. If the portfolio
      has multiple locations with varying lease
      expirations,  remaining lease term is calculated on a
      weighted-average basis.(2)
                -
      Annualized 2008 rental income less property operating expenses, as
      applicable.(3)
                -
      Contract purchase price excluding acquisition related
    costs.(4)
                -
      Net operating income divided by base purchase price.(5)
                -
      Base purchase price plus all acquisition related
  costs.
 
 
 Seller
      / Property Name
                                                                      
                                                                      Purchase
      Price (1)
                                                                      
                                                                      
                                                                      Mortgage
      Debt (2)
                                                                      
                                                                      
                                                                      Interest
      Rate
                                                                      
                                                                      
                                                                      Leverage
      Ratio (3)Federal
      Express Distribution Center
                                                                      
                                                                      $
                                                                      10,207,000
                                                                      
                                                                      
                                                                      $
                                                                      6,965,000
                                                                      
                                                                      
                                                                      
                                                                      6.29
                                                                      %
                                                                      
                                                                      
                                                                      68.2
                                                                      %Harleysville
      National Bank Portfolio
                                                                      
                                                                      
                                                                      41,676,000
                                                                      
                                                                      
                                                                      
                                                                      31,000,000
                                                                      
                                                                      
                                                                      
                                                                      6.59
                                                                      %
                                                                      
                                                                      
                                                                      74.4
                                                                      %Rockland
      Trust Company Portfolio
                                                                      
                                                                      
                                                                      33,141,000
                                                                      
                                                                      
                                                                      
                                                                      24,123,000
                                                                      
                                                                      
                                                                      
                                                                      4.92
                                                                      %
      (4)
                                                                      
                                                                      
                                                                      72.8
                                                                      %National
      City Bank
                                                                      
                                                                      
                                                                      6,853,000
                                                                      
                                                                      
                                                                      
                                                                      4,483,000
                                                                      
                                                                      
                                                                      
                                                                      4.89
                                                                      %
      (5)
                                                                      
                                                                      
                                                                      65.4
                                                                      %Rite
      Aid
                                                                      
                                                                      
                                                                      18,839,000
                                                                      
                                                                      
                                                                      
                                                                      12,808,000
                                                                      
                                                                      
                                                                      
                                                                      6.97
                                                                      %
                                                                      
                                                                      
                                                                      68.0
                                                                      %PNC
      Bank Portfolio
                                                                      
                                                                      
                                                                      44,628,000
                                                                      
                                                                      
                                                                      
                                                                      33,363,000
                                                                      
                                                                      
                                                                      
                                                                      5.25
                                                                      %
      (6)
                                                                      
                                                                      
                                                                      74.8
                                                                      %Total
      (7)
                                                                      
                                                                      $
                                                                      155,344,000
                                                                      
                                                                      
                                                                      $
                                                                      112,742,000
                                                                      
                                                                      
                                                                      
                                                                      5.79
                                                                      %
                                                                      
                                                                      
                                                                      72.6
                                                                      %
 
 Base
      rent increase (year 2)
                  0.89%Investment
      grade tenants (based on rent) (S&P BBB- or better)
                  87.87%
 ________________________
 
 (1)
                -
      Base purchase price plus all acquisition related costs.(2)
                -
      Consists of first mortgage long-term debt only, exclusive of any
      short-term bridge equity, as applicable.(3)
                -
      Mortgage debt divided by purchase price.(4)
                -
      Variable based on 30-day Libor plus a spread of 1.375%. The REIT entered
      into a rate lock agreement to limit its interest rate exposure. The LIBOR
      floor and cap are 3.54% and 4.125%, respectively.(5)
                -
      Variable based on 30-day Libor plus a spread of 1.5%.  The REIT
      entered into a swap agreement with a rate of 3.565% and a notional amount
      of $384,732 and a rate lock agreement on a notional amount of $4,115,268
      with a LIBOR floor and cap of 3.37% and 4.45%, respectively, in connection
      with the entering into the mortgage.(6)
                -
      Variable based on 30-day Libor plus a spread of 1.65%. The REIT entered
      into a swap agreement with a fixed rate of 3.60% for a notional amount of
      $33,300,000.(7)
                -
      Weighted-average, as applicable.
 
 23
  
  Future
Lease Payments Table
  The
following table presents future minimum base rental payments due to us over the
next ten years at the properties we own as of December 31,
2008:
 
 2009
                      
                      $
                      10,926,3092010
                      
                      10,961,2392011
                      
                      11,016,6402012
                      
                      11,059,2762013
                      
                      11,120,472
  Future
Lease Expirations Table
 
 The following is a summary of lease
expirations for the next ten years:
  Year
                              
                              Expiring
                                Revenues
                              
                              
                              Leases
                                Expiring(1)
                              
                              
                              Square
                                Feet
                              
                              
                              %
      of
                                Gross
      Rev2009
                              
                              $
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2010
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2011
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2012
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2013
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2014
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2015
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              –2016
                              
                              
                              242,000
                              
                              
                              
                              2
                              
                              
                              
                              21,476
                              
                              
                              
                              2.12%2017
                              
                              
                              179,000
                              
                              
                              
                              1
                              
                              
                              
                              12,613
                              
                              
                              
                              1.61%2018
                              
                              
                              4,910,000
                              
                              
                              
                              59
                              
                              
                              
                              384,201
                              
                              
                              
                              44.76%
  (1)
                The
      62 leases listed above are with the following tenants:  Fed Ex,
      Rockland Trust Company, PNC Bank and Rite
Aid.
  Item 3. Legal Proceedings.
  We are
not party to, and none of our properties are subject to, any material pending
legal proceedings.
  Item 4. Submission of Matters to a
Vote of Security Holders.
  No
matters were submitted to a vote of our stockholders during the fourth quarter
of 2008.
  24
  PART II
  Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
  Market
Information
  No public
market currently exists for our shares of common stock, and we currently have no
plans to list our shares on a national securities exchange. Until our shares are
listed, if ever, our stockholders may not sell their shares unless the buyer
meets the applicable suitability and minimum purchase requirements. In addition,
our charter prohibits the ownership of more than 9.8% of our stock, unless
exempted by our board of directors. Consequently, there is the risk that our
stockholders may not be able to sell their shares at a time or price acceptable
to them.  Pursuant to the our offering, we are selling shares of our
common stock to the public at a price of $10.00 per share and at $9.50 per share
pursuant to our distribution reinvestment plan.
  In order
for Financial Industry Regulatory Authority (“FINRA”) members and their
associated persons to participate in the offering and sale of shares of common
stock pursuant to the offering, we are required pursuant to NASD
Rule 2710(f)(2)(M) to disclose in each annual report distributed to
stockholders a per share estimated value of the shares, the method by which it
was developed and the date of the data used to develop the estimated
value.  In addition, we prepare annual statements of estimated share values
to assist fiduciaries of retirement plans subject to the annual reporting
requirements of ERISA in the preparation of their reports relating to an
investment in our shares.  During our offering the value of the shares is
deemed to be the offering price of $10.00 per share (without regard to purchase
price discounts for certain categories of purchasers), as adjusted for any
special distribution of net sales proceeds.  There is no public trading
market for the shares at this time, and there can be no assurance that
stockholders would receive $10.00 per share if such a market did exist and they
sold their shares or that they will be able to receive such amount for their
shares in the future.  Nor does this deemed value reflect the distributions
that stockholders would be entitled to receive if our properties were sold and
the sale proceeds were distributed upon liquidation of our Company.  Such a
distribution upon liquidation may be less than $10.00 per share primarily due to
the fact that the funds initially available for investment in properties were
reduced from the gross offering proceeds in order to pay selling commissions and
dealer manager fees, organization and offering expenses, and acquisitions and
advisory fees.
  Holders
  As of
February 27, 2009, we had 1,507,481 shares of common stock outstanding held by a
total of 184 stockholders.
  Distributions
  We intend
to elect and qualify as a REIT for federal income tax purposes commencing with
our taxable year ended December 31, 2008.  As a REIT, we are required
to distribute at least 90% of our REIT taxable income to our stockholders
annually.  Our distributions are paid on a monthly basis as directed by our
board of directors.  Monthly cash distributions are paid based on daily
record and distribution declaration dates so our investors will be entitled to
be paid distributions beginning on the day that they are admitted as
stockholders.  All distributions are recorded to stockholders’
equity.  Since inception, income generated from operating cash flow has
been sufficient to make distributions to stockholders.  From a tax
perspective, 100% of the amounts distributed by us in 2008 represent a return of
capital.  Accordingly, such distributions are deferred as it relates
to being subject to income tax. In 2008, we made distributions aggregating
approximately $445,000 to our stockholders, inclusive of shares issued pursuant
to our distribution reinvestment plan.  As of December 31, 2008, cash
used to pay our distributions was entirely generated from funds received from
operating activities and fee waivers from our advisor.  Our
distributions have not been paid from any other sources.  We have continued
to pay distributions to our shareholders each month since our initial dividend
payment.
  Since
March 2008, the declared distribution rate has been equal to a daily amount of
$0.00178082191 per share of common stock, which is equivalent to an annual
distribution rate of 6.5% assuming the share was purchased for $10.00. Effective
January 2, 2009, our daily distribution rate has increased by 20 basis points,
resulting in an annualized distribution rate of 6.7%.  Our board of
directors will continue to evaluate our distribution levels on an ongoing
basis.
  The
following table shows the distributions declared and paid for the year ended
December 31, 2008:
 
 Distributions
                      
                      
                      DistributionsDeclared
                      
                      
                      Paid1st
      Quarter
                      
                      $
                      —
                      
                      
                      $
                      —2nd
      Quarter
                      
                      
                      135,000
                      
                      
                      
                      80,0003rd
      Quarter
                      
                      
                      181,000
                      
                      
                      
                      174,0004th
      Quarter
                      
                      
                      199,000
                      
                      
                      
                      191,0002008
      Total
                      
                      $
                      515,000
                      
                      
                      $
                      445,000
  25
  Share-Based Compensation
Plans
  We have
adopted a stock option plan under which our independent directors are eligible
to receive annual nondiscretionary awards of nonqualified stock options. Our
stock option plan is designed to enhance our profitability and value for the
benefit of our stockholders by enabling us to offer independent directors
stock-based incentives, thereby creating a means to raise the level of equity
ownership by such individuals in order to attract, retain and reward such
individuals and strengthen the mutuality of interests between such individuals
and our stockholders.
  We have
authorized and reserved 1,000,000 shares of our common stock for issuance under
our stock option plan. The board of directors may make appropriate adjustments
to the number of shares available for awards and the terms of outstanding awards
under our stock option plan to reflect any change in our capital structure or
business, stock dividend, stock split, recapitalization, reorganization, merger,
consolidation or sale of all or substantially all of our assets.
  Our stock
option plan provides for the automatic grant of a nonqualified stock option to
each of our independent directors, without any further action by our board of
directors or the stockholders, to purchase 3,000 shares of our common stock on
the date of each annual stockholder’s meeting. The exercise price for all stock
options granted under our stock option plan will be fixed at $10.00 per share
until the termination of our initial public offering, and thereafter the
exercise price for stock options granted to our independent directors will be
equal to the fair market value of a share on the last business day preceding the
annual meeting of stockholders. The term of each such option will be 10 years.
Options granted to non-employee directors will vest and become exercisable on
the second anniversary of the date of grant, provided that the independent
director is a director on the board of directors on that date.
  Notwithstanding
any other provisions of our stock option plan to the contrary, no stock option
issued pursuant thereto may be exercised if such exercise would jeopardize our
status as a REIT under the Internal Revenue Code. The total number of options
granted will not exceed 10% of the total outstanding shares at the time of
grant. During
the year December 31, 2008, unvested options to purchase 9,000 shares at $10.00
per share remained outstanding with a weighted average contractual remaining
life of approximately 9.50 years. The expense required to be recorded by the
Company was insignificant.The following table sets forth information
regarding securities authorized for issuance under our stock option plan as of
December 31, 2008:
 
 Plan
      Category
                                                      
                                                      Number of Securities to be
                                                        Issued Upon
                                                        Exercise of Outstanding
                                                        Options, Warrants
                                                        and Rights
                                                      
                                                      
                                                      Weighted-Average
                                                        Exercise Price of
                                                        Outstanding
                                                        Options, Warrants
                                                        and Rights
                                                      
                                                      
                                                      Number of Securities
                                                        Remaining Available
                                                        For Future Issuance
                                                        Under Equity
                                                        Compensation Plans
                                                        (Excluding
                                                        Securities Reflected
                                                        in Column (a)(a)
                                                      
                                                      
                                                      (b)
                                                      
                                                      
                                                      (c)Equity
      Compensation Plans approved by security holders
                                                      
                                                      
                                                      9,000
                                                      
                                                      
                                                      $
                                                      10.00
                                                      
                                                      
                                                      
                                                      991,000Equity
      Compensation Plans not approved by security holders
                                                      
                                                      
                                                      N/A
                                                      
                                                      
                                                      
                                                      N/A
                                                      
                                                      
                                                      
                                                      N/ATotal
                                                      
                                                      
                                                      9,000
                                                      
                                                      
                                                      $
                                                      10.00
                                                      
                                                      
                                                      
                                                      991,000
  Use
of Proceeds from Sales of Registered Securities and Unregistered Sales of Equity
Securities
  On
January 25, 2008, our Registration Statement on Form S-11 (File
No. 333-145949), covering a public offering of up to 150,000,000 shares of
common stock, was declared effective under the Securities Act of 1933. The
offering commenced on January 25, 2008 and is ongoing.  Shares
are offered under our distribution reinvestment plan initially at $9.50 per
share.
  Through
December 31, 2008, including shares sold through our distribution
reinvestment plan, we had sold 1,276,814 shares for grossoffering proceeds of $11.7
million. At December 31, 2008, we had incurred selling commissions, dealer
manager fees and other organization and offering costs in the amounts set forth
below. The dealer manager reallowed all of the selling commissions and a portion
of the dealer manager fees to participating broker-dealers:
  Type
      of Expense
                    
                    AmountSelling
      commissions and dealer manager fees
                    
                    $
                    199,000Other
      organization and offering costs
                    
                    
                    2,289,000Total
      expenses
                    
                    $
                    2,488,000
 
 As of
December 31, 2008, the net offering proceeds to us, after deducting the
total expenses paid as described above, were $9.2 million including net offering
proceeds from our distribution reinvestment plan of approximately $150,000. We
have used the net proceeds from our ongoing initial public offering to purchase
or fund $155.3 million of real estate investments, including $5.0 million in
acquisition fees and closing costs.
  26
  During
the year ended December 31, 2008, we did not sell any equity securities
that were not registered under the Securities Act of 1933.
  Share Repurchase
Program
  Our board
of directors has adopted a Share Repurchase Program (“SRP”) that enables our
stockholders to sell their shares to us in limited circumstances.  Our
SRP permits investors to sell their shares back to us after they have held them
for at least one year, subject to the significant conditions and limitations
described below.
 
 Our
common stock is currently not listed on a national securities exchange and we
will not seek to list our stock until such time as our independent directors
believe that the listing of our stock would be in the best interest of our
stockholders. In order to provide stockholders with the benefit of interim
liquidity, stockholders who have held their shares for at least one year and who
purchased their shares from us or received the shares through a non-cash
transaction, not in the secondary market, may present all or a portion
consisting of the holder’s shares to us for repurchase at any time in accordance
with the procedures outlined below. At that time, we may, subject to the
conditions and limitations described below, redeem the shares presented for
repurchase for cash to the extent that we have sufficient funds available to us
to fund such repurchase. We will not pay to our board of directors, advisor or
its affiliates any fees to complete any transactions under our SRP.
 
 During
the term of the offering and any subsequent public offering of our shares, the
purchase price per share will depend on the length of time investors have held
such shares as follows: after one year from the purchase date — 96.25%
of the amount they actually paid for each share; and after two years from the
purchase date — 97.75% of the amount they actually paid for each share; and
after three years from the purchase date — 100% of the amount they
actually paid for each share; (in each case, as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
our common stock). At any time we are engaged in an offering of shares, the per
share price for shares purchased under our repurchase plan will always be equal
to or lower than the applicable per share offering price. Thereafter, the per
share purchase price will be based on the greater of $10.00 or the then-current
net asset value of the shares as determined by our board of directors (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to our common stock). Our board of directors will announce
any purchase price adjustment and the time period of its effectiveness as a part
of its regular communications with our stockholders. Our board of directors
shall use the following criteria for determining the net asset value of the
shares: value of our assets (estimated market value) less the estimated market
value of our liabilities, divided by the number of shares. The Board, with
advice from the Advisor, (i) will make internal valuations of the market value
of its assets based upon the current capitalization rates of similar properties
in the market, recent transactions for similar properties acquired by the
Company and any extensions, cancellations, modifications or other material
events affecting the leases, changes in rents or other circumstances related to
such properties, (ii) review internal appraisals prepared by the Advisor
following standard commercial real estate appraisal practice and (iii) every
three years or earlier, in rotation will have all of the properties appraised by
an external appraiser. Upon the death or disability of a stockholder, upon
request, we will waive the one-year holding requirement. Shares repurchased in
connection with the death or disability of a stockholder will be repurchased at
a purchase price equal to the price actually paid for the shares during the
offering, or if not engaged in the offering, the per share purchase price will
be based on the greater of $10.00 or the then-current net asset value of the
shares as determined by our board of directors (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
our common stock). In addition, we may waive the holding period in the event of
a stockholder’s bankruptcy or other exigent circumstances.
 
 On
November 12, 2008, the Company’s board of directors modified the SRP to fund
purchases under the SRP, not only from the  DRIP, but also from
operating funds of the Company. Accordingly, purchases under the SRP, subject to
the terms of the SRP, may be funded from the proceeds from the sale of shares
under the DRIP, from proceeds of the sale of shares in a public offering, and
with other available allocated operating funds. However, purchases under the SRP
by the Company will be limited in any calendar year to 5% of the weighted
average number of shares outstanding during the prior year.
 
 We will
redeem our shares on the last business day of the month following the end of
each quarter. Requests for repurchases must be received on or prior to the end
of the quarter in order for us to repurchase the shares as of the end of the
next month. Investors may withdraw their requests to have their shares
repurchased at any time prior to the last day of the applicable quarter. Shares
presented for repurchase will continue to earn daily distributions up to and
including the repurchase date.
 
 If we
could not purchase all shares presented for repurchase in any quarter, based
upon insufficient cash available and the limit on the number of shares we may
redeem during any calendar year, we would attempt to honor repurchase requests
on a pro rata basis; provided, however, that we may give priority to the
redemption of a deceased or disabled stockholder’s shares. We will treat the
unsatisfied portion of the repurchase request as a request for repurchase the
following quarter. At such time, investors may then (1) withdraw their request
for repurchase at any time prior to the last day of the new quarter or (2)
without instructions to withdraw their request we will honor their request at
such time, if, any, when sufficient funds become available. Such pending
requests will generally be honored on a pro rata basis. We will determine
whether we have sufficient funds available as soon as practicable after the end
of each quarter, but in any event prior to the applicable payment
date.
  27
  Our board
of directors may choose to amend, suspend or terminate our SRP upon 30 days
notice at any time. Additionally we will be required to discontinue sales of
shares under the DRIP plan on the earlier of January 25, 2011, which is three
years from the effective date of the offering, unless the offering is extended,
or the date we sell all of the shares registered for sale under the DRIP, unless
we file a new registration statement with the Securities and Exchange Commission
and applicable states. Because the repurchase of shares will be partially funded
with the net proceeds we receive from the sale of shares under the DRIP, the
discontinuance or termination of the DRIP may adversely affect our ability to
purchase shares under the SRP. We would notify investors of such developments:
(i) in the annual or quarterly reports mentioned above, or (ii) by means of a
separate mailing to investors, accompanied by disclosure in a current or
periodic report under the Exchange Act. During the offering, we would also
include this information in a prospectus supplement or post-effective amendment
to the registration statement, as then required under federal securities
laws.
 
 Our share
repurchase program is only intended to provide interim liquidity for
stockholders until a liquidity event occurs, such as listing of the shares on
the New York Stock Exchange or NASDAQ Stock Market, or our merger with a listed
company. The SRP will be terminated if the shares become listed on a national
securities exchange. We cannot guarantee that a liquidity event will
occur.
 
