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 THE SECURITIES EXCHANGE ACT OF
1934





For
the fiscal year ended December 31, 2009





OR





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




For
the transition period from
                
to




Commission
File Number: 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, $0.01 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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o   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 its Registration
Statement on Form S-1 (File No. 333-145949), which shares are being
sold at $10.00 per share, with discounts available for certain categories of
purchasers. While
there is no established market for the registrant’s common stock, the aggregate
market value of the registrant’s common stock held by non-affiliates of the
registrant as of June 30, 2009, the last business day of the registrant’s most
recently completed second fiscal quarter, was approximately $45,125,046 based on
a per share value of $10.00 (or $9.50 for shares issued under the Dividend
reinvestment plan).




As of
March 15, 2010, the registrant had
18,893,430shares of common stock outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




The
Registrant incorporates by reference portions of its Definitive Proxy Statement
for the 2010 Annual Meeting of Stockholders, which is expected to be filed no
later than April 29,
2010, into Part III of this Annual Report on Form 10-K to the
extent stated herein.







AMERICAN
REALTY CAPITAL TRUST, INC.


FORM 10-K


Year Ended December 31,
2009


PagePART IItem 1.
              Business
              
              2Item 1A.
              Risk
Factors
              
              8Item 1B.
              Unresolved Staff
      Comments
              
              32Item 2.
              Properties
              
              32Item 3.
              Legal
      Proceedings
              
              36Item 4.
              Reserved
              
              36PART IIItem 5.
              Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
              
              36Item 6.
              Selected Financial
      Data
              
              43Item 7.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
              
              46Item 7A.
              Quantitative and Qualitative
      Disclosures about Market Risk
              
              55Item 8.
              Financial Statements and
      Supplementary Data
              
              56Item 9.
              Changes in and Disagreements With
      Accountants on Accounting and Financial Disclosure
              
              56Item 9A(T).
              Controls and
      Procedures
              
              56Item 9B.
              Other
      Information
              
              57PART IIIItem 10.
              Directors, Executive Officers and
      Corporate Governance
              
              57Item 11.
              Executive
      Compensation
              
              57Item
12.
              Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
              
              57Item 13.
              Certain Relationships and Related
      Transactions, and DirectorIndependence
              
              57Item 14.
              Principal Accounting Fees and
      Services
              
              57PART IVItem 15.
              Exhibits and Financial
      Statement Schedules
              
              57Signatures
              
              60




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. (the “Company,” “we”
“our” or “us”) 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 American Realty Capital
      Advisor, LLC, our  advisor (the “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, Realty Capital Securities,
      LLC (the “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.•
                American
      Realty Capital New York Recovery REIT, Inc. (“NY Recovery REIT”) and
      Phillips Edison – ARC Shopping Center REIT, Inc. (“Phillips Edison – ARC
      Shopping Center REIT”) are two American Realty Capital sponsored programs
      currently in registration with the U.S. Securities and Exchange Commission
      (the “SEC”). All of our executive officers and directors are also
      executive officers and directors of New York Recovery REIT. Our president
      and director is also a director of Phillips Edison – ARC Shopping Center
      REIT. Each of our executive officers and directors face conflicts of
      interest in allocating their time and efforts among these programs and
      us.
 
 •
              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 be.
 
 •
              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 distributions 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.


1


PART I




Item 1. Business.




Organization




We were
incorporated in August 2007 as a Maryland corporation intending to elect and
qualify as a real estate investment trust (“REIT”) for federal income tax
purposes beginning with the taxable year that ended December 31, 2008.  We
qualified as a REIT for federal income tax purposes for the fiscal years ended
December 31, 2008 and December 31, 2009.  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, 2009, the Company owned 126
properties comprising 1.7 million square feet of freestanding, single tenant
commercial space with an aggregate purchase price of $329.1 million. As of
December 31, 2009, these properties were 100% occupied.




In
September 2007, we filed our Registration statement on Form S-11 (File No.
333-145949) (the “Registration Statement”) 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 in January
2008, and we launched our ongoing initial public offering in March 2008 upon
retaining Realty Capital Securities, LLC, our Dealer Manager, to serve as the
dealer manager of the offering. The Dealer Manager is responsible for marketing
our shares in the ongoing initial public offering.




We are
managed by American Realty Capital Advisor, LLC, our Advisor, and American
Realty Capital Properties, LLC, which serves as our property manager (the
“Property Manager”).  The Advisor and the Property Manager are
affiliated entities that 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 Company’s 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 of common stock valued at $9.0 million. 
As of December 31, 2009, the Company issued 14,672,237 shares of common stock,
including shares issued through under our Distribution Reinvestment Plan (the
“DRIP”) and 339,077 shares issued in connection with an acquisition in
March 2008. Total gross proceeds from these issuances were $144.6
million.  As of December 31, 2009, the aggregate value of all share
issuances was $146.6 million based on a per share value of $10.00 (or $9.50 per
share for shares issued under the Distribution Reinvestment Plan (the
“DRIP”).





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 OP 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 national securities 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 only 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
seek and do 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. We currently exceed our objective as approximately 94% of our rental
income is from investment grade tenants as of December 31, 2009. While most of
our investment will be directly in such properties, we may also invest in
entities that own or invest in such properties.


3








We intend
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. As of
December 31, 2009, we have maintained a disciplined approach with respect to
borrowing, having a leverage ratio of 55.8% (long-term mortgage financing as a
percentage of total real estate investments, at cost). 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.




Our
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 OP
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 an equity line available
to us of up to $10.0 million dollars provided by certain managing principals of
American Realty Capital II, LLC, our sponsor. As of December 31, 2009, there are
no amounts outstanding on this equity line.




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.  In 2008, a
third party contributed a total of $8.0 million of preferred but unsecured
equity towards the acquisition of two of our property
acquisitions.  In 2009, the preferred equity in one of our
property acquisitions was repaid as of December 31, 2009.




Since our
inception, we have mitigated interest-rate volatility by swapping variable rates
on debt to fixed rates by utilizing derivative instruments.




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.


4




In
February 2008, the board of directors declared a distribution for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of real
estate investments. The first monthly distribution was paid in April 2008. The
distribution is calculated based on stockholders of record each day during the
applicable period at a rate that, if paid each day for a 365-day period, would
equal a specified annualized rate based on a share price of $10.00. The initial
annualized rate was 6.5% annualized rate based on the share price of $10.00. 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, resulted in an
annualized distribution rate of 6.7%. Effective April 1, 2010 our daily
distribution rate will increase by another 30 basis points, resulting in an
annualized distribution rate of 7.0%.





During
the years ended December 31, 2009 and 2008, distributions totaled $3.2
million and $0.4 million inclusive of $1.3 million and $0.1 million of common
shares issued under the DRIP, respectively.  As of December 31, 2009,
cash used to pay our distributions was generated partly from funds received from
operating activities and partly from funds generated from the sale of our common
stock. As additional capital is raised and we continue to build our portfolio of
investments, we expect that we will use funds received from operating activities
to pay a greater proportion of our distributions and will be able to reduce and
in the future eliminate the use of funds from the sale of common stock to pay
distributions. We have
continued to pay distributions to our shareholders each month since our initial
distribution payment.





5


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





Total
                  
                  
                  Cash
                  
                  
                  Distribution Reinvestment
      Plan2008:April
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –May
                  
                  
                  30,262
                  
                  
                  
                  22,008
                  
                  
                  
                  8,254June
                  
                  
                  49,638
                  
                  
                  
                  35,283
                  
                  
                  
                  14,355July
                  
                  
                  55,042
                  
                  
                  
                  34,788
                  
                  
                  
                  20,254August
                  
                  
                  57,584
                  
                  
                  
                  36,519
                  
                  
                  
                  21,065September
                  
                  
                  61,395
                  
                  
                  
                  39,361
                  
                  
                  
                  22,034October
                  
                  
                  61,425
                  
                  
                  
                  41,078
                  
                  
                  
                  20,347November
                  
                  
                  65,496
                  
                  
                  
                  43,646
                  
                  
                  
                  21,850December
                  
                  
                  64,442
                  
                  
                  
                  42,876
                  
                  
                  
                  21,566Total
                  
                  $
                  445,284
                  
                  
                  $
                  295,559
                  
                  
                  $
                  149,7252009:January
                  
                  $
                  69,263
                  
                  
                  $
                  46,227
                  
                  
                  $
                  23,036February
                  
                  
                  76,027
                  
                  
                  
                  50,214
                  
                  
                  
                  25,813March
                  
                  
                  74,915
                  
                  
                  
                  49,020
                  
                  
                  
                  25,895April
                  
                  
                  101,282
                  
                  
                  
                  64,375
                  
                  
                  
                  36,907May
                  
                  
                  128,867
                  
                  
                  
                  78,604
                  
                  
                  
                  50,263June
                  
                  
                  180,039
                  
                  
                  
                  106,741
                  
                  
                  
                  73,298July
                  
                  
                  217,325
                  
                  
                  
                  127,399
                  
                  
                  
                  89,926August
                  
                  
                  290,230
                  
                  
                  
                  177,620
                  
                  
                  
                  112,610September
                  
                  
                  375,926
                  
                  
                  
                  220,165
                  
                  
                  
                  155,761October
                  
                  
                  455,051
                  
                  
                  
                  264,729
                  
                  
                  
                  190,322November
                  
                  
                  563,472
                  
                  
                  
                  328,555
                  
                  
                  
                  234,917December
                  
                  
                  643,125
                  
                  
                  
                  374,715
                  
                  
                  
                  268,410Total
                  
                  $
                  3,175,522
                  
                  
                  $
                  1,888,364
                  
                  
                  $
                  1,287,158





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, 2009,
the Company paid asset management fees to the Advisor of $0.1 million. The
Advisor has elected to waive the remainder of its asset management fee through
December 31, 2009, and will determine if a portion or all of such fees will be
waived in subsequent periods on a quarter-to-quarter basis. Such waived fees for
the period ended December 31, 2009 and 2008 equal $1.8 million and $0.7 million,
respectively.




Tax
Status




We have
made an election to be taxed as a REIT under Sections 856 through 860 of the
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 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.


6




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.




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. We hire
third parties to conduct Phase I environmental reviews of the real property that
we purchase.




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 any of 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.





7


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 filed with the SEC our 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.





Except
as described herein, we have no prior operating history or 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.





Except as
described in this annual report on Form 10-K, we have no operating history and
you 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 limited investments in real
estate or otherwise. 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.





You
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.





We cannot
guarantee that we will succeed in achieving these goals, and our failure to do
so could cause you to lose all or a portion of your investment.





Because
our ongoing public offering is a blind pool offering, you will not have the
opportunity to evaluate all of our investments before we make them, which makes
an investment in us more speculative.





We have
not yet acquired or identified all of the investments that we will make with the
net proceeds of our ongoing public offering. Additionally, we will not provide
you with information to evaluate our investments prior to our acquisition of
properties. We 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 you will
not have the opportunity to evaluate potential tenants.


8





There
is no public trading market for our shares and there may never be one;
therefore, it will be difficult for you to sell your shares.





There
currently is no public trading market for our shares and there may never be one.
If you are able to find a buyer for your shares, you may not sell your 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 your shares. Moreover, our share repurchase program
includes numerous restrictions that would limit your ability to sell your 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 you to sell your shares promptly or
at all. If you are able to sell your shares, you will likely have to sell them
at a substantial discount to the price you paid for the shares. It also is
likely that your shares would not be accepted as the primary collateral for a
loan. You should purchase the shares only as a long-term investment because of
the illiquid nature of the shares.





If
we, through our Advisor, are unable to continue 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 to our stockholders is dependent upon the performance of
our Advisor in selecting investments for us to acquire, selecting tenants for
our properties and securing independent financing arrangements. Except for
stockholders who purchased shares of our common stock in our offering after such
time as we supplemented our prospectus to describe one or more identified
investments, our stockholders generally have no opportunity to evaluate the
terms of transactions or other economic or financial data concerning our
investments. Our stockholders must rely entirely on the management ability of
our Advisor and the oversight of our board of directors. Our Advisor may not be
successful in identifying suitable investments on financially attractive terms
or, if it identifies suitable investments, our investment objectives will be
achieved.  If we, through our Advisor, are unable to continue to find
suitable investments, we will hold the proceeds of our offering in an
interest-bearing account or invest the proceeds in short-term, investment-grade
investments.  In such an event, our ability to pay distributions to
our stockholders would be adversely affected.




We may suffer
from delays in locating suitable investments, which could adversely affect our
ability to make distributions and the value of your
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, such as
NY Recovery REIT and Phillips Edison – ARC Shopping Center REIT, which are both
American Realty Capital sponsored programs in registration with the SEC.
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 your overall returns.
In such event, we may pay all or a substantial portion of our distributions from
the proceeds of our ongoing public offering or from borrowings in anticipation
of future cash flow, which may constitute a return of your capital.
Distributions from the proceeds of our public offering or from borrowings also
could reduce the amount of capital we ultimately invest in properties. This, in
turn, would reduce the value of your 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, you could suffer delays in the receipt of cash
distributions attributable to those particular properties.  If our
Advisor is unable to obtain suitable investments, we will hold the proceeds of
our public offering in an interest-bearing account or invest the proceeds in
short-term, investment-grade investments.




9





If
we are unable to raise substantial funds, we will be limited in the number and
type of investments we may make and the value of your investment in us will
fluctuate with the performance of the specific properties we
acquire.





Our
ongoing public 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 public
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. Your
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.





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 your
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 you 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 your 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 your 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 your
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 you.


10





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.





Our
Advisor 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 have sponsored both New York Recovery REIT and Phillips
Edison-ARC Shopping Center REIT, both in registration with the SEC,
and 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 our Advisor. There is a risk that our Advisor 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 our Advisor 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. You will not have the opportunity to evaluate the
manner in which these conflicts of interest are resolved before or after making
your 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.





Our
Advisor 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.  Our
Advisor 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, our Advisor 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 our Advisor 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.


11





Our
Advisor 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.





Our
Advisor 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
a substantial amount 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 you.





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,including NY
Recovery REIT, its property manager and advisor.  Mr. Kahane is also a
director of Phillip Edison – ARC Shopping Center REIT. 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 you and to maintain or increase the value of our
assets.





Our
Advisor 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, our Advisor 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
our 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 our 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 our 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.


12





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.





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
you face as a stockholder.





An
affiliate of 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 Code (“Section 1031 Exchange Program”). The
program is described in greater detail under “Investment Objectives and
Criteria — Acquisition and Investment Policies — 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, described in “Investment
Objectives and Policies — Section 1031 Exchange Program,” 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 you. 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 your 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:






13





•
            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 your 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 you.





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 you.





Risks
Related to Our Public 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.




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.






14





Maryland
law prohibits certain business combinations, which may make it more difficult
for us to be acquired and may limit your 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 Our Advisor
or any affiliate of our Advisor. Consequently, the five-year prohibition and the
super-majority vote requirements will not apply to business combinations between
us and our Advisor or any affiliate of our Advisor. As a result, our Advisor and
any affiliate of our Advisor 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.





15


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 our Advisor or
any affiliate of our Advisor. 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.





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 your investment.





We are
not registered as an investment company under the Investment Company Act of
1940, as amended (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 our ongoing public 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 your
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.






16





You
are bound by the majority vote on matters on which you are entitled to vote, and
therefore, your vote on a particular matter may be superseded by the vote of
others.





You may
vote on certain matters at any annual or special meeting of stockholders,
including the election of directors. However, you will be bound by the majority
vote on matters requiring approval of a majority of the stockholders even if you
do not vote with the majority on any such matter.





If
you do not agree with the decisions of our board of directors, you 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 your 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 your
investment could change without your consent.





You
are limited in your ability to sell your shares pursuant to our share repurchase
program and may have to hold your 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 your ability to sell your shares. Generally, you
must have held your 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 the proceeds in the
distribution reinvestment plan (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 the net proceeds we receive from the
sale of shares under our distribution reinvestment plan. These limits might
prevent us from accommodating all repurchase requests made in any year. These
restrictions severely limit your ability to sell your shares should you require
liquidity, and limit your ability to recover the value you invested or the fair
market value of your shares.


17








We
established the offering price on an arbitrary basis; as a result, the actual
value of your investment may be substantially less than what you
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 you would receive upon
liquidation.





Your
interest in us will be diluted if we issue additional shares.





Existing
stockholders and potential investors in our ongoing public 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 shares 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 our public offering likely will
suffer dilution of their equity investment in us, in the event that we (a) sell
shares in our public 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 the OP, existing stockholders and investors purchasing shares in
our public offering will likely experience dilution of their equity investment
in us. In addition, the partnership agreement for the OP 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 the OP. Because the limited
partnership units of the OP may, in the discretion of our board of directors, be
exchanged for shares of our common stock, any merger, exchange or conversion
between the OP. 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 and other
reasons described in this “Risk Factors” section, you should not expect to be
able to own a significant percentage of our shares.





Payment
of fees to our Advisor and its affiliates reduces cash available for investment
and distribution.





Our
Advisor 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.





18


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. We cannot assure you 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 our public offering to make
distributions, each of which could be deemed to be a return of your capital. We
may make distributions from the proceeds of our public 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 your
investment.





We
will not calculate the net asset value per share for our shares until 18 months
after completion of our last offering, therefore, you will not be able to
determine the net asset value of your shares on an on-going basis during our
ongoing public offering and for a substantial period of time
thereafter.





Until 18
months after the termination of our public offering or the termination of any
subsequent offering of our shares, we intend to use the offering price of shares
in our most recent offering as the per share value (unless we have made a
special distribution to stockholders of net sales proceeds from the sale of one
or more properties prior to the date of determination of the per share value, in
which case we will use the offering price less the per share amount of the
special distribution). Beginning 18 months after the completion of the last
offering of our shares (excluding offerings under our distribution reinvestment
plan), our board of directors will determine the value of our properties and our
other assets based on such information as our board determines appropriate,
which may or may not include independent valuations of our properties or of our
enterprise as a whole. We will disclose this net asset value to stockholders in
our filings with the SEC. Therefore, you will not be able to determine the net
asset value of your shares on an on-going basis during our public
offering.





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 you
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.




19




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 you. In the event of a bankruptcy, we cannot assure you 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 you 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.





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 you.


20





Properties
that have vacancies for a significant period of time could be difficult to sell,
which could diminish the return on your 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 your 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 our ongoing public
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 our public 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 you.





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.


21





We may be
required to expend funds to correct defects or to make improvements before a
property can be sold. We cannot assure you 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.





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
slowdown 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;





22





•
            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.





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 terrorist 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.





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
you.





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.


23





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 our ongoing public
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, your
investment nevertheless is 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 our Advisor
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:


•
              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.





24


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 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 our Property Manager may be required to
perform under any guaranty, we cannot assure that our Property Manager 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 our Property Manager, we will likely be required to accept
installment payments over time payable out of the revenues of our Property
Manager’s operations. We cannot assure you 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 your 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 you may experience a lower return on your
investment.





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 you.





Delays
in acquisitions of properties may an have adverse effect on your
investment.





There may
be a substantial period of time before the proceeds of our ongoing public
offering are invested. Delays we encounter in the selection, acquisition and/or
development of properties could adversely affect your 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, you 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.


25





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 your investment.





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 you.





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.





26


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 you 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 you.





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, higher fuel prices, 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.





Net
leases may not result in fair market lease rates over time.





We expect
a large portion of our rental income to come from net leases, which generally
provide the tenant greater discretion in using the leased property than ordinary
property leases, such as the right to freely sublease the property, to make
alterations in the leased premises and to terminate the lease prior to its
expiration under specified circumstances. Furthermore, net leases typically have
longer lease terms and, thus, there is an increased risk that contractual rental
increases in future years will fail to result in fair market rental rates during
those years. As a result, our income and distributions to our stockholders could
be lower than they would otherwise be if we did not engage in net
leases.





Our
real estate investments may include special use single tenant properties that
may be difficult to sell or re-lease upon tenant defaults or early lease
terminations.





We focus
our investments on commercial and industrial properties, including special use
single tenant properties. These types of properties are relatively illiquid
compared to other types of real estate and financial assets. This illiquidity
will limit our ability to quickly change our portfolio in response to changes in
economic or other conditions. With these properties, if the current lease is
terminated or not renewed or, in the case of a mortgage loan, if we take such
property in foreclosure, we may be required to renovate the property or to make
rent concessions in order to lease the property to another tenant or sell the
property. In addition, in the event we are forced to sell the property, we may
have difficulty selling it to a party other than the tenant or borrower due to
the special purpose for which the property may have been designed. These and
other limitations may affect our ability to sell or re-lease properties and
adversely affect returns to you.





27


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 our ongoing public 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 your
investment. 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 your investment.





Current
state of debt markets could have a material adverse impact on our earnings and
financial condition





The
domestic and international 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. 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 future acquisitions. This may result in future
acquisitions generating lower overall economic returns and potentially reducing
future cash flow available for distribution. If these disruptions in the debt
markets persist, our ability to borrow monies to finance the purchase of, or
other activities related to, real estate assets will be negatively impacted. If
we are unable to borrow monies on terms and conditions that we find acceptable,
we likely will have to reduce the number of properties we can purchase, and the
return on the properties we do purchase may be lower. In addition, we may find
it difficult, costly or impossible to refinance indebtedness which is
maturing.


28





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. Although this may benefit us for future
acquisitions, it could negatively impact the current value of our existing
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 you 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 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
you. 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 your
investment.





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 our ongoing public 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 your investment.


29





Federal Income Tax Risks





Failure
to qualify as a REIT would adversely affect our operations and our ability to
make distributions.





We have
elected to be taxed as a REIT beginning with the tax year ending December 31,
2008. In order for us to qualify as a REIT, we must satisfy certain requirements
set forth in the 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 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 the prospectus contained in our Registration Statement
at the time it was first declared effective by the SEC. 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.





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.





You
may have tax liability on distributions you elect to reinvest in our common
stock.





If you
participate in our distribution reinvestment plan, you 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 you are a tax-exempt entity, you may have to use
funds from other sources to pay your tax liability on the value of the common
stock received.


30





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
you.





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 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 The O.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 you.





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.





You are
urged to consult with your own tax advisor with respect to the status of
legislative, regulatory or administrative developments and proposals and their
potential effect on an investment in our common stock. You should also note that
our counsel’s tax opinion assumed that no legislation would be enacted after the
date of the date our Registration Statement was initially declared effective by
the SEC 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 you 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





In
order to avoid triggering additional taxes and/or penalties, if you intend to
invest in our shares through pension or profit-sharing trusts or IRAs, you
should consider additional factors.





