UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549




FORM 10-Q/A


AMENDMENT NO. 1


(Mark
One)


x  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE ACT OF
1934




For the
quarterly period ended September 30, 2008




OR




o  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 Old York
      Road
              Jenkintown,
      PA
            
            19046(Address
      of principal executive offices)
            
            (Zip
      Code)





(215)
      887-2189(Registrant’s
      telephone number, including area
code)





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. x Yes  ̈ No





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 definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer ̈
            
            Accelerated
      filer ̈Non-accelerated
      filerx
            (Do
      not check if a smaller reporting company)
            Smaller
      reporting company ̈





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





The
number of outstanding shares of the registrant’s common stock on November 11,
2008 was 1,204,065 shares.





EXPLANATORY
NOTE
 American
Realty Capital Trust, Inc. (the “Company”) is filing this amendment (the Form
10-Q/A) to our Quarterly Report on Form 10-Q for the quarter ended September 30,
2008 (the “Form 10-Q”), filed with the U.S. Securities and Exchange Commission
on November 14, 2008,to revise
our management’s conclusions regarding the effectiveness of our disclosure
controls and procedures as of September 30, 2008, as a result of our failure to
disclose our controls and procedures in our quarterly report on Form 10-Q for
the quarter ended September 30, 2008. Although management had performed its
assessment of our controls and procedures as of September 30, 2008 in a
timely manner, the results of such assessment were inadvertently omitted from
our quarterly report on Form 10-Q.
  In
addition, as required under Rule 12b-15 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s principal
executive officer and principal financial officer are providing new
certifications in connection with this Form 10-Q/A. For purposes of this Form
10-Q/A and in accordance with Rule 12b-15 under the Exchange Act, Item 4T of the
Form 10-Q is set forth herein in its entirety.
  This Form
10-Q/A does not revise, update or in any way affect any information or
disclosure contained in the Form 10Q, including our Financial Statements or
Management’s Discussion and Analysis of Financial Condition and Results of
Operationexcept
as described above and for modifications to clarify the characterization of
bridge equity obtained for acquisitions and general working capital purposes.
Such bridge equity proceeds are unsecured obligations and were incorrectly
characterized as mezzanine debt.
  This Form
10-Q/A should be read in conjunction with the original Form 10-Q, which
continues to speak as of the date of the Form 10-Q. Except as specifically noted
above, this Form 10-Q/A does not modify or update disclosures in the original
Form 10-Q. Accordingly, this Form 10-Q/A does not reflect events occurring after
the filing of the Form 10-Q or modify or update any related or other
disclosures.











AMERICAN REALTY CAPITAL TRUST,
INC.


INDEX




PART
      I — FINANCIAL INFORMATIONItem 1.
      Financial Statements
                  3Consolidated
      Balance Sheets as of September 30, 2008 (Unaudited) and December 31,
      2007
                  3Consolidated
      Statement of Operations for the three and nine months ended September 30,
      2008 (Unaudited)
                  4Consolidated
      Statement of Stockholders’ Equity for the nine months ended September 30,
      2008 (Unaudited)
                  5Consolidated
      Statement of Cash Flows for the nine months ended September 30, 2008
      (Unaudited)
                  6Notes
      to Consolidated Financial Statements (Unaudited)
                  7Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
                  18Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
                  24PART
      II — OTHER INFORMATION
                  25Item 1.
      Legal Proceedings
                  25Item
      1A. Risk Factors
                  25Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
                  25Item 3.
      Defaults Upon Senior Securities
                  25Item 4.
      Submission of Matters to a Vote of Security Holders
                  25Item 4T.
      Controls and Procedures
                  25Item 5.
      Other Information
                  25Item 6.
      Exhibits
                  25Signatures
                  26


2




PART I - Financial
Information




Item 1. Financial
Statements




AMERICAN REALTY CAPITAL TRUST,
INC.


CONSOLIDATED BALANCE
SHEETS





September
      30,
                    2008
                    (Unaudited)
                  
                  December
31,
                    2007ASSETSReal
      estate investments, at cost:Land
                  
                  $
                  14,633,064
                  
                  $
                  —Buildings,
      fixtures and improvements
                  
                  
                  82,842,992
                  
                  
                  —Acquired
      intangible lease assets
                  
                  
                  9,443,239
                  
                  
                  —Total
      real estate investments, at cost
                  
                  
                  106,919,295
                  
                  
                  —Less
      accumulated depreciation and amortization
                  
                  
                  (1,765,149
                  )
                  
                  —Total real estate investments, net
                  
                  
                  105,154,146
                  
                  
                  —Cash
      and cash equivalents
                  
                  
                  874,661
                  
                  
                  —Restricted
      cash
                  
                  
                  50,232
                  
                  
                  —Prepaid
      expenses and other assets
                  
                  
                  751,273
                  
                  
                  938,157Fair value of
      derivative instruments
                  
                  
                  479,364
                  
                  
                  —Deferred
      financing costs, net
                  
                  
                  974,780
                  
                  
                  —Total
      assets
                  
                  $
                  108,284,456
                  
                  $
                  938,157LIABILITIES AND STOCKHOLDERS’
      EQUITYMortgage
      notes payable
                  
                  $
                  77,067,200
                  
                  $
                  —Related
      party bridge facility
                  
                  
                  7,147,587
                  
                  
                  —Related
      party bridge revolver
                  
                  
                  6,500,000
                  
                  
                  —Short-term
      bridge funds
                  
                  
                  3,953,796
                  
                  
                  —Short-term
      convertible redeemable preferred
                  
                  
                  3,995,000
                  
                  
                  —Accounts
      payable and accrued expenses
                  
                  
                  1,537,643
                  
                  
                  453,832Investor contributions
      held in escrow
                  
                  
                  30,824
                  
                  
                  —Distributions
      payable
                  
                  
                  61,425
                  
                  
                  —Deferred
      rent and other liabilities
                  
                  
                  554,124
                  
                  
                  —Due
      to affiliates
                  
                  
                  555,192
                  
                  
                  284,825Total
      liabilities
                  
                  
                  101,402,791
                  
                  
                  738,657STOCKHOLDERS’
      EQUITYPreferred
      stock, $0.01 par value; 10,000,000 shares authorized, none issued and
      outstanding
                  
                  
                  —
                  
                  
                  —Common
      stock, $.01 par value; 240,000,000 shares authorized, 1,165,397 and 20,000
      shares issued and outstanding at September 30, 2008 and December 31, 2007,
      respectively
                  
                  
                  11,654
                  
                  
                  200Additional
      paid-in capital
                  
                  
                  8,367,997
                  
                  
                  199,800Accumulated
      other comprehensive income
                  
                  
                  459,203
                  
                  
                  —Accumulated
      deficit
                  
                  
                  (1,957,189
                  )
                  
                  (500
                  )Total
      stockholders’ equity
                  
                  
                  6,881,665
                  
                  
                  199,500Total
      liabilities and stockholders’ equity
                  
                  $
                  108,284,456
                  
                  $
                  938,157




See
accompanying notes to consolidated financial statements


3




AMERICAN REALTY CAPITAL TRUST,
INC.


CONSOLIDATED STATEMENTS OF
OPERATIONS


(Unaudited)




ThreeMonths
Ended
                September
      30,2008
              
              NineMonths
Ended
                September 30,2008Rental
      income
              
              $
              1,593,871
              
              $
              3,156,379ExpensesProperty
      management fees to affiliate
              
              
              -
              
              
              4,230General
      and administrative
              
              
              19,188
              
              
              291,787Depreciation
      and amortization
              
              
              857,187
              
              
              1,765,149Total
      operating expenses
              
              
              876,375
              
              
              2,061,166Operating
      income
              
              
              717,496
              
              
              1,095,213Other income
      (expenses)Interest
      expense
              
              
              (1,386,655
              )
              
              (2,758,625
              )Interest
      income
              
              
              691
              
              
              1,907Gains
      (losses) on derivative instruments
              
              
              (176,656
              )
              
              20,160Total
      other expenses
              
              
              (1,562,620
              )
              
              (2,736,558
              )Net loss
              
              $
              (845,124
              )
              $
              (1,641,345
              )Basic and diluted weighted
      averagecommon shares
      outstanding
              
              
              1,101,127
              
              
              699,883Basic and diluted loss per
      share
              
              $
              (.77
              )
              $
              (2.35
              )




See
accompanying notes to consolidated financial statements


4




AMERICAN REALTY CAPITAL TRUST,
INC.


CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY


NINE MONTHS ENDED SEPTEMBER 30,
2008


(Unaudited)


Common
    StockNumber of
                Shares
              
              Par
Value
              
              Additional
                Paid-In
      Capital
              
              Accumulated
                Deficit
              
              Accumulated Other Comprehensive
      Income
              
              Total Stockholders’
      EquityBalance, December 31,
      2007
              
              
              20,000
              
              $
              200
              
              $
              199,800
              
              $
              (500
              )
              $
              —
              
              $
              199,500Issuance
      of common stock
              
              
              1,136,348
              
              
              11,364
              
              
              10,311,980
              
              
              —
              
              
              —
              
              
              10,323,344Offering
      costs, commissions and dealer manager fees
              
              
              —
              
              
              —
              
              
              (2,229,655
              )
              
              —
              
              
              —
              
              
              (2,229,655
              )Common
      stock issued through dividend reinvestment program
              
              
              9,049
              
              
              90
              
              
              85,872
              
              
              —
              
              
              —
              
              
              85,962Distributions
      declared
              
              
              —
              
              
              —
              
              
              —
              
              
              (315,344
              )
              
              —
              
              
              (315,344
              )Accumulated
      other comprehensive income
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              459,203
              
              
              459,203Net
      loss
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,641,345
              )
              
              —
              
              
              (1,641,345
              )Total
      comprehensive loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,182,142
              )Balance, September 30,
      2008
              
              
              1,165,397
              
              $
              11,654
              
              $
              8,367,997
              
              $
              (1,957,189
              )
              $
              459,203
              
              $
              6,881,665




See
accompanying notes to consolidated financial statements


5




AMERICAN REALTY CAPITAL TRUST,
INC.


CONSOLIDATED STATEMENT OF CASH
FLOWS


(Unaudited)




Cash flows from operating
      activities:
                    
                    NineMonths
Ended
                      September 30,
      2008Net
      loss
                    
                    $
                    (1,641,345
                    )Adjustments
      to reconcile net loss to net cash
                      used
      in operating activities:Depreciation
                    
                    
                    1,477,951Amortization
      of intangibles
                    
                    
                    287,198Amortization
      of deferred finance charges
                    
                    
                    72,761Gains
      on derivative instruments
                    
                    
                    (20,160
                    )Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                    
                    
                    (751,274
                    )Accounts
      payable and accrued
                      expenses
                    
                    
                    1,312,062Deferred
      rent and other liabilities
                    
                    
                    554,124Net
      cash provided by operating activities
                    
                    
                    1,291,317Cash flows from investing
      activities:Investment
      in real estate and related assets
                    
                    
                    (49,067,597
                    )Net
      cash used in investing activities
                    
                    
                    (49,067,597
                    )Cash flows from financing
      activities:Proceeds
      from notes payable
                    
                    
                    26,475,000Payments
      on notes payable
                    
                    
                    (181,065
                    )Payments
      of deferred financing costs
                    
                    
                    (1,047,541
                    )Proceeds
      from related party bridge facility
                    
                    
                    7,147,587Proceeds
      from related party bridge revolver
                    
                    
                    6,500,000Proceeds
      from issuance of convertible redeemable preferred
                    
                    
                    3,995,000Proceeds
      from issuance of common stock, net
                    
                    
                    5,980,149Distributions
      paid
                    
                    
                    (167,957
                    )Restricted
      cash
                    
                    
                    (50,232
                    )Net
      cash provided by financing activities
                    
                    
                    48,650,941Net increase in cash and cash
      equivalents
                    
                    
                    874,661Cash and cash equivalents,
      beginning of
                      period
                    
                    
                    -Cash and cash equivalents, end
      of period
                    
                    $
                    874,661Supplemental Disclosures of
      Non-Cash
                      Investing and Financing
      Activities:Debt
      assumed in real estate acquisitions
                    
                    $
                    50,773,265Short-term
      bridge funds assumed
                    
                    
                    3,953,796Common
      share issuance in real estate
                      acquisition
                    
                    $
                    3,051,695Investor
      contributions held in escrow
                    
                    $
                    30,824Non-cash
      acquisition costs
                    
                    $
                    42,118Common
      stock issued through dividend reinvestment plan
                    
                    $
                    85,962Reclassification
      of deferred offering costs
                    
                    $
                    938,157




See
accompanying notes to consolidated financial statements


6




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




Note 1 —
Organization




American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a newly formed Maryland corporation that intends to qualify as a real estate
investment trust (“REIT”) for federal income tax purposes beginning with the
taxable year that will end 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
September 30, 2008, the Company issued 1,165,397 shares of common stock,
including 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 $10,523,344. As of September 30, 2008, the aggregate value of all share
issuances and subscriptions outstanding was $13,667,108 based on a per share
value of $10,00. This amount includes stock subscriptions of $2,103,628
which are maintained at the Company’s third-party escrow agent, to be
released when certain escrow requirements have been achieved.