 The
shares we purchase under our SRP will be cancelled and return to the status of
unauthorized but unissued shares. We do not intend to resell such shares to the
public unless such resale is first registered with the Securities and Exchange
Commission under the Securities Act and under appropriate state securities laws
or otherwise conducted in compliance with such laws.
  During
the year ended December 31, 2008, no shares were redeemed under our
SRP.
  Item 6. Selected Financial
Data.
  The
following selected financial data as of and for the year ended December 31,
2008 and as of and for the period ended December 31, 2007 should be read in
conjunction with the accompanying consolidated financial statements and related
notes thereto and “Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations” below:
  Balance
      sheet dataDecember
      31,2008
                        
                        
                        2007Total
      real estate investments, at cost
                        
                        $
                        164,770,631
                        
                        
                        $
                        —Total
      assets
                        
                        
                        164,942,451
                        
                        
                        
                        938,157Mortgage
      notes payable
                        
                        
                        112,741,810
                        
                        
                        
                        —Total
      short-term equity
                        
                        
                        30,925,959
                        
                        
                        
                        —Other
      notes payable
                        
                        
                        1,089,500
                        
                        
                        
                        —Intangible
      lease obligation, net
                        
                        
                        9,400,293
                        
                        
                        
                        —Total
      liabilities
                        
                        
                        163,183,128
                        
                        
                        
                        738,657Total
      stockholders’ equity
                        
                        
                        1,759,323
                        
                        
                        
                        199,500
 
 Operating
      dataYear
      Ended
                                                                                                                                                December
      31, 2008
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              For
      the Period from August 17, 2007 (date of inception) to December 31,
      2007Rental
      income
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              5,546,363
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              —ExpensesProperty
      management fees to affiliate
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              4,230
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —General
      and administrative
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              380,069
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              500Depreciation
      and amortization
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              3,056,449
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —Total
      operating expenses
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              3,440,748
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              500Operating
      income (loss)
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              2,105,615
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              (500
                                                                                                                                              )Other
      income (expenses)Interest
      expense
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              (4,773,593
                                                                                                                                              )
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —Interest
      income
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              2,905
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —Gains
      (losses) on derivative instruments
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              (1,617,711
                                                                                                                                              )
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —Total
      other expenses
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              (6,388,399
                                                                                                                                              )
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —Net
      loss
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              (4,282,784
                                                                                                                                              )
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              (500
                                                                                                                                              )Other
      dataFunds from
      operations (1)(2)
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              475,129
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              —Cash
      flows provided by (used in) operations
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              4,012,739
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              (200,000
                                                                                                                                              )Cash
      flows used in investing activities
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              (97,456,132
                                                                                                                                              )
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —Cash
      flows provided by financing activities
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              94,330,261
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              200,000Per
      share dataNet
      loss per common share - basic and diluted
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              (5.16
                                                                                                                                              )
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              —Distributions
      declared per common share
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              .65
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              $
                                                                                                                                              —Weighted-average
      number of common shares outstanding, basic and diluted
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              829,578
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              —
 (1) We
consider funds from operations (“FFO”) a useful indicator of the performance of
a REIT. Because FFO calculations exclude such factors as depreciation and
amortization of real estate assets and gains or losses from sales of operating
real estate assets (which can vary among owners of identical assets in similar
conditions based on historical cost accounting and useful-life estimates), they
facilitate comparisons of operating performance between periods and between
other REITs in our peer group. Accounting for real estate assets in accordance
with GAAP implicitly assumes that the value of real estate assets diminishes
predictability over time. Since real estate values have historically risen or
fallen with market conditions, many industry investors and analysts have
considered the presentation of operating results for real estate companies that
use historical cost accounting to be insufficient by themselves. As a result, we
believe that the use of FFO, together with the required GAAP presentations,
provide a more complete understanding of our performance relative to our peers
and a more informed and appropriate basis on which to make decisions involving
operating, financing, and investing activities. Other REITs may not define FFO
in accordance with the current National Association of Real Estate Investment
Trust’s (“NAREIT”) definition (as we do) or may interpret the current NAREIT
definition differently than we do. Consequently, our presentation of FFO may not
be comparable to other similarly titled measures presented by other REITs. See
the below table providing the compilation of FFO.
 (2) The
FFO measurement is applicable for the nine months ended December 31,
2008.
 
 FFO is a
non-GAAP financial measure and does not represent net income as defined by GAAP.
FFO does not represent cash flows from operations as defined by U.S. GAAP, it is
not indicative of cash available to fund all cash flow needs and liquidity,
including our ability to pay distributions and should not be considered as an
alternative to net income, as determined in accordance with U.S. GAAP, for
purposes of evaluating our operating performance.
  Our
calculation of FFO, which we believe is consistent with the calculation of FFO
as defined by NAREIT, is presented in the following table for the applicable
periods during the year ended December 31, 2008:
 28
 Three
      Months Ended June 30,
                                  
                                  
                                  Three
      Months Ended
                                    September
      30,
                                  
                                  
                                  Three
      Months Ended
                                    December
      31,
                                  
                                  
                                  Total2008
                                  
                                  
                                  2008
                                  
                                  
                                  2008
                                  
                                  
                                  (3)Net
      loss
                                  
                                  $
                                  (454,369
                                  )
                                  
                                  $
                                  (845,124
                                  )
                                  
                                  $
                                  (2,641,442
                                  )
                                  
                                  $
                                  (3,940,935
                                  )Add:Depreciation
      of real estate assets
                                  
                                  
                                  616,517
                                  
                                  
                                  
                                  717,410
                                  
                                  
                                  
                                  1,056,442
                                  
                                  
                                  
                                  2,390,369Amortization
      of intangible lease assets
                                  
                                  
                                  119,966
                                  
                                  
                                  
                                  139,777
                                  
                                  
                                  
                                  208,601
                                  
                                  
                                  
                                  468,344Mark-to
      market adjustment (1)
                                  
                                  
                                  (196,816
                                  )
                                  
                                  
                                  176,656
                                  
                                  
                                  
                                  1,577,511
                                  
                                  
                                  
                                  1,557,351FFO
                                  
                                  $
                                  85,298
                                  
                                  
                                  $
                                  188,719
                                  
                                  
                                  $
                                  201,112
                                  
                                  
                                  $
                                  475,129Dividends
      paid (2)
                                  
                                  
                                  79,899
                                  
                                  
                                  
                                  174,021
                                  
                                  
                                  
                                  191,362
                                  
                                  
                                  
                                  445,282FFO
      coverage ratio
                                  
                                  
                                  106.8
                                  %
                                  
                                  
                                  108.4
                                  %
                                  
                                  
                                  105.1
                                  %
                                  
                                  
                                  106.7
                                  %FFO
      payout ratio
                                  
                                  
                                  93.7
                                  %
                                  
                                  
                                  92.2
                                  %
                                  
                                  
                                  95.2
                                  %
                                  
                                  
                                  93.7
                                  %
 
 (1) 
      -
                The
      Company excludes non-cash mark-to-market adjustments relating to its
      hedging activities from its FFO calculation.(2)
       -
                Includes
      shares issued under the DRIP.(3) 
      -
                FFO
      is not applicable for the three months ended March 31, 2008, as no
      dividends were paid during such period. Total
      includes results relating to the period from April 1 to December 31,
      2008.
 Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
  
 The
following discussion and analysis should be read in conjunction with the
accompanying financial statements of American Realty Capital Trust, Inc. and the
notes thereto. As used herein, the terms “we,” “our” and “us” refer to American
Realty Capital Trust, Inc., a Maryland corporation, and, as required by context,
American Realty Capital Operating Partnership, L.P., a Delaware limited
partnership, which we refer to as the “Operating Partnership” and to their
subsidiaries. American Realty Capital Trust, Inc. is externally managed by the
Advisor.  The following information contains forward-looking
statements, which are subject to risks and uncertainties. Should one or more of
these risks or uncertainties materialize, actual results may differ materially
from those expressed or implied by the forward-looking statements. Please see
“Forward-Looking
Statements” above for a description of these risks and
uncertainties.
  Overview
 
 We are a
Maryland corporation that will elect to be taxed as a real estate investment
trust, or REIT, beginning with the taxable year ended December 31, 2008. On
September 10, 2007, we filed a registration statement on Form S-11 with the SEC
to offer a minimum of 750,000 shares and a maximum of 150,000,000 shares of
common stock for sale to the public. The SEC declared the registration statement
effective on January 25, 2008, at which time we launched our ongoing initial
public offering. On March 11, 2008, we broke escrow in our ongoing initial
public offering and then commenced our real estate operations. As of December
31, 2008, we issued 1,276,814 shares of common stock, including shares issued
under our DRIP and 339,077 shares issued in connection with an acquisition in
March 2008 - see Note 3 Real Estate Acquisitions. Total gross proceeds from
these issuances were $11,720,112. As of December 31, 2008, the aggregate value
of all share issuances and subscriptions outstanding was $14,829,622 based on a
per share value of $10.00 (or $9.50 per share for shares issued under the DRIP).
This amount includes stock subscriptions of $2,069,367 which are maintained
at our third-party escrow agent, to be released when certain escrow requirements
have been achieved. As of December 31, 2008, we had not redeemed any shares sold
in our ongoing initial public offering pursuant to our share repurchase program.
We are dependent upon the net proceeds from the offering to conduct our proposed
operations.
 
 We intend
to use the proceeds of our ongoing initial public offering to acquire and manage
a diverse portfolio of real estate properties consisting primarily of
freestanding, single-tenant properties net leased to investment grade and other
creditworthy tenants throughout the United States and Puerto Rico. We plan to
own substantially all of our assets and conduct our operations through our
Operating Partnership. We have no paid employees. Our advisor, American Realty
Capital Advisors, LLC, conducts our operations and manages our portfolio of real
estate investments.
 
 We intend
to continue our strategy of acquiring high quality, single tenant properties
through sale leaseback transactions and marketed transactions with in-place
long-term leases, and to finance our acquisitions with a combination of equity
and debt. We expect to arrange long-term financing on both a secured and
unsecured fixed rate basis. We intend to continue to grow our existing
relationships and develop new relationships throughout various markets we serve,
which we expect will lead to further acquisition opportunities.
  Real
estate-related investments are higher-yield and higher-risk investments that our
advisor will actively manage, if we elect to acquire such investments. The real
estate-related investments in which we may invest include: (i) mortgage
loans; (ii) equity securities such as common stocks, preferred stocks and
convertible preferred securities of real estate companies; (iii) debt
securities, such as mortgage-backed securities, commercial mortgages, mortgage
loan participations and debt securities issued by other real estate companies;
and (iv) certain types of illiquid securities, such as mezzanine loans and
bridge loans. While we may invest in any of these real estate-related
investments, our advisor, with the support of our Board of Trustees, has elected
to suspend all activities relating to acquiring real estate-related investments
for an indefinite period based on the current adverse climate affecting the
capital markets. Since our inception, we have not acquired any real
estate-related investments.
  Significant
Accounting Estimates and Critical Accounting Policies
  Our
accounting policies have been established to conform with GAAP. The preparation
of financial statements in conformity with GAAP requires management to use
judgment in the application of accounting policies, including making estimates
and assumptions. These judgments affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. If management’s judgment or interpretation of the facts
and circumstances relating to various transactions had been different, it is
possible that different accounting policies would have been applied, thus,
resulting in a different presentation of the financial statements. Additionally,
other companies may utilize different estimates that may impact the
comparability of our results of operations to those of companies in similar
businesses.
  29
  The
critical accounting policies outlined below will be employed with the
preparation of our financial statements.
 
 Investments
in Real Estate
  Investments
in real estate are recorded at cost. Improvements and replacements are
capitalized when they extend the useful life of the asset. Costs of repairs and
maintenance are expensed as incurred. Depreciation is computed using the
straightline method over the estimated useful life of up to 40 years for
buildings and improvements, five to ten years for fixtures and improvements and
the shorter of the useful life or the remaining lease term for tenant
improvements and leasehold interests.
  We are
required to make subjective assessments as to the useful lives of our properties
for purposes of determining the amount of depreciation to record on an annual
basis with respect to our investments in real estate. These assessments have a
direct impact on our net income because if we were to shorten the expected
useful lives of our investments in real estate, we would depreciate these
investments over fewer years, resulting in more depreciation expense and lower
net income on an annual basis.
  We follow
Statement of Financial Accounting Standards (SFAS) No.144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” which established a single
accounting model for the impairment or disposal of long-lived assets including
discontinued operations. SFAS No.144 requires that the operations related to
properties that have been sold or properties that are intended to be sold be
presented as discontinued operations in the statement of operations for all
periods presented, and properties intended to be sold to be designated as “held
for sale” on the balance sheet.
  Long-lived
assets are carried at cost and evaluated for impairment when events or changes
in circumstances indicate such an evaluation is warranted or when they are
designated as held for sale. Valuation of real estate is considered a “critical
accounting estimate” because the evaluation of impairment and the determination
of fair values involve a number of management assumptions relating to future
economic events that could materially affect the determination of the ultimate
value, and therefore, the carrying amounts of our real estate. Additionally,
decisions regarding when a property should be classified as held for sale are
also highly subjective and require significant management judgment.
 
 Events or
changes in circumstances that could cause an evaluation for impairment include
the following:
 
 •
                
                a
      significant decrease in the market price of a long-lived
      asset;•
                
                a
      significant adverse change in the extent or manner in which a long-lived
      asset is being used or in its physical condition;•
                
                a
      significant adverse change in legal factors or in the business climate
      that could affect the value of a long-lived asset, including an adverse
      action or assessment by a regulator;•
                
                an
      accumulation of costs significantly in excess of the amount originally
      expected for the acquisition or construction of a long-lived asset;
      and•
                
                a
      current-period operating or cash flow loss combined with a history of
      operating or cash flow losses or a projection or forecast that
      demonstrates continuing losses associated with the use of a long-lived
      asset.
  We review
our portfolio on an on-going basis to evaluate the existence of any of the
aforementioned events or changes in circumstances that would require us to test
for recoverability. In general, our review of recoverability is based on an
estimate of the future undiscounted cash flows expected to result from the
property’s use and eventual disposition. These estimates consider factors such
as expected future operating income, market and other applicable trends and
residual value expected, as well as the effects of leasing demand, competition
and other factors. If impairment exists due to the inability to recover the
carrying value of a property, an impairment loss is recorded to the extent that
the carrying value exceeds the estimated fair value of the property. We are
required to make subjective assessments as to whether there are impairments in
the values of our investments in real estate. These assessments have a direct
impact on our net income because recording an impairment loss results in an
immediate negative adjustment to net income.
 
 Purchase
Price Allocation
  Pursuant
to SFAS No.141, “Business Combinations,” we follow the purchase method of
accounting for all business combinations. To ensure that intangible assets
acquired and liabilities assumed in a purchase method business combination can
be recognized and reported apart from goodwill, we ensure that the applicable
criteria specified in SFAS No.141 are met.
  We
allocate the purchase price of acquired properties to tangible and identifiable
intangible assets acquired based on their respective fair values. Tangible
assets include land, buildings, equipment and tenant improvements on an as-if
vacant basis. We utilize various estimates, processes and information to
determine the as-if vacant property value. Estimates of value are made using
customary methods, including data from appraisals, comparable sales, discounted
cash flow analysis and other methods. Identifiable intangible assets include
amounts allocated to acquired leases for above- and below-market lease rates,
the value of in-place leases, and the value of customer
relationships.
  30
  Amounts
allocated to land, buildings, equipment and fixtures are based on cost
segregation studies performed by independent third-parties or on our analysis of
comparable properties in our portfolio. Depreciation is computed using the
straightline method over the estimated life of 40 years for buildings, five to
ten years for building equipment and fixtures, and the lesser of the useful life
or the remaining lease term for tenant improvements.
  Above-market
and below-market in-place lease values for owned properties are recorded based
on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between the contractual amounts to
be paid pursuant to the in-place leases and management’s estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal
to the remaining non-cancelable term of the lease. The capitalized above-market
lease values are amortized as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial term
and any fixed-rate renewal periods in the respective leases. The aggregate value
of intangible assets related to in-place leases is primarily the difference
between the property valued with existing in-place leases adjusted to market
rental rates and the property valued as if vacant. Factors considered by us in
our analysis of the in-place lease intangibles include an estimate of carrying
costs during the expected lease-up period for each property, taking into account
current market conditions and costs to execute similar leases. In estimating
carrying costs, we include real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during the expected
lease-up period, which typically ranges from six to 18 months. We also
estimate costs to execute similar leases including leasing commissions, legal
and other related expenses.
  The
aggregate value of intangibles assets related to customer relationship is
measured based on our evaluation of the specific characteristics of each
tenant’s lease and our overall relationship with the tenant. Characteristics
considered by us in determining these values include the nature and extent of
our existing business relationships with the tenant, growth prospects for
developing new business with the tenant, the tenant’s credit quality and
expectations of lease renewals, among other factors.
  The value
of in-place leases is amortized to expense over the initial term of the
respective leases, which range primarily from 2 to 20 years. The value of
customer relationship intangibles is amortized to expense over the initial term
and any renewal periods in the respective leases, but in no event does the
amortization period for intangible assets exceed the remaining depreciable life
of the building. If a tenant terminates its lease, the unamortized portion of
the in-place lease value and customer relationship intangibles is charged to
expense.
 
 In making
estimates of fair values for purposes of allocating purchase price, we utilize a
number of sources, including independent appraisals that may be obtained in
connection with the acquisition or financing of the respective property and
other market data. We also consider information obtained about each property as
a result of our pre-acquisition due diligence, as well as subsequent marketing
and leasing activities, in estimating the fair value of the tangible and
intangible assets acquired and intangible liabilities assumed. The allocations
presented in the accompanying consolidated balance sheets are substantially
complete; however, there are certain items that we will finalize once we receive
additional information. Accordingly, these allocations are subject to revision
when final information is available, although we do not expect future revisions
to have a significant impact on our financial position or results of
operations.
 
 Revenue
Recognition
  Our
revenues, which are derived primarily from rental income, include rents that
each tenant pays in accordance with the terms of each lease reported on a
straightline basis over the initial term of the lease. Since many of our leases
provide for rental increases at specified intervals, straightline basis
accounting requires us to record a receivable, and include in revenues, unbilled
rent receivables that we will only receive if the tenant makes all rent payments
required through the expiration of the initial term of the lease.
  We
continually review receivables related to rent and unbilled rent receivables and
determine collectability by taking into consideration the tenant’s payment
history, the financial condition of the tenant, business conditions in the
industry in which the tenant operates and economic conditions in the area in
which the property is located. In the event that the collectability of a
receivable is in doubt, we record an increase in our allowance for uncollectible
accounts in our consolidated statements of operations.
  Income
Taxes
  We will
make an election to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code commencing with our taxable year ending December 31, 2008.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income tax to the extent we distribute our REIT taxable income
to our stockholders, and so long as we distribute at least 90% of our REIT
taxable income. REITs are subject to a number of other organizational and
operational requirements. Even if we qualify for taxation as a REIT, we may be
subject to certain state and local taxes on our income and property, and federal
income and excise taxes on our undistributed income. We believe we are organized
and operating in such a manner as to qualify to be taxed as a REIT for the
taxable year ending December 31, 2008.
  31
  Results
of Operations
 
 Year
Ended December 31, 2008
  We
commenced business operations in March 2008 when we acquired our initial real
estate investment. During the year ended December 31, 2008, we purchased 92
real estate properties.  These real estate assets had an aggregate
gross purchase price of approximately $155.3 million and contain approximately
713,000 rentable square feet:
 
 Seller
      / Property Name
                                  
                                  Acquisition
      Date
                                  
                                  Purchase
      Price
                                  
                                  
                                  Square
      Feet
                                  
                                  
                                  Rental
      Income
                                  
                                  
                                  Depreciation
      and Amortization
                                  
                                  
                                  Interest
      ExpenseFederal
      Express Distribution Center
                                  
                                  March
      2008
                                  
                                  $
                                  10,207,000
                                  
                                  
                                  
                                  55,440
                                  
                                  
                                  
                                  599,863
                                  
                                  
                                  $
                                  349,309
                                  
                                  
                                  $
                                  365,574Harleysville
      National Bank Portfolio
                                  
                                  March
      2008
                                  
                                  
                                  41,676,000
                                  
                                  
                                  
                                  177,774
                                  
                                  
                                  
                                  2,414,375
                                  
                                  
                                  
                                  1,365,457
                                  
                                  
                                  
                                  2,337,506Rockland
      Trust Company Portfolio
                                  
                                  May
      2008
                                  
                                  
                                  33,141,000
                                  
                                  
                                  
                                  121,057
                                  
                                  
                                  
                                  1,679,643
                                  
                                  
                                  
                                  888,223
                                  
                                  
                                  
                                  1,418,671National
      City Bank
                                  
                                  Sept.
      & Oct. 2008
                                  
                                  
                                  6,853,000
                                  
                                  
                                  
                                  8,403
                                  
                                  
                                  
                                  145,699
                                  
                                  
                                  
                                  62,283
                                  
                                  
                                  
                                  107,207Rite
      Aid
                                  
                                  September
      2008
                                  
                                  
                                  18,839,000
                                  
                                  
                                  
                                  74,919
                                  
                                  
                                  
                                  369,749
                                  
                                  
                                  
                                  191,072
                                  
                                  
                                  
                                  372,122PNC
      Bank Portfolio
                                  
                                  November
      2008
                                  
                                  $
                                  44,628,000
                                  
                                  
                                  
                                  275,436
                                  
                                  
                                  
                                  337,033
                                  
                                  
                                  
                                  200,106
                                  
                                  
                                  
                                  172,514Total
                                  
                                  
                                  
                                  
                                  155,344,000
                                  
                                  
                                  
                                  713,029
                                  
                                  
                                  
                                  5,546,363
                                  
                                  
                                  $
                                  3,056,449
                                  
                                  
                                  $
                                  4,773,593
  The
property operating results outlined below relate to the partial period we owned
these investment assets during the period.
 
 Rental
Income
 
 Rental
income of approximately $5,546,000 was recognized during the year ended December
31, 2008. This rental income is derived from the leased properties we acquired
during 2008.
 
 Property
Management Fees to Affiliate
 
 Property
management fees to affiliate of approximately $4,000 were incurred during the
year ended December 31, 2008. Such fees represent amounts paid to our affiliated
property manager, American Realty Capital Properties, LLC, to manage and lease
our properties. American Realty Capital Properties, LLC has elected to waive
(not defer) $102,000 of property management fees for the year ended December 31,
2008.
 