If you
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, you
should satisfy yourself that, among other things:


•
              your
      investment is consistent with your fiduciary obligations under ERISA and
      the Code;





•
            your
      investment is made in accordance with the documents and instruments
      governing your plan or IRA, including your plan’s investment
      policy;





•
            your
      investment satisfies the prudence and diversification requirements of
      ERISA;





•
            your
      investment will not impair the liquidity of the plan or
    IRA;





31





•
            your
      investment will not produce UBTI for the plan or
  IRA;





•
            you
      will be able to value the assets of the plan annually in accordance with
      ERISA requirements; and





•
            your
      investment will not constitute a prohibited transaction under Section 406
      of ERISA or Section 4975 of the
Code.




Item 1B. Unresolved Staff
Comments.




We have
no unresolved staff comments.




Item 2. Properties.




General




As of
December 31, 2009, we owned 126 properties located in 22 states: Alabama,
Arizona, California, Florida, Georgia, Illinois, Indiana Kansas, Massachusetts,
Maine, Michigan, Minnesota, Missouri, Nevada, New York, North Carolina, New
Jersey, Ohio, Oklahoma, Pennsylvania, South Carolina and Texas.  All of
these properties are freestanding, single-tenant properties 100% occupied with a
weighted average remaining lease term of 16.6 years as of December 31,
2009.  In the aggregate, these properties represent 1.7 million rentable
square feet.





32


The
following table presents certain additional information about the properties we
own at December 31, 2009 (dollar amounts in thousands):




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
                              
                              8.9
                              
                              $
                              730
                              
                              $
                              9,694
                              
                              7.53%
                              
                              $
                              10,208First
      Niagara (Formerly Harleysville National Bank) Portfolio
                              
                              March
      2008
                              
                              15
                              
                              177,774
                              
                              13.0
                              
                              
                              3,064
                              
                              
                              40,976
                              
                              7.48%
                              
                              
                              41,676Rockland
      Trust Company Portfolio
                              
                              May
      2008
                              
                              18
                              
                              121,057
                              
                              11.6
                              
                              
                              2,530
                              
                              
                              32,188
                              
                              7.85%
                              
                              
                              33,117PNC
      Bank (formerly National City Bank)
                              
                              Sept.
      & Oct. 2008
                              
                              2
                              
                              8,403
                              
                              19.1
                              
                              
                              547
                              
                              
                              6,664
                              
                              8.21%
                              
                              
                              6,853Rite
      Aid
                              
                              September
      2008
                              
                              6
                              
                              74,919
                              
                              13.5
                              
                              
                              1,447
                              
                              
                              18,576
                              
                              7.79%
                              
                              
                              18,839PNC
      Bank Portfolio
                              
                              November
      2008
                              
                              50
                              
                              275,436
                              
                              8.9
                              
                              
                              3,108
                              
                              
                              42,286
                              
                              7.35%
                              
                              
                              44,813Federal
      Express Distribution Center
                              
                              July
      2009
                              
                              1
                              
                              152,640
                              
                              13.8
                              
                              
                              2,803
                              
                              
                              31,692
                              
                              8.84%
                              
                              
                              31,692Walgreens
                              
                              July
      2009
                              
                              1
                              
                              14,820
                              
                              22.5
                              
                              
                              310
                              
                              
                              3,818
                              
                              8.12%
                              
                              
                              3,818CVS
      I
                              
                              September
      2009
                              
                              10
                              
                              131,105
                              
                              24.3
                              
                              
                              3,448
                              
                              
                              40,649
                              
                              8.48%
                              
                              
                              40,649CVS
      II
                              
                              November
      2009
                              
                              15
                              
                              198,729
                              
                              24.6
                              
                              
                              5,071
                              
                              
                              59,788
                              
                              8.48%
                              
                              
                              59,788Home
      Depot
                              
                              December
      2009
                              
                              1
                              
                              465,600
                              
                              20.0
                              
                              
                              2,192
                              
                              
                              23,532
                              
                              9.31%
                              
                              
                              23,532Bridgestone
      Firestone
                              
                              December
      2009
                              
                              5
                              
                              47,218
                              
                              14.4
                              
                              
                              1,144
                              
                              
                              12,415
                              
                              9.22%
                              
                              
                              12,415Advance
      Auto
                              
                              December
      2009
                              
                              1
                              
                              7,000
                              
                              11.9
                              
                              
                              160
                              
                              
                              1,730
                              
                              9.25%
                              
                              
                              1,730Total
                              
                              
                              
                              126
                              
                              1,730,168
                              
                              16.6
                              
                              $
                              26,554
                              
                              $
                              324,008
                              
                              8.20%
                              
                              $
                              329,130


________________________





Investment
grade tenants (based on rent) (S&P BBB- or better)were94.6% of the portfolio at December
31, 2009.





(1)
            -
      Remaining lease term in years as of December 31, 2009. If the portfolio
      has multiple locations with varying lease expirations, remaining
      lease term is calculated on a weighted-average basis.(2)
            -
      Annualized 2009 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.





33





Purchase
                          Price
      (1)
                        
                        
                        Mortgage
                          Debt
      (2)
                        
                        
                        Effective
                          Interest
                          Rate
                        
                        
                        Leverage
                          Ratio
      (3)Federal
      Express Distribution Center
                        
                        $
                        10,208
                        
                        
                        $
                        6,965
                        
                        
                        
                        6.29
                        %
                        
                        
                        68.2
                        %First
      Niagara (formerly Harleysville National Bank) Portfolio
                        
                        
                        41,676
                        
                        
                        
                        31,000
                        
                        
                        
                        6.59
                        %
      (4)
                        
                        
                        74.4
                        %Rockland
      Trust Company Portfolio
                        
                        
                        33,117
                        
                        
                        
                        23,649
                        
                        
                        
                        4.92
                        %
      (5)
                        
                        
                        71.4
                        %PNC
      Bank (formerly National City Bank)
                        
                        
                        6,853
                        
                        
                        
                        4,412
                        
                        
                        
                        4.89
                        %
      (5)
                        
                        
                        64.4
                        %Rite
      Aid
                        
                        
                        18,839
                        
                        
                        
                        12,808
                        
                        
                        
                        6.97
                        %
                        
                        
                        68.0
                        %PNC
      Bank Portfolio
                        
                        
                        44,813
                        
                        
                        
                        32,933
                        
                        
                        
                        5.25
                        %
      (5)
                        
                        
                        73.5
                        %Federal
      Express Distribution Center
                        
                        
                        31,692
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Walgreens
                        
                        
                        3,818
                        
                        
                        
                        1,550
                        
                        
                        
                        6.64
                        %
      (6)
                        
                        
                        40.6
                        %CVS
      I
                        
                        
                        40,649
                        
                        
                        
                        23,710
                        
                        
                        
                        6.55
                        %
      (7)
                        
                        
                        58.3
                        %CVS
      II
                        
                        
                        59,788
                        
                        
                        
                        33,068
                        
                        
                        
                        6.64
                        
                        
                        
                        55.3
                        %Home
      Depot
                        
                        
                        23,532
                        
                        
                        
                        13,716
                        
                        
                        
                        6.55
                        
                        
                        
                        58.2
                        %Bridgestone
      Firestone
                        
                        
                        12,415
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Advance
      Auto
                        
                        
                        1,730
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Total
      (8)
                        
                        $
                        329,130
                        
                        
                        $
                        183,811
                        
                        
                        
                        6.15
                        %
                        
                        
                        55.8
                        %





________________________





(1)
                -
                Base
      purchase price plus all acquisition related costs.(2)
                -
                Consists
      of first mortgage long-term debt only.(3)
                -
                Mortgage
      debt divided by total purchase price.(4)
                -
                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%.(5)
                -
                Effective
      interest rate includes the impact of swapping floating rate yield to a
      fixed rate yield for the term of the mortgage not be utilizing hedging
      instruments.(6)
                -
                ariable
      rate based on the greater of 6.55% or the U.S. Treasury obligations plus
      3.50%.(7)
                -
                Interest
      rate can be adjusted at the option of the lender at the end of the 5th
      year.(8)
                -
                Weighted-average,
      as applicable.





34


The
following table details contractual rental increases for our properties as of
December 31, 2009 (dollar amounts in thousands):





ContractualRent (1)
                            
                            Base
    RentYear 1
                            
                            
                            Year 2
                            
                            IncreaseFederalExpressDistributionCenter(PA)
                            
                            $
                            703
                            
                            
                            $
                            703
                            
                            3.78% and 3.65% in years 6
      and 11, respectivelyFirstNiagara(formerly Harleysville National
      Bank) Portfolio
                            
                            
                            3,064
                            
                            
                            
                            3,064
                            
                            — (2)Rockland Trust Company
      Portfolio
                            
                            
                            2,306
                            
                            
                            
                            2,340
                            
                            1.5%
      annuallyPNC Bank (formerly National City
      Bank)
                            
                            
                            466
                            
                            
                            
                            466
                            
                            10% after 5
      yearsRite Aid
      Portfolio
                            
                            
                            1,404
                            
                            
                            
                            1,404
                            
                            10%
      increase in year 11 for two properties
                                remaining
      properties have no increases.PNC Bank
      Portfolio
                            
                            
                            2,960
                            
                            
                            
                            2,960
                            
                            10% after 5
      yearsFed Ex Freight Facility (TX)
      (5)
                            
                            
                            2,580
                            
                            
                            
                            2,580
                            
                            1% increase in years 5 and
      9Walgreens
      Location
                            
                            
                            310
                            
                            
                            
                            310
                            
                            —CVS Pharmacy Portfolio
      I
                            
                            
                            3,387
                            
                            
                            
                            3,387
                            
                            5% increase every 5
      yearsCVS Pharmacy Portfolio
      II
                            
                            
                            4,984
                            
                            
                            
                            4,984
                            
                            5% increase every 5
      yearsHome Depot Distribution
      Facility
                            
                            
                            1,806
                            
                            
                            
                            1,839
                            
                            2%
  annuallyBridgestone Firestone
      Portfolio
                            
                            
                            1,048
                            
                            
                            
                            1,048
                            
                            6.25% every 5
      yearsAdvanced Auto
      Location
                            
                            
                            160
                            
                            
                            
                            160
                            
                            —Total
    Portfolio
                            
                            $
                            25,178
                            
                            
                            $
                            25,245




(1) - Annualized amount (cash
      basis)(2) - Increase does not take into
      account rent escalations that commence after the primary lease term
      or adjustments based on the Consumer Price
  Index.




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, 2009 (dollar
amounts in thousands):





2010
              
              $  
      25,2452011
              
              25,3342012
              
              25,4072013
              
              25,5532014
              
              26,2242015
              
              26,6972016
              
              26,6942017
              
              26,6442018
              
              25,5882019
              
              21,948




35


Future
Lease Expirations Table





The
following is a summary of lease expirations for the next ten years at the
properties we own as of December 31, 2009 (dollar amounts in
thousands):





Year of
              Expiration
            
            Number of
              Leases
              Expiring
            
            Annualized(1)
              Base Rent
            
            Percent of
              Portfolio
              Annualized Base
              Rent Expiring
            
            Leased
              Rentable
              Sq. Ft.
            
            Percent of
              Portfolio
              Rentable Sq. Ft.
              Expiring2009
            
            —
            
            $
            —
            
            —
            
            —
            
            —2010
            
            —
            
            —
            
            —
            
            —
            
            —2011
            
            —
            
            —
            
            —
            
            —
            
            —2012
            
            —
            
            —
            
            —
            
            —
            
            —2013
            
            —
            
            —
            
            —
            
            —
            
            —2014
            
            —
            
            —
            
            —
            
            —
            
            —2015
            
            —
            
            —
            
            —
            
            —
            
            —2016
            
            2
            
            242
            
            0.9%
            
            21,476
            
            1.2%2017
            
            1
            
            179
            
            0.7%
            
            12,613
            
            0.7%2018
            
            59
            
            4,896
            
            18.4%
            
            384,301
            
            22.2%2019
            
            —
            
            —
            
            —
            
            —
            
            —Total
            
            62
            
            $
            5,317
            
            20.0%
            
            418,390
            
            24.1%


________________________





(1)
            The
      62 leases listed above are with the following tenants:  Federal
      Express, 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. Reserved.




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.


36




Holders




As of
March 15, 2010, wehad 18,893,430 shares of
common stock outstanding held by a total of 3,722
stockholders.




Distributions




We have
elected to 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.  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. During the years
ended December 31, 2009 and 2008, distributions totaling $3.2 million and
$0.4 million inclusive of $1.3 million and $0.1 million of common shares issued
under the DRIP, respectively.  As of December 31, 2009, cash used to
pay our distributions was generated partly from funds received from operating
activities and partly from funds generated from the sale of our common stock. As
additional capital is raised and we continue to build our portfolio of
investments, we expect that we will use funds received from operating activities
to pay a greater proportion of our distributions and will be able to reduce and
in the future eliminate the use of funds from the sale of common stock to pay
distributions.We have
continued to pay distributions to our shareholders each month since our initial
distribution payment.




From
March 2008 to January 2, 2009, the declared distribution rate was equal to a
daily amount 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%, and effective April 1,
2010 our daily distribution rate will increased by another 30 basis points,
resulting in an annualized distribution rate of  7.0%.  Our board
of directors will continue to evaluate our distribution levels on an ongoing
basis.




37


The
following table shows the distributions declared and paid for the years ended
December 31, 2009 and 2008 (in thousands):





Distributions
                  
                  
                  DistributionsDeclared
                  
                  
                  PaidYear EndedDecember
      31, 2009:1st
      Quarter
                  
                  $
                  252
                  
                  
                  $
                  2202nd
      Quarter
                  
                  
                  526
                  
                  
                  
                  4103rd
      Quarter
                  
                  
                  1,122
                  
                  
                  
                  8844th
      Quarter
                  
                  
                  2,387
                  
                  
                  
                  1,661Special
      Distribution
                  
                  
                  318
                  
                  
                  
                  —2009
      Total
                  
                  $
                  4,605
                  
                  
                  $
                  3,175Year EndedDecember
      31, 2008:1st
      Quarter
                  
                  $
                  —
                  
                  
                  $
                  —2nd
      Quarter
                  
                  
                  135
                  
                  
                  
                  803rd
      Quarter
                  
                  
                  181
                  
                  
                  
                  1744th
      Quarter
                  
                  
                  198
                  
                  
                  
                  1922008
      Total
                  
                  $
                  514
                  
                  
                  $
                  446




The
following table shows the sources for the payment of distributions for the years
ended December 31, 2009 and 2008 (in thousands):





Year
      Ended December 31, 20091st
      Quarter
                      
                      
                      2nd
      Quarter
                      
                      
                      3rd
      Quarter
                      
                      
                      4th
      QuarterDistributions
      paid in cash
                      
                      $
                      145
                      
                      
                      $
                      250
                      
                      
                      $
                      526
                      
                      
                      $
                      967Distributions
      reinvested
                      
                      
                      75
                      
                      
                      
                      160
                      
                      
                      
                      358
                      
                      
                      
                      694Total
      distributions
                      
                      $
                      220
                      
                      
                      $
                      410
                      
                      
                      $
                      884
                      
                      
                      $
                      1,661Source
      of distributions:Cash
      flows provided by (used in) operations (GAAP basis)
                      
                      $
                      (1215
                      )
                      
                      $
                      (3,129
                      )
                      
                      $
                      828
                      
                      
                      $
                      990Proceeds
      from issuance of common stock
                      
                      
                      1,435
                      
                      
                      
                      3,539
                      
                      
                      
                      56
                      
                      
                      
                      671Total
      sources
                      
                      $
                      220
                      
                      
                      $
                      410
                      
                      
                      $
                      884
                      
                      
                      $
                      1,661






38





Year
      Ended December 31, 20081st
      Quarter
                      
                      
                      2nd
      Quarter
                      
                      
                      3rd
      Quarter
                      
                      
                      4th
      QuarterDistributions
      paid in cash
                      
                      $
                      —
                      
                      
                      $
                      57
                      
                      
                      $
                      111
                      
                      
                      $
                      127Distributions
      reinvested
                      
                      
                      —
                      
                      
                      
                      23
                      
                      
                      
                      63
                      
                      
                      
                      64Total
      distributions
                      
                      $
                      —
                      
                      
                      $
                      80
                      
                      
                      $
                      174
                      
                      
                      $
                      191Source
      of distributions:Cash
      flows provided by (used in) operations (GAAP basis)
                      
                      $
                      —
                      
                      
                      $
                      80
                      
                      
                      $
                      174
                      
                      
                      $
                      191Proceeds
      from issuance of common stock
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Total
      sources
                      
                      $
                      —
                      
                      
                      $
                      80
                      
                      
                      $
                      174
                      
                      
                      $
                      191




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 distribution, 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 Code. The total number of options granted will not
exceed 10% of the total outstanding shares at the time of grant. During the
years December 31, 2009 and 2008, unvested options to purchase 9,000 shares at
$10.00 per share were granted in each year. The weighted average contractual
remaining life of outstanding options is 9.0 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, 2009:


39





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
                  
                  
                  18,000
                  
                  
                  $
                  10.00
                  
                  
                  
                  982,000Equity
      Compensation Plans not approved by security holders
                  
                  
                  N/A
                  
                  
                  
                  N/A
                  
                  
                  
                  N/ATotal
                  
                  
                  18,000
                  
                  
                  $
                  10.00
                  
                  
                  
                  982,000




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 as amended (the
‘Securities Act”). The offering commenced on January 25, 2008 and is
ongoing.  Shares are offered under our distribution reinvestment plan
initially at $9.50 per share.




For the
years ended December 31, 2009 and 2008, including shares sold through our
distribution reinvestment plan, we had sold 14,672,237 and 1,276,814 shares for
grossoffering
proceeds of $144.6 million and $11.7 million, respectively. At December 31,
2009 and 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 (amounts in
thousands):




Type
      of Expense
                            
                            Year
      ended December 31, 2009
                            
                            
                            Year
      Ended December 31, 2008Selling
      commissions and dealer manager fees
                            
                            $
                            12,277
                            
                            
                            
                            199Other
      organization and offering costs
                            
                            
                            5,617
                            
                            
                            
                            2,289Total
      expenses
                            
                            $
                            18,732
                            
                            
                            
                            2,488





Through
December 31, 2009, the net offering proceeds to us, after deducting the
total expenses paid as described above, were $122.7 million including net
offering proceeds from our distribution reinvestment plan of $1.4 million. We
have used the net proceeds from our ongoing initial public offering to purchase
or fund $329.1 million of real estate investments, including acquisition fees
and closing costs.





During
the years ended December 31, 2009 and 2008, we did not sell any equity
securities that were not registered under the Securities Act.




40


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
distributions, 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 distributions,
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 distributions, 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.


41





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.




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
Securities Exchange Act of 1934, as amended (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.




In the
third quarter of 2009, only 3,000 shares were redeemed in total under our
SRP at $9.625 per share. During the year ended December 31, 2008, no shares were
redeemed under our SRP.




42


Item 6. Selected Financial
Data.




The
following selected financial data as of and for the years ended
December 31, 2009, 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 data(amounts in thousands)December
      31,2009
                
                
                2008
                
                
                2007Total
      real estate investments, at cost
                
                $
                338,556
                
                
                $
                164,770
                
                
                $
                —Total
      assets
                
                
                339,277
                
                
                
                164,942
                
                
                
                938Mortgage
      notes payable
                
                
                183,811
                
                
                
                112,742
                
                
                
                —Total
      short-term bridge equity funds
                
                
                15,878
                
                
                
                30,926
                
                
                
                —Long-term
      notes payable
                
                
                13,000
                
                
                
                1,090
                
                
                
                —Below
      market lease liabilities, net
                
                
                9,085
                
                
                
                9,400
                
                
                
                —Total
      liabilities
                
                
                228,721
                
                
                
                163,183
                
                
                
                738Total
      stockholders’ equity
                
                
                110,556
                
                
                
                1,759
                
                
                
                200





43







Operating data (amounts
      in thousands except pershare
      data)
 
 Year
      Ended
                                                  December
      31, 2009
                                                
                                                
                                                Year
      Ended
                                                  December
      31, 2008
                                                
                                                
                                                For
      the Period from August 17, 2007 (date of inception) to December 31,
      2007Total
      revenue
                                                
                                                $
                                                14,964
                                                
                                                
                                                $
                                                5,546
                                                
                                                
                                                $
                                                —ExpensesProperty
      management fees to affiliate
                                                
                                                
                                                —
                                                
                                                
                                                
                                                4
                                                
                                                
                                                
                                                —Asset
      management fees to affiliate
                                                
                                                
                                                145
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Acquisition
      and transaction related costs
                                                
                                                
                                                506
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —General
      and administrative
                                                
                                                
                                                507
                                                
                                                
                                                
                                                380
                                                
                                                
                                                
                                                1Depreciation
      and amortization
                                                
                                                
                                                8,315
                                                
                                                
                                                
                                                3,056
                                                
                                                
                                                
                                                —Total
      operating expenses
                                                
                                                
                                                9,473
                                                
                                                
                                                
                                                3,440
                                                
                                                
                                                
                                                1Operating
      income (loss)
                                                
                                                
                                                5,491
                                                
                                                
                                                
                                                2,106
                                                
                                                
                                                
                                                (1
                                                )Other
      income (expenses)Interest
      expense
                                                
                                                
                                                (10,352
                                                )
                                                
                                                
                                                (4,774
                                                )
                                                
                                                
                                                —Interest
      income
                                                
                                                
                                                52
                                                
                                                
                                                
                                                3
                                                
                                                
                                                
                                                —Gains
      (losses) on derivative instruments
                                                
                                                
                                                495
                                                
                                                
                                                
                                                (1,618
                                                )
                                                
                                                
                                                —Total
      income (expenses)
                                                
                                                
                                                (9,805
                                                )
                                                
                                                
                                                (6,389
                                                )
                                                
                                                
                                                —Net
      loss
                                                
                                                
                                                (4,315
                                                )
                                                
                                                
                                                (4,283
                                                )
                                                
                                                
                                                (1
                                                )Net
      loss attributable to noncontrolling interests
                                                
                                                
                                                (49
                                                )
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Net
      loss attributable to American Realty Capital Trust, Inc.
                                                
                                                $
                                                4,266
                                                
                                                
                                                $
                                                4,283
                                                
                                                
                                                $
                                                (1
                                                )Other
      dataModified
      funds from operations (1)(2)
                                                
                                                $
                                                3,459
                                                
                                                
                                                $
                                                477
                                                
                                                
                                                $
                                                —Cash
      flows provided by (used in) operations
                                                
                                                
                                                (2,526
                                                )
                                                
                                                
                                                4,013
                                                
                                                
                                                
                                                (200
                                                )Cash
      flows used in investing activities
                                                
                                                
                                                (173,786
                                                )
                                                
                                                
                                                (97,456
                                                )
                                                
                                                
                                                —Cash
      flows provided by financing activities
                                                
                                                
                                                180,435
                                                
                                                
                                                
                                                94,330
                                                
                                                
                                                
                                                200Per
      share dataNet
      loss per common share - basic and diluted
                                                
                                                $
                                                (0.74
                                                )
                                                
                                                $
                                                (6.02
                                                )
                                                
                                                $
                                                —Distributions
      declared
                                                
                                                $
                                                .67
                                                
                                                
                                                $
                                                .65
                                                
                                                
                                                $
                                                —Weighted-average
      number of common shares outstanding, basic and diluted
                                                
                                                
                                                5,768,761
                                                
                                                
                                                
                                                711,524
                                                
                                                
                                                
                                                —





(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
      basison
      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. As
      of January 1, 2009 the Company was required by GAAP to expense certain
      acquisition costs that were previously capitalized as part of the purchase
      price of the property acquired. In order to present FFO in a comparably to
      the prior year, we have deducted acquisition related costs to present a
      modified FFO in 2009. See the below table providing the compilation of
      FFO.