Substantially
all of the Company’s business is conducted through American Realty Capital
Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The
Company is the sole general partner of and owns a 99.01% partnership interest in
the OP. American Realty Capital Advisors, LLC (the “Advisor”), the Company’s
affiliated advisor, is the sole limited partner and owner of 0.99% (minority
interest) of the partnership interests of the OP. In March 2008, the OP issued
to the Company 20,000 Operating Partnership units in exchange for $200,000.
Additionally, in April 2008, the Advisor contributed $2,000 to the Operating
Partnership in exchange for a 0.99% limited partner interest in the Operating
Partnership. The limited partner interests have the right to convert Operating
Partnerships units into cash or, at the option of the Company, an equal number
of common shares of the Company, as allowed by the limited partnership
agreement. The remaining rights of the limited partner interests are limited,
however, and do not include the ability to replace the general partner or to
approve the sale, purchase or refinancing of the Operating Partnership’s
assets.





The
Company acquires and operates commercial properties. All such properties may be
acquired and operated by the Company alone or jointly with another party. As of
September 30, 2008, the Company owned 41 properties comprising approximately
433,000 square feet of freestanding, single tenant commercial space concentrated
in Pennsylvania and Massachusetts. As of September 30, 2008, these properties
were 100% occupied. The Company may also acquire mortgages secured by real
estate, with a view towards acquiring such real estate.





The
Company is managed by the Advisor and American Realty Capital Properties, LLC,
which serves as the Company’s property manager (“The Property Manager”). Realty
Capital Securities, LLC (“The Dealer Manager”), an affiliate of the Sponsor,
serves as the dealer manager of the Company’s Offering. These related parties
receive compensation and fees for services related to the Offering and for the
investment and management of the Company’s assets. These entities receive fees
during the offering, acquisition, operational and liquidation stages. The
compensation levels during the offering, acquisition and operational stages are
discussed in Note 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.


7




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)





Note 2 — Summary of Significant
Accounting Policies




Basis of
Presentation




Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or consolidated pursuant to the
rules and regulations of the Securities and Exchange Commission. Management
believes, however, that the disclosures are adequate to make the information
presented not misleading. The unaudited interim consolidated financial
statements should be read in conjunction with the audited financial statements
and the notes thereto included in the Company’s annual report on Form S-11 for
the period from August 17, 2007 (date of inception) to December 31, 2007.
In management’s opinion, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company and the consolidated results of its operations and its cash flows,
are included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.





Basis of
Accounting





The
accompanying consolidated financial statements of the Company are prepared on
the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America.





Principles of Consolidation and
Basis of Presentation




The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management makes significant estimates regarding revenue recognition,
investments in real estate, purchase price allocations and derivative financial
instruments and hedging activities, as applicable.





Real Estate
Investments





The
Company records acquired real estate at cost and makes assessments as to the
useful lives of depreciable assets. The Company considers the period of future
benefit of the asset to determine the appropriate useful lives. Depreciation is
computed using a straightline method over the estimated useful life of 40 years
for buildings, five to ten years for building fixtures and improvements and the
remaining lease term for acquired intangible lease assets.





Allocation of Purchase Price of
Acquired Assets





Upon the
acquisition of real properties, it is the Company’s policy to allocate the
purchase price of properties to acquired tangible assets, consisting of land,
building, fixtures and improvements, and identified intangible lease assets and
liabilities, consisting of the value of above-market and below-market leases, as
applicable, other value of in-place leases and value of tenant relationships,
based in each case on their fair values. The Company utilizes independent
appraisals and information management obtained on each property as a result of
pre-acquisition due diligence, as well as subsequent marketing and leasing
activities, as applicable, to determine the fair values of the tangible assets
of an acquired property (which includes land and building), amongst other market
data.





The fair
values of above-market and below-market in-place lease values are recorded based
on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between (a) the contractual amounts
to be paid pursuant to the in-place leases and (b) an estimate of fair market
lease rates for the corresponding in-place leases, which is generally obtained
from independent appraisals, measured over a period equal to the remaining
non-cancelable term of the lease. The above-market and below-market lease values
are capitalized as intangible lease assets or liabilities and amortized as an
adjustment of rental income over the remaining terms of the respective
leases.




The fair
values of in-place leases include direct costs associated with obtaining a new
tenant, opportunity costs associated with lost rentals which are avoided by
acquiring an in-place lease, and tenant relationships. Direct costs associated
with obtaining a new tenant include commissions, tenant improvements, and other
direct costs and are estimated based on independent appraisals and management’s
consideration of current market costs to execute a similar lease. These direct
costs are included in acquired intangible lease assets in the accompanying
consolidated balance sheets and are amortized to expense over the remaining
terms of the respective leases. The value of opportunity costs is calculated
using the contractual amounts to be paid pursuant to the in-place leases over a
market absorption period for a similar lease. Customer relationships are valued
based on expected renewal of a lease or the likelihood of obtaining a particular
tenant for other locations. These intangibles will be included in intangible
lease assets in the balance sheet and are amortized to expense over the
remaining term of the respective leases.


8




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)





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
September 30, 2008, acquired lease intangible assets consist only of in-place
lease intangibles totaling $9,443,239 with accumulated amortization of
$287,198.




Derivative
Instruments




The
Company may use derivative financial instruments to hedge all or a portion of
the interest rate risk associated with its borrowings. Certain of the techniques
used to hedge exposure to interest rate fluctuations may also be used to protect
against declines in the market value of assets that result from general trends
in debt markets. The principal objective of such agreements is to minimize the
risks and/or costs associated with the Company’s operating and financial
structure as well as to hedge specific anticipated transactions.




In
accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
amended and interpreted (“SFAS No. 133”), the Company measures each
derivative instrument (including certain derivative instruments embedded in
other contracts) at fair value and records such amounts in its consolidated
balance sheets as either an asset or liability. The accounting for changes in
the fair value of derivatives depends on the intended use of the derivative and
the resulting designation.   Derivatives used to hedge the exposure to
changes in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, such as interest rate risk, are considered
fair value hedges. Derivatives used to hedge the exposure to variability in
expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges.   For derivatives designated as fair value
hedges or for derivatives not designated as hedges, the changes in fair value of
both the derivative instrument and the hedged item are recorded in earnings. For
derivatives designated as cash flow hedges, the changes in the fair value of the
effective portions of the derivative are reported in other comprehensive income
and subsequently reclassified to earnings when the hedged transaction affects
earnings. The ineffective portion of the changes in fair value of the derivative
is recorded in earnings immediately.




Impairment of Long Lived
Assets





The
Company follows SFAS No.144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” which establishes a single accounting model for the
impairment or disposal of long-lived assets. SFAS No.144 requires that the
operations related to properties that have been sold or properties that are
intended to be sold be presented as discontinued operations in the statement of
operations for all periods presented, and properties intended to be sold to be
designated as “held for sale” on the balance sheet.





When
circumstances indicate the carrying value of a property may not be recoverable,
the Company reviews the asset for impairment. This review is based on an
estimate of the future undiscounted cash flows, excluding interest charges,
expected to result from the property’s use and eventual disposition. These
estimates consider factors such as expected future operating income, market and
other applicable trends and residual value, as well as the effects of leasing
demand, competition and other factors. If impairment exists, due to the
inability to recover the carrying value of a property, an impairment loss is
recorded to the extent that the carrying value exceeds the estimated fair value
of the property for properties to be held and used. For properties held for
sale, the impairment loss is the adjustment to fair value less estimated cost to
dispose of the asset. These assessments have a direct impact on net income
because recording an impairment loss results in an immediate negative adjustment
to net income.





Investor contributions held in
Escrow




The
Company is currently engaged in a public offering of its common stock. Included
in investor contributions held in escrow on the accompanying balance sheets is
$30,824 of offering proceeds for which shares of common stock had not been
issued as of September 30, 2008.




Revenue
Recognition





Upon the
acquisition of real estate, certain properties will have leases where minimum
rent payments increase during the term of the lease. The Company will record
rental revenue for the full term of each lease on a straightline basis. When the
Company acquires a property, the term of existing leases is considered to
commence as of the acquisition date for the purposes of this calculation. In
accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements,” the Company will defer the recognition of contingent
rental income, such as percentage rents, until the specific target that triggers
the contingent rental income is achieved. Cost recoveries from tenants are
included in tenant reimbursement income in the period the related costs are
incurred, as applicable.




The
Companies’ revenues, which are derived primarily from rental income, include
rents that each tenant pays in accordance with the terms of each lease reported
on a straightline basis over the initial term of the lease. Since many of the
leases provide for rental increases at specified intervals, straightline 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 continually reviews receivables related to rent and unbilled rent
receivables and determines collectability by taking into consideration the
tenant’s payment history, the financial condition of the tenant, business
conditions in the industry in which the tenant operates and economic conditions
in the area in which the property is located. In the event that the
collectability of a receivable is in doubt, the Company will record an increase
in the allowance for uncollectible accounts or record a direct write-off of the
receivable in the consolidated statements of operations.




Organization, Offering, and Related
Costs




Organization
and offering costs (other than selling commissions and the dealer manager fee)
of the Company may be paid by the Advisor, the Dealer Manager or their
affiliates on behalf of the Company. Such organization and offering costs
include all expenses to be paid by the Company in connection with the Offering,
including but not limited to (i) legal, accounting, printing, mailing, and
filing fees; (ii)  escrow related fees; (iii) reimbursement of the
Dealer Manager for amounts it may pay to reimburse the bona fide diligence
expenses of broker-dealers; and (iv) reimbursement to the Advisor for the
salaries of its employees and other costs in connection with preparing
supplemental sales materials. Pursuant to the Advisory Agreement and the Dealer
Manager Agreement, the Company is obligated to reimburse the Advisor or its
affiliates, as applicable, for organization and offering costs paid by them on
behalf of the Company, provided that the Advisor is obligated to reimburse the
Company to the extent organization and offering costs (excluding selling
commissions, the dealer manager fee and bonafide due diligence cost
reimbursements) incurred by the Company in the Offering exceed 1.5% of
gross offering proceeds.