 General
and Administrative Expenses
 
 General
and administrative expenses of approximately $380,000 were incurred during the
year ended December 31, 2008. The majority of such expenses include $174,000 of
insurance expense amortization of our directors and officers’ insurance policy,
$83,000 of board member compensation and $98,000 of professional
fees.
 
 Depreciation
and Amortization Expense
 
 Depreciation
and amortization expense of approximately $3,056,000 was recognized during the
year ended December 31, 2008. This expense relates to depreciation and
amortization incurred from the properties we acquired during 2008.
 
 Interest
Expense
 
 Interest
expense of approximately $4,774,000 was recognized during the year ended
December 31, 2008. Such amount relates to interest expense incurred on debt
obligations assumed and/or borrowed to fund a portion of the properties we
acquired during 2008.
 
 Our
property acquisitions during the year ended December 31, 2008 were financed in
part with long-term obligations and short-term bridge equity investments as
discussed in Note 7 to our consolidated financial statements. Our interest
expense in future periods will vary based on our level of future borrowings,
which will depend on the level of proceeds raised in the Offering, the cost of
borrowings, and the opportunity to acquire real estate assets which meet our
investment objectives.
  32
 Other
Expense
 
 During
the year ended December 31, 2008, the Company recorded approximately $1,618,000
of losses related to marking its derivative instruments to market. This non-cash
charge principally relates to an interest rate collar entered into to mitigate
the potential impact of interest rate volatility on a mortgage note. This hedge
investment does not qualify for hedge accounting under SFAS No. 133, requiring
mark-to-market adjustments while the derivative is in-place.
 
 Cash
Flows for the Year Ended December 31, 2008
 
 During
the year ended December 31, 2008, net cash provided by operating activities was
approximately $4,013,000. The level of cash flows provided by operating
activities is affected by both the timing of interest payments and amount of
borrowings outstanding during the period. It is also affected by the receipt of
scheduled rent payments and disbursement of deposits required in connection with
property acquisitions. Prepaid expenses and other assets increased by
approximately $302,000 principally resulting from unbilled rent receivables
recorded in accordance with straightline basis accounting, future acquisition
costs, and the partial pre-funding of our Directors and Officers’ insurance
policy. This amount is offset by the increase in accounts payable and accrued
expenses of approximately $3,034,000, the majority of which relates to
professional fees, accrued interest and finance coordination fees, as well as an
increase in deferred rent and liabilities of approximately $782,000, primarily
representing rent payments received in advance of the respective due
date.
  Net cash
used in investing activities during the year December 31, 2008 totaled
approximately $97,456,000 relating to investment properties acquired during the
period.
 
 Net cash
provided by financing activities totaled approximately $94,330,000 during the
year December 31, 2008. Such amount consisted primarily of net proceeds from
mortgage notes payable, a convertible redeemable preferred equity, other notes
payable, a bridge equity, our related party bridge equity facility, and our
related party bridge equity revolver of approximately $61,969,000, $3,995,000,
$1,090,000, $8,000,000, $8,477,000 and $6,500,000, respectively. During the
period, we issued 1,276,814 shares of common stock which generated approximately
$8,120,000 of gross proceeds, reduced by approximately $1,350,000 of related
offering costs and commissions. Net cash of approximately $296,000 was used for
shareholder dividends. Net cash was reduced by approximately $48,000 related to
restricted cash.
  Liquidity
and Capital Resources
  We expect
to continue to raise capital through the sale of our common stock and to utilize
the net proceeds from the sale of our common stock and proceeds from secured
financings to complete future property acquisitions. As of December 31, 2008, we
issued 1,276,814 shares of common stock, including shares issued under our DRIP
and 339,077 shares issued in connection with an acquisition in March 2008 - see
Note 3 Real Estate Acquisitions. Total gross proceeds from these issuances were
$11,720,112. As of December 31, 2008, the aggregate value of all share issuances
and subscriptions outstanding was $14,829,622 based on a per share value of
$10.00 (or $9.50 per share for shares issued under the DRIP). This amount
includes stock subscriptions of $2,069,367 which are maintained at our
third-party escrow agent, to be released when certain escrow requirements have
been achieved.
 
 The
amount of distributions payable to our stockholders is determined by our board
of directors and is dependent on a number of factors, including funds available
for distribution, financial condition, capital expenditure requirements, as
applicable and annual distribution requirements needed to qualify and maintain
our status as a REIT under the Code. Operating cash flows are expected to
increase as additional properties are acquired in our investment
portfolio.
  Our
principal demands for funds will continue to be for property acquisitions,
either directly or through investment interests, for the payment of operating
expenses and distributions, and for the payment of interest on our outstanding
indebtedness and other investments. Generally, cash needs for items other than
property acquisitions are expected to be met from operations, and cash needs for
property acquisitions are expected to be met from the public offering of our
shares. However, there may be a delay between the sale of our shares and our
purchase of properties, which could result in a delay in the benefits to our
stockholders, if any, of returns generated from our operations. Our Advisor
evaluates potential acquisitions of real estate and real estate related assets
and engages in negotiations with sellers and borrowers on our behalf. Investors
should be aware that after a purchase contract is executed that contains
specific terms, the property will not be purchased until the successful
completion of due diligence and negotiation of final binding agreements. During
this period, we may decide to temporarily invest any unused proceeds from the
Offering in certain investments that could yield lower returns than the
properties. These lower returns may affect our ability to make
distributions.
  We expect
to meet our future short-term operating liquidity requirements through net cash
provided by our current property operations and the operations of properties to
be acquired in the future. Management also expects that our properties will
generate sufficient cash flow to cover operating expenses and the payment of a
monthly distribution. Other potential future sources of capital include proceeds
from secured or unsecured financings from banks or other lenders, proceeds from
the sale of properties and undistributed funds from operations.
  In
February 2008, the Board of Directors declared a dividend for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of real
estate investments, payable in cash on the 21st day following each month end to
stockholders of record at the close of business each day during the applicable
period. The dividend will be calculated based on stockholders of record each day
during the applicable period at a rate of $0.00178082191 per day, and will equal
a daily amount that, if paid each day for a 365-day period, would equal a 6.5%
annualized rate based on the share price of $10.00. In August 2008, the Board of
Directors modified the dividend payment date to the second business day of the
following month.
  33
  On
November 5, 2008, the board of directors of approved an increase in its annual
cash distribution from $.65 to $.67 per share. Based on a $10.00 share price,
this 20 basis point increase, effective January 2, 2009, will result in an
annualized distribution rate of 6.7%.
 
 The
Company, our Board of Directors and Advisor share a similar philosophy with
respect to paying our dividend. The dividend should principally be derived from
cash flows generated from real estate operations. During the year ended December
31, 2008, dividends paid totaled $445,284, inclusive of $149,725 of common
shares issued under the DRIP. Our related party Advisor has agreed to waive
certain fees during the current period which resulted in the Company’s FFO fully
covering the dividends that were paid out during such period. These waived fees
included asset management and property management of $733,086 and $101,815
respectively. In addition, the Advisor waived reimbursement it was entitled to
during the period for organizational and offering expenses which totaled
$175,802. If the Advisor had not agreed to waive the asset management fee, we
would not have had sufficient cash to fund our distributions. Had this been the
case, additional borrowings would have been incurred to fund our monthly
distributions.  The fees and reimbursement that were waived relating
to the activity during the year ended December 31, 2008 are not deferrals and
accordingly, will not be paid by the Company.
 
 The
payment terms of our loan obligations vary. In general, principal and
interest are payable monthly with all unpaid principal and interest due at
maturity. Certain of our mortgage loans have initial payments of interest only
but require principal repayment in subsequent years. Our loan agreements
stipulate that we comply with specific reporting and financial covenants. As of
December 31, 2008, we were in compliance with the debt covenants under our loan
agreements.
 
 Our
Advisor may, with approval from our independent board of directors, seek to
borrow short-term capital that, combined with secured mortgage financing,
exceeds our targeted leverage ratio. Such short-term borrowings may be obtained
from third-parties on a case-by-case basis as acquisition opportunities present
themselves simultaneous with our capital raising efforts. We view the use of
short-term borrowings as an efficient and accretive means of acquiring real
estate in advance of raising equity capital. Accordingly, we can take advantage
of buying opportunities as we expand our fund raising activities. As additional
equity capital is obtained, these short-term borrowings will be repaid. Our
leverage ratio approximated 73% (secured mortgage notes payable as a percentage
of total real estate investments, at cost) as of December 31, 2008.
 
 As of
December 31, 2008, we had cash and cash equivalents of approximately $887,000,
which we expect to be used primarily to invest in additional real estate, pay
operating expenses and pay stockholder distributions.
  Contractual
Obligations
  The
following is a summary of our contractual obligations as of December 31,
2008:
  Payments Due
      During the Years Ending December 31Contractual
      Obligations (1)
                            
                            Total
                            
                            
                            2009
                            
                            
                            
                            2010-2011
                            
                            
                            
                            2012-2013
                            
                            
                            ThereafterMortgage
      notes payable
                            
                            $
                            112,741,810
                            
                            
                            $
                            954,637
                            
                            
                            $
                            2,867,407
                            
                            
                            $
                            60,792,906
                            
                            
                            $
                            48,126,860Short-term
      bridge equity
                            
                            
                            3,953,796
                            
                            
                            
                            
                            
                            
                            
                            3,953,796
                            
                            
                            
                            —
                            
                            
                            
                            —Short-term
      convertible redeemable preferred equity
                            
                            
                            3,995,000
                            
                            
                            
                            3,995,000
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Related
      party bridge equity
                            
                            
                            6,500,000
                            
                            
                            
                            6,500,000
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Other
      notes payable
                            
                            
                            1,089,500
                            
                            
                            
                            
                            
                            
                            
                            1,089,500
                            
                            
                            
                            —
                            
                            
                            
                            —Short-term
      bridge equity investment
                            
                            
                            8,000,000
                            
                            
                            
                            8,000,000
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Related
      party bridge equity facility
                            
                            
                            8,477,163
                            
                            
                            
                            8,477,163
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —$
                            144,757,269
                            
                            
                            $
                            27,926,800
                            
                            
                            $
                            7,910,703
                            
                            
                            $
                            60,792,906
                            
                            
                            $
                            48,126,860
  (1)
                  Amounts
      include principal payments only. We incurred interest expense of
      approximately $4,639,000, excluding amortization of deferred financing
      costs, during the year ended December 31, 2008, and expect to incur
      interest in future periods on outstanding debt
  obligations.(2)
                  We
      estimate that interest expense for the years 2009, 2010, 2011, 2012 and
      2013 will be approximately $5,637,000, $6,119,000, $6,043,000, $5,970,620
      and $5,559,000, respectively.
 
 Election
as a REIT
  We will
elect to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code commencing with our taxable year ending December 31, 2008. If
we qualify for taxation as a REIT, we generally will not be subject to federal
corporate income tax to the extent we distribute our REIT taxable income to our
stockholders, and so long as we distribute at least 90% of our REIT taxable
income. REITs are subject to a number of other organizational and operational
requirements. Even if we qualify for taxation as a REIT, we may be subject to
certain state and local taxes on our income and property, and federal income and
excise taxes on our undistributed income. We believe we are organized and
operating in such a manner as to qualify to be taxed as a REIT for the taxable
year ended December 31, 2008.
  34
  Inflation
 
 Some of
our leases contain provisions designed to mitigate the adverse impact of
inflation. These provisions generally increase rental rates during the terms of
the leases either at fixed rates or indexed escalations (based on the Consumer
Price Index or other measures). We may be adversely impacted by inflation on the
leases that do not contain indexed escalation provisions. In addition, our net
leases require the tenant to pay its allocable share of operating expenses,
including common area maintenance costs, real estate taxes and insurance. This
may reduce our exposure to increases in costs and operating expenses resulting
from inflation.
  Related-Party
Transactions and Agreements
  We have
entered into agreements with American Realty Capital II, LLC and its
wholly-owned affiliates, whereby we pay certain fees or reimbursements to our
Advisor or its affiliates for acquisition fees and expenses, organization and
offering costs, sales commissions, dealer manager fees, asset and property
management fees and reimbursement of operating costs. See Note 9 to our
consolidated financial statements included in this report for a discussion of
the various related-party transactions, agreements and fees.
 
 Off-Balance
Sheet Arrangements
  We have
no off-balance sheet arrangements that are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.
  New
Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”), which addresses how companies should measure fair value
when they are required to use a fair value measure for recognition or disclosure
purposes under GAAP. As a result of SFAS No. 157 there is now a common
definition of fair value to be used throughout GAAP. The FASB believes that the
new standard will make the measurement of fair value more consistent and
comparable and improve disclosures about those measures. The effective date of
SFAS No. 157 is delayed for one year for certain nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).
Certain provisions of SFAS No. 157 are effective for us beginning in the
first quarter of 2008. The adoption of SFAS No. 157 for financial assets
and liabilities in the first quarter of 2008 did not have a material effect on
our results of operations and financial position. We are currently evaluating
the impact of adoption SFAS No. 157 for nonfinancial assets and
liabilities, on its results of operations and financial position.
 
 In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for
Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. The objective of SFAS No. 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 was
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 159 did not have a material impact on our financial position,
results of operations or cash flows in the first quarter of 2008.
 
 In
December 2007, the FASB issued SFAS No. 141, (revised 2007), “Business
Combinations,” (“SFAS No. 141(R)”), which continues the evolution toward
fair value reporting and significantly changes the accounting for acquisitions
that close beginning in 2009, both at the acquisition date and in subsequent
periods. SFAS No. 141(R) introduces new accounting concepts and valuation
complexities, and many of the changes have the potential to generate greater
earnings volatility after the acquisition. SFAS No. 141(R) applies to
acquisitions on or after January 1, 2009 and will impact our reporting
prospectively only by requiring acquisition costs to be expensed rather than
capitalized.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51,” (“SFAS No. 160”), which requires companies to measure an
acquisition of noncontrolling (minority) interest at fair value in the equity
section of the acquiring entity’s balance sheet. The objective of SFAS
No. 160 is to improve the comparability and transparency of financial data
as well as to help prevent manipulation of earnings. The changes introduced by
the new standards are likely to affect the planning and execution, as well as
the accounting and disclosure, of merger transactions. The effective date to
adopt SFAS No. 160 for us is January 1, 2009. The adoption of SFAS
No. 160 is not expected to have a material effect on our results of
operations and financial position.
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities,” an amendment of FASB Statement
No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 161”) requires entities to provide greater transparency about
how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for under SFAS No. 133, and how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations, and cash flows. The statement is effective for
financial statements issues for fiscal years and interim periods beginning after
November 15, 2008, and is not expected to have a significant impact on the
our results of operations, financial condition or liquidity.
  35
  In
April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3,
which amends the factors that must be considered in developing renewal or
extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset under SFAS No. 142, “Goodwill and
Other Intangible Assets.” The FSP requires an entity to consider its own
assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset, and is an attempt to improve
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141, “Business Combinations.” The FSP is
effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The FSP is not expected to have a significant impact on our results of
operations, financial condition or liquidity.
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of
Generally Accepted Accounting Principles” (“SFAS No. 162”). The statement is
intended to improve financial reporting by identifying a consistent hierarchy
for selecting accounting principles to be used in preparing financial statements
that are prepared in conformance with generally accepted accounting principles.
Unlike Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of
Present in Conformity With GAAP,” SFAS No. 162 is directed to the entity
rather than the auditor. The statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board
(“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly
in Conformity with GAAP,” and is not expected to have any impact on the our
results of operations, financial condition or liquidity.
 
 In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities.” Under the FSP,
unvested share-based payment awards that contain rights to receive
nonforfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing EPS. The FSP is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years, and is not expected to have a significant impact on
the our results of operations, financial condition or liquidity.
  Item 7A.  Quantitative and
Qualitative Disclosures About Market Risk.
  The market risk associated with
financial instruments and derivative financial instruments is the risk of loss
from adverse changes in market prices or rates. Our market risk arises primarily
from interest rate risk relating to variable-rate borrowings. To meet our short-
and long-term liquidity requirements, we borrow funds at a combination of fixed
and variable rates. Borrowings under our short-term bridge equity funds bear
interest at fixed and variable rates. Our long-term debt, which consists of
secured financings, typically bears interest at fixed rates. Our interest rate
risk management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve
these objectives, from time to time, we may enter into interest rate hedge
contracts such as swaps, collars, and treasury lock agreements in order to
mitigate our interest rate risk with respect to various debt instruments. We do
not hold or issue these derivative contracts for trading or speculative
purposes.
 
 As of December 31, 2008, our debt
included fixed-rate debt, with a carrying value of approximately $50.8 million
and a fair value of approximately $43.7 million. Changes in market interest
rates on our fixed-rate debt impact the fair value of the debt, but it has no
impact on interest incurred or cash flow. For instance, if interest rates rise
100 basis points and our fixed rate debt balance remains constant, we expect the
fair value of our debt to decrease, the same way the price of a bond declines as
interest rates rise. The sensitivity analysis related to our fixed-rate debt
assumes an immediate 100 basis point move in interest rates from their December
31, 2008 levels, with all other variables held constant. A 100 basis point
increase in market interest rates would result in a decrease in the fair value
of our fixed-rate debt by approximately $3.8 million. A 100 basis point decrease
in market interest rates would result in an increase in the fair value of our
fixed-rate debt by approximately $4.2 million.
 
 As of December 31, 2008, our debt
included variable-rate mortgage notes payable with a carrying value of $62.0
million. Interest rate volatility associated with this variable-rate mortgage
debt has been mitigated by the use of hedge instruments.  The
sensitivity analysis related to our variable-rate debt assumes an immediate 100
basis point move in variable interest rates with all other variables held
constant. A 100 basis point increase or decrease in variable interest rates on
our variable notes payable would increase or decrease our interest expense by
approximately $0.5 million annually.
 
 These amounts were determined by
considering the impact of hypothetical interest rates changes on our borrowing
costs, and, assume no other changes in our capital
structure.
 
 As the information presented above
includes only those exposures that existed as of December 31, 2008, it does not
consider exposures or positions arising after that date. The information
represented herein has limited predictive value. As a result, the ultimate
realized gain or loss with respect to interest rate fluctuations will depend on
cumulative exposures, hedging strategies employed and the magnitude of the
fluctuations.
 
 The tabular information required by this
item is included in this report as part of Item 7 under the caption “Liquidity
and Capital Resources.”
  We do not
have any foreign operations and thus we are not exposed to foreign currency
fluctuations.
   Item 8.  Financial
Statements and Supplementary Data.
  The
information required by this Item 8 is hereby incorporated by reference to our
Consolidated Financial Statements beginning on page F-1 of this Annual
Report on Form 10-K.
   Item 9.  Changes in and Disagreements
      With Accountants on Accounting and Financial Disclosure.
  None.
   Item 9A(T).  Controls and
Procedures
  Disclosure
Controls and Procedures
 
  In accordance with Rules 13a-15(b) and
15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), we, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period
covered by this Annual Report on Form 10-K. Based on that evaluation and because
of our failure to include the required disclosure of our controls and procedures
in our quarterly reports on Form 10-Q for the quarterly filings during 2008, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures, as of December 31, 2008, were not
effective.  We have remedied this failure in the effectiveness of our
disclosure controls and procedures by implementing additional controls and
procedures designed to ensure that the disclosure provided by us meets the
then-current requirements of the applicable filing made under the Securities
Exchange Act of 1934, as amended.
 
 No change occurred in our internal
controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of
the Exchange Act) during the year ended December 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
  Internal
Control Over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Securities Exchange Act of 1934, as
amended.
  36
  In
connection with the preparation of our Form 10-K, our management assessed the
effectiveness of our internal control over financial reporting as of
December 31, 2008. In making that assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.
  Based on
its assessment, our management believes that, as of December 31, 2008, our
internal control over financial reporting was effective based on those criteria.
There have been no changes in our internal control over financial reporting that
occurred during the year ended December 31, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. This annual report does not include an attestation
report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.
  Item 9B. Other Information.
  None.
  PART III
  Item 10. Directors, Executive Officers and
Corporate Governance.
  We have
adopted a Code of Ethics that apply to all of our executive officers and
directors, including but not limited to, our principal executive officer and
principal financial officer. A copy of
our code of ethics may be obtained, free of charge, by sending a written request
to our executive office – 405 Park Avenue – 15th Floor,
New York, NY 10022, attention Chief Financial Officer.
 