44





(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 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 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 years ended December 31, 2009 and 2008 (amounts in
thousands):




Three
      Months Ended March 30,
                                                    2009
                                                  
                                                  
                                                  Three
      Months Ended
                                                    June
      30,
                                                    2009
                                                  
                                                  
                                                  Three
      Months Ended
                                                    September
      30,
                                                    2009
                                                  
                                                  
                                                  Three
      Months Ended
                                                    December
      31,
                                                    2009
                                                  
                                                  
                                                  TotalNet
      loss
                                                  
                                                  $
                                                  (1,339
                                                  )
                                                  
                                                  $
                                                  (673
                                                  )
                                                  
                                                  $
                                                  (1,484
                                                  )
                                                  
                                                  $
                                                  (770
                                                  )
                                                  
                                                  $
                                                  (4,266
                                                  )Add:Depreciation
      of real estate assets
                                                  
                                                  
                                                  1,362
                                                  
                                                  
                                                  
                                                  1,362
                                                  
                                                  
                                                  
                                                  1,628
                                                  
                                                  
                                                  
                                                  2,229
                                                  
                                                  
                                                  
                                                  6,581Amortization
      of intangible lease assets
                                                  
                                                  
                                                  269
                                                  
                                                  
                                                  
                                                  269
                                                  
                                                  
                                                  
                                                  357
                                                  
                                                  
                                                  
                                                  444
                                                  
                                                  
                                                  
                                                  1,339Fair
      value adjustment (1)
                                                  
                                                  
                                                  (58
                                                  )
                                                  
                                                  
                                                  (524
                                                  )
                                                  
                                                  
                                                  193
                                                  
                                                  
                                                  
                                                  (139
                                                  )
                                                  
                                                  
                                                  (528
                                                  )Noncontrolling interest
      adjustment (2)
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  (88
                                                  )
                                                  
                                                  
                                                  (83
                                                  )
                                                  
                                                  
                                                  (171
                                                  )FFO
                                                  
                                                  
                                                  234
                                                  
                                                  
                                                  
                                                  434
                                                  
                                                  
                                                  
                                                  606
                                                  
                                                  
                                                  
                                                  1,681
                                                  
                                                  
                                                  
                                                  2,955Acquisition
      and transaction related costs (3)
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  347
                                                  
                                                  
                                                  
                                                  159
                                                  
                                                  
                                                  
                                                  506Modified
      FFO
                                                  
                                                  $
                                                  234
                                                  
                                                  
                                                  $
                                                  434
                                                  
                                                  
                                                  $
                                                  953
                                                  
                                                  
                                                  $
                                                  1,839
                                                  
                                                  
                                                  $
                                                  3,460Distributions
      paid (4)
                                                  
                                                  $
                                                  220
                                                  
                                                  
                                                  $
                                                  410
                                                  
                                                  
                                                  $
                                                  883
                                                  
                                                  
                                                  $
                                                  1,662
                                                  
                                                  
                                                  $
                                                  3,176Modified
      FFO coverage ratio
                                                  
                                                  
                                                  106.7
                                                  %
                                                  
                                                  
                                                  105.9
                                                  %
                                                  
                                                  
                                                  107.9
                                                  %
                                                  
                                                  
                                                  110.7
                                                  %
                                                  
                                                  
                                                  109.0
                                                  %Modified
      FFO payout ratio
                                                  
                                                  
                                                  93.7
                                                  %
                                                  
                                                  
                                                  94.4
                                                  %
                                                  
                                                  
                                                  92.7
                                                  %
                                                  
                                                  
                                                  90.3
                                                  %
                                                  
                                                  
                                                  91.7
                                                  %


________________________





(1)
      -
            This
      adjustment represents a non-cash fair value adjustment relating to the use
      of hedging our debt yield. It is the Companies general strategy to fix its
      variable rate debt to mitigate against interest rate volatility. The
      Company excludes this non-cash fair value adjustment relating to its
      hedging activities from its FFO
calculation.


(2)
      -
            Amounts
      represent noncontrolling interest portion of depreciation of real estate
      assets, amortization of intangible lease assets and fair value
      adjustments.


(3)
      -
            Amounts
      represent acquisition related costs that are required by GAAP to be
      expensed as incurred as of January 1,
2009.


(4)
      -
            Includes
      the value of common shares issued under the
  DRIP.





45





Three
      Months Ended
                    June
      30,
                  
                  
                  Three
      Months Ended
                    September
      30,
                  
                  
                  Three
      Months Ended
                    December
      31,
                  
                  
                  Total2008
                  
                  
                  2008
                  
                  
                  2008
                  
                  
                  (3)Net
      loss
                  
                  $
                  (454
                  )
                  
                  $
                  (845
                  )
                  
                  $
                  (2,641
                  )
                  
                  $
                  (3,940
                  )Add:Depreciation
      of real estate assets
                  
                  
                  617
                  
                  
                  
                  717
                  
                  
                  
                  1,056
                  
                  
                  
                  2,390Amortization
      of intangible lease assets
                  
                  
                  120
                  
                  
                  
                  140
                  
                  
                  
                  209
                  
                  
                  
                  469Mark-to
      market adjustment (1)
                  
                  
                  (197
                  )
                  
                  
                  177
                  
                  
                  
                  1,578
                  
                  
                  
                  1,558FFO
                  
                  $
                  86
                  
                  
                  $
                  189
                  
                  
                  $
                  202
                  
                  
                  $
                  477Distributions
      paid (2)
                  
                  $
                  80
                  
                  
                  $
                  174
                  
                  
                  $
                  191
                  
                  
                  $
                  445FFO
      coverage ratio
                  
                  
                  106.8
                  %
                  
                  
                  108.4
                  %
                  
                  
                  105.1
                  %
                  
                  
                  106.7
                  %FFO
      payout ratio
                  
                  
                  93.7
                  %
                  
                  
                  92.2
                  %
                  
                  
                  95.2
                  %
                  
                  
                  93.7
                  %


___________________


(1) 
      -
            This
      adjustment represents a non-cash fair value adjustment relating to the use
      of hedging our debt yield. It is the Companies general strategy to fix its
      variable rate debt to mitigate against interest rate volatility. The
      Company excludes this non-cash fair value adjustment relating to its
      hedging activities from its FFO calculation.(2)
       -
            Includes
      the value of common shares issued under the DRIP.(3) 
      -
            FFO
      is not applicable for the three months ended March 31, 2008, as no
      distributions 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 our
accompanying financial statements of American Realty Capital Trust, Inc. and the
notes thereto. We are externally managed by our 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 elected 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 our Registration Statement 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, 2009, we issued
14,672,237 shares of common stock, including 339,077 shares issued in connection
with an acquisition in March 2008. Total gross proceeds from these issuances
were $144.6 million. As of December 31, 2009, the aggregate value of all share
issuances and subscriptions outstanding was $146.6 million based on a per share
value of $10.00 (or $9.50 for shares issued under the distribution reinvestment
plan, or DRIP. As of December 31, 2009, 3,000 shares of common stock had been
redeemed under our stock repurchase program at a value of $29 thousand. 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 OP,
of which we are the sole general partner. We have no paid employees. Our Advisor
conducts our operations and manages our portfolio of real estate
investments.


46





We intend
to continue our strategy of acquiring freestanding, single tenant properties
through sale-leaseback and marketed transactions with in-place leases that have
a minimum of ten years remaining under the primary term. Such leases generally
include renewal options. We typically fund 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. We intend to
have an overall leverage ratio as it relates to long-term secured mortgage
financings of approximately 55%. As of December 31, 2009 our leverage ratio was
57.3%.  This goal is expected to be realized by using lower amounts of
long-term debt in connection with acquiring future real estate
investments.  In certain cases, we may acquire properties using only
equity capital.  Additionally, we generally arrange for our mortgage
note agreements to include monthly principal payments together with
interest.  This amortization results in lowering our overall mortgage
notes balance on a continuous basis.





As of
December 31, 2009, we owned 126 properties compromising 1.7 million square feet,
100% leased with a weighted average remaining lease term of 16.6 years. In
constructing our portfolio, we are committed to diversification (industry,
tenant and geography).  As of December 31, 2009, rental revenues
derived from investment grade tenants (rated BBB+ or better by Standards &
Poor) approximated 94.6%.  Our strategy encompasses receiving the
majority of our revenue from investment grade tenants as we further acquire
properties and enter into (or assume) long-term lease arrangements.





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




Set forth
below is a summary of the significant accounting estimates and critical
accounting policies that management believes are important to the preparation of
our consolidated financial statements. Certain of our accounting estimates are
particularly important for an understanding of our financial position and
results of operations and require the application of significant judgment by our
management. As a result, these estimates are subject to a degree of uncertainty.
These significant accounting estimates include:





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
straight-line basis over the initial term of the lease. Since many of our leases
provide for rental increases at specified intervals, straight-line 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 or record a direct write-off of the receivable in our consolidated
statements of operations.


47








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
straight-line method over the estimated useful lives of up to forty 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 are
required to present the operations related to properties that have been sold or
properties that are intended to be sold as discontinued operations in the
statement of operations for all periods presented, Properties that are intended
to be sold are 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, 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 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.


48





Purchase
Price Allocation





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 acquire leases for above- and below-market lease rates, the
value of in-place leases, and the value of customer relationships.





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
straight-line method over the estimated lives of forty years for buildings, five
to ten years for building equipment and fixtures, and the shorter 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.


49




Derivative
Instruments





We may
use derivative financial instruments to hedge all or a portion of the interest
rate risk associated with our borrowings. The principal objective of such
agreements is to minimize the risks and/or costs associated with our operating
and financial structure as well as to hedge specific anticipated
transactions.




We record
all derivatives on the balance sheet at fair value.  The accounting for
changes in the fair value of derivatives depends on the intended use of the
derivative, whether we have elected to designate a derivative in a hedging
relationship and apply hedge accounting and whether the hedging relationship has
satisfied the criteria necessary to apply hedge accounting. Derivatives
designated and qualifying as a hedge of 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
designated and qualifying as a hedge of the exposure to variability in expected
future cash flows, or other types of forecasted transactions, are considered
cash flow hedges. Derivatives may also be designated as hedges of the foreign
currency exposure of a net investment in a foreign operation. Hedge accounting
generally provides for the matching of the timing of gain or loss recognition on
the hedging instrument with the recognition
of the changes in the fair value of the hedged asset or liability that is
attributable to the hedged risk in a fair value hedge or the earnings effect of
the hedged forecasted transactions in a cash flow hedge.  We may enter
into derivative contracts that are intended to economically hedge certain of its
risk, even though hedge accounting does not apply or we elect not to apply hedge
accounting.





Results
of Operations





The
property operating results outlined below relate to the partial period we owned
these investment assets during the period.





Comparison
of Year Ended December 31, 2009 to Year Ended December 31, 2008





As of
December 31, 2009, we owned 126 properties which are 100% leased, compared to 92
properties which were 100% leased at December 31, 2008, an increase of 37.0%.
Accordingly, our results of operations for the year ended December 31, 2009 as
compared to the year ended December 31, 2008 reflect significant increases in
most categories.





Rental
Income





Rental
income increased $9.4 million to $15.0 million for the year ended December 31,
2009, compared to $5.5 million for the year ended December 31, 2008. The
increase in rental income was driven by our acquisition of $173.6 million of net
leased property during 2009 with total square footage of 1.0 million an increase
of 154.6% from the square footage we held at December 31, 2008. These
properties, acquired at an average 8.27% cap rate, are leased from 10 to 25
years primarily to investment grade tenants.




Asset
Management Fees to Affiliate





Our
Advisor is entitled to fees for the management of our properties as well as fees
for purchases and sales of properties. The Advisor has elected to waive all
asset management fees except for $0.1 million for the year ended December
31, 2009 and waived its entire fee for the year ended December 31, 2008. For the
years ended December 31, 2009 and 2008, we would have incurred additional asset
management fees of $1.8 million and $0.7 million, respectively, had they not
been waived.




Property
Management Fees to Affiliate





Our
affiliated Property Manager, has elected to waive the property management fees
for the year ended December 31, 2009 and substantially all property management
fees were waived for the year ended December 31, 2008 in order to improve our
working capital. Such fees represent amounts that had they not been waived,
would have been paid to our Property Manager to manage and lease our properties.
For the years ended December 31, 2009 and 2008, we would have incurred property
management fees of $0.3 million and $0.1 million, respectively, had the fees not
been waived.


50





Acquisition
and Transaction Related Costs





Beginning
January 1, 2009, costs related to acquisitions of properties are required to be
expensed in the period incurred. Prior to that date acquisition costs were
capitalized and allocated to the fair value of the assets acquired. For the year
ended December 31, 2009 acquisition costs of $0.5 million were required to be
expensed in accordance with new accounting guidance for business
combinations.





General
and Administrative Expenses





General
and administrative expenses increased $0.1 million or 33.4% to $0.5 million for
the year ended December 31, 2009, compared to $0.4 million for the year ended
December 31, 2008.  The majority of the general and administrative
expenses for the year ended December 31, 2009 included $0.2 million of amortized
insurance expense relating to our directors’ and officers’ insurance policy,
$0.1 million of board member compensation, $0.1 million of professional fees.
The increase from the year ended December 31, 2008 is mainly due to increases in
professional fees and other expenses to support our larger real estate
portfolio.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased $5.2 million, or 172.1%, to $8.3 million for
the year ended December 31, 2009, compared to $3.1 million for the year ended
December 31, 2008. The increase in depreciation and amortization expense was the
result of our acquisition of real estate during 2008 and in 2009. These
properties were placed into service when acquired and are being depreciated for
the period held.






Interest
Expense





Interest
expense increased $5.6 million, or 116.8% to $10.4 million for the year ended
December 31, 2009, compared to $4.8 million for the year ended December 31,
2008. The increase in interest expense was the mainly the result of a higher
debt balance due to the financing of a portion of our property acquisitions. The
average first mortgage debt balance for the years ended December 31, 2009 and,
2008 was $136.5 million and $45.3 million, respectively, an increase of 301.3%.
We view these secured financing sources as an efficient and accretive means to
acquire properties.




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.





Derivative
Instruments





Included
in other income was a gain in the fair value of derivative instruments of $0.5
million for the year ended December 31, 2009 compared to a loss of $1.6 million
for the year ended December 31, 2008.  These losses are related to
marking our derivative instruments to fair value.





For the
period of August 17, 2007 (date of inception) to December 31, 2007 our results
of operations were comprised of general and administrative
expenses.








51


Comparison
of Cash Flows for the Year Ended December 31, 2009 to the Year Ended December
31, 2008





For the
year ended December 31, 2009, net cash used in operating activities was $2.5
million compared to net cash provided by operating activities of $4.0 million
for the year ended December 31, 2008. The level of cash flows used in or
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. The change in cash flow from
operations from 2008 to 2009 was mainly due to increases in prepaid expenses
of  in 2009 of $4.2 million due to the advance payment of asset
management fees to our affiliate and an increase in unbilled rent receivables
recorded in accordance with straight-line basis accounting, as well as the
repayment of due to affiliates of  $2.2 million, and a decrease in
accounts payable and accrued expenses of $0.2 million, These decreases in cash
were partially offset by an increase in deferred rent and other liabilities of
$0.4 million, primarily representing rent payments received in advance of the
respective due date.




Net cash
used in investing activities during the year December 31, 2009 totaled $173.8
million compared to $97.5 million during the year ended December 31, 2008, Net
cash used in investing activities for both periods relate to investment
properties acquired during the period.





Net cash
provided by financing activities totaled $180.4 million during the year ended
December 31, 2009 compared to $94.3 million for the year ended December 31,
2008.Cash provided by financing activities in 2009 and 2008 was used for
property acquisitions. Increases in 2009 were mainly due to proceeds from the
issuance of our common stock of $112.1 million, proceeds from mortgage notes
payable of $72.1 million and proceeds from other notes payable of $11.9 million.
These amounts were partially offset by net repayments of short-term bridge
equity funds of $15.0 million. In 2008, net cash provided by financing
activities consisted primarily of net proceeds from mortgage notes payable of
$62.0 million, net proceeds from short-term equity bridge funds of $30.9
million, net proceeds from the sale of common stock of $6.8 million and other
notes payable of $1.1 million.




Liquidity
and Capital Resources





Our
principal demands for funds will continue to be for property acquisitions,
either directly or through investment interests, for the payment of operating
expenses, distributions to our investors, repurchases under our SRP, and for the
payment of interest on our outstanding indebtedness. Generally, cash needs for
property acquisitions will be met through proceeds from the sale of common stock
through our public offering. We may also from time to time enter into other
agreements with third parties where by third parties will make equity
investments in specific properties or groups of properties that we acquire.
Items other than property acquisitions are expected to be met from a combination
of the proceeds from the sale of common stock and cash flows from
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.




Our board
of directors has adopted a SRP that enables our stockholders to sell their
shares to us under limited circumstances. At the time a shareholder requests a
redemption, we may, subject to certain conditions, redeem the shares presented
for repurchase for cash to the extent we have sufficient funds available to fund
such purchase.


We expect
to meet our future short-term operating liquidity requirements through a
combination of net cash provided by our current property operations and the
operations of properties to be acquired in the future and proceeds form the sale
of common stock.  Management expects that in the future, as our
portfolio grows, 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 private offerings, proceeds from the
sale of properties and undistributed funds from operations. In addition as of
December 31, 2009, we have an unused short term equity line available to us that
allows us to draw a maximum of $10.0 million.


52








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, 2009, we
issued 14,672,237 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
$144.6 million. As of December 31, 2009, the aggregate value of all share
issuances and subscriptions outstanding was $146.6 million based on a per share
value of $10.00 (or $9.50 per share for shares issued under the DRIP). As of
December 31, 2009 an additional 135,479,006 shares were available for issuance
under the current registration statement and an additional 23,563,190 shares
were available to be issued under the DRIP. We will continue to offer these
shares until January 25, 2011, when our current registration statement
expires.





Distributions





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.





In
February 2008, the board of directors declared a distribution for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of real
estate investments. The first monthly distribution was paid in April 2008. The
distribution is calculated based on stockholders of record each day during the
applicable period at a rate that, if paid each day for a 365-day period, would
equal a specified annualized rate based on a share price of $10.00. The initial
annualized rate was 6.5% annualized rate based on the share price of $10.00. 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, resulted in an
annualized distribution rate of 6.7%. Effective April 1, 2010 our daily
distribution rate will increase by another 30 basis points, resulting in an
annualized distribution rate of 7.0%.





The
Company, our board of directors and Advisor share a similar philosophy with
respect to paying our distribution. The distribution should principally be
derived from cash flows generated from real estate operations. During the years
ended December 31, 2009 and 2008, distributions paid totaled $3.2 million and
$0.4 million, respectively, inclusive of $1.3 million and $0.1 million,
respectively 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 distributions that were paid out during such
period. These waived fees included asset management and property management of
$1.7 million and $0.3 million for the year ended December 31, 2009 and $0.7
million and $0.1 million, respectively, for the year ended December 31, 2008. In
addition, the Advisor waived reimbursement it was entitled to during the period
for organizational and offering expenses which totaled $3.8 million and $0.2
million for the years ended December 31, 2009 and 2008, respectively. The fees
and reimbursement that were waived relating to the activity during the years
ended December 31, 2009 and 2008 are not deferrals and accordingly, will not be
paid by the Company.





Loan
Obligations





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. Some of our loan agreements
stipulate that we comply with specific reporting and financial covenants mainly
related to debt coverage ratios and loan
to value ratios. Each loan that has these requirements has specific ratio
thresholds that must be met. As of December 31, 2009, we were in compliance with
the debt covenants under our loan agreements.





53


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 55.8% (secured mortgage notes payable as a
percentage of total real estate investments, at cost) as of December 31,
2009.





In
addition as of December 31, 2009 we have an unused short term equity line
available to us that allows us to draw a maximum of $10.0 million.





As of
December 31, 2009, we had cash and cash equivalents of $5.0 million, 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, 2009
(in thousands):




Years Ending December
      31,Principal
      Payments Due:
                                    
                                    Total
                                    
                                    
                                    2010
                                    
                                    
                                    2011-2012
                                    
                                    
                                    2013-2014
                                    
                                    
                                    ThereafterMortgage
      notes payable
                                    
                                    $
                                    183,811
                                    
                                    
                                    $
                                    1,598
                                    
                                    
                                    $
                                    18,852
                                    
                                    
                                    $
                                    92,495
                                    
                                    
                                    $
                                    70,866Short-term
      bridge financing (1)
                                    
                                    
                                    15,878
                                    
                                    
                                    
                                    15,878
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Other
      notes payable
                                    
                                    
                                    13,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    13,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Purchase
      obligations (2)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —212,689
                                    
                                    
                                    
                                    17,476
                                    
                                    
                                    
                                    31,852
                                    
                                    
                                    
                                    92,495
                                    
                                    
                                    
                                    70,866


Interest
      Payments Due:Mortgage
      notes payable
                                    
                                    
                                    73,957
                                    
                                    
                                    
                                    11,279
                                    
                                    
                                    
                                    22,804
                                    
                                    
                                    
                                    15,652
                                    
                                    
                                    
                                    24,942Short-term
      bridge financing (1)
                                    
                                    
                                    477
                                    
                                    
                                    
                                    477
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Other
      notes payable
                                    
                                    
                                    2,250
                                    
                                    
                                    
                                    1,175
                                    
                                    
                                    
                                    1,075
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —76,684
                                    
                                    
                                    
                                    12,931
                                    
                                    
                                    
                                    23,159
                                    
                                    
                                    
                                    15,652
                                    
                                    
                                    
                                    24,942Total
      obligations
                                    
                                    $
                                    289,373
                                    
                                    
                                    $
                                    30,407
                                    
                                    
                                    $
                                    55,011
                                    
                                    
                                    $
                                    108,147
                                    
                                    
                                    $
                                    95,808


________________________





(1)
              In
      January 2010 we refinanced $15.9 million of short-term bridge financing
      with a $16.2 million mortgage note with a maturity date of January
      2015.(2)
              As
      of December 31, 2009, we have commitments to purchase a portfolio of
      Bridgestone Firestone retail facilities, two Fresenius warehouse
      facilities, A Reckitt Benckiser warehouse facility and a portfolio of Jack
      in-the-box retail properties at a total purchase price of approximately
      $81.0 million. The properties will be acquired with a combination of cash
      and financing arrangements; the terms of financing arrangements are not
      yet finalized.