9




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




As a
result, these costs are only a liability of the Company to the extent selling
commissions, the dealer manager fee and other organization and offering costs do
not exceed 15% of the gross proceeds of the Offering. Through
September 30, 2008, the Company issued 1,165,397 shares of common stock,
including 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 $10,523,344. As of September 30, 2008, the aggregate value of all share
issuances and subscriptions outstanding was $13,667,108 based on a per share
value of $10.00. This amount includes stock subscriptions of $2,103,628
which are maintained at the Company’s third-party escrow agent, to be
released when certain escrow requirements have been achieved.The Company
recorded offering costs of $2,136,453 and selling commissions and
dealer manager fees of $93,202 through September, 30, 2008. Organization costs
are expensed as incurred within general and administrative expenses, and
offering costs, which include selling commissions and dealer manager fees, are
charged to stockholders’ equity as such amounts are reimbursed from the gross
proceeds of the Offering.





Reportable
Segments




The
Financial Accounting Standards Board (“FASB”) issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” (“SFAS
No. 131”), which establishes standards for reporting financial and descriptive
information about an enterprise’s reportable segments. The Company determined
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 for the nine-month period ended September 30, 2008.
Although the Company’s investments in real estate will be geographically
diversified throughout the United States, management evaluates operating
performance on an individual property level. The Company’s properties have been
aggregated into one reportable segment.





Recent Accounting
Pronouncements




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”), which addresses how companies should measure fair value
when they are required to use a fair value measure for recognition or disclosure
purposes under Generally Accepted Accounting Principles (“GAAP”). As a result of
SFAS No. 157 there is now a common definition of fair value to be used
throughout GAAP. The FASB believes that the new standard will make the
measurement of fair value more consistent and comparable and improve disclosures
about those measures. The effective date of SFAS No. 157 is delayed for one
year for certain nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). Certain provisions of SFAS No. 157 are
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 157 for financial assets and liabilities in the first quarter
of 2008 did not have a material effect on the Company’s results of operations
and financial position. The Company is currently evaluating the impact of
adoption SFAS No. 157 for nonfinancial assets and liabilities, on its
results of operations and financial position.





In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for
Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value. The objective of SFAS No. 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS No. 159 was
effective for the Company beginning in the first quarter of 2008. The adoption
of SFAS No. 159 did not have a material impact on the Company’s financial
position, results of operations or cash flows in the first quarter of
2008.





In
December 2007, the FASB issued SFAS No. 141, (revised 2007), “Business
Combinations,” (“SFAS No. 141(R)”), which continues the evolution toward
fair value reporting and significantly changes the accounting for acquisitions
that close beginning in 2009, both at the acquisition date and in subsequent
periods. SFAS No. 141(R) introduces new accounting concepts and valuation
complexities, and many of the changes have the potential to generate greater
earnings volatility after the acquisition. SFAS No. 141(R) applies to
acquisitions on or after January 1, 2009 and will impact the Company’s
reporting prospectively only by requiring acquisition costs to be expensed
rather than capitalized.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51,” (“SFAS No. 160”), which requires companies to measure an
acquisition of noncontrolling (minority) interest at fair value in the equity
section of the acquiring entity’s balance sheet. The objective of SFAS
No. 160 is to improve the comparability and transparency of financial data
as well as to help prevent manipulation of earnings. The changes introduced by
the new standards are likely to affect the planning and execution, as well as
the accounting and disclosure, of merger transactions. The effective date to
adopt SFAS No. 160 for the Company is January 1, 2009. The adoption of
SFAS No. 160 is not expected to have a material effect on its results of
operations and financial position.




In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities,” an amendment of FASB Statement
No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 161”) requires entities to provide greater transparency about
how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for under SFAS No. 133, and how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations, and cash flows. The statement is effective for
financial statements issues for fiscal years and interim periods beginning after
November 15, 2008, and is not expected to have a significant impact on the
Company’s results of operations, financial condition or liquidity .





In
April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3,
which amends the factors that must be considered in developing renewal or
extension assumptions used to determine the useful life over which to amortize
the cost of a recognized intangible asset under SFAS No. 142, “Goodwill and
Other Intangible Assets.” The FSP requires an entity to consider its own
assumptions about renewal or extension of the term of the arrangement,
consistent with its expected use of the asset, and is an attempt to improve
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141, “Business Combinations.” The FSP is
effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The FSP is not expected to have a significant impact on the Company’s results of
operations, financial condition or liquidity.





In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of
Generally Accepted Accounting Principles” (“SFAS No. 162”). The statement is
intended to improve financial reporting by identifying a consistent hierarchy
for selecting accounting principles to be used in preparing financial statements
that are prepared in conformance with generally accepted accounting principles.
Unlike Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of
Present in Conformity With GAAP,” SFAS No. 162 is directed to the entity
rather than the auditor. The statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board
(“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly
in Conformity with GAAP,” and is not expected to have any impact on the
Company’s results of operations, financial condition or liquidity.





In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities.” Under the FSP,
unvested share-based payment awards that contain rights to receive
nonforfeitable dividends (whether paid or unpaid) are participating securities,
and should be included in the two-class method of computing EPS. The FSP is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years, and is not expected to have a significant impact on
the Company’s results of operations, financial condition or
liquidity.


10




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




Note 3 — Real Estate
Acquisitions




During
the three months and nine months ended September 30, 2008, the Company acquired
7 and 41 properties, respectively. The following table presents the allocation
of the assets acquired and liabilities assumed during the period:




Three Months
      Ended
                September 30, 2008
              
              Nine Months Ended September 30,
      2008Real
      estate investments, at cost:Land
              
              $
              2,991,519
              
              
              14,633,064Buildings,
      fixtures and improvements
              
              
              16,951,939
              
              
              82,842,99219,943,458
              
              
              97,476,056Intangibles
      and other assets:In-place
      leases
              
              
              1,980,324
              
              
              9,443,239Total
      assets acquired
              
              
              21,923,782
              
              
              106,919,295Assumed
      obligations:Mortgage
      notes
              
              
              (12,808,265
              )
              
              (50,773,265
              )Short-term
      bridge funds
              
              
              —
              
              
              (3,953,796
              )Investor
      contributions held in escrow
              
              
              441,724
              
              
              (30,824
              )Other
      liabilities
              
              
              34,182
              
              
              (42,118
              )Total
      assumed obligations:
              
              
              (12,332,359
              )
              
              (54,800,003
              )Issuance
      of common shares
              
              
              (441,724
              )
              
              (3,051,695
              )Cash
      paid
              
              $
              9,149,699
              
              $
              49,067,597


11




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




During
the nine months ended September 30, 2008, the Company acquired the following
properties:


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
              
              10.5
              
              $
              729,245
              
              $
              9,694,179
              
              7.52%
              
              $
              10,198,996Harleysville
      National Bank Portfolio
              
              March
      2008
              
              15
              
              177,774
              
              14.3
              
              
              3,003,838
              
              
              40,976,218
              
              7.33%
              
              
              41,663,221Rockland
      Trust Company Portfolio
              
              May
      2008
              
              18
              
              121,057
              
              12.8
              
              
              2,529,665
              
              
              32,188,000
              
              7.86%
              
              
              33,133,296National
      City Bank
              
              September
      2008
              
              1
              
              3,740
              
              20.4
              
              
              250,085
              
              
              3,000,000
              
              8.34%
              
              
              3,089,391Rite
      Aid
              
              September
      2008
              
              6
              
              74,919
              
              14.8
              
              
              1,446,843
              
              
              18,575,727
              
              7.79%
              
              
              18,834,391Total
              
              
              
              41
              
              432,930
              
              13.74
              
              $
              7,959,676
              
              $
              104,434,124
              
              7.62%
              
              $
              106,919,295


________________________





(1)
            -Remaining
      lease term as of September 30, 2008, in years. If the portfolio has
      multiple locations with varying lease expirations, remaining lease term is
      calculated on a weighted-average basis.(2)
            -Annualized
      2008 rental income less property operating expenses, as
      applicable.(3)
            -Contract
      purchase price excluding acquisition related costs.(4)
            -Net
      operating income divided by base purchase price.(5)
            -Base
      purchase price plus all acquisition related
  costs.




In March
2008, the Company acquired a Federal Express Distribution center located in
Pennsylvania from a related party - see Note 9. In connection with this
transaction, the Company assumed a mortgage note obligation of $6,965,000, which
bears interest at a fixed rate of 6.29%. This note is interest only through
September 1, 2014 and then amortizes through September 1, 2037, with a final
balloon payment due on such date.  This property was acquired in
exchange for 342,502 shares of common stock valued at approximately $3,083,000,
of which, 339,077 shares were issued and outstanding as of September 30, 2008.
The remainder of the shares was recorded as investor contributions held in
escrow on the accompanying balance sheets and are expected to be issued within
the next twelve months. The lease expires on November 30, 2018 and includes
renewal options.
  In March
2008, the Company acquired a fifteen building portfolio 100% leased to
Harleysville National Bank from a related party - see Note 10. These properties
are all located in Pennsylvania. In connection with this transaction, the
Company assumed a mortgage note obligation of $31,000,000, which bears interest
at a fixed effective rate of 6.59%. This note is interest only through January
1, 2011 and then amortizes through January 1, 2018, with a final balloon payment
due on such date. In addition, the Company obtained short-term bridge equity of
approximately $3,954,000. This bridge equity bears a fixed preferred yield of
12.49% and is expected to be satisfied in the first quarter of 2009. The Company
obtained bridge equity of $4,000,000 from a principal of the Advisor in
connection with this acquisition- see Note 4. The initial term of the master
lease expires on December 31, 2022 and includes renewal
options.
 
 In May
2008, the Company acquired an eighteen building portfolio 100% leased to
Rockland Trust Company. Independent Bank Corp. operates as the holding company
for Rockland Trust Company. These properties are all located throughout
Southeastern Massachusetts and Cape Cod. In connection with this transaction,
the Company financed a portion of the purchase price with a mortgage note
obligation of $24,412,500, which bears interest at 30 day LIBOR plus 1.375%. The
Company entered into a rate lock agreement to limit its interest rate exposure.
The LIBOR floor and cap are 3.54% and 4.125% (initial year), respectively. This
note amortizes through May 1, 2013 on a 25-year schedule, with a final balloon
payment due on such date. In addition, the Company funded a portion of the
acquisition with short-term convertible redeemable preferred equity of
$3,995,000. This preferred equity bears a fixed preferred yield of 14.27% and
will be satisfied in April 2009. The Company also obtained bridge equity in the
amount of $2,500,000 from two principals of the Advisor in connection with this
acquisition - see Note 4. The lease expiration varies on a per property basis,
expiring either on April 30, 2018 or April 30, 2023, with a weighted average
initial term of 12.8 years, excluding renewal options.
 
  In
September 2008, the Company acquired a National City Bank branch located in
Florida from a related party - see Note 10. In connection with this transaction,
the Company financed a portion of the purchase price with a mortgage note
obligation of $2,062,500, which bears interest at 30 day LIBOR plus 1.5%. The
Company entered into a rate lock agreement to limit its interest rate exposure
on a total of loan obligations of $4,500,000. The Company has closed on
$2,062,500 of this obligation - see Note 14 - Subsequent Events, with respect to
closing of the remaining $2,437,500 under this loan obligation. The LIBOR floor
and cap are 3.37% and 4.45% (initial year), respectively for a notional contract
amount of $4,115,000 and a fixed rate of 3.565% on a notional contract amount of
$385,000. This note amortizes through September 16, 2013 on a 27-year schedule,
with a final balloon payment due on such date. The Company obtained bridge
equity of approximately $1,040,000 from a related party under an unsecured
bridge equity facility in connection with this acquisition - see Note 4. The
lease expires January 31, 2029, excluding renewal options.
 