 The other
information required by this Item is incorporated by reference from our 2009
Proxy Statement.
  Item 11. Executive Compensation.
  The
information required by this Item is incorporated by reference from our 2009
Proxy Statement.
  Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
  The
information required by this Item is incorporated by reference from our 2009
Proxy Statement.
  Item 13. Certain Relationships and Related
Transactions, and Director Independence.
  The
information required by this Item is incorporated by reference from our 2009
Proxy Statement.
  Item 14. Principal Accounting Fees and
Services.
  The
information required by this Item is incorporated by reference from our 2009
Proxy Statement.
  37
  PART IV
  Item 15.Exhibits and Financial
Statement Schedules.
  (a)
                Financial
      Statement Schedules
  See the
Index to Financial Statements at page F-1 of this report.
  The
following financial statement schedule is included herein at page F-23
of this report:
  Schedule
III – Real Estate Assets and Accumulated Depreciation and
Amortization
  (b)
                Exhibits
  38
  EXHIBIT
INDEX
 
 EXHIBITS
 
 The
following documents are filed as part of this annual report:
  Exhibit
                                              No.
                                            
                                            Description1.1(2)
                                            
                                            Form
      of Dealer Manager Agreement by and between American Realty Capital Trust,
      Inc. and Realty Capital Securities, LLC1.2(2)
                                            
                                            Form
      of Soliciting Dealers Agreement by and between Realty Capital Securities,
      LLC and the Soliciting Dealers3.1(3)
                                            
                                            Amended
      and Restated Charter of American Realty Capital Trust,
  Inc.3.1(a)(5)
                                            
                                            Articles
      of Amendment of American Realty Capital Trust, Inc.3.2(1)
                                            
                                            Bylaws
      of American Realty Capital Trust, Inc.4.1(3)
                                            
                                            Agreement
      of Limited Partnership of American Realty Capital Operating Partnership,
      L.P.4.1(a)(7)
                                            
                                            First
      Amendment to Agreement of Limited Partnership of American Realty Capital
      Operating Partnership, L.P.4.2
                                            
                                            Specimen
      Certificate for the Shares is not applicable because our board of
      directors has authorized the issuance of Shares of our stock without
      certificates5(4)
                                            
                                            Opinion
      of Proskauer Rose LLP as to the legality of the Shares being
      registered5.1(4)
                                            
                                            Opinion
      of Venable LLP8(4)
                                            
                                            Opinion
      of Proskauer Rose LLP as to tax matters10.1(8)
                                            
                                            Amended
      and Restated Escrow Agreement by and among American Realty Capital Trust,
      Inc., Boston Private Bank & Trust Company and Realty Capital
      Securities, LLC10.2(2)
                                            
                                            Form
      of Advisory Agreement by and among American Realty Capital Trust, Inc.,
      American Realty Capital Operating Partnership, L.P. and American Realty
      Capital Advisers, LLC10.3(1)
                                            
                                            Form
      of Management Agreement, by and among American Realty Capital Trust, Inc.,
      American Realty Capital Operating Partnership, L.P. and American Realty
      Capital Properties, LLC10.3(a)(7)
                                            
                                            First
      Amendment to Management Agreement10.3(b)(7)
                                            
                                            Second
      Amendment to Management Agreement10.3(c)(10)
                                            
                                            Third
      Amendment to Management Agreement10.3(d)(10)
                                            
                                            Fourth
      Amendment to Management Agreement10.3(e)(10)
                                            
                                            Fifth
      Amendment to Management Agreement10.4(7)
                                            
                                            Company’s
      Stock Option Plan10.5(6)
                                            
                                            Agreement
      of Assignment of Partnership Interests between American Realty Capital
      Operating Partnership, L.P. and American Realty Capital LLC, William M.
      Kahane, Nicholas S. Schorsch, Lou Davis and Peter and Maria Wirth dated
      March 5, 2008. - Federal Express Distribution Center10.6(6)
                                            
                                            Agreement
      of Assignment of Partnership Interests between American Realty Capital
      Operating Partnership, L.P. and Nicholas S. Schorsch dated March 12, 2008.
      - Harleysville National Bank Portfolio10.7(8)
                                            
                                            Limited
      Liability Company Agreement of American Realty Capital Equity Bridge, LLC
      dated August 20, 200810.8(a)(10)
                                            
                                            Agreement
      for Transfer of Membership Interest between ARC Growth Fund I, LLC, and
      American Realty Capital Operating Partnership, L.P., dated September 16,
      2008. (Transfer to the Operating Partnership of an indirect interest in
      National City portfolio. Amends exhibit previously filed as exhibit 10.8
      to the Post-Effective Amendment No. 2 to Form S-11, dated September 3,
      2008.)10.8(b)(10)
                                            
                                            Agreement
      for Transfer of Membership Interests between ARC Growth Fund I, LLC, and
      American Realty Capital Operating Partnership, L.P., dated September 16,
      2008. (Transfer to the Operating Partnership of an indirect interest in
      National City portfolio. Amends exhibit previously filed as exhibit 10.8
      to the Post-Effective Amendment No. 2 to Form S-11, dated September 3,
      2008.)10.9(a)(10)
                                            
                                            Agreement
      of Assignment of Membership Interests by and among Milestone Partners
      Limited, and American Realty Capital Holdings, LLC, and American Realty
      Capital Operating Partnership, L.P., dated September 29, 2008. (Transfer
      to the Operating Partnership of an indirect interest in the Rite Aid
      portfolio).10.9(b)(10)
                                            
                                            Consent
      to Transfer Agreement among ARC RACADOH001, LLC, ARC RACAROH001, LLC, ARC
      RAELPOH001, LLC, ARC RALISOH001, LLC, ARC RACARPA001, LP, ARC RAPITPA001,
      LP, American Realty Capital Holdings, LLC, Milestone Partners Limited,
      American Realty Capital Operating Partnership, L.P., and Wells Fargo Bank,
      N.A., dates September 29, 2008. (Transfer of mortgage to Operating
      Partnership in the Rite Aid portfolio).23.1(11)
                                            
                                            Consent
      of Grant Thornton LLP23.2(4)
                                            
                                            Consent
      of Proskauer Rose LLP (included in Opinion of Proskauer Rose LLP in
      Exhibit 5)23.3(4)
                                            
                                            Consent
      of Venable LLP (included in Opinion of Venable LLP in Exhibit
      5.1)24(4)
                                            
                                            Power
      of Attorney31.1(11)
                                            
                                            Certification of Chief Executive
      Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2(11)
                                            
                                            Certification of Chief Financial
      Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1(11)
                                            
                                            Certification of Chief Executive
      Officer and Chief Financial Officer Pursuant to 18 U.S.C., Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the
      SEC and shall not be deemed to be
  “filed.”
  39
  (1)
                      Previously
      filed as an exhibit to Amendment No. 1 to the Registration Statement on
      Form S-11 that we filed with the Securities and Exchange Commission on
      November 20,
2007.
 
 (2)
                                        Previously
      filed as an exhibit to Amendment No. 3 to the Registration Statement on
      Form S-11 that we filed with the Securities and Exchange Commission on
      January 16, 2008.(3)
                                        Previously
      filed as an exhibit to Amendment No. 4 to the Registration Statement on
      Form S-11 that we filed with the Securities and Exchange Commission on
      January 22, 2008.(4)
                                        Previously
      filed as an exhibit to Amendment No. 5 to the Registration Statement on
      Form S-11 that we filed with the Securities and Exchange Commission on
      January 24, 2008.(5)
                                        Previously
      filed as an exhibit to Current Report on Form 8-K that we filed with the
      Securities and Exchange Commission on March 4, 2008.(6)
                                        Previously
      filed as an exhibit to Quarterly Report on Form 10-Q that we filed with
      the Securities and Exchange Commission on May 14, 2008.(7)
                                        Previously
      filed as an exhibit to Pre-Effective Amendment No. 1 to Post Effective
      Amendment No. 1 to Form S-11 that we filed with the Securities and
      Exchange Commission on June 3, 2008.(8)
                                        Previously
      filed as an exhibit to Pre-Effective Amendment No. 1 to Post Effective
      Amendment No. 2 to Form S-11 that we filed with the Securities and
      Exchange Commission on September 3, 2008.(9)
                                        Previously
      filed as an exhibit to the Form 10-Q that we filed with Securities and
      Exchange Commission on November 13, 2008.(10)
                                        Previously
      filed as an exhibit to Pre-Effective Amendment No. 2 to Post Effective
      Amendment No. 3 to Form S-11 that we filed with the Securities and
      Exchange Commission on February 18, 2009.(11)
                                        Filed
      herewith.
  40
 
 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.
  AMERICAN
      REALTY CAPITAL TRUST, INC.By:
                /s/ NICHOLAS S.
      SCHORSCH
                  NICHOLAS
      S. SCHORSCH
                  CHIEF
      EXECUTIVE OFFICER AND
                  CHAIRMAN
      OF THE BOARD OF DIRECTORS
 
 Pursuant
to the requirements of the Securities Act of 1933, as amended, this annual
report on Form 10-K has been signed by the following persons in the capacities
and on the dates indicated.
  Name
                      
                      Capacity
                      
                      Date/s/
      Nicholas S.
      Schorsch
                        Nicholas
      S. Schorsch
                      
                      Chief
      Executive Officer and
                        Chairman
      of the Board of Directors
                      
                      March
      3, 2009/s/
      William M.
      Kahane
                        William
      M. Kahane
                      
                      Chief
      Operating Officer and President
                      
                      March
      3, 2009/s/
      Brian S.
      Block
                        Brian
      S. Block
                      
                      Chief
      Financial Officer and
                        Senior
      Vice President
                      
                      March
      3, 2009/s/
      Leslie D.
      Michelson
                        Leslie
      D. Michelson
                      
                      Independent
      Director
                      
                      March
      3, 2009/s/
      William G.
      Stanley
                        William
      G. Stanley
                      
                      Independent
      Director
                      
                      March
      3, 2009/s/
      Robert H.
      Burns
                        Robert
      H. Burns
                      
                      Independent
      Director
                      
                      March
      3, 2009
  41
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  PageFinancial
      StatementsReport of Independent Registered
      Public Accounting Firm
                                          
                                          F-2Consolidated Balance Sheets as of
      December 31, 2008 and 2007
                                          
                                          F-3Consolidated Statements of
      Operations for the Year endedDecember 31, 2008 and the
      Period from August 17, 2007 (date of inception) to December 31,
      2007
                                          
                                          F-4Consolidated Statement
      of Changes in of Stockholders’ Equity for the Year
      endedDecember 31, 2008 and the
      Period from August 17, 2007 (date of inception) to December 31,
      2007
                                          
                                          F-5Consolidated Statements of Cash
      Flows for the Year endedDecember 31, 2008 and the
      Period from August 17, 2007 (date of inception) to December 31,
      2007
                                          
                                          F-6Notes to Consolidated Financial
      Statements
                                          
                                          F-7Financial Statement
      ScheduleSchedule III – Real Estate and
      Accumulated Depreciation
                                          
                                          F-23
  
  REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
  Stockholders
and Board of Directors
  American
Realty Capital Trust, Inc.
  We have
audited the accompanying consolidated balance sheets of American Realty Capital
Trust, Inc. (a Maryland Corporation) and subsidiary (the Company) as of December
31, 2008 and 2007, and the related consolidated statements of operations,
changes in stockholders’ equity and cash flows for the year ended December 31,
2008 and the period from August 17, 2007 (date of inception) to December 31,
2007. Our audits of the basic financial statements included the financial
statement schedule listed in the index appearing under 15(a). These
financial statements and financial statement schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American Realty
Capital Trust, Inc. and subsidiary as of December 31, 2008 and 2007, and the
consolidated results of their operations and their cash flows for the
year ended December 31, 2008 and the period from August 17, 2007 (date of
inception) to December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
   /s/ GRANT
THORNTON LLP
 Philadelphia,
Pennsylvania
 March 2,
2009
  F-2
  
 AMERICAN REALTY CAPITAL TRUST, INC.
 CONSOLIDATED
BALANCE SHEETS
 
 December
      31,
                                                                                                                                                                                                  2008
                                                                                                                                                                                                
                                                                                                                                                                                                December
      31,
                                                                                                                                                                                                  2007ASSETSReal
      estate investments, at cost:Land
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                22,300,422
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                —Buildings,
      fixtures and improvements
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                126,022,191
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Acquired
      intangible lease assets
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                16,448,018
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Total
      real estate investments, at cost
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                164,770,631
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Less
      accumulated depreciation and amortization
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (3,056,449
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Total real estate investments, net
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                161,714,182
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Cash
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                886,868
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Restricted
      cash
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                47,937
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Prepaid
      expenses and other assets
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                302,472
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                938,157Deferred
      financing costs, net
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                1,990,992
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Total
      assets
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                164,942,451
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                938,157LIABILITIES AND STOCKHOLDERS’
      EQUITYMortgage
      notes payable
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                112,741,810
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                —Other
      notes payable
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                1,089,500
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Short-term
      bridge equity funds:Short-term
      bridge funds
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                11,953,796
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Related
      party bridge facility
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                8,477,163
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Related
      party bridge revolver
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                6,500,000
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Short-term
      convertible redeemable preferred
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                3,995,000
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Total
      short-term bridge funds
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                30,925,959
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Below-market
      lease liabilities, net
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                9,400,293
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Derivatives,
      at fair value
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                4,232,865
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Due
      to affiliates
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                2,223,144
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                284,825Accounts
      payable and accrued expenses
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                1,687,932
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                453,832Deferred
      rent and other liabilities
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                781,538
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Distributions
      payable
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                69,263
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Investor
      contributions held in escrow
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                30,824
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Total
      liabilities
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                163,183,128
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                738,657STOCKHOLDERS’
      EQUITYPreferred
      stock, $0.01 par value; 10,000,000 shares authorized, none issued and
      outstanding
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Common
      stock, $0.01 par value; 240,000,000 shares authorized, 1,276,814 and
      20,000 shares issued and outstanding at December 31, 2008 and December 31,
      2007, respectively
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                12,768
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                200Additional
      paid-in capital
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                9,219,901
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                199,800Accumulated
      other comprehensive loss
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (2,675,515
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                —Accumulated
      deficit
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (4,797,831
                                                                                                                                                                                                )
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                (500
                                                                                                                                                                                                )Total
      stockholders’ equity
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                1,759,323
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                199,500Total
      liabilities and stockholders’ equity
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                164,942,451
                                                                                                                                                                                                
                                                                                                                                                                                                
                                                                                                                                                                                                $
                                                                                                                                                                                                938,157
  The
accompanying notes are an integral part of these statements
 
 F-3
   AMERICAN
REALTY CAPITAL TRUST, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
  Year
      Ended
                                                                              December
      31, 2008
                                                                            
                                                                            
                                                                            Period
      from August 17, 2007 (date of inception) to December 31,
    2007Rental
      income
                                                                            
                                                                            $
                                                                            5,546,363
                                                                            
                                                                            
                                                                            $
                                                                            —ExpensesProperty
      management fees to affiliate
                                                                            
                                                                            
                                                                            4,230
                                                                            
                                                                            
                                                                            
                                                                            —General
      and administrative
                                                                            
                                                                            
                                                                            380,069
                                                                            
                                                                            
                                                                            
                                                                            500Depreciation
      and amortization
                                                                            
                                                                            
                                                                            3,056,449
                                                                            
                                                                            
                                                                            
                                                                            —Total
      operating expenses
                                                                            
                                                                            
                                                                            3,440,748
                                                                            
                                                                            
                                                                            
                                                                            500Operating
      income (loss)
                                                                            
                                                                            
                                                                            2,105,615
                                                                            
                                                                            
                                                                            
                                                                            (500
                                                                            )Other
      income (expenses)Interest
      expense
                                                                            
                                                                            
                                                                            (4,773,593
                                                                            )
                                                                            
                                                                            
                                                                            —Interest
      income
                                                                            
                                                                            
                                                                            2,905
                                                                            
                                                                            
                                                                            
                                                                            —Losses
      on derivative instruments
                                                                            
                                                                            
                                                                            (1,617,711
                                                                            )
                                                                            
                                                                            
                                                                            —Total
      other expenses
                                                                            
                                                                            
                                                                            (6,388,399
                                                                            )
                                                                            
                                                                            
                                                                            —Net
      loss
                                                                            
                                                                            $
                                                                            (4,282,784
                                                                            )
                                                                            
                                                                            $
                                                                            (500
                                                                            )Basic
      and diluted weighted averagecommon
      shares outstanding
                                                                            
                                                                            
                                                                            711,524
                                                                            
                                                                            
                                                                            
                                                                            —Basic
      and diluted loss per share
                                                                            
                                                                            $
                                                                            (6.02
                                                                            )
                                                                            
                                                                            $
                                                                            —
  The
accompanying notes are an integral part of these statements
 
 F-4
 
 AMERICAN
REALTY CAPITAL TRUST, INC.
 CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
 For
the Year ended December 31, 2008 and Period from August 17, 2007 (date of
inception) to December 31, 2007
  Common
      StockNumber
      of
                                                Shares
                                              
                                              
                                              Par
      Value
                                              
                                              
                                              Additional
                                                Paid-In
      Capital
                                              
                                              
                                              Accumulated
                                                Other
      Comprehensive Loss
                                              
                                              
                                              Accumulated
      Deficit
                                              
                                              
                                              Total Stockholders’
      EquityBalance,
      August 17, 2007
                                              
                                              
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —Issuance
      of common stock
                                              
                                              
                                              20,000
                                              
                                              
                                              
                                              200
                                              
                                              
                                              
                                              199,800
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              200,000Net
      loss
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (500
                                              )
                                              
                                              
                                              (500
                                              )Balance,
      December 31, 2007
                                              
                                              
                                              20,000
                                              
                                              
                                              
                                              200
                                              
                                              
                                              
                                              199,800
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (500
                                              )
                                              
                                              
                                              199,500Issuance
      of common stock
                                              
                                              
                                              1,241,053
                                              
                                              
                                              
                                              12,411
                                              
                                              
                                              
                                              11,357,976
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              11,370,387Offering
      costs, commissions and dealer manager fees
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (2,487,443
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (2,487,443
                                              )Common
      stock issued through dividend reinvestment program
                                              
                                              
                                              15,761
                                              
                                              
                                              
                                              157
                                              
                                              
                                              
                                              149,568
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              149,725Distributions
      declared
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (514,547
                                              )
                                              
                                              
                                              (514,547
                                              )Designated
      derivatives, fair value adjustment
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (2,675,515
                                              )
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (2,675,515
                                              )Net
      loss
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (4,282,784
                                              )
                                              
                                              
                                              (4,282,784
                                              )Total
      comprehensive loss
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (6,958,299
                                              )Balance,
      December 31, 2008
                                              
                                              
                                              1,276,814
                                              
                                              
                                              $
                                              12,768
                                              
                                              
                                              $
                                              9,219,901
                                              
                                              
                                              $
                                              (2,675,515
                                              )
                                              
                                              $
                                              (4,797,831
                                              )
                                              
                                              $
                                              1,759,323
  The
accompanying notes are an integral part of these statements
 
 F-5
   AMERICAN
REALTY CAPITAL TRUST, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Cash
      flows from operating activities:
                        
                        Year Ended
                          December 31, 2008
                        
                        
                        For the Period from
                          August 17, 2007
                          (date of inception)
                          to December 31,
                          2007Net
      loss
                        
                        $
                        (4,282,784
                        )
                        
                        $
                        (500
                        )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activities:Depreciation
                        
                        
                        2,534,394
                        
                        
                        
                        —Amortization
      of intangibles
                        
                        
                        522,055
                        
                        
                        
                        —Amortization
      of deferred finance costs
                        
                        
                        134,865
                        
                        
                        
                        —Accretion
      of below-market lease liability
                        
                        
                        (26,258
                        )
                        
                        
                        —Losses
      on derivative instruments
                        
                        
                        1,617,711
                        
                        
                        
                        —Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                        
                        
                        (302,472
                        )
                        
                        
                        (938,157
                        )Accounts
      payable and accruedexpenses
                        
                        
                        1,095,371
                        
                        
                        
                        453,832Due
      to affiliated entity
                        
                        
                        1,938,319
                        
                        
                        
                        284,825Deferred
      rent and other liabilities
                        
                        
                        781,538
                        
                        
                        
                        —Net
      cash provided by (used in) operating activities
                        
                        
                        4,012,739
                        
                        
                        
                        (200,000
                        )Cash
      flows from investing activities:Investment
      in real estate and related assets
                        
                        
                        (97,456,132
                        )
                        
                        
                        —Net
      cash used in investing activities
                        
                        
                        (97,456,132
                        )
                        
                        
                        —Cash
      flows from financing activities:Proceeds
      from notes payable
                        
                        
                        62,311,402
                        
                        
                        
                        —Payments
      on notes payable
                        
                        
                        (342,857
                        )
                        
                        
                        —Proceeds
      from related party bridge facility
                        
                        
                        8,477,163
                        
                        
                        
                        —Proceeds
      from related party bridge revolver
                        
                        
                        6,500,000
                        
                        
                        
                        —Proceeds
      from short-term bridge funds
                        
                        
                        8,000,000
                        
                        
                        
                        —Proceeds
      from issuance of convertible redeemable preferred
                        
                        
                        3,995,000
                        
                        
                        
                        —Proceeds
      from other notes payable
                        
                        
                        1,089,500
                        
                        
                        
                        —Proceeds
      from issuance of common stock, net
                        
                        
                        6,769,405
                        
                        
                        
                        200,000Payments
      of deferred financing costs
                        
                        
                        (2,125,857
                        )
                        
                        
                        —Distributions
      paid
                        
                        
                        (295,558
                        )
                        
                        
                        —Restricted
      cash
                        
                        
                        (47,937
                        )
                        
                        
                        —Net
      cash provided by financing activities
                        
                        
                        94,330,261
                        
                        
                        
                        —Net
      increase in cash
                        
                        
                        886,868
                        
                        
                        
                        —Cash,
      beginning ofperiod
                        
                        
                        —
                        
                        
                        
                        —Cash,
      end of period
                        
                        $
                        886,868
                        
                        
                        $
                        —Supplemental
      Disclosures of Non-CashInvesting
      and Financing Activities:Debt
      assumed in real estate acquisitions
                        
                        $
                        50,773,265
                        
                        
                        $
                        —Short-term
      bridge funds assumed
                        
                        $
                        3,953,796
                        
                        
                        $
                        —Common
      share issuance in real estateacquisition
                        
                        $
                        3,051,695
                        
                        
                        $
                        —Investor
      contributions held in escrow
                        
                        $
                        30,824
                        
                        
                        $
                        —Non-cash
      acquisition costs
                        
                        $
                        78,367
                        
                        
                        $
                        —Common
      stock issued through dividend reinvestment plan
                        
                        $
                        149,725
                        
                        
                        $
                        —Reclassification
      of deferred offering costs
                        
                        $
                        938,157
                        
                        
                        $
                        —
  The
accompanying notes are an integral part of these statements
 
 F-6
 
 AMERICAN REALTY CAPITAL TRUST,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  Note
1 — Organization
  American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a newly formed Maryland corporation that intends to qualify as a real estate
investment trust (“REIT”) for federal income tax purposes beginning with the
taxable year ended December 31, 2008. On January 25, 2008, the Company
commenced an initial public offering on a “best efforts” basis of up to
150,000,000 shares of common stock offered at a price of $10.00 per
share, subject to certain volume and other discounts, pursuant to a Registration
Statement on Form S-11 filed with the Securities and Exchange Commission
(the “SEC”) under the Securities Act of 1933, as amended (the “Offering”). The
Registration Statement also covered up to 25,000,000 shares available
pursuant to the DRIP under which our stockholders may elect to have their
distributions reinvested in additional shares of the Company’s common stock at
the greater of $9.50 per share or 95% of the estimated value of a share of
common stock. The Company sold 20,000 shares to American Realty Capital II, LLC
(the “Sponsor”) on August 17, 2007, at $10.00 per share. As of December 31,
2008, the Company issued 1,276,814 shares of common stock, including shares
issued under the DRIP and 339,077 shares issued in connection with an
acquisition in March 2008 - see Note 3, Real Estate Acquisitions. Total gross
proceeds from these issuances were $11,720,112. As of December 31, 2008, the
aggregate value of all share issuances and subscriptions outstanding was
$14,829,622 based on a per share value of $10.00 (or $9.50 per share for shares
issued under the DRIP). This amount includes stock subscriptions of $2,069,367
which are maintained at the Company’s third-party escrow agent, to be
released when certain escrow requirements have been achieved.
 