Election
as a REIT




We
elected to be taxed as a REIT under Sections 856 through 860 of the Code
commencing with our taxable year ended December 31, 2008. If we continue to
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, 2009.


54




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 10 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 have or 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 that are material to
investors.




New
Accounting Pronouncements




See Note
2 to our consolidated financial statements included in this report for a summary
of new accounting pronouncements and the effect they have on our financial
position, results of operations and cash flows.




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. Derivatives not designated as hedges are not speculative. These
derivatives are used to manage the Company’s exposure to interest rate movements
and other identified risks but do not meet the strict hedge accounting
requirements to be classified as hedging instruments.





As of December 31, 2009, our debt
included fixed-rate debt, with a carrying value of $121.3 million and a fair
value of $109.2 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


55





December 31, 2009 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 $8.9
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 $10.0
million.





As of December 31, 2009, our debt
included variable-rate mortgage notes payable with a carrying value of $62.5
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 interestexpense by $0.6 millionannually.





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, 2009, 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.




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 Exchange Act,management, with the participation of our Chief
Executive Officer and Chief Financial Officer,has evaluatedthe effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 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 such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded, as of
the end of such period, that our disclosure controls and procedures are
effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by us in our reports that we file or
submit under the Exchange Act.




Internal Control Over Financial
Reporting


Management's
Annual Reporting on Internal Controls 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 Exchange Act.




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, 2009. 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.


56




Based on
its assessment, our management concluded that, as of December 31,
2009, our internal control over financial reporting was effective.




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.





Changes
in Internal Control Over Financial Reporting.





During
the fourth quarter of fiscal year ended December 31, 2009, there were no changes
in our internal control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act)that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




Item
9B. Other Information.




None.




PART III




Item 10. Directors, Executive Officers and
Corporate Governance.




We have adopted a Code of Ethics that
applies 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 to our annual proxy statement for the fiscal year ended
December 31, 2009 (the “Proxy Statement”).




Item 11. Executive
Compensation.




The
information required by this Item is incorporated by reference to our 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 to our Proxy
Statement.




Item 13. Certain Relationships and Related
Transactions, and Director Independence.




The
information required by this Item is incorporated by reference to our Proxy
Statement.




Item 14. Principal Accounting Fees and
Services.




The
information required by this Item is incorporated by reference  to our
Proxy Statement





PART IV




Item 15.Exhibits and Financial
Statement Schedules.




57





(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-37
of this report:




Schedule
III – Real Estate Assets and Accumulated Depreciation and
Amortization




(b)
            Exhibits






EXHIBIT
INDEX





EXHIBITS





The
following documents are filed as part of this annual report:


Exhibit No.
                  
                  Description1.1
                  
                  Form
      of Dealer Manager Agreement by and between American Realty Capital Trust,
      Inc. and Realty Capital Securities, LLC (2)1.2
                  
                  Form
      of Soliciting Dealers Agreement by and between Realty Capital Securities,
      LLC and the Soliciting Dealers (2)3.1
                  
                  Amended
      and Restated Charter of American Realty Capital Trust, Inc.
      (3)3.2
                  
                  Articles
      of Amendment of American Realty Capital Trust, Inc. (5)3.3
                  
                  Bylaws
      of American Realty Capital Trust, Inc. (1)4.1
                  
                  Agreement
      of Limited Partnership of American Realty Capital Operating Partnership,
      L.P. (3)4.2
                  
                  First
      Amendment to Agreement of Limited Partnership of American Realty Capital
      Operating Partnership, L.P. (7)4.3
                  
                  Specimen
      Certificate for the Shares is not applicable because the Registrant’s
      Board of Directors has authorized the issuance of Shares without stock
      certificates.5.1
                  
                  Opinion
      of Proskauer Rose LLP (4)5.2
                  
                  Opinion
      of Venable LLP (4)8.1
                  
                  Opinion
      of Proskauer Rose LLP (Tax Matters) (4)10.1
                  
                  Amended
      and Restated Escrow Agreement by and among American Realty Capital Trust,
      Inc., Boston Private Bank & Trust Company and Realty Capital
      Securities, LLC (8)10.2
                  
                  Form
      of Advisory Agreement by and among American Realty Capital Trust, Inc.,
      American Realty Capital Operating Partnership, L.P. and American Realty
      Capital Advisers, LLC (2)10.3
                  
                  Form
      of Management Agreement, by and among American Realty Capital Trust, Inc.,
      American Realty Capital Operating Partnership, L.P. and American Realty
      Capital Properties, LLC (1)10.4
                  
                  First
      Amendment to Management Agreement (7)10.5
                  
                  Second
      Amendment to Management Agreement (7)10.6
                  
                  Third
      Amendment to Management Agreement (10)10.7
                  
                  Fourth
      Amendment to Management Agreement (10)10.8
                  
                  Fifth
      Amendment to Management Agreement (10)10.9
                  
                  Sixth
      Amendment to Management Agreement *10.10
                  
                  Seventh
      Amendment to Management Agreement *10.11
                  
                  Eighth
      Amendment to Management Agreement *10.12
                  
                  Ninth
      Amendment to Management Agreement *10.13
                  
                  Tenth
      Amendment to Management Agreement *10.14
                  
                  Company’s
      Stock Option Plan (7)
  58
  10.15
                  
                  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 (6)10.16
                  
                  Agreement
      of Assignment of Partnership Interests between American Realty Capital
      Operating Partnership, L.P. and Nicholas S. Schorsch dated March 12, 2008
      (6)10.17
                  
                  Limited
      Liability Company Agreement of American Realty Capital Equity Bridge, LLC
      dated August 20, 2008 (8)10.18
                  
                  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)10.19
                  
                  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)10.20
                  
                  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
      (10)10.21
                  
                  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. (10)23.1
                  
                  Consent
      of Grant Thornton LLP*31.1
                  
                  Certification
      required by Rule 13a-14(a) or Rule 15d-14(a)*31.2
                  
                  Certification
      required by Rule 13a-14(a) or Rule 15d-14(a)*32.1
                  
                  Certification
      required by Rule 13a-14(b) or Rule 15d-14(b) and section 1350 of Chapter
      63 of Title 18 of the U.S. Code (18 U.S.C.
  1350)*
 
 *Filed
herewith.
 
 (1)
                
                Incorporated
      by reference to an exhibit to Amendment No. 1 to Registrant’s Registration
      Statement on Form S-11 (File No. 333-145949) filed on November 20,
      2007.(2)
                
                Incorporated
      by reference to an exhibit to Amendment No. 3 to Registrant’s Registration
      Statement on Form S-11 (File No. 333-145949) filed on January 16,
      2008.(3)
                
                Incorporated
      by reference to an exhibit to Amendment No. 4 to Registrant’s Registration
      Statement on Form S-11 (File No. 333-145949) filed on January 22,
      2008.(4)
                
                Incorporated
      by reference to an exhibit to Amendment No. 5 to Registrant’s Registration
      Statement on Form S-11 (File No. 333-145949) filed on January 24,
      2008.(5)
                
                Incorporated
      by reference to an exhibit to Registrant’s Current Report on Form 8-K
      filed on March 4, 2008.(6)
                
                Incorporated
      by reference to an exhibit to Registrant’s Quarterly Report on Form 10-Q
      filed on May 14, 2008.(7)
                
                Incorporated
      by reference to an exhibit to Registrant’s Pre-Effective Amendment No. 1
      to Post Effective Amendment No. 1 to Form S-11 (File No. 333-145949) filed
      on June 3, 2008.(8)
                
                Incorporated
      by reference to an exhibit to Registrant’s Pre-Effective Amendment No. 1
      to Post Effective Amendment No. 2 to Form S-11 (File No. 333-145949) filed
      on September 3, 2008.(9)
                
                Incorporated
      by reference to an exhibit to Registrant’s Quarterly Report on Form 10-Q
      filed on November 13, 2008.(10)
                
                Incorporated
      by reference to an exhibit to Registrant’s Pre-Effective Amendment No. 2
      to Post Effective Amendment No. 3 to Form S-11 (File No. 333-145949) filed
      on February 18, 2009.
  59




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 this 18th day of March,
2010.




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.




March16,
2010




Name
                                                          
                                                          Capacity
                                                          
                                                          Date/s/ Nicholas S.
      Schorsch
                                                          
                                                          Chief
      Executive Officer andNicholas
      S. Schorsch
                                                          
                                                          Chairman
      of the Board of Directors
                                                            (and
      Principal Executive Officer)
                                                          
                                                          March18,
      2010/s/ William
      M.Kahane
                                                          
                                                          Chief
      Operating Officer and PresidentWilliam
      M. Kahane
                                                          
                                                          
                                                          
                                                          March18,
      2010/s/ Brian
      S.Block
                                                          
                                                          Chief
      Financial Officer, Executive
      Vice President,Brian
      S. Block
                                                          
                                                          (and
      Principal Accounting Officer)
                                                          
                                                          March18,
      2010/s/ Leslie D.
      Michelson
                                                          
                                                          Independent
      DirectorLeslie
      D. Michelson
                                                          
                                                          
                                                          
                                                          March16,
      2010/s/
      William G. Stanley
                                                          
                                                          Independent
      DirectorWilliam
      G. Stanley
                                                          
                                                          
                                                          
                                                          March 16,
2010/s/ Robert H.
      Burns
                                                          
                                                          Independent
      DirectorRobert
      H. Burns
                                                          
                                                          
                                                          
                                                          March16,
      2010




60







INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




PageFinancial
      StatementsReport of Independent Registered
      Public Accounting Firm
                        
                        F-2Consolidated Balance Sheets as of
      December 31, 2009 and 2008
                        
                        F-3Consolidated Statements of
      Operations for the Years EndedDecember 31, 2009 and 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 Years
      EndedDecember 31, 2009 and 2008
      and the Period from August 17, 2007 (date of inception) to December 31,
      2007
                        
                        F-5Consolidated Statements of Cash
      Flows for the Years EndedDecember 31, 2009 and 2008
      and the Period from August 17, 2007 (date of inception) to December 31,
      2007
                        
                        F-7Notes to Consolidated Financial
      Statements
                        
                        F-9Financial Statement
      ScheduleSchedule III – Real Estate
      Investments
                        
                        F-39





F-1


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, 2009 and 2008, and the related consolidated statements of operations,
changes in stockholders’ equity and cash flows for the years ended December 31,
2009 and 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 Item
15(a). These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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, 2009 and 2008, and the
consolidated results of their operations and their cash flows for the
years ended December 31, 2009 and 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, presents fairly, in all
material respects, the information set forth therein.






/s/ GRANT
THORNTON LLP





Philadelphia,
Pennsylvania





March18,
2010


F-2


AMERICAN REALTY CAPITAL TRUST, INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands except per share data)





December
      31,2009
                                      
                                      2008ASSETSReal
      estate investments, at cost:Land
                                      
                                      $
                                      37,779
                                      
                                      
                                      $
                                      22,300Buildings,
      fixtures and improvements
                                      
                                      
                                      261,939
                                      
                                      
                                      
                                      126,022Acquired
      intangible lease assets
                                      
                                      
                                      38,838
                                      
                                      
                                      
                                      16,448Total
      real estate investments, at cost
                                      
                                      
                                      338,556
                                      
                                      
                                      
                                      164,770Less
      accumulated depreciation and amortization
                                      
                                      
                                      (11,292
                                      )
                                      
                                      
                                      (3,056
                                      )Total real estate investments, net
                                      
                                      
                                      327,264
                                      
                                      
                                      
                                      161,714Cash
      and cash equivalents
                                      
                                      
                                      5,010
                                      
                                      
                                      
                                      887Restricted
      cash
                                      
                                      
                                      43
                                      
                                      
                                      
                                      48Prepaid
      expenses and other assets
                                      
                                      
                                      4,458
                                      
                                      
                                      
                                      302Deferred
      financing costs, net
                                      
                                      
                                      2,502
                                      
                                      
                                      
                                      1,991Total
      assets
                                      
                                      $
                                      339,277
                                      
                                      
                                      $
                                      164,942LIABILITIES AND STOCKHOLDERS’
      EQUITYShort-term
      bridge equity funds:Short-term
      bridge funds
                                      
                                      $
                                      15,878
                                      
                                      
                                      $
                                      11,954Related
      party bridge facility
                                      
                                      
                                      —
                                      
                                      
                                      
                                      8,477Related
      party bridge revolver
                                      
                                      
                                      —
                                      
                                      
                                      
                                      6,500Short-term
      convertible redeemable preferred
                                      
                                      
                                      —
                                      
                                      
                                      
                                      3,995Total
      short-term bridge equity funds
                                      
                                      
                                      15,878
                                      
                                      
                                      
                                      30,926Mortgage
      notes payable
                                      
                                      
                                      183,811
                                      
                                      
                                      
                                      112,742Long-term
      notes payable
                                      
                                      
                                      13,000
                                      
                                      
                                      
                                      1,090Below-market
      lease liabilities, net
                                      
                                      
                                      9,085
                                      
                                      
                                      
                                      9,400Derivatives,
      at fair value
                                      
                                      
                                      2,768
                                      
                                      
                                      
                                      4,233Due
      to affiliates
                                      
                                      
                                      —
                                      
                                      
                                      
                                      2,223Accounts
      payable and accrued expenses
                                      
                                      
                                      1,536
                                      
                                      
                                      
                                      1,687Deferred
      rent and other liabilities
                                      
                                      
                                      1,144
                                      
                                      
                                      
                                      782Distributions
      payable
                                      
                                      
                                      1,499
                                      
                                      
                                      
                                      69Investor
      contributions held in escrow
                                      
                                      
                                      —
                                      
                                      
                                      
                                      31Total
      liabilities
                                      
                                      
                                      228,721
                                      
                                      
                                      
                                      163,183Preferred
      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, 14,672,237 and
      1,276,814 shares issued and outstanding at December 31, 2009 and 2008,
      respectively
                                      
                                      
                                      147
                                      
                                      
                                      
                                      13Additional
      paid-in capital
                                      
                                      
                                      122,506
                                      
                                      
                                      
                                      9,220Accumulated
      other comprehensive loss
                                      
                                      
                                      (1,737
                                      )
                                      
                                      
                                      (2,676
                                      )Accumulated
      deficit
                                      
                                      
                                      (13,669
                                      )
                                      
                                      
                                      (4,798
                                      )Total
      American Realty Capital Trust, Inc. stockholders’ equity
                                      
                                      
                                      107,247
                                      
                                      
                                      
                                      1,759Noncontrolling
      interests
                                      
                                      
                                      3,309
                                      
                                      
                                      
                                      —Total
      stockholders’ equity
                                      
                                      
                                      110,556
                                      
                                      
                                      
                                      1,759Total
      liabilities and stockholders’ equity
                                      
                                      $
                                      339,277
                                      
                                      
                                      $
                                      164,942




The
accompanying notes are an integral part of these financial
statements




F-3


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands except per share data)


Year Ended December
      31,
                                                                                          
                                                                                          
                                                                                          For
      the Period from August 17, 2007 (date of inception) to December
      31,2009
                                                                                          
                                                                                          
                                                                                          2008
                                                                                          
                                                                                          
                                                                                          2007Revenues:Rental
      income
                                                                                          
                                                                                          $
                                                                                          14,954
                                                                                          
                                                                                          
                                                                                          $
                                                                                          5,546
                                                                                          
                                                                                          
                                                                                          $
                                                                                          —Operating
      expense reimbursement
                                                                                          
                                                                                          
                                                                                          10
                                                                                          
                                                                                          
                                                                                          
                                                                                          —
                                                                                          
                                                                                          
                                                                                          
                                                                                          —Total
      revenues
                                                                                          
                                                                                          
                                                                                          14,964
                                                                                          
                                                                                          
                                                                                          
                                                                                          5,546Expenses:Property
      management fees to affiliate
                                                                                          
                                                                                          
                                                                                          —
                                                                                          
                                                                                          
                                                                                          
                                                                                          4
                                                                                          
                                                                                          
                                                                                          
                                                                                          —Asset
      management fees
                                                                                          
                                                                                          
                                                                                          145
                                                                                          
                                                                                          
                                                                                          
                                                                                          —
                                                                                          
                                                                                          
                                                                                          
                                                                                          —Acquisition
      and transaction related
                                                                                          
                                                                                          
                                                                                          506
                                                                                          
                                                                                          
                                                                                          
                                                                                          —
                                                                                          
                                                                                          
                                                                                          
                                                                                          —General
      and administrative
                                                                                          
                                                                                          
                                                                                          507
                                                                                          
                                                                                          
                                                                                          
                                                                                          380
                                                                                          
                                                                                          
                                                                                          
                                                                                          1Depreciation
      and amortization
                                                                                          
                                                                                          
                                                                                          8,315
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,056
                                                                                          
                                                                                          
                                                                                          
                                                                                          —Total
      operating expenses
                                                                                          
                                                                                          
                                                                                          9,473
                                                                                          
                                                                                          
                                                                                          
                                                                                          3,440
                                                                                          
                                                                                          
                                                                                          
                                                                                          1Operating
      income (loss)
                                                                                          
                                                                                          
                                                                                          5,491
                                                                                          
                                                                                          
                                                                                          
                                                                                          2,106
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1
                                                                                          )Other
      income (expenses):Interest
      expense
                                                                                          
                                                                                          
                                                                                          (10,352
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (4,774
                                                                                          )
                                                                                          
                                                                                          
                                                                                          —Interest
      income
                                                                                          
                                                                                          
                                                                                          52
                                                                                          
                                                                                          
                                                                                          
                                                                                          3
                                                                                          
                                                                                          
                                                                                          
                                                                                          —Gains
      (losses) on derivative instruments
                                                                                          
                                                                                          
                                                                                          495
                                                                                          
                                                                                          
                                                                                          
                                                                                          (1,618
                                                                                          )
                                                                                          
                                                                                          
                                                                                          —Total
      other income (expenses)
                                                                                          
                                                                                          
                                                                                          (9,805
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (6,389
                                                                                          )
                                                                                          
                                                                                          
                                                                                          —Net
      loss
                                                                                          
                                                                                          
                                                                                          (4,315
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (4,283
                                                                                          )
                                                                                          
                                                                                          
                                                                                          (1
                                                                                          )Net
      loss attributable to noncontrolling interests
                                                                                          
                                                                                          
                                                                                          49
                                                                                          
                                                                                          
                                                                                          
                                                                                          —
                                                                                          
                                                                                          
                                                                                          
                                                                                          —Net
      loss attributable to American Realty Capital Trust, Inc.
                                                                                          
                                                                                          $
                                                                                          (4,266
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (4,283
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (1
                                                                                          )Basic
      and diluted weighted averagecommon
      shares outstanding
                                                                                          
                                                                                          
                                                                                          5,768,761
                                                                                          
                                                                                          
                                                                                          
                                                                                          711,524
                                                                                          
                                                                                          
                                                                                          
                                                                                          NMBasic
      and diluted loss per share
                                                                                          
                                                                                          $
                                                                                          (0.74
                                                                                          )
                                                                                          
                                                                                          $
                                                                                          (6.02
                                                                                          )
                                                                                          
                                                                                          
                                                                                          NM









The
accompanying notes are an integral part of these financial
statements





F-4





AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


For
the Years ended December 31, 2009 and 2008 and Period from August 17, 2007 (date
of inception) to December 31, 2007


(In
thousands except per share data)








Common
      Stock
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Accumulated
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            Total
                                                                              American
                                                                              Realty
                                                                              CapitalNumber
      of
                                                                              Shares
                                                                            
                                                                            
                                                                            Par
                                                                              Value
                                                                            
                                                                            
                                                                            Additional
                                                                              Paid-In
                                                                              Capital
                                                                            
                                                                            
                                                                            Other
                                                                              Comprehensive
                                                                              Loss
                                                                            
                                                                            
                                                                            Accumulated
                                                                              Deficit
                                                                            
                                                                            
                                                                            Trust
                                                                              Stockholders'
                                                                              Equity
                                                                            
                                                                            Noncontrolling
                                                                              Interests
                                                                            
                                                                            Total
                                                                              Stockholders’
                                                                              EquityBalance,
                                                                              August
      17, 2007
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $               
      —
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            $
                                                                            —Issuance
      of common stock
                                                                            
                                                                            
                                                                            20,000
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            200
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            200
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            200Net
      loss
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (1
                                                                            )
                                                                            
                                                                            (1
                                                                            )
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (1
                                                                            )Balance,
      December 31, 2007
                                                                            
                                                                            
                                                                            20,000
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            200
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (1
                                                                            )
                                                                            
                                                                            199
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            199Issuance
      of common stock
                                                                            
                                                                            
                                                                            1,241,053
                                                                            
                                                                            
                                                                            
                                                                            13
                                                                            
                                                                            
                                                                            
                                                                            11,357
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            11,370
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            11,370Offering
      costs, commissions and dealer manager fees
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (2,487
                                                                            )
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (2,487
                                                                            )
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (2,487
                                                                            )Common
      stock issued through distribution reinvestment plan
                                                                            
                                                                            
                                                                            15,761
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            150
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            150
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            150Distributions
      declared
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (514
                                                                            )
                                                                            
                                                                            (514
                                                                            )
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (514
                                                                            )Designated
      derivatives, fair value adjustment
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (2,676
                                                                            )
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (2,676
                                                                            )
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (2,676
                                                                            )Net
      loss
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            (4,283
                                                                            )
                                                                            
                                                                            (4,283
                                                                            )
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (4,283
                                                                            )Total
      comprehensive loss
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            6,958
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            (6,958
                                                                            )Balance,
      December 31, 2008
                                                                            
                                                                            
                                                                            1,276,814
                                                                            
                                                                            
                                                                            $
                                                                            13
                                                                            
                                                                            
                                                                            $
                                                                            9,220
                                                                            
                                                                            
                                                                            $
                                                                            (2,676
                                                                            )
                                                                            
                                                                            $
                                                                            (4,798
                                                                            )
                                                                            $
                                                                            $1,759
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            $
                                                                            1,759





F-5





AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


For
the Years ended December 31, 2009 and 2008 and Period from August 17, 2007 (date
of inception) to December 31, 2007 (continued)


(In
thousands except per share data)








Common
      Stock
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Accumulated
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Total
                                                                      American
                                                                      Realty
                                                                      CapitalNumber
      of
                                                                      Shares
                                                                    