  In
September 2008, the Company acquired a six building portfolio 100% leased to
Rite Aid from a related party - see Note 10. These properties are located in
Ohio and Pennsylvania. In connection with this transaction, the Company assumed
a mortgage note obligation of $12,808,265, which bears interest at a fixed
effective rate of 6.97%. This note is interest only through November 6, 2012 and
then amortizes through September 7, 2017, with a final balloon payment due on
such date. The Company obtained bridge equity of approximately $6,108,000 from a
related party under an unsecured bridge equity facility in connection with this
acquisition - see Note 4. The lease expiration varies on a per property basis,
expiring between December 2016 and October 2027, with a weighted average initial
term of 14.8 years, excluding renewal options.
  Note
4 — Mortgage and Other Notes Payable
  As of
September 30, 2008, the Company had total mortgage notes payable outstanding of
$77,067,200. During the nine months ended September 30, 2008, the Company
incurred, or assumed, the following mortgage notespayable
in connection with the real estate acquisitions described in Note 3
above:
 
 Property
                                                                  
                                                                  Encumbered
      Properties
                                                                  
                                                                  Outstanding
                                                                    Loan Amount
                                                                  
                                                                  Effective Interest
      Rate
                                                                  
                                                                  
                                                                  
                                                                  Interest
    Rate
                                                                  
                                                                  MaturityFederal
      Express Distribution Center
                                                                  
                                                                  
                                                                  1
                                                                  
                                                                  $
                                                                  6,965,000
                                                                  
                                                                  
                                                                  6.29
                                                                  %
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  Fixed
                                                                  
                                                                  September
      2037Harleysville
      National Bank Portfolio
                                                                  
                                                                  
                                                                  15
                                                                  
                                                                  
                                                                  31,000,000
                                                                  
                                                                  
                                                                  6.59
                                                                  %
                                                                  
                                                                  (1)
                                                                  
                                                                  
                                                                  Fixed
                                                                  
                                                                  January
      2018Rockland
      Trust Company Portfolio
                                                                  
                                                                  
                                                                  18
                                                                  
                                                                  
                                                                  24,231,435
                                                                  
                                                                  
                                                                  3.92
                                                                  %
                                                                  
                                                                  (2)
                                                                  
                                                                  
                                                                  Variable
                                                                  
                                                                  May
      2013National
      City Bank Portfolio
                                                                  
                                                                  
                                                                  1
                                                                  
                                                                  
                                                                  2,062,500
                                                                  
                                                                  
                                                                  4.04
                                                                  %
                                                                  
                                                                  (3)
                                                                  
                                                                  
                                                                  Variable
                                                                  
                                                                  September
      2013Rite
      Aid
                                                                  
                                                                  
                                                                  6
                                                                  
                                                                  
                                                                  12,808,265
                                                                  
                                                                  
                                                                  6.97
                                                                  %
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  Fixed
                                                                  
                                                                  September
    2017Total
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  $
                                                                  77,067,200
 ________________________
  (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)  -
              
              The Company limited its interest
      rate exposure by entering into a rate lock agreement with a LIBOR floor
      and cap of 3.54% and 4.125% (initial year),
      respectively.(3)  -
              
              The Company limited its interest
      rate exposure by entering into a rate lock agreement with a LIBOR floor
      and cap of 3.37% and 4.45% (initial year), respectively for a notional
      contract amount of approximately $4,115,000 and a fixed rate of 3.565% on
      a notional contract amount of approximately $385,000. For the period ended
      September 30, 2008, the Company had closed on $2,062,500 of this debt
      obligation.


12




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




The
following table summarizes the scheduled aggregate principal repayments for the
five years subsequent to September 30, 2008:




Mortgage
    Notes2008
                                                
                                                
                                                $
                                                125,9882009
                                                
                                                
                                                
                                                522,8752010
                                                
                                                
                                                
                                                555,0772011
                                                
                                                
                                                
                                                1,370,8202012
                                                
                                                
                                                
                                                1,478,5972003 and
      thereafter
                                                
                                                
                                                
                                                73,013,843-Total
                                                
                                                
                                                $
                                                77,067,200




As of
September 30, 2008, the Company was in compliance with the debt covenants under
the loan agreements.





Note 5 — Interest Rate Risk And
Derivative Instruments





The
primary market risk to the Company is interest rate risk.  Interest
rates are highly sensitive to many factors, including governmental monetary and
tax policies, domestic and international economic and political considerations
and other factors beyond the Company’s control.  Changes in the
general level of interest rates can affect net interest income, which is the
difference between the interest income earned on interest-earning assets and the
interest expense incurred in connection with the interest-bearing liabilities,
by affecting the spread between the interest-earning assets and interest-bearing
liabilities.  Changes in the level of interest rates also can affect
the value of the Company’s interest-earning assets and the Company’s ability to
realize gains from the sale of these assets.  A decline in the value
of the Company’s interest-earning assets pledged as collateral for borrowings
under repurchase agreements could result in the counterparties demanding
additional collateral pledges or liquidation of some of the existing collateral
to reduce borrowing levels.




The
Company seeks to manage the extent to which net income changes as a function of
changes in interest rates by matching adjustable-rate assets with variable-rate
borrowings.  During periods of changing interest rates, interest rate
mismatches could negatively impact the Company’s consolidated financial
condition, consolidated results of operations and consolidated cash
flows.  In addition, the Company mitigates the potential impact on net
income of periodic and lifetime coupon adjustment restrictions in its investment
portfolio by entering into interest rate hedging agreements such as interest
rate collars and swaps.





At
September 30, 2008, the Company had two interest rate collar contracts
outstanding whereby the Company’s exposure to variable interest rates is limited
by locking in a ceiling and floor for the underlying variable interest rate,
one-month LIBOR. The first contract established the ceiling and floor for the
underlying rate at 4.125% and 3.54%, respectively. The aggregate notional amount
of this contract was approximately $24,200,000 at September 30, 2008. The second
contract set the ceiling and floor for the underlying rate at 4.45% and 3.37%,
respectively. The aggregate notional amount of this contract was approximately
$4,100,000 at September 30, 2008.




The
Company had two swap contracts outstanding at September 30, 2008. The first
contract swaps the variable rate of one-month LIBOR for a fixed rate of 3.565%.
The aggregate notional amount of this contract was approximately $385,000 as of
September 30, 2008. The second contract swaps one-month LIBOR for a fixed rate
of 3.60%. The aggregate notional amount of this contract was approximately
$33,300,000 at September 30, 2008. This contract relates to an acquisition of
bank branches which the Company expects to close in November 2008.





The estimated fair value
of the Company’s derivative instruments was $479,364 as of September 30,
2008.In addition,
the Company funded a portion of the acquisition with short-term convertible
redeemable preferred equity of $3,995,000. This preferred equity bears a fixed
preferred yield of 14.27% and will be satisfied in April
2009.





Note 6 — Fair Value of Financial
Instruments





Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 157 which did
not have a material effect on the Company’s consolidated financial
statements.  SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
SFAS No. 157 framework for measuring fair value requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The Company determines fair value based on quoted prices
when available or through the use of alternative approaches, such as discounting
the expected cash flows using market interest rates commensurate with the credit
quality and duration of the investment.  This alternative approach
also reflects the contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including interest rate
curves, and implied volatilities. SFAS No. 157’s hierarchy defines three levels
of inputs that may be used to measure fair value:





Level 1 - Quoted
prices in active markets for identical assets and liabilities that the reporting
entity has the ability to access at the measurement date.




Level 2 - Inputs
other than quoted prices included within Level 1 that are observable for the
asset and liability or can be corroborated with observable market data for
substantially the entire contractual term of the asset or
liability.





Level 3 -
Unobservable inputs that reflect the entity’s own assumptions about the
assumptions that market participants would use in the pricing of the asset or
liability and are consequently not based on market activity, but rather through
particular valuation techniques.





The
determination of where an asset or liability falls in the hierarchy requires
significant judgment and considers factors specific to the asset or
liability.   In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is significant
to the fair value measurement in its entirety. The Company evaluates its
hierarchy disclosures each quarter; and depending on various factors, it is
possible that an asset or liability may be classified differently from quarter
to quarter.  However, the Company expects that changes in
classifications between levels will be rare.





Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with those derivatives utilize Level 3
inputs, such as estimates of current credit spreads to evaluate the likelihood
of default by the Company and its counterparties.  However, as of
September 30, 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 September 30, 2008, aggregated by the level in the fair value hierarchy
within with those instruments fall:




Quoted Prices
      in
                Active
      Markets
                Level 1
              
              Significant Other Observable
      Inputs
                Level 2
              
              Significant
                Unobservable
      Inputs
                Level 3
              
              Balance as
      of
                September 30,
      2008Total
      derivatives, net
              
              $
              —
              
              $
              479,364
              
              $
              —
              
              $
              479,364




Note 7 — Derivative
Financial Instruments




The
Company may use derivative financial instruments, including interest rate swaps,
caps, options, floors and other interest rate derivative contracts, to hedge all
or a portion of the interest rate risk associated with our borrowings. The
principal objective of such arrangements is to minimize the risks and/or costs
associated with the Company’s operating and financial structure as well as to
hedge specific anticipated transactions. The Company does not intend to utilize
derivatives for speculative or others purposes other than interest rate risk
management. The use of derivative financial instruments carries certain risks,
including the risk that the counterparties to these contractual arrangements are
not able to perform under the agreements. To mitigate this risk, the Company
only enters into derivative financial instruments with counterparties with high
credit ratings and with major financial institutions with which the Company and
its affiliates may also have other financial relationships. The Company does not
anticipate that any of the counterparties will fail to meet their
obligations.




As of
September 30, 2008, the Company had several interest rate derivative contracts
used to hedge interest rate exposure on its indebtedness. The Company had two
interest rate collar contracts outstanding at September 30, 2008. At inception,
there was no premium exchanged for these contracts and they effectively had a
fair value equal to zero. The first collar contract, with an aggregate notional
amount of $24,200,000 at September 30, 2008, was not able to be designated under
SFAS No. 133 as it does not qualify for hedge accounting based on the results of
the net written option test. As such, all changes in the fair value of the
interest rate collar have been included in the Company’s statement of operations
for the quarter ended September 30, 2008. The second collar contract with a
notional amount of $4,100,000 does qualify for hedge accounting and is expected
to be a highly effective cash flow hedge. As such, all fair value adjustments
for the effective portion of the hedge will be reflected in accumulated other
comprehensive income and the amount of ineffectiveness, if any, will be recorded
in the statement of operations.





As of
September 30, 2008 the Company had two interest rate swap contracts. Both
contracts, with aggregate notional amounts of $385,000 and $33,300,000, qualify
as effective cash flow hedges under SFAS No. 133. The fair value of these
contracts is recorded on the balance sheet with the effective portion of the
hedge recorded in other comprehensive income, and the amount of ineffectiveness,
if any, is recorded in the statement of operations. 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
$133,000 will be reclassified as a reduction to interest expense.





The table
below summarizes the aggregate notional amount and estimated net fair value of
our derivative instruments as of September 30, 2008:





As of September 30,
      2008Notional
              
              Fair ValueDerivatives:Interest
      rate swaps
              
              $
              33,684,732
              
              $
              451,269Interest
      rate collar
              
              
              28,346,703
              
              
              28,095Total
              
              $
              62,031,435
              
              $
              479,364





The
following table summarizes by derivative instrument type the effect on income
for the following periods:




For the Quarter Ended
              September 30, 2008Type of
      Derivative
            
            Amounts Reclassified
              to Earnings
      for
              Effective Hedges
      -
              Gains
      (Losses)
            
            Amounts
              Reclassified
      to
              Earnings
for
              Hedge
              Ineffectiveness -
              Gains
      (Losses)Interest
      rate collar, not designated
            
            $
            —
            
            $
            (244,572
            )Interest
      rate collar and swap, designated cash flow hedges
            
            
            —
            
            
            1,202Total
            
            $
            —
            
            $
            (243,370
            )




Amounts
reclassified to earnings associated with ineffective cash flow hedges are
reported in other income and the fair value of these hedge agreements is
included in prepaid expenses and other assets.