 Substantially
all of the Company’s business is conducted through American Realty Capital
Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The
Company is the sole general partner of and owns a 99.01% partnership interest in
the OP. The Advisor, the Company’s affiliated advisor, is the sole limited
partner and owner of 0.99% (minority interest) of the partnership interests of
the OP. In March 2008, the OP issued to the Company 20,000 Operating Partnership
units in exchange for $200,000. Additionally, in April 2008, the Advisor
contributed $2,000 to the Operating Partnership in exchange for a 0.99% limited
partner interest in the Operating Partnership. The limited partner interests
have the right to convert Operating Partnerships units into cash or, at the
option of the Company, an equal number of common shares of the Company, as
allowed by the limited partnership agreement. The remaining rights of the
limited partner interests are limited, however, and do not include the ability
to replace the general partner or to approve the sale, purchase or refinancing
of the Operating Partnership’s assets.
 
 The
Company acquires and operates commercial properties. All such properties may be
acquired and operated by the Company alone or jointly with another party. As of
December 31, 2008, the Company owned 92 properties comprising approximately
713,000 square feet of freestanding, single tenant commercial space. As of
December 31, 2008, these properties were 100% occupied. The Company may also
acquire mortgages secured by real estate, with a view towards acquiring such
real estate.
 
 The
Company is managed by the Advisor and American Realty Capital Properties, LLC,
which serves as the Company’s property manager (the “Property Manager”). Realty
Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor,
serves as the dealer manager of the Company’s Offering. These related parties
receive compensation and fees for services related to the Offering and for the
investment and management of the Company’s assets. These entities receive fees
during the offering, acquisition, operational and liquidation stages. The
compensation levels during the offering, acquisition and operational stages are
discussed in Note 9 — Related Party Transactions and
Arrangements.
 
 The
Company’s stock is not currently listed on a national securities exchange. The
Company may seek to list its stock for trading on a national securities exchange
only if a majority of its independent directors believe listing would be in the
best interest of its stockholders. The Company does not intend to list its
shares at this time. The Company does not anticipate that there would be any
market for its common stock until its shares are listed for trading. In the
event it does not obtain listing prior to the tenth anniversary of the
completion or termination of the Offering, its charter requires that it either:
(i) seek stockholder approval of an extension or amendment of this listing
deadline; or (ii) seek stockholder approval to adopt a plan of liquidation
of the corporation.
 F-7
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 
 Note
2 — Summary of Significant Accounting Policies
  Basis
of Accounting
 
 The
accompanying consolidated financial statements of the Company are prepared on
the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America.
 
 Principles
of Consolidation and Basis of Presentation
  The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, the
OP.  Substantially all of the Company’s business activities are
conducted through this subsidiary.  The OP consolidates various
special purpose entities which hold interests in real estate
investments.  All significant intercompany accounts and transactions
have been eliminated in consolidation.
 Use
of Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management makes significant estimates regarding revenue recognition,
investments in real estate, purchase price allocations and derivative financial
instruments and hedging activities, as applicable.
 
 Real
Estate Investments
 
 The
Company records acquired real estate at cost and makes assessments as to the
useful lives of depreciable assets. The Company considers the period of future
benefit of the asset to determine the appropriate useful lives. Depreciation is
computed using a straightline method over the estimated useful life of 40 years
for buildings, five to ten years for building fixtures and improvements and the
remaining lease term for acquired intangible lease assets.
 
 Impairment
of Long Lived Assets
 
 The
Company follows Statement of Financial Accounting Standard (“SFAS”) No.144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” which
establishes a single accounting model for the impairment or disposal of
long-lived assets. SFAS No.144 requires that the operations related to
properties that have been sold or properties that are intended to be sold be
presented as discontinued operations in the statement of operations for all
periods presented, and properties intended to be sold to be designated as “held
for sale” on the balance sheet.
 
 When
circumstances indicate the carrying value of a property may not be recoverable,
the Company reviews the asset for impairment. This review is based on an
estimate of the future undiscounted cash flows, excluding interest charges,
expected to result from the property’s use and eventual disposition. These
estimates consider factors such as expected future operating income, market and
other applicable trends and residual value, as well as the effects of leasing
demand, competition and other factors. If impairment exists, due to the
inability to recover the carrying value of a property, an impairment loss is
recorded to the extent that the carrying value exceeds the estimated fair value
of the property for properties to be held and used. For properties held for
sale, the impairment loss is the adjustment to fair value less estimated cost to
dispose of the asset. These assessments have a direct impact on net income
because recording an impairment loss results in an immediate negative adjustment
to net income.
 
 Allocation
of Purchase Price of Acquired Assets
 
 Upon the
acquisition of real properties, it is the Company’s policy to allocate the
purchase price of properties to acquired tangible assets, consisting of land,
building, fixtures and improvements, and identified intangible lease assets and
liabilities, consisting of the value of above-market and below-market leases, as
applicable, other value of in-place leases and value of tenant relationships,
based in each case on their fair values. The Company utilizes independent
appraisals and information management obtained on each property as a result of
pre-acquisition due diligence, as well as subsequent marketing and leasing
activities, as applicable, to determine the fair values of the tangible assets
of an acquired property (which includes land and building), amongst other market
data.
 
 The fair
values of above-market and below-market in-place lease values are recorded based
on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between (a) the contractual amounts
to be paid pursuant to the in-place leases and (b) an estimate of fair market
lease rates for the corresponding in-place leases, which is generally obtained
from independent appraisals, measured over a period equal to the remaining
non-cancelable term of the lease. The above-market and below-market lease values
are capitalized as intangible lease assets or liabilities and amortized as an
adjustment of rental income over the remaining terms of the respective
leases.
  The fair
values of in-place leases include direct costs associated with obtaining a new
tenant, opportunity costs associated with lost rentals which are avoided by
acquiring an in-place lease, and tenant relationships. Direct costs associated
with obtaining a new tenant include commissions, tenant improvements, and other
direct costs and are estimated based on independent appraisals and management’s
consideration of current market costs to execute a similar lease. These direct
costs are included in acquired intangible lease assets in the accompanying
consolidated balance sheets and are amortized to expense over the remaining
terms of the respective leases. The value of opportunity costs is calculated
using the contractual amounts to be paid pursuant to the in-place leases over a
market absorption period for a similar lease. Customer relationships are valued
based on expected renewal of a lease or the likelihood of obtaining a particular
tenant for other locations. These intangibles will be included in intangible
lease assets in the balance sheet and are amortized to expense over the
remaining term of the respective leases.
 F-8
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 
 The
determination of the fair values of the assets and liabilities acquired requires
the use of significant assumptions with regard to the current market rental
rates, rental growth rates, discount rates and other variables. The use of
inappropriate estimates would result in an incorrect assessment of the purchase
price allocations, which could impact the amount of the Company’s reported net
income. Initial purchase price allocations are subject to change until all
information is finalized, which is generally within one year of the acquisition
date.
 
 As of
December 31, 2008 and 2007, acquired lease intangible assets consisted of
above-market leases and in-place lease intangibles totaling $16,448,018 and $0,
respectively, net of accumulated amortization of $522,055 and $0,
respectively.  In addition, below-market lease liabilities totaled
$9,400,293 and $0, net of accumulated amortization of $26,258 and $0, as of
December 31, 2008 and 2007, respectively. Amortization expense is expected to be
$1,396,488 for each of the next five years.
  Restricted
Cash
 
 Restricted
cash consists of maintenance, structural, and debt service reserves as of
December 31, 2008.
 
 Deferred
Financing Costs
 
 Deferred
financing costs represent commitment fees, legal fees, and other third party
costs associated with obtaining commitments for financing, which result in such
financing. These costs are amortized over the terms of the respective financing
agreements using the effective interest method. Unamortized deferred financing
costs are expensed when the associated debt is refinanced or repaid before
maturity.  Costs incurred in seeking financial transactions that do
not close are expensed in the period in which it is determined that the
financing will not close.
 
 Share
Repurchase Program
  The
Company has adopted a Share Repurchase Program (“SRP”) that enables stockholders
to sell their shares to the Company in limited circumstances. On November 12,
2008, the board of directors approved certain modifications to this program. The
SRP permits stockholders to sell their shares back to the Company after they
have held them for at least one year, subject to the significant conditions and
limitations described below.
 F-9
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 Additionally,
on November 12, 2008, the Company’s board of directors modified the SRP to
fund purchases under the SRP, not only from the DRIP, but also from operating
funds of the Company. Accordingly, purchases under the SRP, subject to the terms
of the SRP, may be funded from the proceeds from the sale of shares under the
DRIP, from proceeds of the sale of shares in a public offering, and with other
available allocated operating funds. However, purchases under the SRP by the
Company will be limited in any calendar year to 5% of the weighted average
number of shares outstanding during the prior year. The Company's board of
directors may choose to amend, suspend or terminate the SRP upon 30 days notice
at any time.
  The
shares purchased under the Company’s SRP will be cancelled and returned to the
status of authorized but unissued shares. The Company does not intend to resell
such shares to the public unless such resale is first registered with the
Securities and Exchange Commission under the Securities Act and under
appropriate state securities laws or otherwise conducted in compliance with such
laws.
  During
the year ended December 31, 2008, no shares were redeemed under the
SRP.
 
 Derivative
Instruments
  The
Company may use derivative financial instruments to hedge all or a portion of
the interest rate risk associated with its borrowings. Certain of the techniques
used to hedge exposure to interest rate fluctuations may also be used to protect
against declines in the market value of assets that result from general trends
in debt markets. The principal objective of such agreements is to minimize the
risks and/or costs associated with the Company’s operating and financial
structure as well as to hedge specific anticipated transactions.
  In
accordance with SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” as amended and interpreted (“SFAS No. 133”), the
Company measures each derivative instrument (including certain derivative
instruments embedded in other contracts) at fair value and records such
amounts in its consolidated balance sheets as either an asset or liability. The
accounting for changes in the fair value of derivatives depends on the intended
use of the derivative and the resulting designation.   Derivatives used to
hedge the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are
considered fair value hedges. Derivatives used to hedge the exposure to
variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges.   For derivatives designated
as fair value hedges or for derivatives not designated as hedges, the changes in
fair value of both the derivative instrument and the hedged item are recorded in
earnings. For derivatives designated as cash flow hedges, the changes in the
fair value of the effective portions of the derivative are reported in other
comprehensive income and subsequently reclassified to earnings when the hedged
transaction affects earnings. The ineffective portion of the changes in fair
value of the derivative is recorded in earnings immediately.
 F-10
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 Investor
contributions held in Escrow
  The
Company is currently engaged in a public offering of its common stock. Included
in investor contributions held in escrow on the accompanying balance sheets is
$30,824 of offering proceeds for which shares of common stock had not been
issued as of December 31, 2008.
  Revenue
Recognition
 
 Upon the
acquisition of real estate, certain properties will have leases where minimum
rent payments increase during the term of the lease. The Company will record
rental revenue for the full term of each lease on a straightline basis. When the
Company acquires a property, the term of existing leases is considered to
commence as of the acquisition date for the purposes of this calculation. In
accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in
Financial Statements,” the Company will defer the recognition of contingent
rental income, such as percentage rents, until the specific target that triggers
the contingent rental income is achieved. Cost recoveries from tenants are
included in tenant reimbursement income in the period the related costs are
incurred, as applicable.
  The
Company’s revenues, which are derived primarily from rental income, include
rents that each tenant pays in accordance with the terms of each lease reported
on a straight-line basis over the initial term of the lease. Since many of the
leases provide for rental increases at specified intervals, straight-line basis
accounting requires the Company to record a receivable, and include in revenues,
unbilled rent receivables that the Company will only receive if the tenant makes
all rent payments required through the expiration of the initial term of the
lease. The Company defers the revenue related to lease payments received from
tenants in advance of their due dates.
  The
Company continually reviews receivables related to rent and unbilled rent
receivables and determines collectability by taking into consideration the
tenant’s payment history, the financial condition of the tenant, business
conditions in the industry in which the tenant operates and economic conditions
in the area in which the property is located. In the event that the
collectability of a receivable is in doubt, the Company will record an increase
in the allowance for uncollectible accounts or record a direct write-off of the
receivable in the consolidated statements of operations.
  Organization,
Offering, and Related Costs
  Organization
and offering costs (other than selling commissions and the dealer manager fee)
of the Company may be paid by the Advisor, the Dealer Manager or their
affiliates on behalf of the Company. Such organization and offering costs
include all expenses to be paid by the Company in connection with the Offering,
including but not limited to (i) legal, accounting, printing, mailing, and
filing fees; (ii)  escrow related fees; (iii) reimbursement of the
Dealer Manager for amounts it may pay to reimburse the bona fide diligence
expenses of broker-dealers; and (iv) reimbursement to the Advisor for the
salaries of its employees and other costs in connection with preparing
supplemental sales materials. Pursuant to the Advisory Agreement and the Dealer
Manager Agreement, the Company is obligated to reimburse the Advisor or its
affiliates, as applicable, for organization and offering costs paid by them on
behalf of the Company, provided that the Advisor is obligated to reimburse the
Company to the extent organization and offering costs (excluding selling
commissions, the dealer manager fee and bona fide due diligence cost
reimbursements) incurred by the Company in the Offering exceed 1.5% of
gross offering proceeds.
 F-11
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  As a
result, these costs are only a liability of the Company to the extent selling
commissions, the dealer manager fee and other organization and offering costs do
not exceed 15% of the gross proceeds of the Offering. Organization costs are
expensed as incurred within general and administrative expenses, and offering
costs, which include selling commissions and dealer manager fees, are charged to
stockholders’ equity as such amounts are reimbursed from the gross proceeds of
the Offering. During the year ended December 31, 2008, the Advisor waived
reimbursement it was entitled to for organizational and offering expenses which
totaled $175,802 - see Note 9, Related Party Transactions and
Arrangements.
  Share-Based
Compensation
 
 The
Company has a stock-based incentive award plan for its directors. The Company
accounts for this plan under SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R
also requires the tax benefits associated with these share-based payments to be
classified as financing activities in the consolidated statements of cash flows,
rather than as operating cash flows as required under previous regulations. For
the year ended December 31, 2008, the Company had no significant compensation
cost related to these stock options.
  Income
Taxes
  The
Company will make an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code commencing with the taxable year ending
December 31, 2008. If the Company qualifies for taxation as a REIT, it generally
will not be subject to federal corporate income tax to the extent it distributes
its REIT taxable income to its stockholders, and so long as it distributes at
least 90% of its REIT taxable income. REITs are subject to a number of other
organizational and operational requirements. Even if the Company qualifies for
taxation as a REIT, it may be subject to certain state and local taxes on its
income and property, and federal income and excise taxes on its undistributed
income. The Company is expected to be organized and operating in such a manner
as to qualify to be taxed as a REIT for the taxable year ending December 31,
2008.
  Per
Share Data
 
 Income
(loss) per basic share of common stock is calculated by dividing net income
(loss) by the weighted-average number of shares of common stock issued and
outstanding during such period. Diluted income (loss) per share of common stock
equals basic income (loss) per share of common stock as there were no
potentially dilutive shares of common stock outstanding during the year ended
December 31, 2008.
  Reportable
Segments
  The
Financial Accounting Standards Board (“FASB”) issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” (“SFAS
No. 131”), which establishes standards for reporting financial and descriptive
information about an enterprise’s reportable segments. The Company’s investments
in real estate generate rental revenue and other income through the leasing of
properties, which comprised 100% of our total consolidated revenues for the year
ended December 31, 2008. Although the Company’s investments in real estate will
be geographically diversified throughout the United States, management evaluates
operating performance on an individual property level. The Company’s operating
properties have been aggregated into one reportable segment with activities
related to investing in real estate.
 
 Recent
Accounting Pronouncements
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”), which addresses how companies should measure fair value
when they are required to use a fair value measure for recognition or disclosure
purposes. The FASB believes that the new standard will make the measurement of
fair value more consistent and comparable and improve disclosures about those
measures. The effective date of SFAS No. 157 is delayed for one year for
certain nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Certain provisions of SFAS No. 157 were
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 157 for financial assets and liabilities in the first quarter
of 2008 did not have a material effect on the Company’s results of operations
and financial position. The Company is currently evaluating the impact of
adoption SFAS No. 157 for nonfinancial assets and liabilities, on its
results of operations and financial position.
 F-12
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for
Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. The objective of SFAS No. 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 was
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 159 did not have a material impact on the Company’s financial
position, results of operations or cash flows in the first quarter of
2008.
 
 In
December 2007, the FASB issued SFAS No. 141, (revised 2007), “Business
Combinations,” (“SFAS No. 141(R)”), which continues the evolution toward
fair value reporting and significantly changes the accounting for acquisitions
that close beginning in 2009, both at the acquisition date and in subsequent
periods. SFAS No. 141(R) introduces new accounting concepts and valuation
complexities, and many of the changes have the potential to generate greater
earnings volatility after the acquisition. SFAS No. 141(R) applies to
acquisitions on or after January 1, 2009 and will impact the Company’s
reporting prospectively only by requiring acquisition costs to be expensed
rather than capitalized.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51,” (“SFAS No. 160”), which requires companies to measure an
acquisition of noncontrolling (minority) interest at fair value in the equity
section of the acquiring entity’s balance sheet. The objective of SFAS
No. 160 is to improve the comparability and transparency of financial data
as well as to help prevent manipulation of earnings. The changes introduced by
the new standards are likely to affect the planning and execution, as well as
the accounting and disclosure, of merger transactions. The effective date to
adopt SFAS No. 160 for the Company is January 1, 2009. The adoption of
SFAS No. 160 is not expected to have a material effect on its results of
operations and financial position.
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities,” an amendment of FASB Statement
No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 161”) requires entities to provide greater transparency about
how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for under SFAS No. 133, and how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations, and cash flows. The statement is effective for
financial statements issues for fiscal years and interim periods beginning after
November 15, 2008, and is not expected to have a significant impact on the
Company’s results of operations, financial condition or liquidity .
 
 In
April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3,
which amends the factors that must be considered in developing renewal or
extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset under SFAS No. 142, “Goodwill and
Other Intangible Assets.” The FSP requires an entity to consider its own
assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset, and is an attempt to improve
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141, “Business Combinations.” The FSP is
effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The FSP is not expected to have a significant impact on the Company’s results of
operations, financial condition or liquidity.
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of
Generally Accepted Accounting Principles” (“SFAS No. 162”). The statement is
intended to improve financial reporting by identifying a consistent hierarchy
for selecting accounting principles to be used in preparing financial statements
that are prepared in conformance with generally accepted accounting principles.
Unlike Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of
Present in Conformity With GAAP,” SFAS No. 162 is directed to the entity
rather than the auditor. The statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board
(“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly
in Conformity with GAAP,” and is not expected to have any impact on the
Company’s results of operations, financial condition or liquidity.
 
