UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934For
      the quarterly period ended September 30, 2010ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934





For the
transition period from _________ to __________





Commission
file number: 333-145949





AMERICAN
REALTY CAPITAL TRUST, INC.


(Exact
name of registrant as specified in its charter)




Maryland
                    
                    71-1036989(State
      or other  jurisdiction
                      of
      incorporation or organization)
                    
                    (I.R.S.
      Employer Identification No.)106
      York Road
                      Jenkintown, PA
                    
                    19046(Address
      of principal executive offices)
                    
                    (Zip
      Code)





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





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 submitted electronically and posted on its
corporate Web Site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files).  ̈ Yes
 ̈ 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
      filer x
            (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,
2010 was 51,381,974 shares.





AMERICAN
REALTY CAPITAL TRUST, INC.


INDEX




PART
      I — FINANCIAL INFORMATIONItem 1.
      Financial StatementsConsolidated
      Balance Sheets as of September 30, 2010 (Unaudited) and December 31,
      2009
            3Consolidated
      Statements of Operations for the three months and nine months ended
      September 30, 2010 and 2009 (Unaudited)
            4Consolidated
      Statement of  Equity for the nine months ended September 30,
      2010 (Unaudited)
            5Consolidated
      Statements of Cash Flows for the nine months ended September 30, 2010 and
      2009 (Unaudited)
            6Notes
      to Consolidated Financial Statements (Unaudited)
            8Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
            31Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
            46Item 4.
      Controls and Procedures
            46PART
      II — OTHER INFORMATION
            47Item 1.
      Legal Proceedings
            47Item
      1A. Risk Factors
            47Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
            47Item 3.
      Defaults Upon Senior Securities
            47Item 4.
      Reserved
            47Item 5.
      Other Information
            47Item 6.
      Exhibits
            47Signatures
            48








2


PART
I - Financial Information


Item
1. Financial Statements


AMERICAN REALTY CAPITAL
TRUST, INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands except share and per share data)











September
      30,
                        2010
                      
                      December
      31,
                        2009(Unaudited)ASSETSReal
      estate investments, at cost:Land
                      
                      $
                      114,219
                      
                      
                      $
                      37,779Buildings,
      fixtures and improvements
                      
                      
                      483,068
                      
                      
                      
                      261,939Acquired
      intangible lease assets
                      
                      
                      78,529
                      
                      
                      
                      38,838Total
      real estate investments, at cost
                      
                      
                      675,816
                      
                      
                      
                      338,556Less
      accumulated depreciation and amortization
                      
                      
                      (25,379
                      )
                      
                      
                      (11,292
                      )Total real estate investments, net
                      
                      
                      650,437
                      
                      
                      
                      327,264Cash
      and cash equivalents
                      
                      
                      4,406
                      
                      
                      
                      5,010Restricted
      cash
                      
                      
                      77
                      
                      
                      
                      43Prepaid
      expenses and other assets
                      
                      
                      8,700
                      
                      
                      
                      4,458Deferred
      financing costs, net
                      
                      
                      5,991
                      
                      
                      
                      2,502Total
      assets
                      
                      $
                      669,611
                      
                      
                      $
                      339,277





LIABILITIES AND EQUITYShort-term
      bridge equity funds
                              
                              $
                              —
                              
                              
                              $
                              15,878Mortgage
      notes payable
                              
                              
                              285,668
                              
                              
                              
                              183,811Long-term
      notes payable
                              
                              
                              12,790
                              
                              
                              
                              13,000Below-market
      lease liabilities, net
                              
                              
                              8,530
                              
                              
                              
                              9,085Derivatives,
      at fair value
                              
                              
                              6,880
                              
                              
                              
                              2,768Accounts
      payable and accrued expenses
                              
                              
                              3,546
                              
                              
                              
                              1,536Deferred
      rent and other liabilities
                              
                              
                              1,317
                              
                              
                              
                              1,144Distributions
      payable
                              
                              
                              2,380
                              
                              
                              
                              1,499Total
      liabilities
                              
                              
                              321,111
                              
                              
                              
                              228,721Preferred
      stock, $0.01 par value; 10,000,000 shares authorized, none issued and
      outstanding
                              
                              
                              —
                              
                              
                              
                              —Common
      stock, $0.01 par value; 240,000,000 shares authorized, 43,370,222 and
      14,672,237 shares issued and outstanding at September 30, 2010 and
      December 31, 2009, respectively
                              
                              
                              433
                              
                              
                              
                              147Additional
      paid-in capital
                              
                              
                              366,033
                              
                              
                              
                              122,506Accumulated
      other comprehensive loss
                              
                              
                              (5,283
                              )
                              
                              
                              (1,737
                              )Accumulated
      deficit
                              
                              
                              (28,750
                              )
                              
                              
                              (13,669
                              )Total
      American Realty Capital Trust, Inc. stockholders’ equity
                              
                              
                              332,433
                              
                              
                              
                              107,247Noncontrolling
      interests
                              
                              
                              16,067
                              
                              
                              
                              3,309Total
      equity
                              
                              
                              348,500
                              
                              
                              
                              110,556Total
      liabilities and equity
                              
                              $
                              669,611
                              
                              
                              $
                              339,277





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




3





AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands except per share data)


(Unaudited)





Three
      Months Ended
                                                                                                                        September
      30,
                                                                                                                      
                                                                                                                      
                                                                                                                      Nine
      Months Ended
                                                                                                                        September
      30,2010
                                                                                                                      