Note
8 — Bridge Equity
 
 During
the nine months ended September 30, 2008, the OP entered into an agreement with
the principals of the Advisor whereby the OP can make use of unsecured equity
financing from the principals up to $10 million from time to time as needed to
provide short-term bridge equity relating to property acquisitions and for
general working capital purposes. Such short-term bridge equity is expected to
be satisfied within a six month period and will accrue a yield at a commercially
reasonable rate. In November 2008, the board approved an extension of the
satisfaction period of an additional six months. In connection with the
acquisition of the Harleysville National Bank and the Rockland Trust Company
portfolios outlined in Note 3, the Company obtained bridge equity of $4.0 and
$2.5 million respectively, accruing a preferred yield of 8.0% and can be paid
off without penalty.
 
 During
the nine months ended September 30, 2008, the REIT entered into an unsecured
bridge equity facility with a related party, American Realty Capital Bridge, LLC
(“ARC Bridge”), whereby the REIT can obtain up to $10,000,000 from time to time
as needed to provide short-term equity financing relating to property
acquisitions and for general working capital purposes - see Note 10 —
Related-Party Transactions and Arrangements.
 
 During
the nine months ended September 30, 2008, the REIT obtained short-term bridge
equity and short-term convertible redeemable preferred equity of approximately
$3,954,000 and $3,995,000, respectively, from an unrelated third
party.  The bridge equity bears a fixed preferred yield of 12.49% and
is expected to be satisfied in the first quarter of 2009. The short-term
convertible redeemable preferred equity of $3,995,000 bears a fixed preferred
yield of 14.27% and will be satisfied in April 2009. Such amounts are
non-recourse.
 
 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.


13




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, and the
acquisition, management and sale of the assets of the Company. The Dealer
Manager receives, and will continue to receive, a selling commission of up to
7.0% of gross offering proceeds before reallowance of commissions earned by
participating broker-dealers. The Dealer Manager reallows, and intends to
continue to reallow, 100% of commissions earned to participating broker-dealers.
In addition, the Dealer Manager will receive up to 3.0% of the gross proceeds
from the Offering, before reallowance to participating broker-dealers, as a
dealer-manager fee. The Dealer Manager, in its sole discretion, may reallow all
or a portion of its dealer-manager fee to such participating broker-dealers,
based on such factors as the volume of shares sold by such participating
broker-dealers and marketing support incurred as compared to those of other
participating broker-dealers. No selling commissions or dealer-manager fees are
paid to the Dealer Manager in respect of shares sold under the DRIP. During the
three and nine months ended September 30, 2008, the Company paid $55,996 and
$93,202, respectively, to the Dealer Manager for commissions and dealer manager
fees, of which $2,385 was reallowed to participating
broker-dealers.




All
organization and offering expenses associated with the sale of the Company’s
common stock (excluding selling commissions and the dealer-manager fee) are paid
for by the Advisor or its affiliates and are reimbursed by the Company up to
1.5% of gross offering proceeds. The Advisor receives an acquisition and
advisory fee of 1.0% of the contract purchase price of each acquired property
and will be reimbursed for acquisition costs incurred in the process of
acquiring properties, but not to exceed 0.5% of the contract purchase price. In
no event will the total of all fees and acquisition expenses payable with
respect to a particular property or investment exceed 4.0% of the contract
purchase price. During the three months ended September 30, 2008, the Company
reimbursed the Advisor $0 and $215,757 for organizational and offering expenses
and acquisition costs, respectively. Organization and offering expenses were
waived by the Advisor during the three months ended September 30, 2008. During
the nine months ended September 30, 2008, the Company reimbursed the Advisor
$59,207 and $1,047,874 for organizational and offering expenses and acquisition
costs, respectively. The $59,207 of offering and organizational expenses
reimbursed by the Company is net of $60,000 refunded by the Advisor to the
Company during the three months ended September 30, 2008, to improve the
Company’s overall working capital position. The Company incurred and capitalized
acquisition advisory fees of $215,757 and $1,047,874 during the three and nine
months ended September 30, 2008, all of which were paid as of September 30,
2008.


14




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




The
Advisor receives a financing coordination fee equal to 1.0% of the amount
available under such financing. During the three and nine months ended September
30, 2008, the Company incurred finance coordination fees of $187,212 and
$810,987, respectively, paid to its affiliated Advisor.




The
Company pays its affiliated Property Manager fees for the management and leasing
of the Company’s properties. Such fees equal 2.0% of gross revenues from the
Company’s single tenant properties and 4.0% of the gross revenues from its
multi-tenant properties, plus reimbursement of the Property Managers’ costs of
managing the properties. In the event that the Property Manager assists a tenant
with tenant improvements, a separate fee may be charged to the tenant by the
Property Manager at a fee not to exceed 5.0% of the cost of such tenant
improvements. The Property Manager will be paid leasing commissions at
prevailing market rates and may also receive a fee for the initial leasing of
newly constructed properties, which generally would equal one month’s rent. The
aggregate of all property management and leasing fees paid to affiliates plus
all payments to third parties will not exceed the amount that other
nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. The Property Manager may subcontract
its duties for a fee that may be less than the fee provided for in the property
management agreement. During the three and nine months ended September 30, 2008,
the Company paid the Property Manager $0 and $4,230 for property management
fees, respectively. The Property Manager has elected to waive its management fee
for the three months ended September 30, 2008.




The
Company pays the Advisor an annualized asset management fee of 1.0% based on the
aggregate contract purchase price of all properties. The asset management fee is
payable quarterly in advance on the first day of the month following the end of
each calendar quarter end. The Advisor has elected to waive its asset management
fee for the nine months ended September 30, 2008.




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 nine months ended September 30, 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 nine months ended September 30,
2008, the Company did not reimburse the Advisor for any such costs.






During
the nine months ended September 30, 2008, the OP entered into an agreement with
the principals of the Advisor whereby the OP can obtain bridge equity from the
principals up to $10,000,000 from time to time as needed to provide short-term
bridge equity relating to property acquisitions or for general working capital
purposes. Such bridge equity needs to be satisfied within a six month period and
will accrue a preferred yield at a commercially reasonable rate. In November
2008, the board approved an extension of the satisfaction period of an
additional six months. In connection with the acquisition of the Harleysville
National Bank and the Rockland Trust Company portfolios outlined in Note 3, the
Company obtained bridge equity of $4,000,000 and $2,500,000 respectively,
accruing a preferred yield at an annual return on investment of 8.0%. Such
bridge equity can be paid off, at any time, without penalty. During the three
and nine months ended September 30, 2008, the Company incurred related party
dividend expense of $131,069 and $261,261, respectively. As of September 30,
2008, $42,739 remained unpaid and is included in due to affiliates in the
accompanying balance sheets.
  During
the three months ended September 30, 2008, the REIT entered into an unsecured
bridge equity facility with a related party, American Realty Capital Bridge, LLC
(“ARC Bridge”), whereby the REIT can obtain bridge equity of up to $10,000,000
from time to time as needed to provide short-term bridge equity relating to
property acquisitions and for general working capital purposes. ARC Bridge is a
50% joint venture between the Sponsor and an unrelated third party. Bridge
equity 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 three months ended September 30, 2008. The bridge equity investments
relating to the National City Bank and Rite Aid acquisitions were $1,039,648 and
6,107,939, respectively. These bridge equity investments are due one year from
the investment date and can be satisfied at any time without penalty. The
related yields on such short-term bridge equity were 8.11% and 8.83% for the
National City Bank and Rite Aid acquisitions, respectively, as of September 30,
2008. The Company incurred dividend expense on these investments of $6,651 for
the period ended September 30, 2008. As of September 30, 2008, $6,651 remained
unpaid and is included in due to affiliates in the accompanying balance
sheets.


15




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)




At
September 30, 2008 and December 31, 2007, the Company had approximately $555,000
and $285,000, respectively, due to affiliates, which is included in due to
affiliates in the accompanying consolidated balance sheets and is payable
primarily to the Advisor. Such amounts consisted primarily of a $490,000 rate
lock deposit related to the financing of a future transaction as well as accrued
interest.




The
Company acquired 23 properties in four separate transactions during the nine
months ended September 30, 2008 from related parties. A Federal Express
distribution center was acquired on March 5, 2008. A sale leaseback transaction
involving 15 properties 100% occupied by Harleysville National Bank occurred on
March 12, 2008. A National City Bank branch and a portfolio of six Rite Aid
locations were acquired on September 16, 2008 and September 29, 2008,
respectively. These acquisitions were approved by the Company’s Board of
Trustees; with two inside directors abstaining because the acquisition was an
affiliated transaction. The Company acquired these assets at sellers’ cost,
which did not exceed the fair market value of the properties as determined by a
qualified independent appraiser.




Note 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.





Note 12 — Independent Directors’
Stock Option Plan




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 September 30, 2008, the Company had granted options to purchase 9,000 shares
at $10.00 per share, each with a two year vesting period. A total of 1,000,000
shares have been authorized and reserved for issuance under the Plan. The
Company accounts for the issuance of stock options under SFAS No. 123R,
“Share-Based Payment,” which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and
directors, including stock options related to the Plan, based on estimated fair
values.




During
the nine months ended September 30, 2008, 9,000 were granted and no options were
forfeited, became vested, or were exercised. As of September 30, 2008, unvested
options to purchase 9,000 shares at $10.00 per share remained outstanding with a
weighted average contractual remaining life of approximately 9.5 years. The
total compensation charge relating to these option grants under SFAS No. 123R is
immaterial.





Note 13 — Net Income (Loss) Per
Share





The
following is a reconciliation of the numerator and denominator of the basic and
diluted net income (loss) per share computation for the three and nine months
ended September 30, 2008:




Basic and
      Diluted
                Three
                Months
Ended
                September 30,
      2008
              
              
              Basic and
      Diluted
                Nine
                Months
Ended
                September 30,
      2008Net
      loss
              
              $
              (845,124
              )
              $
              (1,641,345
              )Total
      weighted average common shares outstanding
              
              
              1,101,127
              
              
              699,883Loss
      per share
              
              $
              (0.77
              )
              $
              (2.35
              )


16




AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30,
2008


(Unaudited)





Note 14 — Subsequent
Events




Sale of Shares of Common
Stock




As of
November 11, 2008, the Company had issued 1,204,065 shares of common stock,
including 339,077 shares issued in connection with an acquisition in March 2008
- see Note 3 Real Estate Acquisitions. Total gross proceeds from these issuances
were $11,905,737. As of November 11, 2008, the aggregate value of all share
issuances and subscriptions outstanding was $14,009,358 based on a per share
value of $10.00. This amount includes stock subscriptions of $2,103,628
which are maintained at the Company’s third-party escrow agent, to be
released when certain escrow requirements have been achieved. As of November 11,
2008, approximately $1.24 billion (124 million shares) remained available for
sale to the public under the Offering, exclusive of shares available under the
DRIP.




Real Estate
Acquisitions




The
      Company acquired the following properties subsequent to September 30,
      2008:




Property
            Acquisition
      Date
            No. Of
      Buildings
            Square
    Feet
            Purchase Price
      (1)National
      City Bank
            October
      2008
            1
            4,633
            
            $
            $
      3,764,028




(1)
            Includes
      all acquisition costs, the value of acquired intangible lease assets and
      assumed liabilities.





On
October 23, 2008, the Company acquired a National City Bank branch for a total
purchase price of approximately $3.8 million, inclusive of closing costs and an
acquisition fee, from a related party. The property is leased on a triple-net
basis, with an initial lease term of 20.4 years, exclusive of certain lease
extension provisions.