 In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities.” Under the FSP,
unvested share-based payment awards that contain rights to receive
nonforfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing EPS. The FSP is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years, and is not expected to have a significant impact on
the Company’s results of operations, financial condition or
liquidity.
 F-13
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  Note 3 — Real Estate Acquisitions
  During
the year ended December 31, 2008, the Company acquired 92 properties. The
following table presents the allocation of the assets acquired and liabilities
assumed during the period:
 Real
      estate investments, at cost:Land
                                                                                              
                                                                                              $
                                                                                              22,300,422Buildings,
      fixtures and improvements
                                                                                              
                                                                                              
                                                                                              126,022,191148,322,613Acquired
      intangibles:In-place
      leases
                                                                                              
                                                                                              
                                                                                              16,448,018Below-market
      lease liabilities, net
                                                                                              
                                                                                              
                                                                                              (9,426,551
                                                                                              )Total
      assets acquired
                                                                                              
                                                                                              
                                                                                              155,344,080Assumed
      obligations:Mortgage
      notes
                                                                                              
                                                                                              
                                                                                              (50,773,265
                                                                                              )Short-term
      bridge funds
                                                                                              
                                                                                              
                                                                                              (3,953,796
                                                                                              )Investor
      contributions held in escrow
                                                                                              
                                                                                              
                                                                                              (30,824
                                                                                              )Other
      liabilities
                                                                                              
                                                                                              
                                                                                              (78,367
                                                                                              )Total
      liabilities assumed
                                                                                              
                                                                                              
                                                                                              (54,836,252
                                                                                              )Issuance
      of common shares
                                                                                              
                                                                                              
                                                                                              (3,051,696
                                                                                              )Cash
      paid
                                                                                              
                                                                                              $
                                                                                              97,456,132
 F-14
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  During
the year ended December 31, 2008, the Company acquired the following
properties:
  Seller / Property Name
                                                      
                                                      Acquisition Date
                                                      
                                                      No. of
                                                        Buildings
                                                      
                                                      Square Feet
                                                      
                                                      Remaining
                                                        Lease Term
                                                        (1)
                                                      
                                                      Base Purchase
                                                        Price (2)
                                                      
                                                      Capitalization
                                                        Rate (3)
                                                      
                                                      Total Purchase
                                                        Price (4)
                                                      
                                                      Net Operating
                                                        Income (5)Federal
      Express Distribution Center
                                                      
                                                      March
      2008
                                                      
                                                      1
                                                      
                                                      55,440
                                                      
                                                      9.9
                                                      
                                                      $
                                                      9,694,179
                                                      
                                                      7.52%
                                                      
                                                      10,206,496
                                                      
                                                      $
                                                      729,245Harleysville
      National Bank Portfolio
                                                      
                                                      March
      2008
                                                      
                                                      15
                                                      
                                                      177,774
                                                      
                                                      14.0
                                                      
                                                      
                                                      40,976,218
                                                      
                                                      7.33%
                                                      
                                                      41,675,721
                                                      
                                                      
                                                      3,003,838Rockland
      Trust Company Portfolio
                                                      
                                                      May
      2008
                                                      
                                                      18
                                                      
                                                      121,057
                                                      
                                                      12.6
                                                      
                                                      
                                                      32,188,000
                                                      
                                                      7.86%
                                                      
                                                      33,140,796
                                                      
                                                      
                                                      2,529,665National
      City Bank
                                                      
                                                      Sept. & Oct. 2008
                                                      
                                                      2
                                                      
                                                      8,403
                                                      
                                                      20.1
                                                      
                                                      
                                                      6,663,786
                                                      
                                                      8.21%
                                                      
                                                      6,853,419
                                                      
                                                      
                                                      586,884Rite
      Aid
                                                      
                                                      September
      2008
                                                      
                                                      6
                                                      
                                                      74,919
                                                      
                                                      14.5
                                                      
                                                      
                                                      18,575,727
                                                      
                                                      7.79%
                                                      
                                                      18,839,392
                                                      
                                                      
                                                      1,446,843PNC
      Bank Portfolio
                                                      
                                                      November
      2008
                                                      
                                                      50
                                                      
                                                      275,436
                                                      
                                                      9.9
                                                      
                                                      
                                                      42,285,714
                                                      
                                                      7.35%
                                                      
                                                      44,628,256
                                                      
                                                      
                                                      3,107,554Total
                                                      
                                                      
                                                      
                                                      92
                                                      
                                                      713,029
                                                      
                                                      12.6
                                                      
                                                      $
                                                      150,383,624
                                                      
                                                      7.56%
                                                      
                                                      155,344,080
                                                      
                                                      $
                                                      11,368,229
 ________________________
 
 (1)
                    -
      Remaining lease term as of December 31, 2008, in years. If the portfolio
      has multiple locations with varying lease
      expirations,  remaining lease term is calculated on a
      weighted-average basis.(2)
                    -
      Contract purchase price excluding acquisition related
    costs.(3)
                    -
      Net operating income divided by base purchase price.(4)
                    -
      Base purchase price plus all acquisition related costs.(5)
                    -
      Annualized 2008 rental income less property operating expenses, as
      applicable.
 
 Future
Lease Payments Table
  The
following table presents future minimum base rental payments due to the Company
over the next five years as of December 31, 2008:
 
 2009
                                    
                                    $
                                    10,926,3092010
                                    
                                    10,961,2392011
                                    
                                    11,016,6402012
                                    
                                    11,059,2762013
                                    
                                    11,120,472
  F-15
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  Note
4 — Mortgage Notes Payable
  As of
December 31, 2008, the Company had total mortgage and notes payable outstanding
of $112,741,810. During the year ended December 31, 2008, the Company incurred,
or assumed, the following mortgage notes payable in connection with the real
estate acquisitions described in Note 3 above:
 
 Property
                                                                
                                                                Encumbered
      Properties
                                                                
                                                                Outstanding
                                                                  Loan
      Amount
                                                                
                                                                Effective
      Interest Rate
                                                                
                                                                
                                                                Interest
      Rate
                                                                
                                                                MaturityFederal
      Express Distribution Center
                                                                
                                                                
                                                                1
                                                                
                                                                $
                                                                6,965,000
                                                                
                                                                
                                                                6.29
                                                                %
                                                                
                                                                
                                                                
                                                                
                                                                Fixed
                                                                
                                                                
                                                                September
      2037Harleysville
      National Bank Portfolio
                                                                
                                                                
                                                                15
                                                                
                                                                
                                                                31,000,000
                                                                
                                                                
                                                                6.59
                                                                %
                                                                
                                                                (1)
                                                                
                                                                
                                                                Fixed
                                                                
                                                                
                                                                January
      2018Rockland
      Trust Company Portfolio
                                                                
                                                                
                                                                18
                                                                
                                                                
                                                                24,122,796
                                                                
                                                                
                                                                4.92
                                                                %
                                                                
                                                                (2)
                                                                
                                                                
                                                                Variable
                                                                
                                                                
                                                                May
      2013National
      City Bank Portfolio
                                                                
                                                                
                                                                2
                                                                
                                                                
                                                                4,482,651
                                                                
                                                                
                                                                4.89
                                                                %
                                                                
                                                                (3)
                                                                
                                                                
                                                                Variable
                                                                
                                                                
                                                                September
      2013Rite
      Aid
                                                                
                                                                
                                                                6
                                                                
                                                                
                                                                12,808,265
                                                                
                                                                
                                                                6.97
                                                                %
                                                                
                                                                
                                                                
                                                                
                                                                Fixed
                                                                
                                                                
                                                                September
      2017PNC
                                                                
                                                                
                                                                50
                                                                
                                                                
                                                                33,363,098
                                                                
                                                                
                                                                5.25
                                                                %
                                                                
                                                                (4)
                                                                
                                                                
                                                                Variable
                                                                
                                                                
                                                                November
      2013Total
                                                                
                                                                
                                                                92
                                                                
                                                                $
                                                                112,741,810
  (1) 
      -
                
                The
      effective interest rate resets at the end of year five to the then current
      5-year Treasury rate plus 2.25%, but in no event will be less than
      6.5%.(2)  -
                
                Variable
      based on 30-day LIBOR plus a spread of 1.375%.  The REIT limited
      its interest rate exposure by entering into a rate lock agreement with a
      LIBOR floor and cap of 3.54% and 4.125% (initial year),
      respectively.(3) 
      -
                
                Variable
      based on 30-day Libor plus a spread of 1.5%.  The REIT entered
      into a swap agreement with a rate of 3.565% for a notional amount of
      $384,732 and a rate lock agreement on a notional amount of $4,115,268 with
      a LIBOR floor and cap of 3.37% and 4.45% in connection with the entering
      into the mortgage(4) 
      -
                
                Fixed
      as a result of entering in a swap agreement for 3.6% plus a spread of
      1.65% in connection with the entering into the
  mortgage.
 In March
2008, the Company acquired a Federal Express Distribution center located in
Pennsylvania from a related party - see Note 9. In connection with this
transaction, the Company assumed a mortgage note obligation of $6,965,000, which
bears interest at a fixed rate of 6.29%. This note is interest only through
September 1, 2014 and then amortizes through September 1, 2037, with a final
balloon payment due on such date.  This property was acquired in exchange
for 342,502 shares of common stock valued at approximately $3,083,000, of which
339,077 shares were issued and outstanding as of December 31, 2008. The
remainder of the shares is recorded as investor contributions held in escrow on
the accompanying balance sheets and is expected to be issued within the next
twelve months. The lease expires on November 30, 2018 and includes renewal
options.
  In March
2008, the Company acquired a fifteen building portfolio 100% leased to
Harleysville National Bank from a related party - see Note 9. These properties
are all located in Pennsylvania. In connection with this transaction, the
Company assumed a mortgage note obligation of $31,000,000, which bears interest
at a fixed effective rate of 6.59%. This note is interest only through January
1, 2011 and then amortizes through January 1, 2018, with a final balloon payment
due on such date. In addition, the Company obtained short-term bridge equity of
approximately $3,954,000. This bridge equity bears a fixed effective rate
of 12.49% and is to be satisfied in January 2010. The Company obtained bridge
equity of $4,000,000 from a principal of the Advisor in connection with this
acquisition- see Note 7. The initial term of the master lease expires on
December 31, 2022 and includes renewal options.
 
 In May 2008, the Company acquired an
eighteen building portfolio 100% leased to Rockland Trust Company. Independent
Bank Corp. operates as the holding company for Rockland Trust Company. These
properties are all located throughout Southeastern Massachusetts and Cape Cod.
In connection with this transaction, the Company financed a portion of the
purchase price with a mortgage note obligation of $24,412,500, which bears
interest at 30 day LIBOR plus 1.375%. The Company entered into a rate lock
agreement to limit its interest rate exposure. The LIBOR floor and cap are 3.54%
and 4.125% (initial year), respectively. This note amortizes through May 1, 2013
on a 25-year schedule, with a final balloon payment due on such date. In
addition, the Company funded a portion of the acquisition with short-term
convertible redeemable preferred equity of $3,995,000. This preferred equity
bears a fixed preferred rate of 14.27% and will be satisfied in April 2009. The
Company also obtained bridge equity in the amount of $2,500,000 from two
principals of the Advisor in connection with this acquisition - see Note 7. The
lease expiration varies on a per property basis, expiring either on April 30,
2018 or April 30, 2023, with a weighted average initial term of 12.8 years,
excluding renewal options.
  The
Company acquired 2 National City Bank branches located in Florida in September
and October 2008, from a related party - see Note 10. In connection with these
transactions, the Company financed a portion of the purchase price with a
mortgage note obligation of $4,500,000, which bears interest at 30 day LIBOR
plus 1.5%. The Company entered into a rate lock agreement to limit its interest
rate exposure.  The LIBOR floor and cap are 3.37% and 4.45% (initial
year), respectively for a notional contract amount of $4,115,000 and a fixed
rate of 3.565% on a notional contract amount of $385,000. This note amortizes
through September 16, 2013 on a 27-year schedule, with a final balloon payment
due on such date. The Company obtained bridge equity of approximately $2,369,000
from a related party under an unsecured bridge equity facility in connection
with this acquisition - see Note 7. The leases expire January 31, 2029 and
February 28, 2029, excluding renewal options.
  In September 2008, the Company acquired
a six building portfolio 100% leased to Rite Aid from a related party - see Note
9. These properties are located in Ohio and Pennsylvania. In connection with
this transaction, the Company assumed a mortgage note obligation of $12,808,265,
which bears interest at a fixed effective rate of 6.97%. This note is interest
only through November 6, 2012 and then amortizes through September 7, 2017, with
a final balloon payment due on such date. The Company obtained bridge equity of
approximately $6,108,000 from a related party under an unsecured bridge equity
facility in connection with this acquisition - see Note 7. The lease expiration
varies on a per property basis, expiring between December 2016 and October 2027,
with a weighted average initial term of 14.8 years, excluding renewal
options.
 
 In
November 2008, the Company acquired a fifty building portfolio 100% leased to
PNC Bank. These properties are located in New Jersey, Ohio and
Pennsylvania.  In connection with this transaction, the Company
financed a portion of the purchase price with a mortgage note obligation of
$33,398,902, which bears interest at 30 day LIBOR plus 1.65%. The Company
entered into a rate lock agreement to limit its interest rate exposure on
$33,300,000 of this loan obligation at a fixed rate of 3.6%. This note amortizes
through October 15, 2013 on a 30-year schedule, with a final balloon payment due
November 25, 2013. In addition, the Company funded a portion of the acquisition
with short-term bridge equity of $8,000,000. This bridge equity has a rate equal
to 30 day LIBOR plus 3% with a 7% cap, and will be satisfied in March 2009. The
Company obtained additional financing from a group of individuals in the amount
of $1,089,500.  These notes bear interest at 9% and are due December
13, 2011.  The leases expire November 30, 2018, excluding renewal
options.  In addition, under the terms of the respective master lease
agreement, subsequent to twelve-months following the acquisition date, the
tenant has the right to terminate its lease in any two locations per calendar
year upon at least one-year written notice of their election, if
any.
  Our
sources of recourse financing generally require financial covenants, including
restrictions on corporate guarantees, the maintenance of certain financial
ratios (such as specified debt to equity and debt service coverage ratios) as
well as the maintenance of a minimum net worth.
 F-16
 
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 
 The
following table summarizes the scheduled aggregate principal repayments for the
five years subsequent to December 31, 2008:
 
 Total2009
                    
                    $
                    954,6372010
                    
                    
                    1,012,3322011
                    
                    
                    1,855,0752012
                    
                    
                    1,991,4932003
                    
                    
                    58,801,4632014 andthereafter
                    
                    
                    48,126,860Total
                    
                    $
                    112,741,810
  As of
December 31, 2008, the Company was in compliance with the debt covenants under
the loan agreements.
  The
estimated fair value of the Company’s derivative instruments was a liability of
$4,232,865 as of December 31, 2008.  The Company did not have
derivative instruments outstanding prior to April 2008.
  F-17
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  Note 5
— Fair Value of Financial Instruments
 
 Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 157 which did
not have a material effect on the Company’s consolidated financial
statements.  SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
SFAS No. 157 framework for measuring fair value requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The Company determines fair value based on quoted prices
when available or through the use of alternative approaches, such as discounting
the expected cash flows using market interest rates commensurate with the credit
quality and duration of the investment.  This alternative approach
also reflects the contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including interest rate
curves, and implied volatilities. SFAS No. 157’s hierarchy defines three levels
of inputs that may be used to measure fair value:
 
 Level 1 - Quoted prices in
active markets for identical assets and liabilities that the reporting entity
has the ability to access at the measurement date.
  Level 2 - Inputs other than
quoted prices included within Level 1 that are observable for the asset and
liability or can be corroborated with observable market data for substantially
the entire contractual term of the asset or liability.
 
 Level 3 - Unobservable inputs
that reflect the entity’s own assumptions about the assumptions that market
participants would use in the pricing of the asset or liability and are
consequently not based on market activity, but rather through particular
valuation techniques.
 
 The
determination of where an asset or liability falls in the hierarchy requires
significant judgment and considers factors specific to the asset or
liability.   In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is significant
to the fair value measurement in its entirety. The Company evaluates its
hierarchy disclosures each quarter; and depending on various factors, it is
possible that an asset or liability may be classified differently from quarter
to quarter.  However, the Company expects that changes in
classifications between levels will be rare.
 
 Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with those derivatives utilize Level 3
inputs, such as estimates of current credit spreads to evaluate the likelihood
of default by the Company and its counterparties.  However, as of
December 31, 2008, the Company has assessed the significance of the impact of
the credit valuation adjustments on the overall valuation of its derivative
positions and has determined that the credit valuation adjustments are not
significant to the overall valuation of the Company’s derivatives.  As
a result, the Company has determined that its derivative valuations in their
entirety are classified in Level 2 of the fair value
hierarchy.
 
 The
following table presents information about the Company’s assets (including
derivatives that are presented net) measured at fair value on a recurring basis
as of December 31, 2008, aggregated by the level in the fair value hierarchy
within with those instruments fall:
  Quoted
      Prices in
                            Active
      Markets
                            Level
      1
                          
                          
                          Significant
      Other Observable Inputs
                            Level
      2
                          
                          
                          Significant
                            Unobservable
      Inputs
                            Level
      3
                          
                          
                          Balance
      as of
                            December
      31, 2008Total
      derivatives, net
                          
                          $
                          —
                          
                          
                          $
                          4,232,865
                          
                          
                          $
                          —
                          
                          
                          $
                          4,232,865
  SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires
disclosure of fair value information about financial instrument, whether or not
recognized in the statement of financial condition, for which it is practicable
to estimate that value. In cases where quoted market prices are not available,
fair values are based upon estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and the estimated future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from our disclosure requirements.
Accordingly, the aggregate fair value amounts do not represent the underlying
value of the Company.
 
 The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value.
 
 Cash: The carrying amount of
cash on hand is considered to be a reasonable estimate of fair
value.
 
 Accounts Payable: The
carrying amount of accounts payable is considered to be a reasonable estimate of
fair value.
  Interest rate swap and collar
agreements: These instruments are presented at fair value. The fair value
was obtained from a third party valuation.
  Mortgages notes payable:
These instruments bear interest at fixed rates. The fair value was obtained by
calculating the present value based on current market interest
rates.
  The
carrying amounts of all other assets and liabilities approximate the fair value
except as follows:
  December
      31, 2008Carrying
      Amount
                  
                  
                  Fair
      ValueFinancial
      liabilities:Mortgage
      notes payable
                  
                  $
                  112,741,810
                  
                  
                  $
                  105,617,656
 Note 6
— Derivative Financial Instruments
  The
Company may use derivative financial instruments, including interest rate swaps,
caps, options, floors and other interest rate derivative contracts, to hedge all
or a portion of the interest rate risk associated with our borrowings. The
principal objective of such arrangements is to minimize the risks and/or costs
associated with the Company’s operating and financial structure as well as to
hedge specific anticipated transactions. The Company does not intend to utilize
derivatives for speculative or others purposes other than interest rate risk
management. The use of derivative financial instruments carries certain risks,
including the risk that the counterparties to these contractual arrangements are
not able to perform under the agreements. To mitigate this risk, the Company
only enters into derivative financial instruments with counterparties with high
credit ratings and with major financial institutions with which the Company and
its affiliates may also have other financial relationships. The Company does not
anticipate that any of the counterparties will fail to meet their
obligations.
  As of
December 31, 2008, the Company had several interest rate derivative contracts
used to hedge interest rate exposure on its indebtedness. The Company had two
interest rate collar contracts outstanding at December 31, 2008. At inception,
there was no premium exchanged for these contracts and they effectively had a
fair value equal to zero. The first collar contract, with an aggregate notional
amount of $24,122,796 at December 31, 2008, established a ceiling and floor for
the underlying variable rate at 8.125% and 3.54%, respectively. This contract
was not able to be designated under SFAS No. 133 as it does not qualify for
hedge accounting based on the results of the net written option test. As such,
all changes in the fair value of the interest rate collar have been included in
the Company’s statement of operations for the year ended December 31, 2008. The
second collar contract with a notional amount of $4,115,268 set the ceiling and
floor for the underlying rate at 4.85% and 3.37%, respectively. This contract
does qualify for hedge accounting and is expected to be a highly effective cash
flow hedge. As such, all fair value adjustments for the effective portion of the
hedge will be reflected in accumulated other comprehensive income and the amount
of ineffectiveness, if any, will be recorded in the statement of
operations.
  F-18
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  As of
December 31, 2008 the Company had two interest rate swap contracts. The first
contract swaps
the variable rate of one-month Libor for a fixed rate 3.565%. The second
contract swaps
one-month Libor for a fixed rate of 3.60%. Both contracts, with aggregate
notional amounts of $367,383 and $33,228,604, qualify as effective cash flow
hedges under SFAS No. 133. The fair value of these contracts is recorded on the
balance sheet with the effective portion of the hedge recorded in other
comprehensive income, and the amount of ineffectiveness, if any, is recorded in
the statement of operations. For the year ended December 31, 2008, the change in
net unrealized gains/losses on derivatives designated as cash flow hedges
reported in accumulated other comprehensive loss was a $2,760,725 net loss. The
change in net unrealized gains/losses on cash flow hedges reflect
reclassification of $85,210 of net unrealized losses from accumulated other
comprehensive income to interest expense during 2008. Amounts reported in
accumulated other comprehensive income related to derivatives will be
reclassified to interest expense as interest payments are made on the Company’s
variable rate debt. During the next twelve months, the Company estimates that
$919,088 will be reclassified as a reduction to interest expense.
 