                                                                                                                      
                                                                                                                      2009
                                                                                                                      
                                                                                                                      
                                                                                                                      2010
                                                                                                                      
                                                                                                                      
                                                                                                                      2009Rental
      income:Rental
      income
                                                                                                                      
                                                                                                                      $
                                                                                                                      11,928
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      3,781
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      28,737
                                                                                                                      
                                                                                                                      
                                                                                                                      $
                                                                                                                      9,643Total
      rental income
                                                                                                                      
                                                                                                                      
                                                                                                                      11,928
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      3,781
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      28,737
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      9,643Operating
      expenses:Asset
      management fees to affiliate
                                                                                                                      
                                                                                                                      
                                                                                                                      500
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      70
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      850
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      70Acquisition
      and transaction related
                                                                                                                      
                                                                                                                      
                                                                                                                      785
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      347
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      1,766
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      347General
      and administrative
                                                                                                                      
                                                                                                                      
                                                                                                                      250
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      110
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      811
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      307Depreciation
      and amortization
                                                                                                                      
                                                                                                                      
                                                                                                                      5,731
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      2,084
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      14,237
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      5,544Total
      operating expenses
                                                                                                                      
                                                                                                                      
                                                                                                                      7,266
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      2,611
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      17,664
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      6,268Operating
      income
                                                                                                                      
                                                                                                                      
                                                                                                                      4,662
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      1,170
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      11,073
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      3,375Other
      income (expense):Interest
      expense
                                                                                                                      
                                                                                                                      
                                                                                                                      (4,724
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (2,522
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (12,511
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (7,292
                                                                                                                      )Interest
      income
                                                                                                                      
                                                                                                                      
                                                                                                                      35
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      18
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      67
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      22Gain
      on disposition of property, net
                                                                                                                      
                                                                                                                      
                                                                                                                      143
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      —
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      143
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      —Gains
      on sales to noncontrolling interest holders, net
                                                                                                                      
                                                                                                                      
                                                                                                                      67
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      —
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      419
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      —Gains
      (losses) on derivative instruments
                                                                                                                      
                                                                                                                      
                                                                                                                      (177
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (195
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (568
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      354Total
      other expenses
                                                                                                                      
                                                                                                                      
                                                                                                                      (4,656
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (2,699
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (12,450
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (6,916
                                                                                                                      )Net
      income (loss)
                                                                                                                      
                                                                                                                      
                                                                                                                      6
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      (1,529
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (1,377
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      (3,541
                                                                                                                      )Net
      (income) loss attributable to noncontrolling interests
                                                                                                                      
                                                                                                                      
                                                                                                                      (80
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      45
                                                                                                                      
                                                                                                                      
                                                                                                                      
                                                                                                                      (76
                                                                                                                      )
                                                                                                                      
                                                                                                                      
                                                                                                                      45Net
      loss attributable to American Realty Capital Trust, Inc.
                                                                                                                      
                                                                                                                      $
                                                                                                                      (74
                                                                                                                      )
                                                                                                                      
                                                                                                                      $
                                                                                                                      (1,484
                                                                                                                      )
                                                                                                                      
                                                                                                                      $
                                                                                                                      (1,453
                                                                                                                      )
                                                                                                                      
                                                                                                                      $
                                                                                                                      (3,496
                                                                                                                      )Basic
      and diluted loss per share attributable to
                                                                                                                        American
      Realty Capital Trust, Inc.
                                                                                                                      
                                                                                                                      $
                                                                                                                      (0.00
                                                                                                                      )
                                                                                                                      
                                                                                                                      $
                                                                                                                      (0.22
                                                                                                                      )
                                                                                                                      
                                                                                                                      $
                                                                                                                      (0.06
                                                                                                                      )
                                                                                                                      
                                                                                                                      $
                                                                                                                      (0.92
                                                                                                                      )





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





4


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENT OF EQUITY


NINE
MONTHS ENDED SEPTEMBER 30, 2010


(In
thousands except share data)


(Unaudited)





Common
      Stock
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              Total
                                                                                American
                                                                                RealtyNumber
      of
                                                                                Shares
                                                                              
                                                                              
                                                                              Par
                                                                                Value
                                                                              
                                                                              
                                                                              Additional
                                                                                Paid-In
                                                                                Capital
                                                                              
                                                                              
                                                                              AccumulatedOtherComprehensive
                                                                                Loss
                                                                              
                                                                              
                                                                              Accumulated
                                                                                Deficit
                                                                              
                                                                              
                                                                              CapitalTrust,
      Inc.Stockholders’
                                                                                Equity
                                                                              
                                                                              
                                                                              Non-
                                                                                controlling
                                                                                Interests
                                                                              
                                                                              
                                                                              Total
                                                                                EquityBalance,
                                                                                December
      31, 2009
                                                                              
                                                                              
                                                                              14,672,237
                                                                              
                                                                              
                                                                              $
                                                                              147
                                                                              
                                                                              
                                                                              $
                                                                              122,506
                                                                              
                                                                              
                                                                              $
                                                                              (1,737
                                                                              )
                                                                              
                                                                              $
                                                                              (13,669
                                                                              )
                                                                              
                                                                              $
                                                                              107,247
                                                                              
                                                                              
                                                                              $
                                                                              3,309
                                                                              
                                                                              
                                                                              $
                                                                              110,556Issuance
      of common stock, net
                                                                              
                                                                              
                                                                              27,546,792
                                                                              
                                                                              
                                                                              
                                                                              275
                                                                              
                                                                              
                                                                              
                                                                              273,122
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              273,397
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              273,397Offering
      costs, commissions and dealer manager fees
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (32,930
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (32,930
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (32,930
                                                                              )Common
      stock issued through distribution reinvestment plan
                                                                              