                                                                    
                                                                    Par
                                                                      Value
                                                                    
                                                                    
                                                                    Additional
                                                                      Paid-In
                                                                      Capital
                                                                    
                                                                    
                                                                    Other
                                                                      Comprehensive
                                                                      Loss
                                                                    
                                                                    
                                                                    Accumulated
                                                                      Deficit
                                                                    
                                                                    
                                                                    Trust
                                                                      Stockholders'
                                                                      Equity
                                                                    
                                                                    Noncontrolling
                                                                      Interests
                                                                    
                                                                    
                                                                    Total
                                                                      Stockholders’
                                                                      EquityBalance,
      December 31, 2008
                                                                    
                                                                    
                                                                    1,276,814
                                                                    
                                                                    
                                                                    $
                                                                    13
                                                                    
                                                                    
                                                                    $
                                                                    9,220
                                                                    
                                                                    
                                                                    $
                                                                    (2,676
                                                                    )
                                                                    
                                                                    $
                                                                    (4,798
                                                                    )
                                                                    $
                                                                    1,759
                                                                    
                                                                    $
                                                                    —
                                                                    
                                                                    
                                                                    $
                                                                    1,759Issuance
      of common stock, net
                                                                    
                                                                    
                                                                    13,259,941
                                                                    
                                                                    
                                                                    
                                                                    133
                                                                    
                                                                    
                                                                    
                                                                    131,478
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    131,611
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    131,611Offering
      costs, commissions and dealer manager fees
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (19,478
                                                                    )
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    (19,478
                                                                    )
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (19,478
                                                                    )Common
      stock issued through distribution reinvestment plan
                                                                    
                                                                    
                                                                    135,482
                                                                    
                                                                    
                                                                    
                                                                    1
                                                                    
                                                                    
                                                                    
                                                                    1,286
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    1,287
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    1,287Distributions
      declared
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (4,605
                                                                    )
                                                                    
                                                                    (4,605
                                                                    )
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (4,605
                                                                    )Contributions
      from noncontrolling interests
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    3,458
                                                                    
                                                                    
                                                                    
                                                                    3,458Distributions
      to noncontrolling interests
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    (100
                                                                    )
                                                                    
                                                                    
                                                                    (100
                                                                    )Designated
      derivatives fair value adjustment
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    939
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    939
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    939Net
      loss
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    (4,266
                                                                    )
                                                                    
                                                                    (4,266
                                                                    )
                                                                    
                                                                    (49
                                                                    )
                                                                    
                                                                    
                                                                    (4,315
                                                                    )Total
      comprehensive loss
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    (3,327
                                                                    )
                                                                    
                                                                    (49
                                                                    )
                                                                    
                                                                    
                                                                    (3,376
                                                                    )Balance,
      December 31, 2009
                                                                    
                                                                    
                                                                    14,672,237
                                                                    
                                                                    
                                                                    $
                                                                    147
                                                                    
                                                                    
                                                                    $
                                                                    122,506
                                                                    
                                                                    
                                                                    $
                                                                    (1,737
                                                                    )
                                                                    
                                                                    $
                                                                    (13,669
                                                                    )
                                                                    $
                                                                    107,247
                                                                    
                                                                    $
                                                                    3,309
                                                                    
                                                                    
                                                                    $
                                                                    110,556





The
accompanying notes are an integral part of these financial
statements




F-6


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands except per share data)


Year
      Ended
                                      December
      31, 2009
                                    
                                    
                                    Year
      Ended
                                      December
      31, 2008
                                    
                                    
                                    For
      the Period
                                      from
      August
                                      17,
      2007 (date
                                      of
      inception)
                                      to
      December 31,
                                      2007Cash
      flows from operating activities:Net
      loss
                                    
                                    $
                                    (4,315
                                    )
                                    
                                    $
                                    (4,283
                                    )
                                    
                                    $
                                    (1
                                    )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
                                    
                                    
                                    6,661
                                    
                                    
                                    
                                    2,534
                                    
                                    
                                    
                                    —Amortization
      of intangibles
                                    
                                    
                                    1,654
                                    
                                    
                                    
                                    522
                                    
                                    
                                    
                                    —Amortization
      of deferred finance costs
                                    
                                    
                                    562
                                    
                                    
                                    
                                    135
                                    
                                    
                                    
                                    —Accretion
      of below-market lease liability
                                    
                                    
                                    (315
                                    )
                                    
                                    
                                    (26
                                    )
                                    
                                    
                                    —Gain
      (loss) on derivative instruments
                                    
                                    
                                    (495
                                    )
                                    
                                    
                                    1,618
                                    
                                    
                                    
                                    —Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                                    
                                    
                                    (4,236
                                    )
                                    
                                    
                                    (302
                                    )
                                    
                                    
                                    (938
                                    )Accounts
      payable and accrued expenses
                                    
                                    
                                    (181
                                    )
                                    
                                    
                                    1,095
                                    
                                    
                                    
                                    454Due
      to affiliated entity
                                    
                                    
                                    (2,223
                                    )
                                    
                                    
                                    1,938
                                    
                                    
                                    
                                    285Deferred
      rent and other liabilities
                                    
                                    
                                    362
                                    
                                    
                                    
                                    782
                                    
                                    
                                    
                                    —Net
      cash provided by (used in) operating activities
                                    
                                    
                                    (2,526
                                    )
                                    
                                    
                                    4,013
                                    
                                    
                                    
                                    (200
                                    )Cash
      flows from investing activities:Investment
      in real estate and related assets
                                    
                                    
                                    (173,786
                                    )
                                    
                                    
                                    (97,456
                                    )
                                    
                                    
                                    —Net
      cash used in investing activities
                                    
                                    
                                    (173,786
                                    )
                                    
                                    
                                    (97,456
                                    )
                                    
                                    
                                    —Cash
      flows from financing activities:Proceeds
      from notes payable
                                    
                                    
                                    72,084
                                    
                                    
                                    
                                    62,311
                                    
                                    
                                    
                                    —Payments
      on notes payable
                                    
                                    
                                    (1,016
                                    )
                                    
                                    
                                    (343
                                    )
                                    
                                    
                                    —Proceeds
      from related party bridge facility
                                    
                                    
                                    9,553
                                    
                                    
                                    
                                    8,477
                                    
                                    
                                    
                                    —Payments
      on related party bridge facility
                                    
                                    
                                    (18,030
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Proceeds
      from related party bridge revolver
                                    
                                    
                                    2,715
                                    
                                    
                                    
                                    6,500
                                    
                                    
                                    
                                    —Payments
      on related party bridge revolver
                                    
                                    
                                    (9,215
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Proceeds
      from short-term bridge funds
                                    
                                    
                                    15,878
                                    
                                    
                                    
                                    8,000
                                    
                                    
                                    
                                    —Payments
      on short-term bridge funds
                                    
                                    
                                    (11,954
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Proceeds
      from issuance of convertible redeemable preferred
                                    
                                    
                                    —
                                    
                                    
                                    
                                    3,995
                                    
                                    
                                    
                                    —Payments
      on convertible redeemable preferred
                                    
                                    
                                    (3,995
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Proceeds
      from other notes payable
                                    
                                    
                                    11,911
                                    
                                    
                                    
                                    1,090
                                    
                                    
                                    
                                    —Contributions
      from noncontrolling interest holders
                                    
                                    
                                    3,458
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Distributions
      to noncontrolling interest holders
                                    
                                    
                                    (100
                                    )
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Proceeds
      from issuance of common stock, net
                                    
                                    
                                    112,102
                                    
                                    
                                    
                                    6,769
                                    
                                    
                                    
                                    200





F-7


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)





Year
      Ended December 31, 2009
                            
                            
                            Year
      Ended December 31, 2008
                            
                            
                            For
      the Period from August 17, 2007 (date of inception) to December 31,
      2007Payments
      of deferred financing costs
                            
                            $
                            (1,073
                            )
                            
                            $
                            (2,125
                            )
                            
                            $
                            —Distributions
      paid
                            
                            
                            (1,888
                            )
                            
                            
                            (296
                            )
                            
                            
                            —Restricted
      cash
                            
                            
                            5
                            
                            
                            
                            (48
                            )
                            
                            
                            —Net
      cash provided by financing activities
                            
                            
                            180,435
                            
                            
                            
                            94,330
                            
                            
                            
                            200Net
      increase in cash and cash equivalents
                            
                            
                            4,123
                            
                            
                            
                            887
                            
                            
                            
                            —Cash
      and cash equivalents, beginning of period
                            
                            
                            887
                            
                            
                            
                            —
                            
                            
                            
                            —Cash
      and cash equivalents, end of period
                            
                            $
                            5,010
                            
                            
                            $
                            887
                            
                            
                            $
                            —Supplemental
      Disclosures of Non-Cash Investing and Financing
Activities:Debt
      assumed in real estate acquisitions
                            
                            $
                            —
                            
                            
                            $
                            50,773
                            
                            
                            $
                            —Short-term
      bridge funds assumed
                            
                            
                            —
                            
                            
                            
                            3,954
                            
                            
                            
                            —Common
      share issuance in real estate acquisition
                            
                            
                            —
                            
                            
                            
                            3,052
                            
                            
                            
                            —Investor
      contributions held in escrow
                            
                            
                            —
                            
                            
                            
                            31
                            
                            
                            
                            —Non-cash
      acquisition costs
                            
                            
                            —
                            
                            
                            
                            78
                            
                            
                            
                            —Common
      stock issued through distribution reinvestment plan
                            
                            
                            1,287
                            
                            
                            
                            150
                            
                            
                            
                            —Reclassification
      of deferred offering costs
                            
                            
                            —
                            
                            
                            
                            938
                            
                            
                            
                            —Cash
      paid for interest
                            
                            
                            10,153
                            
                            
                            
                            4,218
                            
                            
                            
                            —









The
accompanying notes are an integral part of these financial
statements


F-8




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 1 — Organization




American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a Maryland corporation that qualified as a real estate investment trust (“REIT”)
for federal income tax purposes during 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 a distribution reinvestment plan
(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, 2009, the
Company issued 14,672,237 shares of common stock, including 339,077 shares
issued in connection with an acquisition in March 2008. Total gross proceeds
from these issuances were $144.6 million. As of December 31, 2009, the aggregate
value of all share issuances and subscriptions outstanding was $146.6 million
based on a per share value of $10.00 (or $9.50 for shares issued under the
DRIP).





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. American Realty Capital Advisors, LLC (the “Advisor”), the Company’s
affiliated advisor, is the sole limited partner and owner of 0.99%
(noncontrolling 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
$0.2 million. Additionally, in April 2008, the Advisor contributed $2 thousand
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 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 10 — 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-9





AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009


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 (“U.S. GAAP”).





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.





Noncontrolling
Interests




The
Company holds a primary beneficiary interest in two entities that own real
estate properties and thus, consolidates such activities with and into its
financial results. In addition, the Company entered into a tenant in common
arrangement with an unrelated third-party whereby it maintains a majority
ownership and therefore consolidates activities of this property with and into
its financial results. Noncontrolling interests represent the noncontrolling
ownership interest holders’ proportionate share of the equity in the Company’s
consolidated real estate investments and related mortgage note
obligations.  Income and losses are allocated to noncontrolling
interest holders’ based on their respective ownership percentage.




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 straight-line 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





Operations
related to properties that have been sold or properties that are intended to be
sold are presented as discontinued operations in the statement of operations for
all periods presented, and properties intended to be sold are 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


F-10




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 2 — Summary of Significant
Accounting Policies (continued)





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 obtains 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 are included in intangible lease assets in the
balance sheet and are amortized to expense over the remaining term of the
respective leases.





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, 2009 and 2008, acquired lease intangible assets consisted of
above-market leases and in-place lease intangibles totaling $36.7 million and
$15.9 million, respectively, net of accumulated amortization of $2.2 million and
$0.5 million, respectively. At December 31, 2009, the weighted-average
amortization period of in-place lease intangibles was 18 years. In
addition, below-market lease liabilities totaled $9.1 million and $9.4 million,
net of accumulated amortization of $0.3 million and $26 thousand, as Amortization expense on below market
lease liabilities is expected to be $ 0.3 million for each of the next five years. At December 31,
2009, the weighted-average amortization period of below market lease liabilities
was 29 years.


F-11




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
2 — Summary of Significant Accounting Policies (continued)




Cash
and cash equivalents





Cash and
cash equivalents include cash in bank accounts as well as investments in
highly-liquid money market funds with original maturities of three months or
less.





The
Company deposits cash with high quality financial institutions. These deposits
are guaranteed by the Federal Deposit Insurance Company (“FDIC”) up to an
insurance limit. At December 31, 2009 the company had deposits of $5.0 million
of which $4.0 million were in excess of the amount insured by the FDIC. Although
the Company bears risk to amounts in excess of those insured by the FDIC, it
does not anticipate any losses as a result.





Restricted
Cash





Restricted
cash consists of maintenance, structural, and debt service reserves as of
December 31, 2009.





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’s board of directors has adopted a Share Repurchase Program (“SRP”) that
enables our stockholders to sell their shares to the Company in limited
circumstances.  The SRP permits investors 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.





During
the term of the offering and any subsequent public offering of the Company’s
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 distributions, combinations, splits, recapitalizations and the like with
respect to our common stock). At any time the Company is engaged in an offering
of shares, the per share price for shares purchased under the SRP 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 (i) using internal valuations, 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  (as adjusted for
any stock distributions, combinations, splits, recapitalizations and the like
with respect to our common stock). In addition, the Company may waive the
holding period in the event of a stockholder’s death, disability, bankruptcy or
other exigent circumstances.


F-12




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009








Note
2 — Summary of Significant Accounting Policies (continued)





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.





Shares
available for redemption based on the limit of 5% of weighted average shares
outstanding for the prior year period are reported as redeemable common stock,
which is a component of equity in the consolidated balance sheets. These amounts
are valued at their respective redemption value of the common stock based on the
weighted average length of time the stock has been outstanding and available for
redemption.





When a
shareholder requests redemption and the Company determines that it has a
mandatory obligation to repurchase shares under the SRP, it will reclassify such
obligation from equity to a liability based on the settlement value of the
obligation. As of December 31, 2009, 288,438 shares with a repurchase value of
$2.8 million were eligible for repurchase. At December 31, 2009 and 2008, no
shares were requested to be redeemed.





During
the year ended December 31, 2009, 3,000 shares were redeemed under the SRP
at a value of $29 thousand and is included in proceeds from the issuance of
common stock, net on the consolidated statement of cash flows and issuance of
common stock, net on the statement of changes in stockholders'
equity.





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.





The
Company records all derivatives on the balance sheet at fair value.  The
accounting for changes in the fair value of derivatives depends on the intended
use of the derivative, whether the Company has elected to designate a derivative
in a hedging relationship and apply hedge accounting and whether the hedging
relationship has satisfied the criteria necessary to apply hedge accounting.
Derivatives designated and qualifying as a hedge of 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 designated and qualifying as a hedge of the exposure to variability
in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. Derivatives may also be designated as hedges of the
foreign currency exposure of a net investment in a foreign operation. Hedge
accounting generally provides for the matching of the timing of gain or loss
recognition on the hedging instrument with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to the hedged
risk in a fair value hedge or the earnings effect of the hedged forecasted
transactions in a cash flow hedge.  The Company may enter into
derivative contracts that are intended to economically hedge certain of its
risk, even though hedge accounting does not apply or the Company elects not to
apply hedge accounting.








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
$31 thousand of offering proceeds for which shares of common stock had not been
issued as of December 31, 2008. There were no contributions held in escrow at
December 31, 2009.




F-13




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
2 — Summary of Significant Accounting Policies (continued)





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 straight-line 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.
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 and related Offering activities. 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 bonafide due
diligence cost reimbursements) incurred by the Company in the Offering exceed
1.5% of gross offering proceeds. 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
this Offering – See Note 10 – Related Party Transactions and
Arrangements.





Share-Based
Compensation





The
Company has a stock-based incentive award plan for its directors, which is
accounted for under the guidance of share based payments.  The
guidance on share based compensation also requires the tax benefits associated
with these share-based payments to be classified as financing activities in the
consolidated statements of cash flows. For the years ended December 31, 2009 and
2008, the Company had no significant compensation cost related to these stock
options.


F-14




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
2 — Summary of Significant Accounting Policies (continued)




Income
Taxes




The
Company made an election to 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.





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
considers the effect of potentially dilutive shares of common stock outstanding
during the period.





Reportable
Segments




The
Company determined in accordance with standards set by the Financial Accounting
Standards Board (“FASB”), that it has one reportable segment, with activities
related to investing in real estate. 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. 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 properties have been aggregated into one
reportable segment.





Recent
Accounting Pronouncements




In
December 2007, the FASB issued guidance that expands the definition of a
business combination and requires the fair value of the purchase price of an
acquisition, including the issuance of equity securities, to be determined on
the acquisition date. The guidance also requires that all assets, liabilities,
contingent considerations, and contingencies of an acquired business be recorded
at fair value at the acquisition date. In addition, the guidance requires that
acquisition costs generally be expensed in the period incurred and changes in
accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period to impact income tax expense. The
guidance is effective for fiscal years beginning on or after December 15,
2008 with early adoption prohibited. The effective date for the Company was
January 1, 2009. The adoption of the guidance impacted the Company’s
results of operations and financial position as acquisition costs that
historically were capitalized and included within the purchase price of real
estate investments are now expensed as incurred.





In
December 2007, the FASB issued guidance that 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 the guidance
is to improve the comparability and transparency of financial data. 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 the guidance for the Company was January 1, 2009. The
adoption of the guidance did not have a material effect on the Company’s
results of operations and financial position.





In March 2008, the
FASB issued guidance on disclosures about derivative instruments and hedging
activities, which amended previous guidance and, 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, and how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations, and cash flows. The statement was effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008. The adoption of the guidance did not have a material effect on the
Company’s results of operations and financial position but did modify disclosure
of the Company's derivative instruments.


F-15




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
2 — Summary of Significant Accounting Policies (continued)




In
April 2008, the FASB issued guidance that 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.
The guidance 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 and the period of expected cash flows used to
measure the fair value of the asset. The guidance was 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 adoption of the
guidance did not have a significant impact on the Company’s results of
operations or financial position.




In
June 2008, the FASB issued guidance on determining whether instruments
granted in share-based payment transactions are participating securities. Under
the guidance, unvested share-based payment awards that contain rights to receive
non-forfeitable distributions (whether paid or unpaid) are participating
securities, and should be included in the two-class method of computing earnings
per share. The guidance was effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The adoption of
this guidance did not have a material effect on the Company’s results of
operations and financial position.




In April
2009, the FASB issued guidance that requires companies to make disclosures in
interim financial statements about the fair values of financial instruments that
are not reflected in the consolidated balance sheets at fair value. Prior to the
issuance of this guidance this disclosure was only required once a year. This
guidance was adopted by the Company in the second quarter of 2009. The adoption
of this guidance effected disclosure only and had no impact on the Company’s
results of operations or financial position.




In April 2009, the FASB issued guidance
on determining the fair value of financial instruments when the volume or level
of activity for the asset or liability has decreased and identifying
transactions that are not orderly. This guidance clarifies the methodology used
to determine fair value when there is no active market or where the price inputs
being used represent distressed sales. The guidance reaffirms the objective of fair value measurement,
which is to reflect how much an asset would be sold for in an orderly
transaction. It also reaffirms the need to use judgment to determine if a
formerly active market has become inactive, as well as to determine values when
markets have become inactive. The adoption of this guidance had no impact
on the Company’s results of operations or financial
position.




In May 2009, the FASB issued guidance on
subsequent events that establishes accounting standards for recognition and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. These standards are essentially similar to
current accounting principles with few exceptions that do not result in a change
in general practice. This guidance was effective on a prospective basis for
interim or annual financial periods ending after June 15, 2009. The Company
adopted this pronouncement effective June 30, 2009. The adoption of this
guidance had no impact on the Company’s results of operations or financial
position.




In June 2009, the FASB issued guidance
requiring that the FASB Accounting Standards Codification become the source of
authoritative U.S. GAAP recognized by the FASB to be applied to nongovernmental
entities. This guidance was effective for financial statements issued for
interim periods and annual periods


F-16




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
2 — Summary of Significant Accounting Policies (continued)





ending after September 15, 2009. The
adoption of this guidance had no material impact on the Company’s financial
statements or disclosures.





In June
2009, the FASB issued guidance that improves the financial reporting on
transfers of financial assets and modified the guidance for derecognizing
transferred financial assets. The guidance is effective for annual reporting
periods beginning after November 15, 2009. The adoption of this guidance is not
expected to have a material impact on the Company’s consolidated financial
statements.





In June
2009, the FASB issued guidance that changes how an entity determines when an
entity that is insufficiently capitalized and is not controlled through voting
(or similar rights) should be consolidated. The determination whether a company
is required to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impacts the entity’s economic performance.
The guidance will be applied prospectively and will be effective for interim and
annual reporting periods ending after November 15, 2009. The adoption of this
guidance is not expected to have a material impact on the Company’s consolidated
financial statements.