Mortgage Notes Payable and other
obligations




Subsequent
to September 30, 2008, the Company incurred or assumed the following mortgage
notes payable in connection with the real estate acquisitions described
above:





Mortgage
      Note
            
            Type
            
            Rate
            
            Maturity
      Date$
      2,437,500
            
            Variable
            
            30
      Day LIBOR + 1.50% (1)
            
            October
      2013


(1)
            The
      Company entered into a rate lock agreement to limit its interest rate
      exposure. The LIBOR floor and cap on the amortizing portion of the debt
      are 3.37% and 4.45% (initial year), respectively. In addition, the Company
      swapped the variable interest rate for a fixed rate of 3.565% on the
      balloon payment due in October 2013.




Share Repurchase
Program
 
 On
November 12, 2008, the Company’s board of directors modified the Share
Repurchase Program (“SRP”) to fund purchases under the SRP not only from the
DRIP but also 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, together 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.
Purchases under the SRP will continue to be restricted by the availability of
such proceeds and available allocated operating funds, as well as the share
repurchase limit. The terms and conditions of the SRP remain unchanged.
  In
addition, the SRP provides existing stockholders with limited, interim liquidity
by enabling them to sell shares back to us, subject to certain restrictions. The
purchase price has been modified as follows:
  One year
from the purchase date - 96.25% of the amount paid for each share (increased
from 95%);
  Two years
from the purchase date - 97.75% of the amount paid for each share (increased
from 96.25%);
  Three
years from the purchase date - 100% of the amount paid for each share (increased
from 97.5%).
  The
Company makes repurchases under the SRP, if requested, at least once quarterly
on a first-come, first-served basis.  Subject to funds being available, The
Company limits the number of shares repurchased during any calendar year to five
percent (5%) of the weighted average number of shares outstanding during the
prior calendar year.  Funding for the SRP comes exclusively from proceeds
that we receive from the sale of shares under the DRIP and other such operating
funds, if any, as the board of directors, at its sole discretion, may reserve
for this purpose.
  The
Company cannot guarantee that the funds set aside for the SRP will be sufficient
to accommodate all requests made each year.  If no funds are available for
the SRP when repurchase is requested, the stockholder may: (i) withdraw the
request; or (ii) ask that we honor the request at such time, if any, when funds
are available.  Such pending requests will be honored on a first-come,
first-served basis.
  The board
of directors, at its sole discretion, may choose to terminate the SRP, or reduce
the number of shares purchased under the SRP, if it determines that the funds
allocated to the SRP are needed for other purposes, such as the acquisition,
maintenance or repair of properties, or for use in making a declared
distribution.
  There is
no requirement that stockholders sell their shares to the Company. The SRP is
only intended to provide interim liquidity for stockholders until a liquidity
event occurs, such as the listing of the shares on a national securities
exchange, inclusion of the shares for quotation on a national market system, or
a merger with a listed company.  No assurance can be given that any such
liquidity event will occur.
  Shares
purchased by the Company under the SRP will be canceled and will have the status
of authorized but unissued shares.  Shares acquired through the SRP will
not be re-issued unless they are first registered with the SEC under the
Securities Act of 1933 and under appropriate state securities laws, or otherwise
issued in compliance with such laws.


17




Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations




The
following discussion and analysis should be read in conjunction with the
accompanying financial statements of American Realty Capital Trust, Inc. and the
notes thereto. As used herein, the terms “we,” “our” and “us” refer to American
Realty Capital Trust, Inc., a Maryland corporation, and, as required by context,
American Realty Capital Operating Partnership, L.P., a Delaware limited
partnership, which we refer to as the “Operating Partnership” and to their
subsidiaries. American Realty Capital Trust, Inc. is externally managed by the
American Realty Capital Advisors, LLC (a Delaware limited liability company) or
the “Advisor.”




Forward-Looking
Statements




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




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:




•
            
            Neither
      we nor our Advisor have a prior operating history and our Advisor does not
      have any experience operating a public company. This inexperience makes
      our future performance difficult to
predict.




•
            
            All
      of our executive officers are also officers, managers and/or holders of a
      direct or indirect controlling interest in our Advisor, our dealer manager
      and other 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 us and these other investors. These
      conflicts could result in unanticipated
actions.




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




•
            
            If
      we raise substantially less than the maximum offering in our ongoing
      initial public offering, we may not be able to invest in a diverse
      portfolio of real estate assets and the value of an investment in us may
      vary more widely with the performance of specific
  assets.




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




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




•
            
            Increases
      in interest rates could increase the amount of our debt payments and limit
      our ability to pay distributions to our
  stockholders.




All
forward-looking statements should be read in light of the risks identified in
our Registration Statement on Form S-11 for the period from August 17, 2007
(dated of inception) to December 31, 2007, filed with the SEC and the risks
identified in this quarterly report.





Overview




We are a
Maryland corporation that will elect to be taxed as a real estate investment
trust, or REIT, beginning with the taxable year ending December 31, 2008.
On September 10, 2007, we filed a registration statement on Form S-11 with the
SEC to offer a minimum of 750,000 shares and a maximum of 150,000,000 shares of
common stock for sale to the public. The SEC declared the registration statement
effective on January 25, 2008, at which time we launched our ongoing initial
public offering. On March 11, 2008, we broke escrow in our ongoing initial
public offering and then commenced our real estate operations. As of
September 30, 2008, the we issued 1,165,397 shares of common stock, including
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
$10,523,344. As of September 30, 2008, the aggregate value of all share
issuances and subscriptions outstanding was $13,667,108 based on a per share
value of $10.00. This amount includes stock subscriptions of $2,103,628
which are maintained at the our third-party escrow agent, to be released
when certain escrow requirements have been achieved.As of September 30,
2008, we had not redeemed any shares sold in our ongoing initial public offering
pursuant to our share repurchase program. We are dependent upon the net proceeds
from the offering to conduct our proposed operations.




18




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 as well as
certain other real-estate related investments. We plan to own substantially all
of our assets and conduct our operations through our Operating Partnership, of
which we are the sole general partner. We have no paid employees. Our advisor,
American Realty Capital Advisors, LLC, conducts our operations and manages our
portfolio of real estate investments.




As of
September 30, 2008, we owned 41 properties compromising approximately 433,000
square feet, 100% leased with an initial weighted average remaining lease term
of 13.7 years. In constructing our portfolio, we intend to target and derive
approximately 50% to 60% of our revenues from investment-grade tenants.
Additionally, we intend to target approximately 50% of our revenues from
financial institutions.




We intend
to continue our strategy of acquiring high quality, single tenant properties
through sale leaseback transactions and marketed transactions with in-place
long-term leases, and to finance our acquisitions with a combination of equity
and debt. We expect to arrange long-term financing on both a secured and
unsecured fixed rate basis. We intend to continue to grow our existing
relationships and develop new relationships throughout various markets we serve,
which we expect will lead to further acquisition opportunities.




Real
estate-related investments are higher-yield and higher-risk investments that our
advisor will actively manage, if we elect to acquire such investments. The real
estate-related investments in which we may invest include: (i) mortgage
loans; (ii) equity securities such as common stocks, preferred stocks and
convertible preferred securities of real estate companies; (iii) debt
securities, such as mortgage-backed securities, commercial mortgages, mortgage
loan participations and debt securities issued by other real estate companies;
and (iv) certain types of illiquid securities, such as mezzanine loans and
bridge loans. While we may invest in any of these real estate-related
investments, our advisor, with the support of our Board of Trustees, has elected
to suspend all activities relating to acquiring real estate-related investments
for an indefinite period based on the current adverse climate affecting the
capital markets. Since our inception, we have not acquired any real
estate-related investments.




Significant Accounting Estimates and
Critical Accounting Policies




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
straightline basis over the initial term of the lease. Since many of our leases
provide for rental increases at specified intervals, straightline basis
accounting requires us to record a receivable, and include in revenues, unbilled
rent receivables that we will only receive if the tenant makes all rent payments
required through the expiration of the initial term of the lease.




We
continually review receivables related to rent and unbilled rent receivables and
determine collectibility 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 collectibility 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.




Investments in Real
Estate




Investments
in real estate are recorded at cost. Improvements and replacements are
capitalized when they extend the useful life of the asset. Costs of repairs and
maintenance are expensed as incurred. Depreciation is computed using the
straightline method over the estimated useful life of up to 40 years for
buildings and improvements, five to ten years for fixtures and improvements and
the shorter of the useful life or the remaining lease term for tenant
improvements and leasehold interests.




We are
required to make subjective assessments as to the useful lives of our properties
for purposes of determining the amount of depreciation to record on an annual
basis with respect to our investments in real estate. These assessments have a
direct impact on our net income because if we were to shorten the expected
useful lives of our investments in real estate, we would depreciate these
investments over fewer years, resulting in more depreciation expense and lower
net income on an annual basis.




We follow
Statement of Financial Accounting Standards (SFAS) No.144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” which established a single
accounting model for the impairment or disposal of long-lived assets including
discontinued operations. SFAS No.144 requires that the operations related to
properties that have been sold or properties that are intended to be sold be
presented as discontinued operations in the statement of operations for all
periods presented, and properties intended to be sold to be designated as “held
for sale” on the balance sheet.




Long-lived
assets are carried at cost and evaluated for impairment when events or changes
in circumstances indicate such an evaluation is warranted or when they are
designated as held for sale. Valuation of real estate is considered a “critical
accounting estimate” because the evaluation of impairment and the determination
of fair values involve a number of management assumptions relating to future
economic events that could materially affect the determination of the ultimate
value, and therefore, the carrying amounts of our real estate. Additionally,
decisions regarding when a property should be classified as held for sale are
also highly subjective and require significant management judgment.


19


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.




Purchase Price
Allocation




Pursuant
to SFAS No.141, “Business Combinations,” we follow the purchase method of
accounting for all business combinations. To ensure that intangible assets
acquired and liabilities assumed in a purchase method business combination can
be recognized and reported apart from goodwill, we ensure that the applicable
criteria specified in SFAS No.141 are met.




We
allocate the purchase price of acquired properties to tangible and identifiable
intangible assets acquired based on their respective fair values. Tangible
assets include land, buildings, equipment and tenant improvements on an as-if
vacant basis. We utilize various estimates, processes and information to
determine the as-if vacant property value. Estimates of value are made using
customary methods, including data from appraisals, comparable sales, discounted
cash flow analysis and other methods. Identifiable intangible assets include
amounts allocated to acquired leases for above- and below-market lease rates,
the value of in-place leases, and the value of customer
relationships.




Amounts
allocated to land, buildings, equipment and fixtures are based on cost
segregation studies performed by independent third-parties or on our analysis of
comparable properties in our portfolio. Depreciation is computed using the
straightline method over the estimated life of 40 years for buildings, five to
ten years for building equipment and fixtures, and the lesser of the useful life
or the remaining lease term for tenant improvements.




Above-market
and below-market in-place lease values for owned properties are recorded based
on the present value (using an interest rate which reflects the risks associated
with the leases acquired) of the difference between the contractual amounts to
be paid pursuant to the in-place leases and management’s estimate of fair market
lease rates for the corresponding in-place leases, measured over a period equal
to the remaining non-cancelable term of the lease. The capitalized above-market
lease values are amortized as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values are amortized as an increase to rental income over the initial term
and any fixed-rate renewal periods in the respective leases. The aggregate value
of intangible assets related to in-place leases is primarily the difference
between the property valued with existing in-place leases adjusted to market
rental rates and the property valued as if vacant. Factors considered by us in
our analysis of the in-place lease intangibles include an estimate of carrying
costs during the expected lease-up period for each property, taking into account
current market conditions and costs to execute similar leases. In estimating
carrying costs, we include real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during the expected
lease-up period, which typically ranges from six to 18 months. We also
estimate costs to execute similar leases including leasing commissions, legal
and other related expenses.