                                                                              
                                                                              601,873
                                                                              
                                                                              
                                                                              
                                                                              6
                                                                              
                                                                              
                                                                              
                                                                              5,712
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              5,718
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              5,718Common
      stock redemptions
                                                                              
                                                                              
                                                                              (159,680
                                                                              )
                                                                              
                                                                              
                                                                              (2
                                                                              )
                                                                              
                                                                              
                                                                              (2,447
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (2,449
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (2,449
                                                                              )Share
      based compensation
                                                                              
                                                                              
                                                                              709,000
                                                                              
                                                                              
                                                                              
                                                                              7
                                                                              
                                                                              
                                                                              
                                                                              70
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              77
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              77Distributions
      declared
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (13,628
                                                                              )
                                                                              
                                                                              
                                                                              (13,628
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (13,628
                                                                              )Contributions
      from noncontrolling interests
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              13,966
                                                                              
                                                                              
                                                                              
                                                                              13,966Distributions
      to noncontrolling interests
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (661
                                                                              )
                                                                              
                                                                              
                                                                              (661
                                                                              )Gain
      on sale of assets to noncontrolling interest holders
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (623
                                                                              )
                                                                              
                                                                              
                                                                              (623
                                                                              )Designated
      derivatives fair value adjustment
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (3,546
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (3,546
                                                                              )
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (3,546
                                                                              )Net
      loss
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (1,453
                                                                              )
                                                                              
                                                                              
                                                                              (1,453
                                                                              )
                                                                              
                                                                              
                                                                              76
                                                                              
                                                                              
                                                                              
                                                                              (1,377
                                                                              )Total
      comprehensive loss
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              (4,999
                                                                              )
                                                                              
                                                                              
                                                                              76
                                                                              
                                                                              
                                                                              
                                                                              (4,923
                                                                              )Balance,
                                                                                September
      30, 2010
                                                                              
                                                                              
                                                                              43,370,222
                                                                              
                                                                              
                                                                              $
                                                                              433
                                                                              
                                                                              
                                                                              $
                                                                              366,033
                                                                              
                                                                              
                                                                              $
                                                                              (5,283
                                                                              )
                                                                              
                                                                              $
                                                                              (28,750
                                                                              )
                                                                              
                                                                              $
                                                                              332,433
                                                                              
                                                                              
                                                                              $
                                                                              16,067
                                                                              
                                                                              
                                                                              $
                                                                              348,500




The accompanying
notes are an integral part of this financial statement.


5


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)




Nine
      Months Ended September 30,2010
                                  
                                  
                                  2009Cash
      flows from operating activities:Net
      loss
                                  
                                  $
                                  (1,377
                                  )
                                  
                                  $
                                  (3,541
                                  )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
                                  
                                  
                                  11,415
                                  
                                  
                                  
                                  4,412Amortization
      of intangibles
                                  
                                  
                                  2,822
                                  
                                  
                                  
                                  1,131Amortization
      of deferred finance costs
                                  
                                  
                                  703
                                  
                                  
                                  
                                  418Amortization
      of restricted share grants
                                  
                                  
                                  77
                                  
                                  
                                  
                                  —Accretion
      of below-market lease liability
                                  
                                  
                                  (235
                                  )
                                  
                                  
                                  (236
                                  )Gain
      on disposition of property
                                  
                                  
                                  (143
                                  )
                                  
                                  
                                  —Gains
      on sales to noncontrolling interest holders
                                  
                                  
                                  (623
                                  )
                                  
                                  
                                  —Losses
      (gains) on derivative instruments
                                  
                                  
                                  568
                                  
                                  
                                  
                                  (354
                                  )Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                                  
                                  
                                  (4,148
                                  )
                                  
                                  
                                  (2,830
                                  )Accounts
      payable and accrued expenses
                                  
                                  
                                  2,010
                                  
                                  
                                  
                                  (802
                                  )Due
      from affiliated entity
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (2,013
                                  )Deferred
      rent and other liabilities
                                  
                                  
                                  173
                                  
                                  
                                  
                                  298Net
      cash provided by (used in) operating activities
                                  
                                  
                                  11,242
                                  
                                  
                                  
                                  (3,517
                                  )Cash
      flows from investing activities:Investment
      in real estate and other assets
                                  
                                  
                                  (338,280
                                  )
                                  
                                  
                                  (76,321
                                  )Dispositions
      of real estate and other assets
                                  
                                  
                                  757
                                  
                                  
                                  
                                  —Net
      cash used in investing activities
                                  
                                  
                                  (337,523
                                  )
                                  
                                  
                                  (76,321
                                  )Cash
      flows from financing activities:Proceeds
      on mortgage notes payable
                                  
                                  
                                  105,378
                                  
                                  
                                  
                                  25,300Payments
      on mortgage notes payable
                                  
                                  
                                  (3,521
                                  )
                                  
                                  
                                  (732
                                  )Proceeds
      on related party bridge facility
                                  
                                  
                                  —
                                  
                                  
                                  
                                  9,553Payments
      on related party bridge facility
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (18,030
                                  )Payments
      on short-term convertible redeemable preferred
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (3,995
                                  )Proceeds
      on related party convertible bridge revolver
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2,715Payments
      on related party convertible bridge revolver
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (9,215
                                  )Proceeds
      on short-term bridge funds
                                  
                                  
                                  —
                                  
                                  
                                  
                                  15,878Payments
      on short-term bridge funds
                                  
                                  
                                  (15,878
                                  )
                                  