Note 3 — Real Estate Investments




The
following table presents the allocation of the assets acquired and liabilities
assumed during the periods (dollar amounts in thousands):




Year
      EndedReal
      estate investments, at cost:
                                
                                December
      31, 2009
                                
                                
                                December
      31, 2008Land
                                
                                $
                                15,501
                                
                                
                                $
                                22,300Buildings,
      fixtures and improvements
                                
                                
                                135,895
                                
                                
                                
                                126,022151,396
                                
                                
                                
                                148,322Acquired
      intangibles:In-place
      leases
                                
                                
                                22,390
                                
                                
                                
                                16,448Below-market
      lease liabilities, net
                                
                                
                                —
                                
                                
                                
                                (9,426
                                )Total
      assets acquired
                                
                                
                                173,786
                                
                                
                                
                                155,344Assumed
      obligations:Mortgage
      notes
                                
                                
                                —
                                
                                
                                
                                (50,773
                                )Short-term
      bridge funds
                                
                                
                                —
                                
                                
                                
                                (3,954
                                )Investor
      contributions held in escrow
                                
                                
                                —
                                
                                
                                
                                (31
                                )Other
      liabilities
                                
                                
                                —
                                
                                
                                
                                (78
                                )Total
      liabilities assumed
                                
                                
                                —
                                
                                
                                
                                (54,836
                                )Issuance
      of common shares
                                
                                
                                —
                                
                                
                                
                                (3,052
                                )Cash
      paid
                                
                                $
                                173,786
                                
                                
                                $
                                97,456Number
      of properties purchased during the year
                                
                                
                                34
                                
                                
                                
                                92





F-17


AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009




Note
3 — Real Estate Investments (continued)





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, 2009, all of the properties the Company owned were freestanding,
single tenant commercial space and these properties were 100%
occupied.  The Company’s portfolio of real estate properties is
comprised of the following properties as if December 31, 2009 (dollar amounts in
thousands):




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
                                                                                          
                                                                                          8.9
                                                                                          
                                                                                          $
                                                                                          9,694
                                                                                          
                                                                                          7.53%
                                                                                          
                                                                                          $
                                                                                          10,208
                                                                                          
                                                                                          $
                                                                                          730First
      Niagara (formerly Harleysville National Bank) Portfolio
                                                                                          
                                                                                          March
      2008
                                                                                          
                                                                                          15
                                                                                          
                                                                                          177,774
                                                                                          
                                                                                          13.0
                                                                                          
                                                                                          
                                                                                          40,976
                                                                                          
                                                                                          7.48%
                                                                                          
                                                                                          
                                                                                          41,676
                                                                                          
                                                                                          
                                                                                          3,064Rockland
      Trust Company Portfolio
                                                                                          
                                                                                          May
      2008
                                                                                          
                                                                                          18
                                                                                          
                                                                                          121,057
                                                                                          
                                                                                          11.6
                                                                                          
                                                                                          
                                                                                          32,188
                                                                                          
                                                                                          7.86%
                                                                                          
                                                                                          
                                                                                          33,117
                                                                                          
                                                                                          
                                                                                          2,530PNC
      Bank (formerly National City Bank)
                                                                                          
                                                                                          Sept. & Oct. 2008
                                                                                          
                                                                                          2
                                                                                          
                                                                                          8,403
                                                                                          
                                                                                          19.1
                                                                                          
                                                                                          
                                                                                          6,664
                                                                                          
                                                                                          8.21%
                                                                                          
                                                                                          
                                                                                          6,853
                                                                                          
                                                                                          
                                                                                          547Rite
      Aid
                                                                                          
                                                                                          September
      2008
                                                                                          
                                                                                          6
                                                                                          
                                                                                          74,919
                                                                                          
                                                                                          13.5
                                                                                          
                                                                                          
                                                                                          18,576
                                                                                          
                                                                                          7.79%
                                                                                          
                                                                                          
                                                                                          18,839
                                                                                          
                                                                                          
                                                                                          1,447PNC
      Bank Portfolio
                                                                                          
                                                                                          November
      2008
                                                                                          
                                                                                          50
                                                                                          
                                                                                          275,436
                                                                                          
                                                                                          8.9
                                                                                          
                                                                                          
                                                                                          42,286
                                                                                          
                                                                                          7.35%
                                                                                          
                                                                                          
                                                                                          44,813
                                                                                          
                                                                                          
                                                                                          3,108Federal
      Express Distribution Center
                                                                                          
                                                                                          July
      2009
                                                                                          
                                                                                          1
                                                                                          
                                                                                          152,640
                                                                                          
                                                                                          13.8
                                                                                          
                                                                                          
                                                                                          31,692
                                                                                          
                                                                                          8.84%
                                                                                          
                                                                                          
                                                                                          31,692
                                                                                          
                                                                                          
                                                                                          2,803Walgreens
                                                                                          
                                                                                          July
      2009
                                                                                          
                                                                                          1
                                                                                          
                                                                                          14,820
                                                                                          
                                                                                          22.5
                                                                                          
                                                                                          
                                                                                          3,818
                                                                                          
                                                                                          8.12%
                                                                                          
                                                                                          
                                                                                          3,818
                                                                                          
                                                                                          
                                                                                          310CVS
      I
                                                                                          
                                                                                          September
      2009
                                                                                          
                                                                                          10
                                                                                          
                                                                                          131,105
                                                                                          
                                                                                          24.3
                                                                                          
                                                                                          
                                                                                          40,649
                                                                                          
                                                                                          8.48%
                                                                                          
                                                                                          
                                                                                          40,649
                                                                                          
                                                                                          
                                                                                          3,448CVS
      II
                                                                                          
                                                                                          November
      2009
                                                                                          
                                                                                          15
                                                                                          
                                                                                          198,729
                                                                                          
                                                                                          24.6
                                                                                          
                                                                                          
                                                                                          59,788
                                                                                          
                                                                                          8.48%
                                                                                          
                                                                                          
                                                                                          59,788
                                                                                          
                                                                                          
                                                                                          5,071Home
      Depot
                                                                                          
                                                                                          December
      2009
                                                                                          
                                                                                          1
                                                                                          
                                                                                          465,600
                                                                                          
                                                                                          20.0
                                                                                          
                                                                                          
                                                                                          23,532
                                                                                          
                                                                                          9.31%
                                                                                          
                                                                                          
                                                                                          23,532
                                                                                          
                                                                                          
                                                                                          2,192Bridgestone
      Firestone
                                                                                          
                                                                                          December
      2009
                                                                                          
                                                                                          5
                                                                                          
                                                                                          47,218
                                                                                          
                                                                                          14.4
                                                                                          
                                                                                          
                                                                                          12,415
                                                                                          
                                                                                          9.22%
                                                                                          
                                                                                          
                                                                                          12,415
                                                                                          
                                                                                          
                                                                                          1,144Advance
      Auto
                                                                                          
                                                                                          December
      2009
                                                                                          
                                                                                          1
                                                                                          
                                                                                          7,000
                                                                                          
                                                                                          11.9
                                                                                          
                                                                                          
                                                                                          1,730
                                                                                          
                                                                                          9.25%
                                                                                          
                                                                                          
                                                                                          1,730
                                                                                          
                                                                                          
                                                                                          160Total
                                                                                          
                                                                                          
                                                                                          
                                                                                          126
                                                                                          
                                                                                          1,730,168
                                                                                          
                                                                                          16.6
                                                                                          
                                                                                          $
                                                                                          324,008
                                                                                          
                                                                                          8.20%
                                                                                          
                                                                                          $
                                                                                          329,130
                                                                                          
                                                                                          $
                                                                                          26,554


________________________





(1)
              -
              Remaining
      lease term as of December 31, 2009, 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 2009 rental income
      less property operating expenses, as
    applicable.





Future
Lease Payments Table




The
following table presents future minimum base rental cash payments due to the
Company over the next five years as of December 31, 2009 (amounts in
thousands):





2010
              
              $
              25,2452011
              
              25,3342012
              
              25,4072013
              
              25,5532014
              
              26,224






F-18




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
3 — Real Estate Investments (continued)





The
following table lists tenants whose rental income represented greater than 10%
of consolidated income for the years ended December 31, 2009 and
2008:





Year
      Ended
                December
      31,2009
              
              2008PNC
      Bank
              25%
              
              6%First
      Niagara (formerly Harleysville National Bank)
              21%
              
              44%Rockland
      Trust Company
              17%
              
              30%Federal
      Express
              14%
              
              11%CVS
              11%
              
              -%Rite
      Aid
              10%
              
              7%




No other
tenant represents more than 10% of the rental income for the periods
presented.





Note
4 — Short-Term Bridge Equity Funds





In
connection with the purchase of certain properties, the Company used short-term
bridge equity funds to finance a portion of the purchase price of such
properties. The Company’s short-term borrowings as of December 31, 2009, consist
of the following (dollar amounts in thousands):





Funds
                      
                      Property
                      
                      
                      Outstanding
                        Loan
      Amount (2)
                      
                      Effective
      Interest Rate
                      
                      
                      Interest
      RateShort-term
      bridge funds
                      
                      Federal
      Express Distribution Center
                      
                      
                      $
                      15,878
                      
                      
                      5.75
                      %
                      
                      
                      
                      
                      Floating
      (1)(1)
      Funds bear a floating interest rate based on the greater of prime rate
      plus 0.75% or 5.75%(2)
      Such borrowing was repaid in January 2010.





The
Company’s short-term borrowings at December 31, 2008, consist of the following
(dollar amounts in thousands):





Funds
                        
                        Property
                        
                        
                        Outstanding
                          Loan
      Amount
                        
                        Effective
      Interest Rate
                        
                        
                        Interest
      RateShort-term
      bridge funds
                        
                        Various
                        
                        
                        $
                        11,954
                        
                        
                        8.00-12.49
                        %
                        
                        
                        
                        
                        FixedRelated
      party bridge facility
                        
                        Various
                        
                        
                        
                        8,477
                        
                        
                        8.00
                        %
                        
                        
                        
                        
                        Floating
      (1)Related
      party bridge revolver
                        
                        Various
                        
                        
                        
                        6,500
                        
                        
                        8.00
                        %
                        
                        
                        
                        
                        FixedShort-term
      convertible redeemable preferred
                        
                        Various
                        
                        
                        
                        3,995
                        
                        
                        14.27
                        %
                        
                        
                        
                        
                        Fixed$
                        30,926





(1)
      Funds bore a floating interest rate based on the greater of 30-day LIBOR
      plus 5.0% or 8.0%





At
December 31, 2009, the Company has available a $10.0 million revolving line of
credit unsecured bridge facility with an affiliated entity. There were no
amounts outstanding under this facility at December 31, 2009.








F-19




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009








Note
5 — Mortgage Notes Payable




The
Company’s mortgage notes payable as of December 31, 2009 consist of the
following (dollar amounts in thousands):





Property
                                  
                                  Encumbered
      Properties
                                  
                                  Outstanding
                                    Loan
      Amount
                                  
                                  Effective
      Interest Rate
                                  
                                  
                                  Interest
      Rate
                                  
                                  MaturityFederal
      Express Distribution Center
                                  
                                  
                                  1
                                  
                                  $
                                  6,965
                                  
                                  
                                  6.29
                                  %
                                  
                                  
                                  
                                  
                                  Fixed
                                  
                                  
                                  September
      2037First
      Niagara (formerly Harleysville National Bank) Portfolio
                                  
                                  
                                  15
                                  
                                  
                                  31,000
                                  
                                  
                                  6.59
                                  %
                                  
                                  (1)
                                  
                                  
                                  Fixed
                                  
                                  
                                  January
      2018Rockland
      Trust Company Portfolio
                                  
                                  
                                  18
                                  
                                  
                                  23,649
                                  
                                  
                                  4.92
                                  %
                                  
                                  (2)
                                  
                                  
                                  Fixed
                                  
                                  
                                  May
      2013PNC
      Bank (formerly National City Bank) Portfolio
                                  
                                  
                                  2
                                  
                                  
                                  4,412
                                  
                                  
                                  4.89
                                  %
                                  
                                  (3)
                                  
                                  
                                  Fixed
                                  
                                  
                                  September
      2013Rite
      Aid
                                  
                                  
                                  6
                                  
                                  
                                  12,808
                                  
                                  
                                  6.97
                                  %
                                  
                                  
                                  
                                  
                                  Fixed
                                  
                                  
                                  September
      2017PNC
                                  
                                  
                                  50
                                  
                                  
                                  32,933
                                  
                                  
                                  5.25
                                  %
                                  
                                  (4)
                                  
                                  
                                  Fixed
                                  
                                  
                                  November
      2013Walgreens
                                  
                                  
                                  1
                                  
                                  
                                  1,550
                                  
                                  
                                  6.64
                                  %
                                  
                                  (5)
                                  
                                  
                                  Variable
                                  
                                  
                                  August
      2019CVS
      I
                                  
                                  
                                  10
                                  
                                  
                                  23,710
                                  
                                  
                                  6.88
                                  %
                                  
                                  (6)
                                  
                                  
                                  Fixed
                                  
                                  
                                  October
      2019CVS
      II
                                  
                                  
                                  15
                                  
                                  
                                  33,068
                                  
                                  
                                  6.64
                                  %
                                  
                                  
                                  
                                  
                                  Fixed
                                  
                                  
                                  December
      2014Home
      Depot
                                  
                                  
                                  1
                                  
                                  
                                  13,716
                                  
                                  
                                  6.34
                                  %
                                  
                                  
                                  
                                  
                                  Fixed
                                  
                                  
                                  December
      2012Total
                                  
                                  
                                  120
                                  
                                  $
                                  183,811










F-20


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





Note
5 — Mortgage Notes Payable (continued)





The Company’s mortgage notes payable as of December 31, 2008 consist of
the following (dollar amounts in thousands):





Property
                                  
                                  Encumbered
      Properties
                                  
                                  Outstanding
                                    Loan
      Amount
                                  
                                  Effective
                                    Interest
      Rate
                                  
                                  
                                  Interest
      Rate
                                  
                                  MaturityFederal
      Express Distribution Center
                                  
                                  
                                  1
                                  
                                  $
                                  6,965
                                  
                                  
                                  6.29
                                  %
                                  
                                  
                                  
                                  
                                  Fixed
                                  
                                  
                                  September
      2037First
      Niagara (formerly Harleysville National Bank) Portfolio
                                  
                                  
                                  15
                                  
                                  
                                  31,000
                                  
                                  
                                  6.59
                                  %
                                  
                                  (1)
                                  
                                  
                                  Fixed
                                  
                                  
                                  January
      2018Rockland
      Trust Company Portfolio
                                  
                                  
                                  18
                                  
                                  
                                  24,123
                                  
                                  
                                  4.92
                                  %
                                  
                                  (2)
                                  
                                  
                                  Fixed
                                  
                                  
                                  May
      2013PNC
      Bank (formerly National City Bank) Portfolio
                                  
                                  
                                  2
                                  
                                  
                                  4,483
                                  
                                  
                                  4.89
                                  %
                                  
                                  (3)
                                  
                                  
                                  Fixed
                                  
                                  
                                  September
      2013Rite
      Aid
                                  
                                  
                                  6
                                  
                                  
                                  12,808
                                  
                                  
                                  6.97
                                  %
                                  
                                  
                                  
                                  
                                  Fixed
                                  
                                  
                                  September
      2017PNC
                                  
                                  
                                  50
                                  
                                  
                                  33,363
                                  
                                  
                                  5.25
                                  %
                                  
                                  (4)
                                  
                                  
                                  Fixed
                                  
                                  
                                  November
      2013Total
                                  
                                  
                                  92
                                  
                                  $
                                  112,742






(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)
                  -
                  Fixed
      as a result of entering into a rate lock agreement with a LIBOR floor and
      cap of 3.54% and 4.125% (initial year), respectively.(3)
                  -
                  Fixed
      as a result of entering into a swap agreement with a rate of 3.565% for a
      notional amount of $0.3 million and a rate lock agreement on a notional
      amount of $4.1 million 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.(5)
                  -
                  The
      effective interest rate adjusts to the greater of 6.55% or the five-year
      U.S. Treasury rate plus 3.50%. The note can be prepaid with no less than
      30 days notice with a 1% minimum premium of the then outstanding principal
      balance.(6)
                  -
                  The
      effective interest rate adjusts at the discretion of the lender at the end
      of the sixth
year.






F-21




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
5 — Mortgage Notes Payable (continued)





The
following table summarizes the scheduled aggregate principal repayments for the
five years subsequent to December 31, 2009 (in thousands):





Total2010
                    
                    $
                    1,5982011
                    
                    
                    2,4812012
                    
                    
                    16,3712013
                    
                    
                    59,4962014
                    
                    
                    32,9992015 and
      thereafter
                    
                    
                    70,866Total
                    
                    $
                    183,811




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. As of December 31, 2009, 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
$2.8 million and $4.2 million as of December 31, 2009 and 2008,
respectively.  The Company did not have derivative instruments
outstanding prior to April 2008.





Note 6
— Long-Term Notes Payable





As of
December 31, 2009, the Company had issued $13.0 million of notes payable
(the “Notes”) in a private placement pursuant to Rule 506 of Regulation D
promulgated under the Securities Act.  The proceeds of the private
placement were used to repay outstanding short-term bridge equity fund draws
(see Note 4 – Short-Term Bridge Equity Funds).





The Notes
bear interest at 9.0% annually, provided that the interest rate will be adjusted
to 9.57% annually for Notes on which the Company does not incur a selling
commission.  The Company will pay interest-only monthly payments to
subscribers of the Notes until the maturity on December 15, 2011.  The
Company has the right to extend the maturity date for two additional one-year
periods.





The
Company has the right to prepay the Notes in whole or in part any time following
the first anniversary of the closing date.  If repaid on or before the
second anniversary of the closing date, the Company will pay 2% of the remaining
amount due on the Notes as a prepayment premium.  If repaid after the
second anniversary of the closing date but before the third anniversary of the
closing date, the Company will pay 1% of the remaining amount due on the Notes
as a prepayment premium.  The foregoing not withstanding, the Company
shall have the right to repay the amount due under the Notes in whole or in part
without penalty within 360 days of the maturity date.  The Company
will not have the right to prepay the amount due under the notes during the two
optional extension periods. The Notes are unsecured.





The
Company is required to prepay the Notes out of any proceeds derived from the
sale or refinancing of the PNC Bank properties after any required payments of
the principal and interest due under the mortgage notes payable on those
properties (see Note 5 – Mortgage Notes Payable).  Such prepayment is
subject to the prepayment premiums described above.




As of
December 31, 2009, the Company was in compliance with all covenants included
within the Note agreement.





F-22




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 7
— Fair Value of Financial Instruments





Effective
January 1, 2008, the Company adopted new guidance related to the fair value of
financial instruments that defines fair value, establishes a framework for
measuring fair value, and expands disclosures
about fair value measurements. The 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.
The guidance 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, 2009 and 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, 2009 and 2008, aggregated by the level in the fair value
hierarchy within with those instruments fall (amounts in
thousands):


F-23




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 7 — Fair Value of Financial
Instruments (continued)





Quoted
      Prices in
                      Active
      Markets
                      Level
      1
                    
                    
                    Significant
      Other Observable Inputs
                      Level
      2
                    
                    
                    Significant
                      Unobservable
      Inputs
                      Level
      3
                    
                    
                    TotalDecember
      31, 2009:Total
      derivatives, net
                    
                    $
                    —
                    
                    
                    $
                    2,768
                    
                    
                    $
                    —
                    
                    
                    $
                    2,768December
      31, 2008Total
      derivatives, net
                    
                    $
                    —
                    
                    
                    $
                    4,233
                    
                    
                    $
                    —
                    
                    
                    $
                    4,233




The
Company is required to disclose the fair value of financial instruments for
which it is practicable to estimate that value. The fair value of short-term
financial instruments such as cash and cash equivalents, restricted cash, other
receivables, due to affiliates, short-term bridge funds, related party
convertible bridge revolver, accounts payable and accrued expenses,
distributions payable, and investor contributions held in escrow approximates
their carrying value on the consolidated balance sheet due to their short-term
nature. The fair values of the Company’s remaining financial instruments that
are not reported at fair value on the consolidated balance sheet are reported
below (amounts in thousands):





Carrying
      Amount at
                December
      31, 2009
              
              
              Fair
      Value at
                December
      31, 2009
              
              
              Carrying
      Amount at
                December
      31, 2008
              
              
              Fair
      Value at
                December
      31, 2008Mortgage
      notes payable
              
              $
              183,811
              
              
              $
              171,728
              
              
              $
              112,742
              
              
              $
              105,618Other
      long-term notes payable
              
              
              13,000
              
              
              
              13,000
              
              
              
              1,090
              
              
              
              1,090




Note 8
— Derivative and Hedging Activities




Risk
Management Objective of Using Derivatives





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
its 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 other 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.





Cash
Flow Hedges of Interest Rate Risk





The
Company’s objectives in using interest rate derivatives are to add stability to
interest expense and to manage its exposure to interest rate movements. To
accomplish this objective, the Company primarily uses interest rate swaps and
collars as part of its interest rate risk management
strategy.  Interest rate swaps designated as cash flow hedges involve
the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount.  Interest rate collars
designated as cash flow hedges involve the receipt of variable-rate amounts if
interest rates rise above the cap strike rate on the contract and payments of
variable-rate amounts if interest rates fall below the floor strike rate on the
contract.





F-24




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 8
— Derivative and Hedging Activities (continued)





During
2009 and 2008, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate debt.  The effective portion of
changes in the fair value of derivatives designated and that qualify as cash
flow hedges is recorded in accumulated other comprehensive income and is
subsequently reclassified into earnings in the period that the hedged forecasted
transaction affects earnings. The ineffective portion of the change in fair
value of the derivatives is recognized directly in earnings.  During
the years ended December 31, 2009 and 2008, the Company recognized income of
$467 and loss of $914, respectively, related to hedge
ineffectiveness.





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 an additional $1.1 million will be reclassified from other
comprehensive income as an increase to interest expense.




As of
December 31, 2009, the Company had the following outstanding interest rate
derivatives that were designated as cash flow hedges of interest rate risk
(dollar amounts in thousands):





Interest
      Rate Derivative
              
              
              Number
      of Instruments
              
              
              NotionalInterest
      Rate Swaps
              
              2
              
              $
              33,093Interest
      Rate Collars
              
              1
              
              
              4,115





As of
December 31, 2008, the Company had the following outstanding interest rate
derivatives that were designated as cash flow hedges of interest rate risk
(dollar amounts in thousands):





Interest
      Rate Derivative
              
              
              Number
      of Instruments
              
              
              NotionalInterest
      Rate Swaps
              
              2
              
              $
              33,596Interest
      Rate Collars
              
              1
              
              
              4,115




Non-Designated
Hedges





Derivatives
not designated as hedges are not speculative. These derivatives are used to
manage the Company’s exposure to interest rate movements and other identified
risks but do not meet the strict hedge accounting requirements to be classified
as hedging instruments. The Company has one interest rate collar contract
outstanding, with an aggregate notional amount of $23.7 million and $24.1
million at December 31, 2009 and 2008, respectively, with an established ceiling
and floor for the underlying variable rate at 4.125% and 3.54%, respectively.
This contract was not able to be designated as a hedging instrument 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 years ended December 31, 2009 and 2008.  For the years ended
December 31, 2009 and 2008, the Company has recorded losses of $0.5 million and
$1.6 million, respectively, related to this derivative instrument.





F-25




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 8
— Derivative and Hedging Activities (continued)





The table
below presents the fair value of the Company’s derivative financial instruments
as well as their classification on the Balance Sheet as of December 31, 2009 (in
thousands):





Balance
      Sheet Location
            
            Fair
      Value (liability)Derivatives
      designated as hedging instruments:Interest
      Rate Products
            Derivatives,
      at fair value
            
            $      (1,646)Derivatives
      not designated as hedging instruments:Interest
      Rate Products
            Derivatives,
      at fair value
            
            (1,122)




Derivatives in Cash Flow Hedging Relationships





The table
below details the location in the financial statements of the gain or loss
recognized on interest rate derivatives designated as cash flow hedges for the
year ended December 31, 2009 (amounts in thousands):





Year
      Ended December 31, 2009Amount
      of gain recognized in accumulated  other comprehensive income as
      interest rate derivatives (effective portion)
                
                $
                938Amount
      of  loss reclassified from accumulated other comprehensive
      income into income as interest expense (effective portion)
                
                
                (1,218
                )Amount
      of gain recognized in income on derivative as gain on derivative
      instruments (ineffective portion and amount excluded from effectiveness
      testing)
                
                
                —





Derivatives Not Designated as Hedging Instruments





The table
below details the amount and location in the financials statements of the gain
or loss recognized on derivatives not designated as hedging instruments for the
year ended December 31, 2009 (amounts in thousands):




Location of Gain
      or (Loss)
      Recognized
                    in
      Income on Derivative
                  
                  Year
      Ended
                    December
      31, 2009Interest
      expense
                  
                  $
                  (787
                  )Gains
      (losses) on derivative instruments
                  
                  
                  293Total
                  
                  $
                  (494
                  )





F-26




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 8
— Derivative and Hedging Activities (continued)





Credit-risk-related
Contingent Features





The
Company has agreements with each of its derivative counterparties that contain a
provision where if the Company either defaults or is capable of being declared
in default on any of its indebtedness, then the Company could also be declared
in default on its derivative obligations.