The
aggregate value of intangibles assets related to customer relationship is
measured based on our evaluation of the specific characteristics of each
tenant’s lease and our overall relationship with the tenant. Characteristics
considered by us in determining these values include the nature and extent of
our existing business relationships with the tenant, growth prospects for
developing new business with the tenant, the tenant’s credit quality and
expectations of lease renewals, among other factors.




The value
of in-place leases is amortized to expense over the initial term of the
respective leases, which range primarily from 2 to 20 years. The value of
customer relationship intangibles is amortized to expense over the initial term
and any renewal periods in the respective leases, but in no event does the
amortization period for intangible assets exceed the remaining depreciable life
of the building. If a tenant terminates its lease, the unamortized portion of
the in-place lease value and customer relationship intangibles is charged to
expense.


20




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.




Results of
Operations




Three Months Ended September 30,
2008




As of
September 30, 2008, the Company owned 41 properties which are 100% leased. The
Company acquired 7 properties in two separate transactions during the quarter
ended September 30, 2008. A National City Bank location was acquired on
September 16, 2008. A transaction involving 6 properties 100% occupied by Rite
Aid occurred on September 29, 2008. The property operating results outlined
below include the partial period we owned these investment assets during the
period.





Rental Income





Rental
income of approximately $1,594,000 was recognized during the three months ended
September 30, 2008. This rental income includes a partial quarter of revenue
derived from the properties we acquired in September 2008.





Property Management Fees to
Affiliate





American
Realty Capital Properties, LLC has elected to waive the property management fees
for the three months ended September 30, 2008. Such fees represent amounts paid
to our affiliated property manager, American Realty Capital Properties, LLC, to
manage and lease our properties.





General and Administrative
Expenses





General
and administrative expenses of approximately $19,000 were incurred during the
three months ended September 30, 2008. The majority of such expenses included
$48,000 of insurance expense amortization of our directors and officers’
insurance policy, $20,000 of board member compensation and $11,000 of
professional fees. These expenses are offset by a $60,000 reimbursement of
various organizational and offering costs by the Advisor.





Depreciation and Amortization
Expense





Depreciation
and amortization expense of approximately $857,000 was recognized during the
three months ended September 30, 2008. This expense includes a partial quarter
of depreciation and amortization incurred from the properties we acquired in
September 2008.





Interest Expense





Interest
expense of approximately $1,387,000 was recognized during the three months ended
September 30, 2008. Such amount includes a partial quarter of interest expense
relating to the debt incurred to fund a portion of the properties we acquired in
September 2008.





Our
property acquisitions during the three months ended September 30, 2008 were
financed in part with short-term and long-term obligations as discussed in Note
4 to our consolidated financial statements. Our interest expense in future
periods will vary based on our level of future borrowings, which will depend on
the level of proceeds raised in the Offering, the cost of borrowings, and the
opportunity to acquire real estate assets which meet our investment
objectives.





Other Income





During
the three months ended September 30, 2008, the Company recorded $177,000 of
losses related to marking its derivative instruments to market.




Funds From
Operations




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 generally accepted accounting principles in the United States (“GAAP”)
implicitly assumes that the value of real estate assets diminishes
predictability over time. Since real estate values have historically risen or
fallen with market conditions, many industry investors and analysts have
considered the presentation of operating results for real estate companies that
use historical cost accounting to be insufficient by themselves. As a result, we
believe that the use of FFO, together with the required GAAP presentations,
provide a more complete understanding of our performance relative to our peers
and a more informed and appropriate basis on which to make decisions involving
operating, financing, and investing activities. Other REITs may not define FFO
in accordance with the current National Association of Real Estate Investment
Trust’s (“NAREIT”) definition (as we do) or may interpret the current NAREIT
definition differently than we do. Consequently, our presentation of FFO may not
be comparable to other similarly titled measures presented by other
REITs.


FFO is a
non-GAAP financial measure and does not represent net income as defined by GAAP.
FFO does not represent cash flows from operations as defined by U.S. GAAP, it is
not indicative of cash available to fund all cash flow needs and liquidity,
including our ability to pay distributions and should not be considered as an
alternative to net income, as determined in accordance with U.S. GAAP, for
purposes of evaluating our operating performance.





FFO is
presented in the following table for the periods ended as indicated:




Three Months
      EndedJune 30,
      2008
              
              Three Months
      EndedSeptember 30,
      2008Net
      loss
              
              $
              (454,369
              )
              $
              (845,124
              )Add:Depreciation
      of real estate assets
              
              
              616,517
              
              
              717,410Amortization
      of intangible lease assets
              
              
              119,966
              
              
              139,777Mark-to-market
      adjustment (1)
              
              
              (196,816
              )
              
              176,656FFO
              
              $
              85,298
              
              $
              188,719Dividends
      paid (2)
              
              $
              79,899
              
              $
              174,021FFO
      coverage ratio
              
              
              106.8
              %
              
              108.5
              %FFO
      payout ratio
              
              
              93.7
              %
              
              92.2
              %


___________________________


(1) 
      -
            the
      Company excludes non-cash mark-to-market adjustments relating to its
      hedging activities from its FFO calculation.(2)
       -
            includes
      shares issued under the DRIP.(3) 
      -
            FFO
      is not applicable for the three months ended March 31, 2008, as no
      dividend were paid during such period.


21




Nine Months Ended September 30,
2008




As of
September 30, 2008, the Company owned 41 properties which are 100% leased. We
acquired a Federal Express distribution center on March 5, 2008. A sale
leaseback transaction involving 15 properties 100% occupied by Harleysville
National Bank occurred on March 12, 2008. A sale leaseback transaction involving
18 properties 100% occupied by Rockland Trust Company occurred on May 2, 2008. A
National City Bank location was acquired on September 16, 2008. A transaction
involving 6 properties 100% occupied by Rite Aid occurred on September 29, 2008.
The property operating results outlined below relate to the partial period we
owned these investment assets during the period.





Rental Income





Rental
income of approximately $3,156,000 was recognized during the nine months ended
September 30, 2008. This rental income is derived from the leased properties we
acquired in March, May and September 2008.





Property Management Fees to
Affiliate





Property
management fees to affiliate of approximately $4,000 were incurred during the
nine months ended September 30, 2008. Such fees represent amounts paid to our
affiliated property manager, American Realty Capital Properties, LLC, to manage
and lease our properties. American Realty Capital Properties, LLC has elected to
waive the property management fees for the nine months ended September 30,
2008.





General and Administrative
Expenses





General
and administrative expenses of approximately $292,000 were incurred during the
nine months ended September 30, 2008. The majority of such expenses includes
approximately $59,000 reimbursed to the Advisor relating to various
organizational and offering costs, which is net of the $60,000 refunded from the
Advisor in the third quarter of 2008, $127,000 of insurance expense amortization
of our directors and officers’ insurance policy, $59,000 of board member
compensation and $35,000 of professional fees.





Depreciation and Amortization
Expense





Depreciation
and amortization expense of approximately $1,765,000 was recognized during the
nine months ended September 30, 2008. This expense relates to depreciation and
amortization incurred from the properties we acquired in March, May and
September 2008.





Interest Expense





Interest
expense of approximately $2,759,000 was recognized during the nine months ended
September 30, 2008. Such amount relates to interest expense incurred on debt
obligations assumed and/or borrowed to fund a portion of the properties we
acquired in March, May and September 2008.





Our
property acquisitions during the nine months ended September 30, 2008 were
financed in part with short-term bridge equity and long-term obligations as
discussed in Note 4 to our consolidated financial statements. Our interest
expense in future periods will vary based on our level of future borrowings,
which will depend on the level of proceeds raised in the Offering, the cost of
borrowings, and the opportunity to acquire real estate assets which meet our
investment objectives.





Other Income





During
the nine months ended September 30, 2008, the Company recorded $20,000 of gains
related to marking its derivative instruments to market.





Cash Flows for the Nine Months Ended
September 30, 2008





During
the nine months ended September 30, 2008, net cash provided by operating
activities was approximately $1,291,000. The level of cash flows provided by
operating activities is affected by both the timing of interest payments and
amount of borrowings outstanding during the period. It is also affected by the
receipt of scheduled rent payments and disbursement of deposits required in
connection with property acquisitions. Prepaid expenses and other assets
increased by approximately $751,000 principally resulting from a deposit paid to
secure financing on a portfolio expected to close in the fourth quarter of 2008
and the partial pre-funding of our Directors and Officers’ insurance policy.
This amount is offset by the increase in accounts payable and accrued expenses
of approximately $1,312,000, the majority of which relates to professional fees,
accrued interest and finance coordination fees, as well as an increase in
deferred rent and liabilities of approximately $554,000, primarily representing
rent payments received in advance of the respective due date.




Net cash
used in investing activities during the nine months ended September 30, 2008
totaled approximately $49,068,000 relating to investment properties acquired
during the period.





Net cash
provided by financing activities totaled approximately $48,651,000 during the
nine months ended September 30, 2008. Such amount consisted primarily of net
proceeds from mortgage notes payable, a convertible redeemable preferred
investment, our related party bridge facility, and our related party
bridge revolver of approximately $26,294,000, $3,995,000, $7,148,000 and
$6,500,000, respectively. During the period, we issued 1,145,397 shares of
common stock which generated approximately $7,272,000 of gross proceeds, reduced
by approximately $1,292,000 of related offering costs and commissions. Net cash
of approximately $168,000 was used for shareholder dividends. Net cash was
reduced by approximately $50,000 related to restricted cash.




Liquidity and Capital
Resources




We expect
to continue to raise capital through the sale of our common stock and to utilize
the net proceeds from the sale of our common stock and proceeds from secured
financings to complete future property acquisitions and satisfy outstanding
short-term bridge equity amounts. As of
September 30, 2008, we issued 1,165,397 shares of common stock, including
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
$10,523,344. As of September 30, 2008, the aggregate value of all share
issuances and subscriptions outstanding was $13,667,108 based on a per share
value of $10.00. This amount includes stock subscriptions of $2,103,628 which
are maintained at our third-party escrow agent, to be released when certain
escrow requirements have been achieved.





The
amount of distributions payable to our stockholders is determined by our board
of directors and is dependent on a number of factors, including funds available
for distribution, financial condition, capital expenditure requirements, as
applicable and annual distribution requirements needed to qualify and maintain
our status as a REIT under the Code. Operating cash flows are expected to
increase as additional properties are acquired in our investment
portfolio.




Our
principal demands for funds will continue to be for property acquisitions,
either directly or through investment interests, for the payment of operating
expenses and distributions, satisfaction of bridge equity and for the payment of
interest on our outstanding indebtedness and other investments. Generally, cash
needs for items other than property acquisitions are expected to be met from
operations, and cash needs for property acquisitions are expected to be met from
the public offering of our shares. However, there may be a delay between the
sale of our shares and our purchase of properties, which could result in a delay
in the benefits to our stockholders, if any, of returns generated from our
operations. Our Advisor evaluates potential acquisitions of real estate and real
estate related assets and engages in negotiations with sellers and borrowers on
our behalf. Investors should be aware that after a purchase contract is executed
that contains specific terms, the property will not be purchased until the
successful completion of due diligence and negotiation of final binding
agreements. During this period, we may decide to temporarily invest any unused
proceeds from the Offering in certain investments that could yield lower returns
than the properties. These lower returns may affect our ability to make
distributions.




We expect
to meet our future short-term operating liquidity requirements through net cash
provided by our current property operations and the operations of properties to
be acquired in the future. Management also expects that our properties will
generate sufficient cash flow to cover operating expenses and the payment of a
monthly distribution. Other potential future sources of capital include proceeds
from secured or unsecured financings from banks or other lenders, proceeds from
the sale of properties and undistributed funds from operations.