                                  
                                  (11,954
                                  )Proceeds
      from long-term notes payable
                                  
                                  
                                  —
                                  
                                  
                                  
                                  11,910Payments
      on long-term notes payable
                                  
                                  
                                  (210
                                  )
                                  
                                  
                                  —Contributions
      from noncontrolling interests
                                  
                                  
                                  13,966
                                  
                                  
                                  
                                  3,108Distributions
      to noncontrolling interests
                                  
                                  
                                  (661
                                  )
                                  
                                  
                                  (36
                                  )Proceeds
      from issuances of common stock, net
                                  
                                  
                                  240,319
                                  
                                  
                                  
                                  65,105Payments
      of deferred financing costs
                                  
                                  
                                  (4,196
                                  )
                                  
                                  
                                  (1,049
                                  )Distributions
      paid
                                  
                                  
                                  (7,037
                                  )
                                  
                                  
                                  (920
                                  )Payments
      for share redemptions
                                  
                                  
                                  (2,449
                                  )
                                  
                                  
                                  —Restricted
      cash
                                  
                                  
                                  (34
                                  )
                                  
                                  
                                  10Net
      cash provided by financing activities
                                  
                                  
                                  325,677
                                  
                                  
                                  
                                  87,648Net
      increase (decrease) in cash
                                  
                                  
                                  (604
                                  )
                                  
                                  
                                  7,810Cash,
      beginning of period
                                  
                                  
                                  5,010
                                  
                                  
                                  
                                  887Cash,
      end of period
                                  
                                  $
                                  4,406
                                  
                                  
                                  $
                                  8,697





6


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)


(In
thousands)


(Unaudited)





Nine
      Months Ended September 30,2010
              
              
              2009Supplemental
      Disclosures of Investing and Financing Activities:Cash
      paid for income taxes
              
              $
              388
              
              
              $
              —Cash
      paid for interest
              
              $
              14,541
              
              
              $
              7,418








7
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)





Note
1 — Organization




American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a Maryland corporation that qualifies as a real estate investment trust (“REIT”)
for federal income tax purposes. 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 the
Company’s 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, 2010, the Company issued 43.4
million shares of common stock. Total gross proceeds from these issuances were
$422.2 million. As of September 30, 2010, the aggregate value of all share
issuances and subscriptions outstanding was $426.2 million based on a per share
value of $10.00 (or $9.50 for shares issued under the DRIP).





On
August 5, 2010, the Company filed a registration statement on Form S-11 to
register 32,500,000 shares of common stock in connection with the follow on
offering to its initial public offering.   The initial public offering
was originally set to expire on January 25, 2011, three years after its
effective date. However, as permitted by Rule 415 of the Securities Act, the
Company will now continue its initial public offering until the earlier of July
24, 2011 or the date that the SEC declares the registration statement for the
follow on offering effective. Total capital raised under the current
registration and follow on offering will not exceed $1.5 billion.





Substantially
all of the Company’s business is conducted through American Realty Capital
Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The
Company is the sole general partner of and owns a 99.01% partnership interest in
the OP. American Realty Capital Advisors, LLC (the “Advisor”), the Company’s
affiliated Advisor, is the sole limited partner and owner of 0.99%
(noncontrolling interest) of the partnership interests of the OP. In March 2008,
the OP issued to the Company 20,000 Operating Partnership units in exchange for
$0.2 million. Additionally, in April 2008, the Advisor contributed $2 thousand
to the OP in exchange for a 0.99% limited partner interest in the OP. The
limited partner interests have the right to convert OP units into cash or, at
the option of the Company, an equal number of common shares of the Company, as
allowed by the limited partnership agreement. 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 OP’s assets.





The
Company is managed by the Advisor and American Realty Capital Properties, LLC,
which serves as the Company’s property manager (the “Property Manager”). Realty
Capital Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor,
serves as the dealer manager of the Company’s Offering. These related parties
receive compensation and fees for services related to the Offering and for the
investment and management of the Company’s assets. These entities receive fees
during the offering, acquisition, operational and liquidation stages. The
compensation levels during the offering, acquisition and operational stages are
discussed in Note 10 — Related Party Transactions and
Arrangements.


8
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


The
Company’s stock is not 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 the
Company is not listed prior to the tenth anniversary of the completion or
termination of the Offering, its charter requires that the Company 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.





Note
2 — Summary of Significant Accounting Policies





The
Company’s significant accounting policies are described in Note 2 to the
consolidated financial statements in the Company’s Form 10-K for the year ended
December 31, 2009. There have been no significant changes to these policies
during 2010.





Note
3 — Real Estate Investments




The
following table presents the allocation of the assets acquired during the three
and nine months ended September 30, 2010 and 2009 (dollar amounts in
thousands):





Three
      Months Ended
                            September
      30,
                          
                          
                          Nine
      Months Ended
                            September
      30,
                          
                          
                          Three
      and Nine Months Ended September 30,2010
                          
                          
                          2010
                          
                          
                          2009Real
      estate investments, at cost:Land
                          
                          $
                          46,662
                          
                          
                          $
                          76,561
                          
                          
                          $
                          8,332Buildings,
      fixtures and improvements
                          
                          
                          93,271
                          
                          
                          
                          221,813
                          
                          
                          
                          58,483139,933
                          
                          
                          
                          298,374
                          
                          
                          
                          66,815Intangibles
      and other assets:In-place
      leases
                          
                          
                          16,163
                          
                          
                          
                          39,906
                          
                          
                          