The
Company has agreements with several of its derivative counterparties that
incorporate the loan covenant provisions of the Company's indebtedness with a
lender affiliate of the derivative counterparty. Failure to comply with the loan
covenant provisions would result in the Company being in default on any
derivative instrument obligations covered by the agreement.





As of
December 31, 2009, the fair value of derivatives in a net liability position,
related to these agreements was $2.8 million. As of December 31, 2009, the
Company has not posted any collateral related to these agreements and was not in
breach of any agreement provisions. If the Company had breached any of these
provisions it could have been required to settle its obligations under the
agreements at their aggregate termination value of $3.0 million.




Note 9—
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.





Note 10
- 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 (as well
as sales of long-term notes and exchange transactions) 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 with
respect to shares sold under the DRIP.





F-27




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 10
- Related-Party Transactions and Arrangements (continued)





The
following table details the results of such activities related to the Dealer
Manager (amounts in thousands):





Year
      Ended
                    December
      31,2009
                  
                  
                  2008Total
      Commissions paid to Dealer Manager
                  
                  $
                  12,277
                  
                  
                  $
                  199Less:Commissions
      to participating broker dealers
                  
                  
                  (8,403
                  )
                  
                  
                  (326
                  )Reallowance
      to participating broker dealers
                  
                  
                  (911
                  )
                  
                  
                  (13
                  )Net
      to affiliated Dealer Manager  (1)
                  
                  $
                  2,963
                  
                  
                  $
                  (140
                  )





(1)
            Dealer
      Manager is responsible for commission payments due to their employees as
      well as its general overhead
      and various selling related
expenses.




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.





The
Advisor receives a financing coordination fee equal to 1.0% of amounts borrowed
under certain financing arrangements.





Certain
organization and offering expenses associated with the sale of the Company’s
common stock (excluding selling commissions and the dealer-manager fees as
outlined on the above table) are paid for by the Advisor or its affiliates and
are reimbursed by the Company up to 1.5% of total gross offering proceeds over
the term of the offering.





The
following table details amounts paid to the affiliated companies for the
activities described above (amounts in thousands):





Year
      Ended
                    December
      31,2009
                  
                  
                  2008Acquisition
      cost reimbursements
                  
                  $
                  1,690
                  
                  
                  $
                  1,507Financing
      coordination fees
                  
                  
                  880
                  
                  
                  
                  1,131Organizational
      and offering expense reimbursements
                  
                  
                  5,617
                  
                  
                  
                  —Net
      to affiliated Advisor
                  
                  $
                  8,187
                  
                  
                  $
                  2,638





The Company pays its
Advisor an annualized asset management fee of up to 1.0% based on the aggregate
contract purchase price of acquired real estate investments. The asset
management fee is payable six months in advance on the first day of the month
following the end of each calendar quarter end. Such advance fees cannot exceed
estimated asset management fees for the subsequent two calendar quarterly
periods.





F-28




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 10
— Related-Party Transactions and Arrangements (continued)





The
following table outlines activity related to asset management fees (amounts in
thousands):





Year
      Ended December 31,2009
                
                
                2008Earned
      asset management fee
                
                $
                1,924
                
                
                $
                733Paid
      to affiliate
                
                
                (145
                )
                
                
                —Waived
      by affiliate (not deferred)
                
                
                (1,779
                )
                
                
                (733
                )Net
      asset management fee activity
                
                $
                —
                
                
                $
                —Prepaid
      asset management fees
                
                $
                1,612
                
                
                $
                —





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. During the years ended December 31, 2009 and
2008, the Company did not pay any fees or amounts to the Advisor relating to the
sale of properties.





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 years ended December 31, 2009 and
2008, the Company did not reimburse the Advisor for any such costs.





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. For the years ended December 31, 2009 and 2008, the
Company would have incurred property management fees of $0.3 million and $0.1
million, respectively, however, these fees were waived by the Property Manager
to improve the Company’s working capital except for $4 thousand paid during
2008. This amount paid was subsequently refunded by the Property
Manager.  F-29




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009








Note 10
— Related-Party Transactions and Arrangements (continued)




During
the year ended December 31, 2008, the OP entered into an agreement with the
principals of the Advisor whereby the OP can obtain up to $10.0 million of
bridge equity from the principals 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 yield of 8%. In November 2008, the board approved
an extension of the satisfaction period of an additional six months. In
connection with the acquisition of the First Niagara (formerly Harleysville
National Bank) and the Rockland Trust Company portfolios and a Federal Express
Corp. distribution facility, the Company obtained bridge equity of $4.0 million,
$2.5 million and $2.7 million respectively. This bridge equity was repaid in
2009. During the years ended December 31, 2009 and 2008, the Company incurred
related party interest expense of $0.4 million and $0.3 million,
respectively.




During
the year ended December 31, 2008, the Company entered into an unsecured bridge
equity facility with a related party, American Realty Capital Equity Bridge, LLC
(“ARC Bridge”), whereby the Company can obtain bridge equity of up to $10.0
million 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 investments from this facility accrue a yield at an annual rate of 30 day
LIBOR plus 5% with a floor of 8%. This facility was used for two acquisitions
during the year ended December 31, 2008 and one acquisition in 2009. The bridge
equity investments relating to the PNC bank locations (formerly National City
Bank), Rite Aid portfolio acquisitions and a distribution facility from
Federal Express Corp. were $ 1.3 million, $5.3 million
and $9.6 million, respectively. These bridge equity investments are due one year
from the investment date and can be satisfied at any time without penalty. The
related yield on such short-term bridge equity was 8.11%. The Company
incurred interest expense on these advances of $0.5 million and $0.2
million for the years ended December 31, 2009 and 2008, respectively. As of
December 31, 2009 this facility was repaid in full.





Note 11 — 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.





F-30




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note 12
— 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, 2009, the Company had granted options to purchase 18,000 shares
at $10.00 per share, each with a two year vesting period and an expiration of 10
years. A total of 1,000,000 shares have been authorized and reserved for
issuance under the Plan.




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, risk free rate of 3.83%
volatility of 5.0% distribution yield of 6.5%.





During
the years ended December 31, 2009 and 2008 no options were forfeited, became
vested, or were exercised. As of December 31, 2009, unvested options to purchase
18,000 shares at $10.00 per share remained outstanding with a weighted average
contractual remaining life of 9.0 years. The total compensation charge relating
to these option grants is immaterial.





Note 13
— Net Loss Per Share





The
following is a summary of the basic and diluted net loss per share computation
for the years ended December 31, 2009 and 2008 (2007 data is not presented
as such data is not meaningful) (net loss in thousands):





Year
      Ended December 31,2009
                    
                    
                    2008Net
      loss
                    
                    $
                    (4,265
                    )
                    
                    $
                    (4,283
                    )Weighted
      average common shares outstanding
                    
                    
                    5,768,761
                    
                    
                    
                    711,524Loss
      per share, basic and diluted
                    
                    $
                    (0.74
                    )
                    
                    $
                    (6.02
                    )





The Company intends to grant options under its Stock Option Plan
(“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 the Company’s initial public offering, and thereafter the
exercise price for


stock
options granted to the independent directors will be equal to the fair market
value of a share on the last business day preceding the annual meeting of
stockholders. For the period ended December 31, 2007, no options were granted to
independent directors.




As of
December 31, 2009, 18,000 antidilutive stock options were
outstanding.





Note
14 – Noncontrolling Interests





In
July 2009, the Company purchased a Walgreens location under a tenant in common
structure with an unaffiliated third party. The third party’s investment of $1.1
million represented a 44.0% ownership interest in the property and entitles the
investor to receive a proportionate share of the net operating cash flow derived
from the property. Upon disposition of the property, the tenant in common will
receive a proportionate share of the net proceeds from the sale of the property.
The tenant in common has no recourse to any other assets of the
Company.  Distributions of $37 thousand were paid to the
noncontrolling interest holder of this property for the year ended December 31,
2009. At December 31, 2009, there were $3.8 million of real estate assets which
collateralized $1.6 million of mortgage debt that were subject to this
arrangement.


F-31


AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009


Note
14 – Noncontrolling Interests (continued)





In the
third quarter of 2009, the Company contributed a 49% interest in a Federal
Express distribution facility in Snow Shoe, PA and a PNC bank branch in Palm
Coast, FL, to a newly created taxable REIT subsidiary (“TRS”) and sold interests
in such properties for net proceeds of $1.9 million under a Delaware statutory
trust. This investment represents a 49% ownership interest in these properties
and entitles the investors to receive a proportionate share of the net operating
cash flow from the properties. Upon disposition of the properties, the
noncontrolling interest holders will receive a proportionate share of the net
proceeds from the sale of the properties. The interest holders have no recourse
to any other assets of the Company. Distributions of $52 thousand were paid to
the noncontrolling interest holders of these properties for the year ended
December 31 2009. At December 31, 2009, there were $12.7 million
of real estate assets which collateralized $9.0 million of mortgage debt
subject to this agreement.





In
September 2009, the Company contributed a partial interest of a PNC bank branch
in Pompano, FL to a newly created TRS and sold an interest in the property for
net proceeds of $0.4 million under a Delaware statutory trust. This investment
represents a 35.2% ownership interest in this property and entitles the investor
to receive a proportionate share of the net operating cash flow from the
properties. Upon disposition of the property, the noncontrolling interest holder
will receive a proportionate share of the net proceeds from the sale of the
property. The interest holder has no recourse to any other assets of the
Company.  Distributions of $11 thousand were paid to the
noncontrolling interest holder of these properties for the year ended December
31, 2009. At December 31, 2009 there were $3.7 million of real estate
assets which collateralized $2.4 million of mortgage debt subject to this
agreement.





Due to
the nature of our involvement with each of the arrangements described above and
the significance of our investment in relation to the investment of the other
interest holders we have determined that we are the primary beneficiary in each
of these arrangements and therefore the entities related to these arrangements
are consolidated with our financial statements.




Note
15 - Quarterly Results (Unaudited)





Presented
below is a summary of the unaudited quarterly financial information for the year
ended December 31, 2009 (in thousands except per share amounts):





Quarters
      Ended
                  
                  March
      31
                  
                  
                  June
      30
                  
                  
                  September
      30
                  
                  
                  December
      31Rental
      revenue
                  
                  $
                  2,926
                  
                  
                  $
                  2,935
                  
                  
                  $
                  3,774
                  
                  
                  $
                  5,319Net
      loss
                  
                  
                  (1,339
                  )
                  
                  
                  (673
                  )
                  
                  
                  (1,484
                  )
                  
                  
                  (770
                  )Weighted
      average shares outstanding
                  
                  
                  1,527
                  
                  
                  
                  3,151
                  
                  
                  
                  6,639
                  
                  
                  
                  11,637Basic
      and diluted loss per share
                  
                  $
                  (0.88
                  )
                  
                  $
                  (0.21
                  )
                  
                  $
                  (0.22
                  )
                  
                  $
                  (0.07
                  )




F-32




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
15 - Quarterly Results (Unaudited) (continued)





On
January 1, 2009, the Company adopted new accounting guidance requiring it to
expense costs of acquiring properties when incurred. Under prior guidance, costs
of acquiring property were generally capitalized and included in the purchase
price of the real estate investments. The effect of this new accounting standard
increased net loss by $0.3 million, and $0.05 loss per share for the quarter
ended September 30, 2009 and $0.2 million, and $0.1 loss per share for the
quarter ended December 31, 2009.





Presented
below is a summary of the unaudited quarterly financial information for the year
ended December 31, 2008 (in thousands, except per share amounts):





Quarters
      ended
                  
                  March
      31
                  
                  
                  June
      30
                  
                  
                  September
      30
                  
                  
                  December
      31Rental
      revenue
                  
                  $
                  214
                  
                  
                  $
                  1,348
                  
                  
                  $
                  1,594
                  
                  
                  $
                  2,390Net
      loss
                  
                  
                  (342
                  )
                  
                  
                  (454
                  )
                  
                  
                  (845
                  )
                  
                  
                  (2,642
                  )Weighted
      average shares outstanding
                  
                  
                  134
                  
                  
                  
                  860
                  
                  
                  
                  1,101
                  
                  
                  
                  1,216Basic
      and diluted loss per share
                  
                  $
                  (2.55
                  )
                  
                  $
                  (0.53
                  )
                  
                  $
                  (0.77
                  )
                  
                  $
                  (2.17
                  )




Note
16 — Subsequent Events





The
Company has evaluated subsequent events through the filing of this 10-K, and
determined that there have not been any events that have occurred that would
require adjustments to our disclosures in the consolidated financial statements
except for the following transactions:





F-33




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
16 — Subsequent Events (continued)





Completion
of Acquisition of Assets




The
following table presents certain information about the properties that the
Company acquired subsequent to December 31, 2009 (dollar amounts in
thousands):
  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)Total
      portfolio – December 31, 2009
                    
                    
                    
                    126
                    
                    1,730,168
                    
                    16.3
                    
                    $
                    26,554
                    
                    $
                    324,008
                    
                    8.20%
                    
                    $
                    329,130Bridgestone
      Firestone
                    
                    January
      2010
                    
                    1
                    
                    10,118
                    
                    14.2
                    
                    
                    246
                    
                    
                    2,634
                    
                    9.34%
                    
                    
                    2,634Fresenius
                    
                    January
      2010
                    
                    2
                    
                    140,000
                    
                    12.4
                    
                    
                    1,159
                    
                    
                    12,483
                    
                    9.28%
                    
                    
                    12,483Reckitt
      Benckiser
                    
                    February
      2010
                    
                    2
                    
                    574,106
                    
                    11.9
                    
                    
                    2,668
                    
                    
                    31,749
                    
                    8.40%
                    
                    
                    31,749Jack
      in the Box
                    
                    February
      2010
                    
                    4
                    
                    9,892
                    
                    19.9
                    
                    
                    639
                    
                    
                    8,257
                    
                    7.74%
                    
                    
                    8,257Bridgestone
      Firestone
                    
                    February  &
      March 2010
                    
                    6
                    
                    47,397
                    
                    13.8
                    
                    
                    1,143
                    
                    
                    13,176
                    
                    8.67%
                    
                    
                    13,176Total
      portfolio –
                      March
      15, 2010
                    
                    
                    
                    140
                    
                    2,511,654
                    
                    15.8
                    
                    $
                    32,409
                    
                    $
                    392,307
                    
                    8.26%
                    
                    $
                    397,429
 ________________________
  (1) -
                Remaining lease term in years as
      of March 15, 2009. If the portfolio has multiple locations with varying
      lease expirations, remaining lease term is calculated on a
      weighted-average
basis.
 (2) -
              Annualized 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.





F-34




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009


On
January 15, 2010, the Company acquired a Bridgestone Firestone retail facility
in Tulsa, OK totaling 10,118 square feet of retail space. The primary lease term
under this net lease arrangement, pursuant to which Bridgestone Firestone will
be required to pay all operating expenses and capital expenditures in addition
to base rent, is 15 years with a remaining lease term of 14.2
years.  Annual rent will be $0.2 million in the first year and the
lease provides for rent escalations of approximately 6.25% every five
years.





The
purchase price was $2.6 million, inclusive of closing costs and fees, and was
financed through the proceeds from the sale of common stock.





On
January 29, 2010, the Company acquired two Fresenius distribution facilities in
California totaling 140,000 square feet. The primary lease term under this net
lease arrangement, pursuant to which Fresenius will be required to pay all
operating expenses and capital expenditures in addition to base rent, is 15
years with a remaining lease term of 12.4 years.  Annual rent will be
$1.0 million in the first year and the lease provides for rent escalations of
approximately 10.0% every five years.





The
purchase price was $12.5 million, inclusive of closing costs and fees, and was
financed with the proceeds from the sale of common stock and a mortgage note of
$6.1 million which bears an interest rate of 6.25% and matures January
2015.





On
February 16, 2010, the Company acquired a build-to-suit distribution facility
for Reckitt Benckiser in Tooele, UT, near Salt Lake City totaling 574,000 square
feet. The primary lease term under this net lease arrangement, pursuant to which
Reckitt Benckiser will be required to pay all operating expenses and capital
expenditures in addition to base rent, is 12.3 years with a remaining lease term
of 11.9 years.  Annual rent will be $2.4 million in the first year and
the lease provides for rent escalations of approximately 2.0% each
year.





F-35




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
16 — Subsequent Events (continued)





The
purchase price $31.7 million, inclusive of closing costs and fees, and was
financed with the proceeds from the sale of common stock and a mortgage note of
$15.0 million which bears an interest rate of 6.145% including the effect of an
interest rate swap arrangement that was entered into simultaneously with the
closing of the mortgage loan. The mortgage note matures February
2017.





On
February 24, 2010, the Company acquired four Jack in the Box retail properties
and intends to acquire an additional property. The properties are located in
Oregon, Washington, Missouri and Texas totaling 11,930 square feet. The primary
lease term under this net lease arrangement, pursuant to which Jack in the Box
will be required to pay all operating expenses and capital expenditures in
addition to base rent, is 20 years.  Annual rent will be $0.9 million
in the first year and the lease provides for rent escalations every five years
of the lesser of CPI over the prior five year period or 10%.





The
purchase price for all five properties will be approximately $9.8 million,
inclusive of closing costs and fees, and will be financed with the proceeds from
the sale of common stock and a mortgage note of $5.7 million which bears an
interest rate of 6.43% and matures February 2015.





On
February 26, 2010 and March 15, 2010, the Company acquired six Bridgestone
Firestone retail properties and intends to acquire an additional six properties.
The properties are located Texas, Colorado, New Mexico, Kansas, Arkansas and
Louisiana totaling 93,366 square feet. The primary lease term under this net
lease arrangement, pursuant to which Bridgestone Firestone will be required to
pay all operating expenses and capital expenditures, with the exception of roof
and structure which is the responsibility of the Company, in addition to base
rent, is 15 years with a remaining lease term of 13.8 years.  Annual
rent will be $2.1 million in the first year and the lease provides for rent
escalations of 6.25% every five years





The
purchase price for all twelve properties will be approximately $26.6 million,
inclusive of closing costs and fees, and will be financed with the proceeds from
the sale of common stock.





Financing
arrangements




The
following table presents certain information about financing arrangements that
the Company entered into subsequent to December 31, 2009 (dollar amounts in
thousands):
 
 Purchase
      Price (1)
                        
                        
                        Mortgage
      Debt (2)
                        
                        
                        Effective
                          Interest
                          Rate
                        
                        
                        Leverage
      Ratio (3)Total
      portfolio – December 31, 2009
                        
                        $
                        329,130
                        
                        
                        $
                        183,811
                        
                        
                        
                        6.15
                        %
                        
                        
                        55.8
                        %Federal
      Express Distribution Facility (5)
                        
                        
                        —
                        
                        
                        
                        16,250
                        
                        
                        
                        6.03
                        %(4)
                        
                        
                        51.3
                        %Bridgestone
      Firestone
                        
                        
                        2,634
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        %Fresenius
                        
                        
                        12,483
                        
                        
                        
                        6,090
                        
                        
                        
                        6.72
                        %
                        
                        
                        48.8
                        %Reckitt
      Benckiser
                        
                        
                        31,749
                        
                        
                        
                        15,000
                        
                        
                        
                        6.23
                        %
      (4)
                        
                        
                        47.3
                        %Jack
      in the Box
                        
                        
                        8,257
                        
                        
                        
                        4,395
                        
                        
                        
                        6.45
                        %
                        
                        
                        53.2
                        %Bridgestone
      Firestone
                        
                        
                        13,176
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        %Less:
      amortization of principal
                        
                        
                        —
                        
                        
                        
                        (398
                        )
                        
                        
                        —
                        
                        
                        
                        —Total
      portfolio – March 15, 2010 (6)
                        
                        $
                        397,429
                        
                        
                        $
                        225,148
                        
                        
                        
                        6.17
                        %
                        
                        
                        56.7
                        %
 ________________________
  (1)
      -
                Base
      purchase price plus all acquisition related
  costs.
 (2)
      -
                Consists
      of first mortgage long-term debt
only.
 (3)
      -
                Mortgage
      debt divided by total purchase
price.
 (4)
      -
                Effective
      interest rate includes the impact of swapping floating rate yield to a
      fixed rate yield for the term of the mortgage not be utilizing hedging
      instruments.
 (5)
      -
                Represents
      refinancing of $15.9 million short-term bridge financing incurred to
      acquire a Federal Express distribution facility in
  2009.
 (6)
      -
                Weighted-average,
      as applicable.




Sales
of Common Stock





As of
March 15,
2010, the Company had issued 18,893,430
shares of common stock, including shares issued under the DRIP. Total gross
proceeds from these issuances were $186.6
million. As of March 15,
2010, the aggregate value of all share issuances was $188.8
million based on a per share value of $10.00 (or $9.50 per share for shares
issued under the DRIP).


F-36




AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2009





Note
16 — Subsequent Events (continued)





Total
capital raised to date is as follows (amounts in thousands):





Source
      of Capital
              
              Inception
      to
                December
      31, 2009
              
              
              January
      1 to March 15, 2010
              
              
              TotalCommon
      shares
              
              $
              144,618
              
              
              $
              41,999
              
              
              $
              186,617Notes
      payable
              
              
              13,000
              
              
              
              —
              
              
              
              13,000Exchange
      proceeds (1)
              
              
              3,739
              
              
              
              3,123
              
              
              
              6,862Total
              
              $
              161,357
              
              
              $
              45,122
              
              
              $
              206,479




(1)
            Includes
      amounts received by the Company in connection with transactions completed
      through its affiliate, American Realty Capital Exchange,
      LLC.  Such transactions include joint ventures whereby
      unaffiliated third-party investors co-invested in investment properties
      that are majority owned and controlled by the
  Company.





On
October 5, 2009, the Company’s Board of Directors approved a special
distribution of $0.05 per share payable to shareholders or record on December
31, 2009. This special distribution will be paid in January 2010, and shall be
paid in addition to the current annualized distribution of $0.67 per share. In
addition, the board of directors increased the distribution per share to $0.70
effective April 1, 2010.