 The table
below summarizes the aggregate notional amount and estimated net fair value of
our derivative instruments as of December 31, 2008:
  Notional
                                                    
                                                    
                                                    Fair ValueDerivatives:Interest
      rate swaps
                                                    
                                                    $
                                                    33,595,987
                                                    
                                                    
                                                    $
                                                    (2,341,562
                                                    )Interest
      rate collar
                                                    
                                                    
                                                    28,238,064
                                                    
                                                    
                                                    
                                                    (1,891,303
                                                    )Total
                                                    
                                                    $
                                                    61,834,051
                                                    
                                                    
                                                    $
                                                    (4,232,865
                                                    )
 
 The
following table summarizes by derivative instrument type the effect on income
for the year ended December 31, 2008:
  Type of
      Derivative
                          
                          Amounts Reclassified
                            to
      Earnings for
                            Effective
      Hedges -
                            Gains
      (Losses)
                          
                          
                          Amounts
                            Reclassified
      to
                            Earnings
      for
                            Hedge
                            Ineffectiveness -
                            Gains
      (Losses)Interest
      rate collar, not designated
                          
                          $
                          —
                          
                          
                          $
                          (1,616,797
                          )Interest
      rate collar and swap, designated cash flow hedges
                          
                          
                          —
                          
                          
                          
                          (914
                          )Total
                          
                          $
                          —
                          
                          
                          $
                          (1,617,711
                          )
  Amounts
reclassified to earnings associated with ineffective cash flow hedges are
reported in other income and the fair value of these hedge agreements is
included in derivatives, at fair value, liability as of December 31,
2008.
  Note 7 — Short-Term Bridge Equity
Funds
 
 During the year ended December 31, 2008,
the OP entered into an agreement with the principals of the Advisor whereby the
OP can make use of unsecured equity financing from the principals up to $10
million from time-to-time as needed to provide short-term bridge equity relating
to property acquisitions and for general working capital purposes. Such
short-term bridge equity is expected to be satisfied within a six month period
and will accrue at a commercially reasonable rate. In November 2008, the board
approved an extension of the satisfaction period of an additional six months. In
connection with the acquisition of the Harleysville National Bank and the
Rockland Trust Company portfolios outlined in Note 4, the Company obtained
bridge equity of $4,000,000 and $2,500,000 respectively, accruing a preferred
rate of 8.0% and can be paid off without penalty.
 
 During the year ended December 31, 2008,
the REIT entered into an unsecured bridge equity facility with a related party,
American Realty Capital Bridge, LLC (“ARC Bridge”), whereby the REIT can obtain
up to $10,000,000 from time to time as needed to provide short-term equity
financing relating to property acquisitions and for general working capital
purposes - see Note 9 — Related-Party Transactions and
Arrangements.
 
 During the year ended December 31, 2008,
the REIT obtained short-term convertible redeemable preferred equity and bridge
equity investments of approximately $3,995,000 and $11,954,000 respectively,
from unrelated third parties.  The bridge equity bears a fixed
preferred rates of between 8.0% and 12.49% and is expected to be satisfied in
the first quarter of 2009. The short-term convertible redeemable preferred
equity of $3,995,000 bears a fixed preferred rate of 14.27% and will be
satisfied in April 2009. Such amounts are non-recourse.
  The
Company expects the short-term bridge funds of $22,925,959 to be satisfied
during 2009. Such amounts will be satisfied with proceeds from the Offering. The
additional $8,000,000 of short-term bridge funds drawn as of December 31, 2008
was satisfied from proceeds received from the issuance of notes payable and an
additional drawdown on the related party bridge equity revolver - see Note
14.
  Note 8—
Commitments and Contingencies
  Litigation
  In the
ordinary course of business, the Company may become subject to litigation or
claims. There are no material legal proceedings pending or known to be
contemplated against us.
  Environmental
Matters
  In
connection with the ownership and operation of real estate, the Company may
potentially be liable for costs and damages related to environmental matters.
The Company has not been notified by any governmental authority of any
non-compliance, liability or other claim, and the Company is not aware of any
other environmental condition that it believes will have a material adverse
effect on the consolidated results of operations.
 
 F-19
   AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  Note 9
- Related-Party Transactions and Arrangements
  Certain
affiliates of the Company receive, and will continue to receive, fees and
compensation in connection with the sale of the Company’s common stock, and the
acquisition, management and sale of the assets of the Company. The Dealer
Manager receives, and will continue to receive, a selling commission of up to
7.0% of gross offering proceeds before reallowance of commissions earned by
participating broker-dealers. The Dealer Manager reallows, and intends to
continue to reallow, 100% of commissions earned to participating broker-dealers.
In addition, the Dealer Manager will receive up to 3.0% of the gross proceeds
from the Offering, before reallowance to participating broker-dealers, as a
dealer-manager fee. The Dealer Manager, in its sole discretion, may reallow all
or a portion of its dealer-manager fee to such participating broker-dealers,
based on such factors as the volume of shares sold by such participating
broker-dealers and marketing support incurred as compared to those of other
participating broker-dealers. No selling commissions or dealer-manager fees are
paid to the Dealer Manager in respect of shares sold under the DRIP. During the
year ended December 31, 2008, the Company paid $198,906 to the Dealer Manager
for commissions and dealer manager fees, of which $13,368 was reallowed to
participating broker-dealers. No dealer manager fees or commissions were paid
during the period ended December 31, 2007.
  All
organization and offering expenses associated with the sale of the Company’s
common stock (excluding selling commissions and the dealer-manager fee) are paid
for by the Advisor or its affiliates and are reimbursed by the Company up to
1.5% of gross offering proceeds. The Advisor receives an acquisition and
advisory fee of 1.0% of the contract purchase price of each acquired property
and will be reimbursed for acquisition costs incurred in the process of
acquiring properties, but not to exceed 0.5% of the contract purchase price. In
no event will the total of all fees and acquisition expenses payable with
respect to a particular property or investment exceed 4.0% of the contract
purchase price. During the year ended December 31, 2008, the Company paid the
Advisor $1,507,369 for acquisition related services. Such costs were capitalized
as part of the total acquisition price. No organizational and offering expenses
were incurred or paid during the year ended December 31, 2008 and the period
ended December 31, 2007.  During 2008 the Advisor was entitled to
$175,802 of reimbursement related to organization and offering expenses. Such
expense reimbursement was waived (not deferred) by the Advisor during the year
ended December 31, 2008.
 
 F-20
   AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  The
Advisor receives a financing coordination fee equal to 1.0% of the amount
available under such financing. During the year ended December 31, 2008, the
Company incurred finance coordination fees of $1,131,015 paid to its affiliated
Advisor. The Company did not incur finance coordination fees during the period
ended December 31, 2007.
  The
Company pays its affiliated Property Manager fees for the management and leasing
of the Company’s properties. Such fees equal 2.0% of gross revenues from the
Company’s single tenant properties and 4.0% of the gross revenues from its
multi-tenant properties, plus reimbursement of the Property Managers’ costs of
managing the properties. In the event that the Property Manager assists a tenant
with tenant improvements, a separate fee may be charged to the tenant by the
Property Manager at a fee not to exceed 5.0% of the cost of such tenant
improvements. The Property Manager will be paid leasing commissions at
prevailing market rates and may also receive a fee for the initial leasing of
newly constructed properties, which generally would equal one month’s rent. The
aggregate of all property management and leasing fees paid to affiliates plus
all payments to third parties will not exceed the amount that other
nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. The Property Manager may subcontract
its duties for a fee that may be less than the fee provided for in the property
management agreement. During the year ended December 31, 2008, the Company paid
the Property Manager $4,230 for property management fees. The Property Manager
elected to waive (not defer) its management fee for nine months ended December
31, 2008, which totaled $101,815. The Company did not incur property management
fees for the period ended December 31, 2007.
  The
Company pays the Advisor an annualized asset management fee of 1.0% based on the
aggregate contract purchase price of all properties. The asset management fee is
payable quarterly in advance on the first day of the month following the end of
each calendar quarter end. The Advisor has elected to waive (not defer) its
asset management fee for the year ended December 31, 2008, which totaled
$733,086. The Company did not incur asset management fees for the period ended
December 31, 2007.
  If the
Advisor or its affiliates provides a substantial amount of services, as
determined by the Company’s independent directors, in connection with the sale
of property, the Company will pay the Advisor a brokerage commission not to
exceed the lesser of one-half of a reasonable, customary and competitive real
estate commission or 3.0% of the contract price for the property sold, inclusive
of any commission paid to outside brokers provided, however, in no event may the
real estate commissions paid to the Advisor, its affiliates or unaffiliated
third-parties exceed 6% of the contract price. In addition, after investors have
received a return of their net capital contributions and a 6.0% annual
cumulative, non-compounded return, then the Advisor is entitled to receive 15.0%
of remaining net sale proceeds. The Company did not pay any fees or amounts to
the Advisor relating to the sale of properties for the year ended December 31,
2008 or the period ended December 31, 2007.
  In the
event the Company’s common stock is listed in the future on a national
securities exchange, a subordinated incentive listing fee equal to 15.0% of the
amount by which the market value of the Company’s outstanding stock plus all
distributions paid by the Company prior to listing, exceeds the sum of the total
amount of capital raised from investors plus an amount equal to a 6.0% annual
cumulative, non-compounded return to investors will be paid to the
Advisor.
  In the
event that the advisory agreement with the Advisor is terminated upon a change
of control of the Company, by the Company without cause, or by the Advisor for
good reason (as such terms may be defined in the definitive agreement
memorializing the engagement of the Advisor by the Company), the Company shall
pay the Advisor a termination fee not to exceed 15.0% of the amount, if any, by
which the appraised value of the properties owned by the Company on the date of
such termination, less amounts of all indebtedness secured by such properties
exceeds the dollar amount equal to the sum of a 6.0% cumulative non-compound
return on the Company's stockholders' net investment plus the amount of such
investment.
 
 The
Company may reimburse the Advisor for all expenses it paid or incurred in
connection with the services provided to the Company, subject to the limitation
that the Company does not reimburse for any amount by which its operating
expenses (including the asset management fee) at the end of the four preceding
fiscal quarters exceeds the greater of (i) 2.0% of average invested assets,
or (ii) 25% of net income other than any additions to reserves for depreciation,
bad debts or other similar non-cash reserves and excluding any gain from the
sale of assets for that period. The Company will not reimburse for personnel
costs in connection with services for which the Advisor receives acquisition
fees or real estate commissions. During the year ended December 31, 2008, the
Company did not reimburse the Advisor for any such costs. There were no such
reimbursements for the period ended December 31, 2007.
 
 During
the year ended December 31, 2008, the OP entered into an agreement with the
principals of the Advisor whereby the OP can obtain bridge equity from the
principals up to $10,000,000 from time-to-time as needed to provide
short-term bridge equity relating to property acquisitions or for general
working capital purposes. Such bridge equity needs to be satisfied within a six
month period and will accrue a preferred rate at 8.0%. In November 2008, the
board approved an extension of the repayment period of an additional six months.
In connection with the acquisition of the Harleysville National Bank and the
Rockland Trust Company portfolios outlined in Note 3, the Company obtained
bridge equity of $4,000,000 and $2,500,000 respectively, accruing a preferred
rate at an annual rate of 8.0%. Such bridge equity can be paid off, at any time,
without penalty. During the year ended December 31, 2008, the Company incurred
related party interest expense of $392,330. As of December 31, 2008, $44,165
remained unpaid and is included in due to affiliates in the accompanying balance
sheets. During the period ended December 31, 2007, no related party interest was
incurred.
  During the year ended December 31, 2008,
the REIT entered into an unsecured bridge equity facility with a related party,
American Realty Capital Bridge, LLC (“ARC Bridge”), whereby the REIT can obtain
bridge equity of up to $10,000,000 from time-to-time as needed to provide
short-term bridge equity relating to property acquisitions and for general
working capital purposes. ARC Bridge is a 50% joint venture between the Sponsor
and an unrelated third party. Bridge equity from this facility accrue at an
annual rate of 30 day LIBOR plus 5%, with a floor of 8%. This facility was used
for certain acquisitions during the year ended December 31, 2008. The bridge
equity relating to the National City Bank and Rite Aid acquisitions were
$2,369,223 and $6,107,940, respectively. These bridge equity funds are due one
year from the investment date and can be satisfied at any time without penalty -
See Note 7. The related rate on such short-term bridge equity was 8.11% for both
the National City Bank and Rite Aid acquisitions, as of December 31, 2008. The
Company incurred expense on these short-term bridge funds of $185,857 for the
year ended December 31, 2008. As of December 31, 2008, $8,424 remained unpaid
and is included in due to affiliates in the accompanying balance
sheets.
 
 F-21
   AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  At
December 31, 2008 and December 31, 2007, the Company had approximately
$2,223,000 and $285,000, respectively, due to affiliates, which is included in
due to affiliates in the accompanying consolidated balance sheets and is payable
primarily to the Advisor.
  The
Company acquired 24 properties in five separate transactions during the year
ended December 31, 2008 from related parties. A Federal Express distribution
center was acquired on March 5, 2008. A sale leaseback transaction involving 15
properties 100% occupied by Harleysville National Bank occurred on March 12,
2008. The Company acquired two National City Bank branches in separate
transactions on September 16, 2008 and October 23, 2008 and a portfolio of six
Rite Aid locations was acquired on September 29, 2008. These acquisitions were
approved by the Company’s Board of Trustees; with two inside directors
abstaining because the acquisition was an affiliated transaction. The Company
acquired these assets at sellers’ cost, which did not exceed the fair market
value of the properties as determined by a qualified independent
appraiser.
  Note 10
— Economic Dependency
  Under
various agreements, the Company has engaged or will engage the Advisor and its
affiliates to provide certain services that are essential to the Company,
including asset management services, supervision of the management and leasing
of properties owned by the Company, asset acquisition and disposition decisions,
the sale of shares of the Company’s common stock available for issue, as well as
other administrative responsibilities for the Company including accounting
services and investor relations.
  As a
result of these relationships, the Company is dependent upon the Advisor and its
affiliates. In the event that these companies were unable to provide the Company
with the respective services, the Company would be required to find alternative
providers of these services.
 
 Note 11
— Share-Based
Compensation
  The
Company has a stock option plan (the “Plan”), which authorizes the grant of
nonqualified stock options to the Company’s independent directors, subject to
the absolute discretion of the board of directors and the applicable limitations
of the Plan. The Company intends to grant options under the Plan to each
qualifying director annually. The exercise price for all stock options granted
under the Plan will be fixed at $10.00 per share until the termination of our
initial public offering, and thereafter the exercise price for stock options
granted to our independent directors will be equal to the fair market value of a
share on the last business day preceding the annual meeting of stockholders. As
of December 31, 2008, the Company had granted options to purchase 9,000 shares
at $10.00 per share, each with a two year vesting period. A total of 1,000,000
shares have been authorized and reserved for issuance under the Plan. The
Company accounts for the issuance of stock options under SFAS No. 123R,
“Share-Based Payment,” which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and
directors, including stock options related to the Plan, based on estimated fair
values.
  The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. The following assumptions were used in the
determination of fair value: expected life of 10 years; discount rate of
3.83%; volatility of 5.0%; dividend yield of 6.5%.
 During
the year ended December 31, 2008 no options were forfeited, became vested, or
were exercised. As of December 31, 2008, unvested options to purchase 9,000
shares at $10.00 per share remained outstanding with a weighted average
contractual remaining life of approximately 9.0 years. The total compensation
charge relating to these option grants under SFAS No. 123R is
immaterial.
 
 Note 12
— Net Loss Per Share
 
 The
following is a summary of the basic and diluted net loss per share computation
for the year ended December 31, 2008:
  Net
      loss
                                          
                                          $
                                          (4,282,784
                                          )Total
      weighted average common shares outstanding
                                          
                                          
                                          829,578Loss
      per share
                                          
                                          $
                                          (5.16
                                          )
  
  As of
December 31, 2008, 9,000 antidilutive stock options were
outstanding.
 F-22
 
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
  Note
13 - Quarterly Results (Unaudited)
 Presented
below is a summary of the unaudited quarterly financial information for the year
ended December 31, 2008:
 
 Quarters
      ended
                      
                      March
      31
                      
                      
                      June
      30
                      
                      
                      September
      30
                      
                      
                      December
      31Rental
      revenue
                      
                      $
                      214,426
                      
                      
                      $
                      1,348,082
                      
                      
                      $
                      1,593,871
                      
                      
                      $
                      2,389,984Net
      loss
                      
                      
                      (341,850
                      )
                      
                      
                      (454,369
                      )
                      
                      
                      (845,124
                      )
                      
                      
                      (2,641,441
                      )Weighted
      average shares outstanding
                      
                      
                      134,013
                      
                      
                      
                      860,102
                      
                      
                      
                      1,101,127
                      
                      
                      
                      1,215,844Basic
      and diluted loss per share
                      
                      $
                      (2.55
                      )
                      
                      $
                      (0.53
                      )
                      
                      $
                      (0.77
                      )
                      
                      $
                      (2.17
                      )
  Note
14 — Subsequent Events
  As of
February 27, 2009, the Company had issued 1,533,841 shares of common stock,
including shares issued under the DRIP 339,077 shares issued in connection with
an acquisition in March 2008 - see Note 3 Real Estate Acquisitions. Total gross
proceeds from these issuances were $15,329,317. As of February 27, 2009, the
aggregate value of all share issuances and subscriptions outstanding was
$17,398,683 based on a per share value of $10.00 (or $9.50 per share for shares issued
under the DRIP). This amount includes stock subscriptions of $2,069,367 which are maintained
at the Company’s third-party escrow agent, to be released when certain escrow
requirements have been achieved. As of February 27, 2009, approximately $1.4
billion (140 million shares) remained available for sale to the public under the
Offering, exclusive of shares available under the DRIP.
    On March
2, 2009, the Company satisfied $8,000,000 of short-term bridge
equity funds. Such amount was funded by the issuance of notes payable of
approximately $6,834,000 and an additional draw from availability under our
related party bridge revolver of $1,166,000. The notes payable mature on
December 15, 2011, subject to certain extension rights, as
defined.
  F-23
  Real Estate and Accumulated
Depreciation
 Schedule
III
 December 31,
2008
  Initial
      Costs
                                                                                
                                                                                
                                                                                
                                                                                Gross
      amountAcquisition
                                                                                
                                                                                Encumbrances
      at
                                                                                
                                                                                
                                                                                
                                                                                Building and
                                                                                
                                                                                Adjustments
                                                                                
                                                                                Carried
      at
                                                                                
                                                                                
                                                                                AccumulatedCity
                                                                                
                                                                                State
                                                                                
                                                                                Date
                                                                                
                                                                                December
      31, 2008
                                                                                
                                                                                Land
                                                                                
                                                                                Improvements
                                                                                
                                                                                to
      Basis
                                                                                
                                                                                December
      31, 2008
                                                                                
                                                                                
                                                                                DepreciationSnow Shoe
                                                                                
                                                                                PA
                                                                                
                                                                                3/5/2008
                                                                                
                                                                                $
                                                                                6,965,000
                                                                                
                                                                                $
                                                                                1,412,110
                                                                                
                                                                                $
                                                                                7,930,187
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                $
                                                                                9,342,297
                                                                                
                                                                                
                                                                                $
                                                                                (284,332
                                                                                )Harleysville
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                10,031,873
                                                                                
                                                                                
                                                                                1,852,689
                                                                                
                                                                                
                                                                                10,426,806
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                12,279,495
                                                                                
                                                                                
                                                                                
                                                                                (373,846
                                                                                )Lansdale
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,367,581
                                                                                
                                                                                
                                                                                251,098
                                                                                
                                                                                
                                                                                1,422,887
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,673,985
                                                                                
                                                                                
                                                                                
                                                                                (51,017
                                                                                )Lansdale
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,211,138
                                                                                
                                                                                
                                                                                224,499
                                                                                
                                                                                
                                                                                1,257,992
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,482,491
                                                                                
                                                                                
                                                                                
                                                                                (45,104
                                                                                )Lansford
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,516,827
                                                                                
                                                                                
                                                                                278,500
                                                                                
                                                                                
                                                                                1,578,169
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,856,669
                                                                                
                                                                                
                                                                                
                                                                                (56,584
                                                                                )Lehighton
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                746,603
                                                                                
                                                                                
                                                                                137,082
                                                                                
                                                                                
                                                                                776,796
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                913,878
                                                                                
                                                                                
                                                                                
                                                                                (27,851
                                                                                )Limerick
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,264,963
                                                                                
                                                                                
                                                                                232,256
                                                                                
                                                                                
                                                                                1,316,119
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,548,375
                                                                                
                                                                                
                                                                                
                                                                                (47,189
                                                                                )Palmerton
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                2,476,903
                                                                                
                                                                                
                                                                                454,777
                                                                                
                                                                                
                                                                                2,577,071
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                3,031,848
                                                                                
                                                                                
                                                                                
                                                                                (92,399
                                                                                )Sellersville
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                868,503
                                                                                
                                                                                
                                                                                159,463
                                                                                
                                                                                
                                                                                903,626
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,063,089
                                                                                
                                                                                
                                                                                
                                                                                (32,399
                                                                                )Skippack
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,141,913
                                                                                
                                                                                
                                                                                209,664
                                                                                
                                                                                
                                                                                1,188,093
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,397,757
                                                                                
                                                                                
                                                                                
                                                                                (42,598
                                                                                )Slatington
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                889,893
                                                                                
                                                                                
                                                                                163,391
                                                                                
                                                                                
                                                                                925,881
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,089,272
                                                                                
                                                                                
                                                                                
                                                                                (33,197
                                                                                )Springhouse
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                3,043,746
                                                                                
                                                                                
                                                                                560,979
                                                                                
                                                                                
                                                                                3,164,713
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                3,725,692
                                                                                
                                                                                
                                                                                