                          9,506Total
      assets acquired
                          
                          
                          156,096
                          
                          
                          
                          338,280
                          
                          
                          
                          76,321Cash
      paid for acquired real estate investments
                          
                          $
                          156,096
                          
                          
                          $
                          338,280
                          
                          
                          $
                          76,321Number
      of properties purchased during period
                          
                          
                          62
                          
                          
                          
                          103
                          
                          
                          
                          34







9
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
3 — Real Estate Investments (continued)





The
Company acquires and operates commercial properties. All such properties may be
acquired and operated by the Company alone or jointly with another party. As of
September 30, 2010, all of the properties the Company owned were 100% occupied
by an investment grade or credit quality tenant on a long-term basis comprised
of freestanding, single tenant commercial space. The Company’s portfolio of
real estate properties is comprised of the following properties as of September
30, 2010 (dollar amounts in thousands):




Seller / Property Name
                                
                                Acquisition
                                  Date
                                
                                No. of
                                  Buildings
                                
                                Square
                                  Feet
                                
                                Ownership
                                  Percentage
                                
                                Remaining
                                  Lease
                                  Term (1)
                                
                                Base
                                  Purchase
                                  Price (2)
                                
                                Capitalization
                                  Rate (3)
                                
                                
                                Net
                                  Operating
                                  Income (4)
                                
                                Total
                                  Purchase
                                  Price (5)FedEx
                                
                                March
      2008
                                
                                1
                                
                                55,440
                                
                                51%
                                
                                8.8
                                
                                $
                                9,694
                                
                                7.53%
                                
                                $
                                730
                                
                                $
                                10,208First
      Niagara
                                
                                March
      2008
                                
                                15
                                
                                177,774
                                
                                100%
                                
                                12.3
                                
                                
                                40,976
                                
                                7.48%
                                
                                
                                3,064
                                
                                
                                41,676Rockland
      Trust
                                
                                May
      2008
                                
                                18
                                
                                121,057
                                
                                100%
                                
                                10.8
                                
                                
                                32,188
                                
                                7.86%
                                
                                
                                2,530
                                
                                
                                33,117PNC
      Bank (6)
                                
                                September
      & October 2008
                                
                                2
                                
                                8,403
                                
                                81%
                                
                                18.4
                                
                                
                                6,664
                                
                                8.21%
                                
                                
                                547
                                
                                
                                6,853Rite
      Aid
                                
                                September
      2008
                                
                                6
                                
                                74,919
                                
                                100%
                                
                                12.8
                                
                                
                                18,576
                                
                                7.79%
                                
                                
                                1,447
                                
                                
                                18,839PNC
                                
                                November
      2008
                                
                                49
                                
                                266,188
                                
                                100%
                                
                                8.2
                                
                                
                                41,605
                                
                                7.35%
                                
                                
                                3,060
                                
                                
                                44,132FedEx
      II
                                
                                July
      2009
                                
                                1
                                
                                152,640
                                
                                100%
                                
                                13.1
                                
                                
                                31,692
                                
                                8.84%
                                
                                
                                2,803
                                
                                
                                31,692Walgreens
                                
                                July
      2009
                                
                                1
                                
                                14,820
                                
                                56%
                                
                                21.8
                                
                                
                                3,818
                                
                                8.12%
                                
                                
                                310
                                
                                
                                3,818CVS
      (7)(8)
                                
                                September
      2009 September 2010
                                
                                10
                                
                                131,105
                                
                                72%
                                
                                23.5
                                
                                
                                44,371
                                
                                8.37%
                                
                                
                                3,713
                                
                                
                                44,371CVS
      II
                                
                                November
      2009
                                
                                15
                                
                                198,729
                                
                                100%
                                
                                23.8
                                
                                
                                59,788
                                
                                8.48%
                                
                                
                                5,071
                                
                                
                                59,788Home
      Depot
                                
                                December
      2009
                                
                                1
                                
                                465,600
                                
                                100%
                                
                                19.3
                                
                                
                                23,532
                                
                                9.31%
                                
                                
                                2,192
                                
                                
                                23,532BSFS
                                
                                December
      2009 & January 2010
                                
                                6
                                
                                57,336
                                
                                100%
                                
                                13.6
                                
                                
                                15,041
                                
                                9.24%
                                
                                
                                1,390
                                
                                
                                15,041Advance
      Auto
                                
                                December
      2009
                                
                                1
                                
                                7,000
                                
                                100%
                                
                                11.2
                                
                                
                                1,730
                                
                                9.25%
                                
                                
                                160
                                
                                
                                1,730Fresenius
                                
                                January
      2010
                                
                                2
                                
                                140,000
                                
                                100%
                                
                                11.8
                                
                                
                                12,462
                                
                                9.30%
                                
                                
                                1,159
                                
                                
                                12,462Reckitt
      Benckiser
                                
                                February
      2010
                                
                                1
                                
                                574,106
                                
                                85%
                                
                                11.4
                                
                                
                                31,735
                                
                                8.41%
                                
                                
                                2,668
                                
                                
                                31,735Jack
      in the Box
                                
                                February
      2010 & April 2010
                                
                                5
                                
                                12,253
                                
                                100%
                                
                                19.4
                                
                                
                                10,010
                                
                                7.80%
                                
                                
                                781
                                
                                
                                10,010BSFS
      II (9)
                                