F-37




Noncontrolling
Interest




In
January 2010, the Company contributed a partial interest of three CVS pharmacies
in Smyrna, GA, Chicago, IL and Visalia, CA, to a newly created TRS and sold an
interest in the properties for net proceeds of $2.6 million under a Delaware
statutory trust. This investment represents a 49.0% ownership interest in these
properties and entitles the investors to receive a proportionate share of the
net operating cash flow from the properties. Upon disposition of the properties,
the noncontrolling interest holders will receive a proportionate share of the
net proceeds from the sale of the properties. The interest holders have no
recourse to any other assets of the Company.
       F-38




Real Estate and Accumulated
Depreciation


Schedule
III


December 31,
2009





Gross
      AmountEncumbrances
                    
                    Initial
      Costs
                    
                    
                    
                    CarriedAcquisition
                    
                    at  December31,
                    
                    
                    
                    Building  and
                    
                    Adjust-ments
                    
                    At
      December 31,
                    
                    AccumulatedProperty
                    City
                    
                    State
                    
                    Date
                    
                    2009
                    
                    Land
                    
                    Improvements
                    
                    to
      Basis
                    
                    2009
                    
                    DepreciationFed
      Ex
                    Snow
      Shoe
                    
                    PA
                    
                    3/5/2008
                    
                    $          6,965
                    
                    $
      1,413
                    
                    $        7,930
                    
                    $  
       —
                    
                    $            9,343
                    
                    $         (626)Harelysville
                    Harleysville
                    
                    PA
                    
                    3/12/2008
                    
                    10,031
                    
                    1,853
                    
                    10,427
                    
                    —
                    
                    12,279
                    
                    (822)Harelysville
                    Lansdale
                    
                    PA
                    
                    3/12/2008
                    
                    1,367
                    
                    251
                    
                    1,423
                    
                    —
                    
                    1,674
                    
                    (112)Harelysville
                    Lansdale
                    
                    PA
                    
                    3/12/2008
                    
                    1,211
                    
                    224
                    
                    1,258
                    
                    —
                    
                    1,482
                    
                    (99)Harelysville
                    Lansford
                    
                    PA
                    
                    3/12/2008
                    
                    1,517
                    
                    279
                    
                    1,578
                    
                    —
                    
                    1,857
                    
                    (124)Harelysville
                    Lehighton
                    
                    PA
                    
                    3/12/2008
                    
                    747
                    
                    137
                    
                    777
                    
                    —
                    
                    914
                    
                    (61)Harelysville
                    Limerick
                    
                    PA
                    
                    3/12/2008
                    
                    1,265
                    
                    232
                    
                    1,316
                    
                    —
                    
                    1,548
                    
                    (104)Harelysville
                    Palmerton
                    
                    PA
                    
                    3/12/2008
                    
                    2,477
                    
                    455
                    
                    2,577
                    
                    —
                    
                    3,032
                    
                    (203)Harelysville
                    Sellersville
                    
                    PA
                    
                    3/12/2008
                    
                    869
                    
                    159
                    
                    904
                    
                    —
                    
                    1,063
                    
                    (71)
 F-39


Harelysville
                Skippack
                
                PA
                
                3/12/2008
                
                1,142
                
                210
                
                1,188
                
                —
                
                1,398
                
                (94)Harelysville
                Slatington
                
                PA
                
                3/12/2008
                
                890
                
                163
                
                926
                
                —
                
                1,089
                
                (73)Harelysville
                Springhouse
                
                PA
                
                3/12/2008
                
                3,044
                
                561
                
                3,165
                
                —
                
                3,726
                
                (250)Harelysville
                Summit
      Hill
                
                PA
                
                3/12/2008
                
                1,337
                
                245
                
                1,391
                
                —
                
                1,636
                
                (110)Harelysville
                Walnutport
                
                PA
                
                3/12/2008
                
                1,269
                
                233
                
                1,321
                
                —
                
                1,554
                
                (104)Harelysville
                Wyomissing
                
                PA
                
                3/12/2008
                
                1,156
                
                212
                
                1,203
                
                —
                
                1,415
                
                (95)Harelysville
                Slatington
                
                PA
                
                3/12/2008
                
                2,678
                
                492
                
                2,786
                
                —
                
                3,278
                
                (220)Rockland
                Brockton
                
                MA
                
                5/2/2008
                
                456
                
                88
                
                498
                
                —
                
                586
                
                (36)Rockland
                Chatham
                
                MA
                
                5/2/2008
                
                1,074
                
                206
                
                1,167
                
                —
                
                1,373
                
                (84)Rockland
                Hull
                
                MA
                
                5/2/2008
                
                494
                
                95
                
                537
                
                —
                
                631
                
                (38)Rockland
                Hyannis
                
                MA
                
                5/2/2008
                
                1,691
                
                325
                
                1,840
                
                —
                
                2,165
                
                (132)Rockland
                Middleboro
                
                MA
                
                5/2/2008
                
                2,481
                
                478
                
                2,697
                
                —
                
                3,176
                
                (193)Rockland
                Orleans
                
                MA
                
                5/2/2008
                
                979
                
                188
                
                1,066
                
                —
                
                1,254
                
                (76)Rockland
                Randolph
                
                MA
                
                5/2/2008
                
                1,097
                
                211
                
                1,194
                
                —
                
                1,405
                
                (86)Rockland
                Centerville
                
                MA
                
                5/2/2008
                
                809
                
                155
                
                879
                
                —
                
                1,034
                
                (63)Rockland
                Duxbury
                
                MA
                
                5/2/2008
                
                951
                
                182
                
                1,034
                
                —
                
                1,216
                
                (74)Rockland
                Hanover
                
                MA
                
                5/2/2008
                
                946
                
                182
                
                1,029
                
                —
                
                1,210
                
                (74)Rockland
                Middleboro
                
                MA
                
                5/2/2008
                
                660
                
                127
                
                719
                
                —
                
                845
                
                (52)Rockland
                Pembroke
                
                MA
                
                5/2/2008
                
                1,109
                
                213
                
                1,206
                
                —
                
                1,419
                
                (86)Rockland
                Plymouth
                
                MA
                
                5/2/2008
                
                3,693
                
                714
                
                4,013
                
                —
                
                4,727
                
                (288)Rockland
                Rockland
                
                MA
                
                5/2/2008
                
                2,917
                
                563
                
                3,173
                
                —
                
                3,736
                
                (228)Rockland
                Rockland
                
                MA
                
                5/2/2008
                
                1,258
                
                242
                
                1,369
                
                —
                
                1,611
                
                (98)Rockland
                S.
      Yarmouth
                
                MA
                
                5/2/2008
                
                1,135
                
                218
                
                1,235
                
                —
                
                1,453
                
                (89)Rockland
                Scituate
                
                MA
                
                5/2/2008
                
                906
                
                174
                
                986
                
                —
                
                1,159
                
                (71)Rockland
                West
      Dennis
                
                MA
                
                5/2/2008
                
                993
                
                167
                
                1,080
                
                —
                
                1,247
                
                (77)Rite
      Aid
                Lisbon
                
                OH
                
                9/29/2008
                
                1,090
                
                205
                
                1,160
                
                —
                
                1,365
                
                (62)Rite
      Aid
                East
      Liverpool
                
                OH
                
                9/29/2008
                
                1,630
                
                305
                
                1,729
                
                —
                
                2,034
                
                (93)Rite
      Aid
                Carrollton
                
                OH
                
                9/29/2008
                
                1,730
                
                325
                
                1,826
                
                —
                
                2,151
                
                (98)Rite
      Aid
                Cadiz
                
                OH
                
                9/29/2008
                
                1,240
                
                232
                
                1,317
                
                —
                
                1,550
                
                (71)Rite
      Aid
                Carlisle
                
                PA
                
                9/29/2008
                
                3,008
                
                637
                
                3,597
                
                —
                
                4,234
                
                (193)Rite
      Aid
                Pittsburgh
                
                PA
                
                9/29/2008
                
                4,110
                
                866
                
                4,906
                
                —
                
                5,772
                
                (264)PNC
                Bloomfield
                
                NJ
                
                11/25/2008
                
                659
                
                126
                
                712
                
                —
                
                838
                
                (33)PNC
                Cedar
      Grove
                
                NJ
                
                11/25/2008
                
                987
                
                198
                
                1,123
                
                —
                
                1,322
                
                (52)PNC
                Clementon
                
                NJ
                
                11/25/2008
                
                987
                
                197
                
                1,117
                
                —
                
                1,314
                
                (52)


F-40








PNC
                Clifton
                
                NJ
                
                11/25/2008
                
                329
                
                93
                
                527
                
                —
                
                620
                
                (25)PNC
                Dayton
                
                NJ
                
                11/25/2008
                
                659
                
                172
                
                975
                
                —
                
                1,148
                
                (45)PNC
                Deptford
                
                NJ
                
                11/25/2008
                
                659
                
                138
                
                783
                
                —
                
                921
                
                (36)PNC
                Dunellen
                
                NJ
                
                11/25/2008
                
                659
                
                157
                
                889
                
                —
                
                1,046
                
                (41)PNC
                East
      Brunswick
                
                NJ
                
                11/25/2008
                
                659
                
                175
                
                976
                
                —
                
                1,151
                
                (45)PNC
                Fairfield
                
                NJ
                
                11/25/2008
                
                1,317
                
                268
                
                1,701
                
                —
                
                1,968
                
                (97)PNC
                Fanwood
                
                NJ
                
                11/25/2008
                
                659
                
                167
                
                947
                
                —
                
                1,114
                
                (44)PNC
                Garfield
                
                NJ
                
                11/25/2008
                
                987
                
                190
                
                1,079
                
                —
                
                1,270
                
                (50)PNC
                Glen
      Ridge
                
                NJ
                
                11/25/2008
                
                659
                
                121
                
                685
                
                —
                
                805
                
                (32)PNC
                Haddonfield
                
                NJ
                
                11/25/2008
                
                659
                
                149
                
                842
                
                —
                
                990
                
                (39)PNC
                Kearny
                
                NJ
                
                11/25/2008
                
                659
                
                145
                
                821
                
                —
                
                966
                
                (38)PNC
                Mahwah
                
                NJ
                
                11/25/2008
                
                659
                
                128
                
                723
                
                —
                
                851
                
                (34)PNC
                Martinsville
                
                NJ
                
                11/25/2008
                
                987
                
                227
                
                1,285
                
                —
                
                1,512
                
                (60)PNC
                Millstone
                
                NJ
                
                11/25/2008
                
                659
                
                125
                
                709
                
                —
                
                834
                
                (33)PNC
                Mountain
      Lakes
                
                NJ
                
                11/25/2008
                
                659
                
                149
                
                842
                
                —
                
                991
                
                (39)PNC
                Northvale
                
                NJ
                
                11/25/2008
                
                659
                
                131
                
                744
                
                —
                
                875
                
                (35)PNC
                Orange
                
                NJ
                
                11/25/2008
                
                659
                
                158
                
                897
                
                —
                
                1,055
                
                (42)PNC
                Parlin
                
                NJ
                
                11/25/2008
                
                659
                
                169
                
                960
                
                —
                
                1,130
                
                (45)PNC
                Paterson
                
                NJ
                
                11/25/2008
                
                659
                
                138
                
                785
                
                —
                
                923
                
                (37)PNC
                Paterson
                
                NJ
                
                11/25/2008
                
                329
                
                90
                
                512
                
                —
                
                602
                
                (24)PNC
                Pompton
      Plains
                
                NJ
                
                11/25/2008
                
                329
                
                90
                
                511
                
                —
                
                601
                
                (24)PNC
                Raritan
                
                NJ
                
                11/25/2008
                
                987
                
                210
                
                1,189
                
                —
                
                1,399
                
                (55)PNC
                Somerville
                
                NJ
                
                11/25/2008
                
                987
                
                180
                
                1,005
                
                —
                
                1,185
                
                (47)PNC
                Tenafly
                
                NJ
                
                11/25/2008
                
                659
                
                132
                
                748
                
                —
                
                880
                
                (35)PNC
                Trenton
                
                NJ
                
                11/25/2008
                
                987
                
                208
                
                1,177
                
                —
                
                1,385
                
                (55)PNC
                Vineland
                
                NJ
                
                11/25/2008
                
                659
                
                120
                
                666
                
                —
                
                786
                
                (31)PNC
                West
      Orange
                
                NJ
                
                11/25/2008
                
                659
                
                131
                
                743
                
                —
                
                875
                
                (35)PNC
                West
      Orange
                
                NJ
                
                11/25/2008
                
                329
                
                92
                
                521
                
                —
                
                613
                
                (24)PNC
                West
      Paterson
                
                NJ
                
                11/25/2008
                
                659
                
                105
                
                598
                
                —
                
                703
                
                (28)PNC
                Westwood
                
                NJ
                
                11/25/2008
                
                659
                
                112
                
                632
                
                —
                
                744
                
                (29)PNC
                West
      Chester
                
                OH
                
                11/25/2008
                
                988
                
                176
                
                997
                
                —
                
                1,173
                
                (46)PNC
                Blairsville
                
                PA
                
                11/25/2008
                
                659
                
                131
                
                728
                
                —
                
                858
                
                (34)PNC
                Clarks
      Summit
                
                PA
                
                11/25/2008
                
                329
                
                103
                
                586
                
                —
                
                690
                
                (27)PNC
                Dillsburg
                
                PA
                
                11/25/2008
                
                329
                
                91
                
                517
                
                —
                
                608
                
                (24)


F-41





PNC
                Media
                
                PA
                
                11/25/2008
                
                659
                
                128
                
                727
                
                —
                
                855
                
                (34)PNC
                Media
                
                PA
                
                11/25/2008
                
                329
                
                78
                
                440
                
                —
                
                517
                
                (20)PNC
                Philadelphia
                
                PA
                
                11/25/2008
                
                659
                
                138
                
                767
                
                —
                
                905
                
                (36)PNC
                Philadelphia
                
                PA
                
                11/25/2008
                
                659
                
                169
                
                956
                
                —
                
                1,124
                
                (45)PNC
                Philadelphia
                
                PA
                
                11/25/2008
                
                329
                
                103
                
                583
                
                —
                
                686
                
                (27)PNC
                Philadelphia
                
                PA
                
                11/25/2008
                
                329
                
                116
                
                644
                
                —
                
                760
                
                (30)PNC
                Philadelphia
                
                PA
                
                11/25/2008
                
                659
                
                142
                
                806
                
                —
                
                949
                
                (38)PNC
                Philadelphia
                
                PA
                
                11/25/2008
                
                329
                
                84
                
                478
                
                —
                
                562
                
                (22)PNC
                Pittsburgh
                
                PA
                
                11/25/2008
                
                659
                
                119
                
                675
                
                —
                
                794
                
                (31)PNC
                Somerset
                
                PA
                
                11/25/2008
                
                988
                
                191
                
                1,085
                
                —
                
                1,276
                
                (51)PNC
                Swarthmore
                
                PA
                
                11/25/2008
                
                329
                
                98
                
                553
                
                —
                
                650
                
                (26)PNC
                Tannersville
                
                PA
                
                11/25/2008
                
                659
                
                126
                
                715
                
                —
                
                841
                
                (33)PNC
                Warren
                
                PA
                
                11/25/2008
                
                659
                
                132
                
                746
                
                —
                
                877
                
                (35)Federal
      Express
                Houston
                
                TX
                
                7/8/2009
                
                15,878
                
                4,021
                
                22,786
                
                —
                
                26,808
                
                (490)Walgreens
                Sealy
                
                TX
                
                7/17/2009
                
                1,550
                
                515
                
                2,918
                
                —
                
                3,433
                
                (52)National
      City Bank (now PNC Bank)
                Palm
      Coast
                
                FL
                
                7/23/2009
                
                2,022
                
                427
                
                2,417
                
                —
                
                2,844
                
                (139)National
      City Bank (now PNC Bank)
                Pompano
      Beach
                
                FL
                
                9/10/2009
                
                2,390
                
                519
                
                2,940
                
                —
                
                3,459
                
                (148)CVS
                Phoenix
                
                AZ
                
                9/18/2009
                
                2,117
                
                -
                
                3,228
                
                —
                
                3,228
                
                (35)CVS
                Visalia
                
                CA
                
                9/18/2009
                
                1,838
                
                -
                
                2,778
                
                —
                
                2,778
                
                (30)CVS
                Smyrna
                
                GA
                
                9/18/2009
                
                2,845
                
                654
                
                3,705
                
                —
                
                4,359
                
                (40)CVS
                Chicago
                
                IL
                
                9/18/2009
                
                2,136
                
                -
                
                3,330
                
                —
                
                3,330
                
                (36)CVS
                Moline
                
                IL
                
                9/18/2009
                
                2,845
                
                658
                
                3,729
                
                —
                
                4,388
                
                (40)CVS
                Northville
                
                MI
                
                9/18/2009
                
                2,746
                
                626
                
                3,549
                
                —
                
                4,175
                
                (38)CVS
                Asheville
                
                NC
                
                9/18/2009
                
                1,138
                
                -
                
                1,770
                
                —
                
                1,770
                
                (19)CVS
                Wilton
                
                NY
                
                9/18/2009
                
                2,580
                
                603
                
                3,414
                
                —
                
                4,017
                
                (37)CVS
                Columbia
                
                SC
                
                9/18/2009
                
                1,947
                
                446
                
                2,525
                
                —
                
                2,970
                
                (27)CVS
                Coppell
                
                TX
                
                9/18/2009
                
                3,519
                
                810
                
                4,588
                
                —
                
                5,398
                
                (49)CVS
                Auburn
                
                AL
                
                11/19/2009
                
                2,335
                
                571
                
                3,237
                
                —
                
                3,808
                
                (12)CVS
                Chandler
                
                AZ
                
                11/19/2009
                
                2,149
                
                -
                
                3,459
                
                —
                
                3,459
                
                (12)CVS
                Pico
      Rivera
                
                CA
                
                11/19/2009
                
                2,489
                
                -
                
                4,014
                
                —
                
                4,014
                
                (14)CVS
                Gainesville
                
                FL
                
                11/19/2009
                
                3,298
                
                807
                
                4,575
                
                —
                
                5,382
                
                (16)CVS
                Jacksonville
                
                FL
                
                11/19/2009
                
                2,440
                
                598
                
                3,391
                
                —
                
                3,990
                
                (12)


F-42





CVS
                              East
      Ellijay
                              
                              GA
                              
                              11/19/2009
                              
                              2,115
                              
                              516
                              
                              2,923
                              
                              —
                              
                              3,439
                              
                              (10)CVS
                              Rome
                              
                              GA
                              
                              11/19/2009
                              
                              1,672
                              
                              -
                              
                              2,699
                              
                              —
                              
                              2,699
                              
                              (10)CVS
                              Chesterton
                              
                              IN
                              
                              11/19/2009
                              
                              3,296
                              
                              804
                              
                              4,557
                              
                              —
                              
                              5,361
                              
                              (16)CVS
                              Biddeford
                              
                              ME
                              
                              11/19/2009
                              
                              2,001
                              
                              -
                              
                              3,225
                              
                              —
                              
                              3,225
                              
                              (12)CVS
                              Brooklyn
      Park
                              
                              MN
                              
                              11/19/2009
                              
                              1,489
                              
                              -
                              
                              2,379
                              
                              —
                              
                              2,379
                              
                              (9)CVS
                              Harrisonville
                              
                              MO
                              
                              11/19/2009
                              
                              2,079
                              
                              508
                              
                              2,876
                              
                              —
                              
                              3,384
                              
                              (10)CVS
                              Creedmoor
                              
                              NC
                              
                              11/19/2009
                              
                              1,870
                              
                              454
                              
                              2,573
                              
                              —
                              
                              3,027
                              
                              (9)CVS
                              Holly
      Springs
                              
                              NC
                              
                              11/19/2009
                              
                              2,109
                              
                              513
                              
                              2,906
                              
                              —
                              
                              3,419
                              
                              (10)CVS
                              Walkertown
                              
                              NC
                              
                              11/19/2009
                              
                              2,052
                              
                              499
                              
                              2,830
                              
                              —
                              
                              3,329
                              
                              (10)CVS
                              Reno
                              
                              NV
                              
                              11/19/2009
                              
                              1,674
                              
                              -
                              
                              2,708
                              
                              —
                              
                              2,708
                              
                              (10)Home
      Depot
                              Topeka
                              
                              KS
                              
                              12/11/2009
                              
                              13,716
                              
                              -
                              
                              18,306
                              
                              —
                              
                              18,306
                              
                              (66)BSFS
                              Middleburg
                              
                              FL
                              
                              12/21/2009
                              
                              -
                              
                              347
                              
                              1,968
                              
                              —
                              
                              2,315
                              
                              -BSFS
                              Oklahoma
      City
                              
                              OK
                              
                              12/21/2009
                              
                              -
                              
                              315
                              
                              1,787
                              
                              —
                              
                              2,102
                              
                              -BSFS
                              Owasso
                              
                              OK
                              
                              12/21/2009
                              
                              -
                              
                              327
                              
                              1,852
                              
                              —
                              
                              2,179
                              
                              -BSFS
                              Edmond
                              
                              OK
                              
                              12/28/2009
                              
                              -
                              
                              340
                              
                              1,929
                              
                              —
                              
                              2,270
                              
                              -BSFS
                              Yukon
                              
                              OK
                              
                              12/29/2009
                              
                              -
                              
                              338
                              
                              1,917
                              
                              —
                              
                              2,255
                              
                              -Advance
      Auto
                              Plainfield
                              
                              MI
                              
                              12/30/2009
                              
                              -
                              
                              230
                              
                              1,303
                              
                              —
                              
                              1,533
                              
                              -$       199,689
                              
                              $37,779
                              
                              $    261,939
                              
                              $        
      —
                              
                              $   299,718
                              
                              $          (9,115)




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 $36.6 million are not allocated to individual
      properties as reflected in the table above.(4)
            
            The accumulated depreciation
      column excludes $2.2
      millionof
      amortization associated with acquired intangible lease
      assets.(5)
            
            Each location is a single-tenant,
      freestanding property.




A summary
of activity for real estate and accumulated depreciation for the years ended
December 31, 2009 and 2008 (in thousands):





Year
      Ended December 31,2009
                          
                          
                          2008Real estate investments, at
      cost:Balance
      at beginning of year
                          
                          $
                          148,322
                          
                          
                          $
                          —Additions-Acquisitions
                          
                          
                          151,396
                          
                          
                          
                          148,322Balance
      at end of the year
                          
                          $
                          299,718
                          
                          
                          $
                          148,322


Accumulated depreciation and
      amortization:Balance
      at beginning of year
                        
                        $
                        2,534
                        
                        
                        $
                        —Depreciation
      expense
                        
                        
                        6,581
                        
                        
                        
                        2,534Balance
      at end of the year
                        
                        $
                        9,115
                        
                        
                        $
                        2,534




F-43