                                                                                (113,468
                                                                                )Summit Hill
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,336,635
                                                                                
                                                                                
                                                                                245,416
                                                                                
                                                                                
                                                                                1,390,689
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,636,105
                                                                                
                                                                                
                                                                                
                                                                                (49,862
                                                                                )Walnutport
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,269,444
                                                                                
                                                                                
                                                                                233,079
                                                                                
                                                                                
                                                                                1,320,782
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,553,861
                                                                                
                                                                                
                                                                                
                                                                                (47,356
                                                                                )Wyomissing
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                1,156,006
                                                                                
                                                                                
                                                                                212,251
                                                                                
                                                                                
                                                                                1,202,756
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,415,007
                                                                                
                                                                                
                                                                                
                                                                                (43,124
                                                                                )Slatington
                                                                                
                                                                                PA
                                                                                
                                                                                3/12/2008
                                                                                
                                                                                
                                                                                2,677,972
                                                                                
                                                                                
                                                                                491,695
                                                                                
                                                                                
                                                                                2,786,273
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                3,277,968
                                                                                
                                                                                
                                                                                
                                                                                (99,900
                                                                                )Brockton
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                466,601
                                                                                
                                                                                
                                                                                87,832
                                                                                
                                                                                
                                                                                497,717
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                585,549
                                                                                
                                                                                
                                                                                
                                                                                (14,276
                                                                                )Chatham
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,094,344
                                                                                
                                                                                
                                                                                205,998
                                                                                
                                                                                
                                                                                1,167,322
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,373,320
                                                                                
                                                                                
                                                                                
                                                                                (33,483
                                                                                )Hull
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                503,049
                                                                                
                                                                                
                                                                                94,693
                                                                                
                                                                                
                                                                                536,596
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                631,289
                                                                                
                                                                                
                                                                                
                                                                                (15,391
                                                                                )Hyannis
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,725,208
                                                                                
                                                                                
                                                                                324,751
                                                                                
                                                                                
                                                                                1,840,256
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                2,165,007
                                                                                
                                                                                
                                                                                
                                                                                (52,785
                                                                                )Middleboro
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                2,530,463
                                                                                
                                                                                
                                                                                478,456
                                                                                
                                                                                
                                                                                2,697,086
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                3,175,542
                                                                                
                                                                                
                                                                                
                                                                                (77,362
                                                                                )Orleans
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                999,086
                                                                                
                                                                                
                                                                                188,067
                                                                                
                                                                                
                                                                                1,065,711
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,253,778
                                                                                
                                                                                
                                                                                
                                                                                (30,568
                                                                                )Randolph
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,119,599
                                                                                
                                                                                
                                                                                210,752
                                                                                
                                                                                
                                                                                1,194,261
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,405,013
                                                                                
                                                                                
                                                                                
                                                                                (34,256
                                                                                )Centerville
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                824,251
                                                                                
                                                                                
                                                                                155,156
                                                                                
                                                                                
                                                                                879,218
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,034,374
                                                                                
                                                                                
                                                                                
                                                                                (25,219
                                                                                )Duxbury
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                969,280
                                                                                
                                                                                
                                                                                182,456
                                                                                
                                                                                
                                                                                1,033,918
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,216,374
                                                                                
                                                                                
                                                                                
                                                                                (29,656
                                                                                )Hanover
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                964,492
                                                                                
                                                                                
                                                                                181,555
                                                                                
                                                                                
                                                                                1,028,810
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,210,365
                                                                                
                                                                                
                                                                                
                                                                                (29,510
                                                                                )Middleboro
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                673,713
                                                                                
                                                                                
                                                                                126,819
                                                                                
                                                                                
                                                                                718,641
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                845,460
                                                                                
                                                                                
                                                                                
                                                                                (20,613
                                                                                )Pembroke
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,130,364
                                                                                
                                                                                
                                                                                212,778
                                                                                
                                                                                
                                                                                1,205,744
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,418,522
                                                                                
                                                                                
                                                                                
                                                                                (34,585
                                                                                )Plymouth
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                3,766,821
                                                                                
                                                                                
                                                                                714,062
                                                                                
                                                                                
                                                                                4,013,017
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                4,727,079
                                                                                
                                                                                
                                                                                
                                                                                (115,107
                                                                                )Rockland
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                2,977,026
                                                                                
                                                                                
                                                                                562,517
                                                                                
                                                                                
                                                                                3,173,428
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                3,735,945
                                                                                
                                                                                
                                                                                
                                                                                (91,025
                                                                                )Rockland
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,283,825
                                                                                
                                                                                
                                                                                241,666
                                                                                
                                                                                
                                                                                1,369,439
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,611,105
                                                                                
                                                                                
                                                                                
                                                                                (39,280
                                                                                )S. Yarmouth
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,158,156
                                                                                
                                                                                
                                                                                218,010
                                                                                
                                                                                
                                                                                1,235,389
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,453,399
                                                                                
                                                                                
                                                                                
                                                                                (35,435
                                                                                )Scituate
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                923,933
                                                                                
                                                                                
                                                                                173,920
                                                                                
                                                                                
                                                                                985,547
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,159,467
                                                                                
                                                                                
                                                                                
                                                                                (28,269
                                                                                )West Dennis
                                                                                
                                                                                MA
                                                                                
                                                                                5/2/2008
                                                                                
                                                                                
                                                                                1,012,585
                                                                                
                                                                                
                                                                                190,608
                                                                                
                                                                                
                                                                                1,080,114
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,270,722
                                                                                
                                                                                
                                                                                
                                                                                (30,982
                                                                                )Palm Coast
                                                                                
                                                                                FL
                                                                                
                                                                                9/16/2008
                                                                                
                                                                                
                                                                                2,054,548
                                                                                
                                                                                
                                                                                426,601
                                                                                
                                                                                
                                                                                2,417,408
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                2,844,009
                                                                                
                                                                                
                                                                                
                                                                                (34,670
                                                                                )Pompano
    Beach
                                                                                
                                                                                FL
                                                                                
                                                                                10/23/2008
                                                                                
                                                                                
                                                                                2,428,103
                                                                                
                                                                                
                                                                                518,871
                                                                                
                                                                                
                                                                                2,940,267
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                3,459,138
                                                                                
                                                                                
                                                                                
                                                                                (21,084
                                                                                )Lisbon
                                                                                
                                                                                OH
                                                                                
                                                                                9/29/2008
                                                                                
                                                                                
                                                                                1,090,000
                                                                                
                                                                                
                                                                                204,709
                                                                                
                                                                                
                                                                                1,160,018
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,364,727
                                                                                
                                                                                
                                                                                
                                                                                (12,478
                                                                                )East
    Liverpool
                                                                                
                                                                                OH
                                                                                
                                                                                9/29/2008
                                                                                
                                                                                
                                                                                1,630,000
                                                                                
                                                                                
                                                                                305,036
                                                                                
                                                                                
                                                                                1,728,535
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                2,033,571
                                                                                
                                                                                
                                                                                
                                                                                (18,593
                                                                                )Carrollton
                                                                                
                                                                                OH
                                                                                
                                                                                9/29/2008
                                                                                
                                                                                
                                                                                1,730,000
                                                                                
                                                                                
                                                                                324,734
                                                                                
                                                                                
                                                                                1,825,993
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                2,150,727
                                                                                
                                                                                
                                                                                
                                                                                (19,641
                                                                                )Cadiz
                                                                                
                                                                                OH
                                                                                
                                                                                9/29/2008
                                                                                
                                                                                
                                                                                1,240,000
                                                                                
                                                                                
                                                                                232,443
                                                                                
                                                                                
                                                                                1,317,175
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,549,618
                                                                                
                                                                                
                                                                                
                                                                                (14,168
                                                                                )Carlisle
                                                                                
                                                                                PA
                                                                                
                                                                                9/29/2008
                                                                                
                                                                                
                                                                                3,007,738
                                                                                
                                                                                
                                                                                637,225
                                                                                
                                                                                
                                                                                3,596,776
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                4,234,001
                                                                                
                                                                                
                                                                                
                                                                                (38,688
                                                                                )Pittsburgh
                                                                                
                                                                                PA
                                                                                
                                                                                9/29/2008
                                                                                
                                                                                
                                                                                4,110,527
                                                                                
                                                                                
                                                                                865,771
                                                                                
                                                                                
                                                                                4,906,035
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                5,771,806
                                                                                
                                                                                
                                                                                
                                                                                (52,771
                                                                                )Bloomfield
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                605,612
                                                                                
                                                                                
                                                                                125,721
                                                                                
                                                                                
                                                                                712,420
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                838,141
                                                                                
                                                                                
                                                                                
                                                                                (2,554
                                                                                )Cedar Grove
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                955,030
                                                                                
                                                                                
                                                                                198,258
                                                                                
                                                                                
                                                                                1,123,461
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,321,719
                                                                                
                                                                                
                                                                                
                                                                                (4,028
                                                                                )Clementon
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                949,363
                                                                                
                                                                                
                                                                                197,082
                                                                                
                                                                                
                                                                                1,116,795
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,313,877
                                                                                
                                                                                
                                                                                
                                                                                (4,004
                                                                                )Clifton
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                448,238
                                                                                
                                                                                
                                                                                93,051
                                                                                
                                                                                
                                                                                527,291
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                620,342
                                                                                
                                                                                
                                                                                
                                                                                (1,891
                                                                                )Dayton
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                829,198
                                                                                
                                                                                
                                                                                172,136
                                                                                
                                                                                
                                                                                975,437
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,147,573
                                                                                
                                                                                
                                                                                
                                                                                (3,497
                                                                                )Deptford
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                665,461
                                                                                
                                                                                
                                                                                138,145
                                                                                
                                                                                
                                                                                782,824
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                920,969
                                                                                
                                                                                
                                                                                
                                                                                (2,807
                                                                                )Dunellen
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                755,450
                                                                                
                                                                                
                                                                                156,826
                                                                                
                                                                                
                                                                                888,683
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,045,509
                                                                                
                                                                                
                                                                                
                                                                                (3,186
                                                                                )East
    Brunswick
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                831,566
                                                                                
                                                                                
                                                                                174,753
                                                                                
                                                                                
                                                                                976,098
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,150,851
                                                                                
                                                                                
                                                                                
                                                                                (3,500
                                                                                )Fairfield
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                1,288,693
                                                                                
                                                                                
                                                                                267,524
                                                                                
                                                                                
                                                                                1,515,970
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,783,494
                                                                                
                                                                                
                                                                                
                                                                                (5,435
                                                                                )Fanwood
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                804,828
                                                                                
                                                                                
                                                                                167,077
                                                                                
                                                                                
                                                                                946,770
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,113,847
                                                                                
                                                                                
                                                                                
                                                                                (3,395
                                                                                )Garfield
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                917,311
                                                                                
                                                                                
                                                                                190,428
                                                                                
                                                                                
                                                                                1,079,090
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,269,518
                                                                                
                                                                                
                                                                                
                                                                                (3,869
                                                                                )Glen Ridge
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                581,961
                                                                                
                                                                                
                                                                                120,811
                                                                                
                                                                                
                                                                                684,597
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                805,408
                                                                                
                                                                                
                                                                                
                                                                                (2,455
                                                                                )Haddonfield
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                715,400
                                                                                
                                                                                
                                                                                148,512
                                                                                
                                                                                
                                                                                841,570
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                990,082
                                                                                
                                                                                
                                                                                
                                                                                (3,017
                                                                                )Kearny
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                698,007
                                                                                
                                                                                
                                                                                144,902
                                                                                
                                                                                
                                                                                821,109
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                966,011
                                                                                
                                                                                
                                                                                
                                                                                (2,944
                                                                                )Mahwah
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                614,546
                                                                                
                                                                                
                                                                                127,576
                                                                                
                                                                                
                                                                                722,929
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                850,505
                                                                                
                                                                                
                                                                                
                                                                                (2,592
                                                                                )Martinsville
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                1,092,373
                                                                                
                                                                                
                                                                                226,769
                                                                                
                                                                                
                                                                                1,285,027
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,511,796
                                                                                
                                                                                
                                                                                
                                                                                (4,607
                                                                                )Millstone
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                602,513
                                                                                
                                                                                
                                                                                125,078
                                                                                
                                                                                
                                                                                708,774
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                833,852
                                                                                
                                                                                
                                                                                
                                                                                (2,541
                                                                                )Mountain
    Lakes
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                716,172
                                                                                
                                                                                
                                                                                148,673
                                                                                
                                                                                
                                                                                842,478
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                991,151
                                                                                
                                                                                
                                                                                
                                                                                (3,021
                                                                                )Northvale
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                632,539
                                                                                
                                                                                
                                                                                131,311
                                                                                
                                                                                
                                                                                744,095
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                875,406
                                                                                
                                                                                
                                                                                
                                                                                (2,668
                                                                                )Orange
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                762,456
                                                                                
                                                                                
                                                                                158,281
                                                                                
                                                                                
                                                                                896,924
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,055,205
                                                                                
                                                                                
                                                                                
                                                                                (3,216
                                                                                )Parlin
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                816,238
                                                                                
                                                                                
                                                                                169,446
                                                                                
                                                                                
                                                                                960,191
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,129,637
                                                                                
                                                                                
                                                                                
                                                                                (3,443
                                                                                )Paterson
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                666,911
                                                                                
                                                                                
                                                                                138,446
                                                                                
                                                                                
                                                                                784,530
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                922,976
                                                                                
                                                                                
                                                                                
                                                                                (2,813
                                                                                )Paterson
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                434,981
                                                                                
                                                                                
                                                                                90,299
                                                                                
                                                                                
                                                                                511,696
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                601,995
                                                                                
                                                                                
                                                                                
                                                                                (1,835
                                                                                )Pompton
    Plains
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                434,249
                                                                                
                                                                                
                                                                                90,147
                                                                                
                                                                                
                                                                                510,834
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                600,981
                                                                                
                                                                                
                                                                                
                                                                                (1,832
                                                                                )Raritan
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                1,010,712
                                                                                
                                                                                
                                                                                209,817
                                                                                
                                                                                
                                                                                1,188,964
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,398,781
                                                                                
                                                                                
                                                                                
                                                                                (4,263
                                                                                )Somerville
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                856,251
                                                                                
                                                                                
                                                                                179,877
                                                                                
                                                                                
                                                                                1,005,136
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,185,013
                                                                                
                                                                                
                                                                                
                                                                                (3,604
                                                                                )Tenafly
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                636,040
                                                                                
                                                                                
                                                                                132,038
                                                                                
                                                                                
                                                                                748,214
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                880,252
                                                                                
                                                                                
                                                                                
                                                                                (2,683
                                                                                )Trenton
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                1,000,509
                                                                                
                                                                                
                                                                                207,699
                                                                                
                                                                                
                                                                                1,176,961
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,384,660
                                                                                
                                                                                
                                                                                
                                                                                (4,220
                                                                                )Vineland
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                568,272
                                                                                
                                                                                
                                                                                120,095
                                                                                
                                                                                
                                                                                666,369
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                786,464
                                                                                
                                                                                
                                                                                
                                                                                (2,389
                                                                                )West Orange
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                631,918
                                                                                
                                                                                
                                                                                131,182
                                                                                
                                                                                
                                                                                743,365
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                874,547
                                                                                
                                                                                
                                                                                
                                                                                (2,665
                                                                                )West Orange
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                442,586
                                                                                
                                                                                
                                                                                91,878
                                                                                
                                                                                
                                                                                520,641
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                612,519
                                                                                
                                                                                
                                                                                
                                                                                (1,867
                                                                                )West
    Paterson
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                508,002
                                                                                
                                                                                
                                                                                105,458
                                                                                
                                                                                
                                                                                597,595
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                703,053
                                                                                
                                                                                
                                                                                
                                                                                (2,143
                                                                                )Westwood
                                                                                
                                                                                NJ
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                537,387
                                                                                
                                                                                
                                                                                111,558
                                                                                
                                                                                
                                                                                632,162
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                743,720
                                                                                
                                                                                
                                                                                
                                                                                (2,267
                                                                                )West
Chester
                                                                                
                                                                                OH
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                847,348
                                                                                
                                                                                
                                                                                175,904
                                                                                
                                                                                
                                                                                996,788
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,172,692
                                                                                
                                                                                
                                                                                
                                                                                (3,574
                                                                                )Blairsville
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                563,647
                                                                                
                                                                                
                                                                                130,883
                                                                                
                                                                                
                                                                                727,504
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                858,387
                                                                                
                                                                                
                                                                                
                                                                                (2,608
                                                                                )Clarks
    Summit
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                453,074
                                                                                
                                                                                
                                                                                103,499
                                                                                
                                                                                
                                                                                586,495
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                689,994
                                                                                
                                                                                
                                                                                
                                                                                (2,103
                                                                                )Dillsburg
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                399,059
                                                                                
                                                                                
                                                                                91,160
                                                                                
                                                                                
                                                                                516,573
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                607,733
                                                                                
                                                                                
                                                                                
                                                                                (1,852
                                                                                )Media
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                561,279
                                                                                
                                                                                
                                                                                128,217
                                                                                
                                                                                
                                                                                726,564
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                854,781
                                                                                
                                                                                
                                                                                
                                                                                (2,605
                                                                                )Media
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                339,535
                                                                                
                                                                                
                                                                                77,562
                                                                                
                                                                                
                                                                                439,521
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                517,083
                                                                                
                                                                                
                                                                                
                                                                                (1,576
                                                                                )Philadelphia
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                594,101
                                                                                
                                                                                
                                                                                137,840
                                                                                
                                                                                
                                                                                766,927
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                904,767
                                                                                
                                                                                
                                                                                
                                                                                (2,750
                                                                                )Philadelphia
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                738,268
                                                                                
                                                                                
                                                                                168,648
                                                                                
                                                                                
                                                                                955,672
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,124,320
                                                                                
                                                                                
                                                                                
                                                                                (3,426
                                                                                )Philadelphia
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                450,509
                                                                                
                                                                                
                                                                                102,913
                                                                                
                                                                                
                                                                                583,174
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                686,087
                                                                                
                                                                                
                                                                                
                                                                                (2,091
                                                                                )Philadelphia
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                498,842
                                                                                
                                                                                
                                                                                116,079
                                                                                
                                                                                
                                                                                643,616
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                759,695
                                                                                
                                                                                
                                                                                
                                                                                (2,308
                                                                                )Philadelphia
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                622,915
                                                                                
                                                                                
                                                                                142,297
                                                                                
                                                                                
                                                                                806,350
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                948,647
                                                                                
                                                                                
                                                                                
                                                                                (2,891
                                                                                )Philadelphia
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                368,927
                                                                                
                                                                                
                                                                                84,277
                                                                                
                                                                                
                                                                                477,568
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                561,845
                                                                                
                                                                                
                                                                                
                                                                                (1,712
                                                                                )Pittsburgh
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                521,387
                                                                                
                                                                                
                                                                                119,104
                                                                                
                                                                                
                                                                                674,925
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                794,029
                                                                                
                                                                                
                                                                                
                                                                                (2,420
                                                                                )Somerset
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                837,953
                                                                                
                                                                                
                                                                                191,420
                                                                                
                                                                                
                                                                                1,084,712
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,276,132
                                                                                
                                                                                
                                                                                
                                                                                (3,889
                                                                                )Swarthmore
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                426,831
                                                                                
                                                                                
                                                                                97,504
                                                                                
                                                                                
                                                                                552,524
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                650,028
                                                                                
                                                                                
                                                                                
                                                                                (1,981
                                                                                )Tannersville
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                552,554
                                                                                
                                                                                
                                                                                126,224
                                                                                
                                                                                
                                                                                715,270
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                841,494
                                                                                
                                                                                
                                                                                
                                                                                (2,565
                                                                                )Warren
                                                                                
                                                                                PA
                                                                                
                                                                                11/25/2008
                                                                                
                                                                                
                                                                                576,096
                                                                                
                                                                                
                                                                                131,602
                                                                                
                                                                                
                                                                                745,747
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                877,349
                                                                                
                                                                                
                                                                                
                                                                                (2,671
                                                                                )Total
                                                                                
                                                                                $
                                                                                112,741,810
                                                                                
                                                                                $
                                                                                22,300,422
                                                                                
                                                                                $
                                                                                126,022,191
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                $
                                                                                148,322,613
                                                                                
                                                                                
                                                                                $
                                                                                (2,534,394
                                                                                )
  
  Each of
our properties has a depreciable life of 40 years
 (1)
                          
                          Excludes
      unamortized premiums and discounts.(2)
                          
                          The
      aggregate cost for federal income tax purposes is equal to the gross
      amount carried at the close of the period.(3)
                          
                          Acquired
      intangibles in the amount of $16,448,018 are not allocated to individual
      properties as reflected in the table above.(4)
                          
                          The accumulated depreciation
      column excludes $522,055 of amortization associated with acquired
      intangible lease assets.(5)
                          
                          Each location is a single-tenant,
      freestanding
property.
  
 F-24
  A summary
of activity for real estate and accumulated depreciation for the year ended
December 31, 2008:
 
 Year
      EndedDecember 31,
      2008Real estate
      investments, at cost:Balance
      at beginning of year
                      
                      $
                      —Additions
                      
                      
                      148,322,613Balance
      at end of the year
                      
                      $
                      148,322,613Accumulated
      depreciation and amortization:Balance
      at beginning of year
                      
                      $
                      —Depreciation
      expense
                      
                      
                      2,534,394Balance
      at end of the year
                      
                      $
                      2,534,394
  F-25