                                February
      & March 2010
                                
                                12
                                
                                93,599
                                
                                78%
                                
                                13.3
                                
                                
                                26,414
                                
                                8.70%
                                
                                
                                2,299
                                
                                
                                26,414FedEx
      III
                                
                                April
      2010
                                
                                1
                                
                                118,796
                                
                                85%
                                
                                10.7
                                
                                
                                34,171
                                
                                9.03%
                                
                                
                                3,087
                                
                                
                                34,171Jared
      Jewelry
                                
                                May
      2010
                                
                                3
                                
                                19,534
                                
                                100%
                                
                                18.4
                                
                                
                                5,457
                                
                                12.44%
                                
                                
                                679
                                
                                
                                5,457Walgreens
      II
                                
                                May
      2010
                                
                                1
                                
                                14,820
                                
                                100%
                                
                                22.5
                                
                                
                                5,684
                                
                                7.97%
                                
                                
                                453
                                
                                
                                5,684IHOP
                                
                                May
      2010
                                
                                1
                                
                                5,172
                                
                                100%
                                
                                15.5
                                
                                
                                2,445
                                
                                8.22%
                                
                                
                                201
                                
                                
                                2,445Advance
      Auto II
                                
                                June
      2010
                                
                                3
                                
                                19,253
                                
                                100%
                                
                                12.8
                                
                                
                                3,674
                                
                                8.38%
                                
                                
                                308
                                
                                
                                3,674





10
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
3 — Real Estate Investments (continued)





Seller /
                                                      Property Name
                                                    
                                                    Acquisition
                                                      Date
                                                    
                                                    No. of
                                                      Buildings
                                                    
                                                    Square
                                                      Feet
                                                    
                                                    Ownership
      Percentage
                                                    
                                                    Remaining
                                                      Lease
                                                      Term (1)
                                                    
                                                    Base
                                                      Purchase
                                                      Price (2)
                                                    
                                                    Capitalization
                                                      Rate (3)
                                                    
                                                    Net
                                                      Operating
                                                      Income (4)
                                                    
                                                    Total
                                                      Purchase
                                                      Price (5)Super
      Stop & Shop
                                                    
                                                    June
      2010
                                                    
                                                    1
                                                    
                                                    59,032
                                                    
                                                    100%
                                                    
                                                    12.4
                                                    
                                                    
                                                    23,795
                                                    
                                                    8.18%
                                                    
                                                    
                                                    1,946
                                                    
                                                    
                                                    23,795IHOP
      II
                                                    
                                                    June
      2010
                                                    
                                                    1
                                                    
                                                    4,139
                                                    
                                                    100%
                                                    
                                                    11.5
                                                    
                                                    
                                                    2,300
                                                    
                                                    8.87%
                                                    
                                                    
                                                    204
                                                    
                                                    
                                                    2,300IHOP
      III
                                                    
                                                    June
      2010
                                                    
                                                    1
                                                    
                                                    5,111
                                                    
                                                    100%
                                                    
                                                    20.9
                                                    
                                                    
                                                    3,319
                                                    
                                                    9.13%
                                                    
                                                    
                                                    303
                                                    
                                                    
                                                    3,319Jared
      Jewelry II
                                                    
                                                    June
      2010
                                                    
                                                    1
                                                    
                                                    6,157
                                                    
                                                    100%
                                                    
                                                    16.4
                                                    
                                                    
                                                    1,635
                                                    
                                                    12.78%
                                                    
                                                    
                                                    209
                                                    
                                                    
                                                    1,635Jack
      in the Box II
                                                    
                                                    June
      2010
                                                    
                                                    6
                                                    
                                                    14,975
                                                    
                                                    100%
                                                    
                                                    19.8
                                                    
                                                    
                                                    11,396
                                                    
                                                    7.83%
                                                    
                                                    
                                                    892
                                                    
                                                    
                                                    11,396Walgreens
      III
                                                    
                                                    June
      2010
                                                    
                                                    1
                                                    
                                                    13,386
                                                    
                                                    100%
                                                    
                                                    23.6
                                                    
                                                    
                                                    5,062
                                                    
                                                    7.61%
                                                    
                                                    
                                                    385
                                                    
                                                    
                                                    5,062Dollar
      General
                                                    
                                                    July
      2010
                                                    
                                                    1
                                                    
                                                    8,988
                                                    
                                                    100%
                                                    
                                                    14.2
                                                    
                                                    
                                                    1,228
                                                    
                                                    9.61%
                                                    
                                                    
                                                    118
                                                    
                                                    
                                                    1,228Tractor
      Supply
                                                    
                                                    July
      & August 2010
                                                    
                                                    4
                                                    
                                                    76,038
                                                    
                                                    100%
                                                    
                                                    14.7
                                                    
                                                    
                                                    11,198
                                                    
                                                    8.73%
                                                    
                                                    
                                                    978
                                                    
                                                    
                                                    11,198Advance
      Auto III
                                                    
                                                    July
      2010
                                                    
                                                    3
                                                    
                                                    19,752
                                                    
                                                    100%
                                                    
                                                    12.9
                                                    
                                                    
                                                    4,385
                                                    
                                                    8.16%
                                                    
                                                    
                                                    358
                                                    
                                                    
                                                    4,385CSAA/CVS
                                                    
                                                    August
      2010
                                                    
                                                    1
                                                    
                                                    15,214
                                                    
                                                    100%
                                                    
                                                    22.4
                                                    
                                                    
                                                    4,950
                                                    
                                                    7.11%
                                                    
                                                    
                                                    352
                                                    
                                                    
                                                    4,950CSAA/First
      Fifth Bank(10)
                                                    