In
February 2008, the Board of Directors declared a dividend for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of real
estate investments, payable in cash on the 21st day following each month end to
stockholders of record at the close of business each day during the applicable
period. The dividend will be calculated based on stockholders of record each day
during the applicable period at a rate of $0.00178082191 per day, and will equal
a daily amount that, if paid each day for a 365-day period, would equal a 6.5%
annualized rate based on the share price of $10.00. In August 2008, the Board of
Directors modified the dividend payment date to the second business day of the
following month.





The
Company, our Board of Directors and Advisor share a similar philosophy with
respect to paying our dividend. The dividend should principally be derived from
cash flows generated from real estate operations. During the nine months ended
September 30, 2008, dividends paid totaled $253,919, inclusive of $85,962 of
common shares issued under the DRIP. Our related party Advisor has agreed to
waive certain fees during the current period which resulted in the Company’s FFO
fully covering the dividends that were paid out during such period. These waived
fees included asset management and property management of $212,489 and $30,557,
respectively. In addition, the Advisor waived reimbursement it was entitled to
during the period for organizational and offering expenses which totaled
$11,306. The fees and reimbursement that were waived relating to the activity
during the three months ended September 30, 2008 are not deferrals and
accordingly, will not be paid by the Company.





The
payment terms of our loan obligations vary. In general, principal and interest
is payable monthly with all unpaid principal and interest due at maturity.
Certain of our mortgage loans have initial payments of interest only but require
principal repayment in subsequent years. Our loan agreements stipulate that we
comply with specific reporting and financial covenants. As of September 30,
2008, we were in compliance with the debt covenants under our loan
agreements.


Our
Advisor may, with approval from our independent board of directors, seek to
borrow short-term bridge equity that, combined with secured mortgage financing,
exceeds our targeted leverage ratio. Such short-term bridge equity may be
derived from the $10.0 million revolving bridge equity facility established
between principals of the Advisor and the O.P. or the $10.0 million unsecured
bridge equity facility established between ARC Bridge and the REIT as described
in Note 10 of our financial statements — Related-Party Transactions and
Arrangements. In addition, short-term bridge equity 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 bridge equity 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 in connection with our offering, these short-term
bridge equity investments will be satisfied. As of September 30, 2008, we had
$6.5 million of bridge equity outstanding under our related party revolving
bridge equity facility, bridge equity of approximately $7.1 million under our
related party unsecured bridge equity facility, approximately $4.0 million of
bridge equity from a third-party investor, and approximately $4.0 million of
convertible redeemable preferred equity. Excluding such short-term bridge
equity, our leverage ratio approximated 72% (secured mortgage notes payable as a
percentage of total real estate investments, at cost) as of September 30,
2008.


22




As of
September 30, 2008, we had cash and cash equivalents of approximately $875,000,
which we expect to be used primarily to invest in additional real estate, pay
operating expenses and pay stockholder distributions.




Contractual
Obligations




The
following is a summary of our contractual obligations as of September 30,
2008:




Payments Due During the Years
      Ending December 31Contractual
      Obligations
              
              Total
              
              Remainder of 2008
              
              2009-2010
              
              2011-2012
              
              ThereafterMortgage
      notes payable (1)
              
              $
              77,067,200
              
              $
              125,988
              
              $
              1,077,952
              
              $
              2,856,749
              
              $
              73,006,511Short-term
      bridge equity (1)
              
              
              3,953,796
              
              
              —
              
              
              3,953,796
              
              
              —
              
              
              —Short-term
      convertible redeemable preferred equity
              
              
              
              
              
              
              
              
              3,995,000Related
      party bridge equity (1)(3)
              
              
              6,500,000
              
              
              —
              
              
              6,500,000
              
              
              —
              
              
              —Related
      party bridge equity facility (1)
              
              
              7,147,587
              
              
              
              
              
              7,147,587Purchase
      obligations (2)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —$
              98,663,583
              
              $
              125,988
              
              $
              22,674,335
              
              $
              2,856,749
              
              $
              73,006,511
 ___________________________




(1)
            Amounts
      include principal payments only. We incurred interest expense of
      approximately $2,686,000, excluding amortization of deferred financing
      costs, during the nine months ended September 30, 2008, and expect to
      incur interest in future periods on outstanding debt
      obligations.(2)
            The
      Company has agreed to purchase a portfolio of 50 PNC bank branches located
      in Pennsylvania. The transaction is expected to close in the fourth
      quarter of 2008.(3)
            In November 2008,
      the related party approved an extension of the repayment period
      of an additional six months.





Election as a
REIT




We will
elect to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code commencing with our taxable year ending December 31, 2008. If
we qualify for taxation as a REIT, we generally will not be subject to federal
corporate income tax to the extent we distribute our REIT taxable income to our
stockholders, and so long as we distribute at least 90% of our REIT taxable
income. REITs are subject to a number of other organizational and operational
requirements. Even if we qualify for taxation as a REIT, we may be subject to
certain state and local taxes on our income and property, and federal income and
excise taxes on our undistributed income. We believe we are organized and
operating in such a manner as to qualify to be taxed as a REIT for the taxable
year ending December 31, 2008.




Inflation





Some of
our leases contain provisions designed to mitigate the adverse impact of
inflation. These provisions generally increase rental rates during the terms of
the leases either at fixed rates or indexed escalations (based on the Consumer
Price Index or other measures). We may be adversely impacted by inflation on the
leases that do not contain indexed escalation provisions. In addition, our net
leases require the tenant to pay its allocable share of operating expenses,
including common area maintenance costs, real estate taxes and insurance. This
may reduce our exposure to increases in costs and operating expenses resulting
from inflation.




Related-Party Transactions and
Agreements




We have
entered into agreements with American Realty Capital II, LLC and its
wholly-owned affiliates, whereby we pay certain fees or reimbursements to our
Advisor or its affiliates for acquisition fees and expenses, organization and
offering costs, sales commissions, dealer manager fees, asset and property
management fees and reimbursement of operating costs. See Note 9 to our
consolidated financial statements included in this report for a discussion of
the various related-party transactions, agreements and fees.





Off-Balance Sheet
Arrangements




We have
no off-balance sheet arrangements that are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.


23




Item 3. Quantitative and Qualitative
Disclosures About Market Risk




We are
exposed to interest rate changes primarily as a result of long-term debt used to
acquire properties.  Our interest rate risk management objectives are to
limit the impact of interest rate changes on earnings and cash flows and to
lower overall borrowing costs. To achieve these objectives, we may borrow at
fixed rates or variable rates with the lowest margins available and in some
cases, the ability to convert variable rates to fixed rates. With regard to
variable rate financing, we will assess interest rate cash flow risk by
continually identifying and monitoring changes in interest rate exposures that
may adversely impact expected future cash flows and by evaluating hedging
opportunities.  At September 30, 2008, our interest rate exposure was
mitigated by various hedging instruments - See Note 5 and Note 7.





We do not
have any foreign operations and thus we are not exposed to foreign currency
fluctuations.


24




PART II


OTHER INFORMATION





Item 1. Legal
Proceedings




We are
not a party to, and none of our properties are subject to, any material pending
legal proceedings.





Item 1A. Risk
Factors




There
have been no material changes from the risk factors set forth in our Annual
Report on Form S-11 for period from August 17, 2007 (date of inception)
to September 30, 2008.





Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds




Share Redemption
Program




Our board
of directors has adopted a share repurchase program that enables our
stockholders to sell their shares to us in limited circumstances. 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 of the holder’s shares to us for
repurchase. At that time, we may, subject to the conditions and limitations,
redeem the shares presented for repurchase for cash to the extent that we have
sufficient funds available to us to fund such repurchase. 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
current net asset value of the shares if higher. During any calendar year, the
number of shares we will repurchase will be limited to the proceeds in the
distribution reinvestment plan; provided, however, that shares subject to a
repurchase requested upon the death or disability of a stockholder will not be
subject to this cap. The cash available for repurchase of our shares will be
limited to the proceeds from the sale of shares pursuant to our distribution
reinvestment plan legally available for the repurchase of our
stock.





No shares
were redeemed under this program during the quarter ended September 30,
2008.





Item 3. Defaults Upon Senior
Securities




None





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




None


Item
4T. Controls and Procedures
  In
accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), we, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act)
as of the end of the period covered by this Quarterly Report on Form 10-Q. Based
on that evaluationand because of our failure to
include the requireddisclosure of our controls and procedures
in our quarterly report on Form 10-Q for the quarter endedSeptember 30, 2008, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures, as of September 30, 2008, werenot
effective.  We have remedied this failure in the effectiveness of our
disclosure controls and procedures by implementing additional controls and
procedures designed to ensure that the disclosure provided by us meets the
then-current requirements of the applicable filing made under the Securities
Exchange Act of 1934, as amended. In addition, we have amended our quarterly
report on Form 10-Q for the quarter ended September 30, 2008 to provide the
required disclosure.
  No change
occurred in our internal controls over financial reporting (as defined in Rule
13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended
September 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.


Item  5. Other
Information




None





Item  6. Exhibits




The
exhibits listed on the Exhibit Index (following the signatures section of
this report) are included, or incorporated by reference, in this quarterly
report.


25




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




American
      Realty Capital Trust, Inc.
              (Registrant)By:
            
            /s/
      Nicholas S. SchorschNicholas
      S. SchorschChief Executive Officer and
      PresidentBy:
            
            /s/
      Brian S. BlockBrian
      S. BlockSenior Vice President and
      Chief Financial Officer




Date:
February 13, 2009


26




EXHIBIT
INDEX




The
following exhibits are included, or incorporated by reference, in this Quarterly
Report on Form 10-Q for the quarter ended September 30, 2008 (and are numbered
in accordance with Item 601 of Regulation S-K).





Exhibit
      No.
            Description31.1
            Certification
      of the Principal Executive Officer of the Company pursuant to Securities
      Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002 (filed herewith).31.2
            Certification
      of the Principal Financial Officer of the Company pursuant to Securities
      Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002 (filed herewith).32
            Written
      statements of the Principal Executive Officer and Principal Financial
      Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.10.8(a)
            Agreement
      for Transfer of Membership Interest between ARC Growth Fund I, LLC, and
      American Realty Capital Operating Partnership, L.P., dated September 16,
      2008. (Transfer to the Operating Partnership of an indirect interest in
      National City portfolio. Amends exhibit previously filed as exhibit 10.8
      to the Post-Effective Amendment No. 2 to Form S-11, dated September 3,
      2008.)10.8(b)
            Agreement
      for Transfer of Membership Interests between ARC Growth Fund I, LLC, and
      American Realty Capital Operating Partnership, L.P., dated September 16,
      2008. (Transfer to the Operating Partnership of an indirect interest in
      National City portfolio. Amends exhibit previously filed as exhibit 10.8
      to the Post-Effective Amendment No. 2 to Form S-11, dated September 3,
      2008.)10.9(a)
            Agreement
      of Assignment of Membership Interests by and among Milestone Partners
      Limited, and American Realty Capital Holdings, LLC, and American Realty
      Capital Operating Partnership, L.P., dated September 29, 2008. (Transfer
      to the Operating Partnership of an indirect interest in the Rite Aid
      portfolio.)10.9(b)
            Consent
      to Transfer Agreement among ARC RACADOH001, LLC, ARC RACAROH001, LLC, ARC
      RAELPOH001, LLC, ARC RALISOH001, LLC, ARC RACARPA001, LP, ARC RAPITPA001,
      LP, American Realty Capital Holdings, LLC, Milestone Partners Limited,
      American Realty Capital Operating Partnership, L.P., and Wells Fargo Bank,
      N.A., dates September 29, 2008. (Transfer of mortgage to Operating
      Partnership in the Rite Aid
portfolio.)






27