                                                    August
      2010
                                                    
                                                    2
                                                    
                                                    8,252
                                                    
                                                    100%
                                                    
                                                    17.5
                                                    
                                                    
                                                    6,199
                                                    
                                                    8.41%
                                                    
                                                    
                                                    520
                                                    
                                                    
                                                    6,199CSAA/Walgreens
                                                    
                                                    August
      2010
                                                    
                                                    5
                                                    
                                                    84,263
                                                    
                                                    100%
                                                    
                                                    22.3
                                                    
                                                    
                                                    27,351
                                                    
                                                    7.17%
                                                    
                                                    
                                                    1,961
                                                    
                                                    
                                                    27,351CSAA/Chase
      Bank (10)
                                                    
                                                    August
      2010
                                                    
                                                    2
                                                    
                                                    8,030
                                                    
                                                    100%
                                                    
                                                    26.6
                                                    
                                                    
                                                    5,939
                                                    
                                                    9.48%
                                                    
                                                    
                                                    604
                                                    
                                                    
                                                    5,939CSAA/Home
      Depot(10)
                                                    
                                                    September
      2010
                                                    
                                                    1
                                                    
                                                    107,965
                                                    
                                                    100%
                                                    
                                                    17.4
                                                    
                                                    
                                                    8,720
                                                    
                                                    7.25%
                                                    
                                                    
                                                    621
                                                    
                                                    
                                                    8,720IHOP
      IV
                                                    
                                                    September
      2010
                                                    
                                                    19
                                                    
                                                    87,009
                                                    
                                                    100%
                                                    
                                                    14.1
                                                    
                                                    
                                                    30,818
                                                    
                                                    9.19%
                                                    
                                                    
                                                    2,833
                                                    
                                                    
                                                    30,818O’Reilly
      Auto
                                                    
                                                    September
      2010
                                                    
                                                    1
                                                    
                                                    9,500
                                                    
                                                    100%
                                                    
                                                    9.4
                                                    
                                                    
                                                    2,508
                                                    
                                                    8.53%
                                                    
                                                    
                                                    214
                                                    
                                                    
                                                    2,508Walgreens
      IV
                                                    
                                                    September
      2010
                                                    
                                                    1
                                                    
                                                    14,450
                                                    
                                                    100%
                                                    
                                                    24.5
                                                    
                                                    
                                                    6,546
                                                    
                                                    7.62%
                                                    
                                                    
                                                    499
                                                    
                                                    
                                                    6,546Walgreens
      V
                                                    
                                                    September
      2010
                                                    
                                                    1
                                                    
                                                    13,580
                                                    
                                                    100%
                                                    
                                                    23.7
                                                    
                                                    
                                                    4,850
                                                    
                                                    7.81%
                                                    
                                                    
                                                    379
                                                    
                                                    
                                                    4,850Kum
      & Go
                                                    
                                                    September
      2010
                                                    
                                                    14
                                                    
                                                    67,310
                                                    
                                                    100%
                                                    
                                                    14.5
                                                    
                                                    
                                                    23,043
                                                    
                                                    8.98%
                                                    
                                                    
                                                    2,069
                                                    
                                                    
                                                    23,043FedEx
      IV
                                                    
                                                    September
      2010
                                                    
                                                    1
                                                    
                                                    43,762
                                                    
                                                    100%
                                                    
                                                    9.8
                                                    
                                                    
                                                    3,649
                                                    
                                                    8.11%
                                                    
                                                    
                                                    296
                                                    
                                                    
                                                    3,649AutoZone
                                                    
                                                    September
      2010
                                                    
                                                    4
                                                    
                                                    28,900
                                                    
                                                    100%
                                                    
                                                    15.9
                                                    
                                                    
                                                    10,434
                                                    
                                                    8.23%
                                                    
                                                    
                                                    859
                                                    
                                                    
                                                    10,434Total
                                                    
                                                    
                                                    
                                                    226
                                                    
                                                    3,424,357
                                                    
                                                    
                                                    
                                                    15.7
                                                    
                                                    $
                                                    661,052
                                                    
                                                    8.36%
                                                    
                                                    $
                                                    55,252
                                                    
                                                    $
                                                    666,174





11
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
3 — Real Estate Investments (continued)





(1)
            -
            Remaining
      lease term as of September 30, 2010, in years. If the portfolio has
      multiple locations with varying lease expirations, remaining lease
      term is calculated on a weighted-average basis.(2)
            -
            Contract
      purchase price excluding acquisition related costs.(3)
            -
            Net
      operating income divided by base purchase price.(4)
            -
            Annualized
      rental income less property operating expenses, as
    applicable.(5)
            -
            Base
      purchase for acquisitions prior to January 1, 2009 include capitalized
      acquisition related costs. Effective January 1, 2009, acquisition and
      transaction related costs are required to be expensed as incurred in
      accordance with generally accepted accounting
  principles.(6)
            -
            Ownership
      percentage is 51% of one property and 65% of one
  property.(7)
            -
            Ownership
      percentage of three properties is 51% and 100% of the remaining seven
      properties.(8)
            -
            Includes
      the September 2010 purchase of a parcel of land with a ground lease which
      contains a previously purchased CVS pharmacy.(9)
            -
            Ownership
      percentage of six properties is 55% and 100% of the remaining six
      properties.(10)
            -
            Property
      is a parcel of land with a ground lease which contains a building that
      will be conveyed to the Company at the end of the ground lease. Square
      footage and number of buildings refers to the building that is constructed
      on the parcel of land owned by the
Company.





The
following table lists tenants whose rental income represents greater than 10% of
consolidated rental income on an annualized basis as of September 30, 2010 and
2009:





2010
                  
                  2009CVS
                  17%
                  
                  —FedEx
                  13%
                  
                  14%PNC
      Bank
                  7%
                  
                  21%First
      Niagara
                  6%
                  
                  27%Rockland
      Trust Company
                  5%
                  
                  22%Rite
      Aid
                  3%
                  
                  13%




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





In
September 2010, the Company sold one of the original 50 PNC properties acquired
in November 2008 to an unaffiliated third party. The sales proceeds net of
closing costs were $0.8 million. A gain of  $0.1 million was
recorded on the disposition of the property.





Note
4 — Short-Term Bridge Equity Funds and Lines of Credit





In
connection with the purchase of real estate investments in 2009, the Company
utilized short-term bridge equity funds to finance a portion of the acquisition
price from time to time. There were no short-term equity bridge funds
outstanding at September 30, 2010. The Company’s short-term borrowings as of
December 31, 2009, consisted of the following (dollar amounts in
thousands):





Funds
                                
                                Property
                                
                                Bridge
                                  Equity
      Amount (1)
                                
                                Effective
      Interest Rate
                                
                                Interest
      RateRelated
      party bridge facility
                                
                                Various
                                
                                $
                                15,878
                                
                                5.75
                                %
                                
                                Variable
      (2)(1)
      Amount was repaid in January 2010(2) Funds
      bore a floating interest rate based on the greater of prime rate plus
      0.75% or 5.75%




12
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
4 — Short-Term Bridge Equity Funds and Lines of Credit (continued)





At
September 30, 2010, the Company had available a $10.0 million revolving line of
credit unsecured bridge facility with an affiliated entity. There were no
amounts outstanding under this facility at September 30, 2010 or December 31,
2009.  There are no unused borrowing fees associated with this
facility.





On July
27, 2010, the Company entered into a credit agreement with Capital One, N.A. to
obtain a secured revolving credit facility in an aggregate maximum principal
amount of $30 million. The proceeds of loans made under the credit agreement
will be used to finance the acquisition of net leased, investment or
non-investment grade properties. The initial term of the credit agreement is 30
months, which may be extended by 12 months, subject to satisfaction of certain
conditions, including payment of an extension fee.





Any loan
made under the Capital One credit agreement shall bear floating interest at per
annum rates equal to either one month LIBOR plus 3.25% or three month LIBOR plus
3.25%, at the Company’s option. In the event of a default, Capital One has the
right to terminate its obligations under the credit agreement, including the
funding of future loans, and to accelerate the payment on any unpaid principal
amount of all outstanding loans. The line of credit requires a 0.25% non-usage
fee on the unused balance.





On August
5, 2010, the Company entered into a credit agreement with U.S. Bank, N.A. to
obtain a secured revolving credit facility in an aggregate maximum principal
amount of $20 million, which shall be increased to $30 million six months after
closing. The proceeds of loans made under the credit agreement will be used to
finance the acquisition of net leased, investment or non-investment grade
properties. The initial term of the credit agreement is 24 months, with a
one-time extension option of 12 months, subject to satisfaction of certain
conditions, including payment of an extension fee.





Any loan
made under the U.S. Bank credit agreement shall bear floating interest at a per
annum rate equal to one month LIBOR plus 3.25%. In the event of a default, U.S.
Bank has the right to suspend the funding of future loans and to accelerate the
payment on any unpaid principal amount of the outstanding loans. The Company
intends to collateralize the line of credit with certain properties which are
currently owned or will be acquired. The line of credit requires a 0.25%
non-usage fee on the unused balance.





The
Company must collateralize the Capital One and U.S. Bank lines of credit with
certain of its properties in addition to meeting certain minimum cash deposit
requirements. The Company has not yet drawn on these lines of credit as of
September 30, 2010.








13
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
5 — Mortgage Notes Payable





The
Company’s mortgage notes payable as of September 30, 2010 consist of the
following (dollar amounts in thousands):





Property
                                    
                                    Encumbered
      Properties
                                    
                                    Outstanding
                                      Loan
      Amount
                                    
                                    Effective
      Interest Rate
                                    
                                    
                                    Interest
      Rate
                                    
                                    MaturityFedEx
                                    
                                    
                                    1
                                    
                                    $
                                    6,965
                                    
                                    
                                    6.29
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    September
      2037First
      Niagara
                                    
                                    
                                    15
                                    
                                    
                                    31,000
                                    
                                    
                                    6.59
                                    %
                                    (1)
                                    
                                    
                                    Fixed
                                    
                                    
                                    January
      2018Rockland
      Trust
                                    
                                    
                                    18
                                    
                                    
                                    23,292
                                    
                                    
                                    4.92
                                    %
                                    (2)
                                    
                                    
                                    Fixed
                                    
                                    
                                    May
      2013PNC
      Bank
                                    
                                    
                                    2
                                    
                                    
                                    4,357
                                    
                                    
                                    4.58
                                    %
                                    (3)
                                    
                                    
                                    Fixed
                                    
                                    
                                    September
      2013Rite
      Aid
                                    
                                    
                                    6
                                    
                                    
                                    12,808
                                    
                                    
                                    6.97
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    September
      2017PNC
                                    
                                    
                                    49
                                    
                                    
                                    32,078
                                    
                                    
                                    5.25
                                    %
                                    (4)
                                    
                                    
                                    Fixed
                                    
                                    
                                    November
      2013FedEx
      II
                                    
                                    
                                    1
                                    
                                    
                                    16,139
                                    
                                    
                                    6.03
                                    %
                                    (5)
                                    
                                    
                                    Fixed
                                    
                                    
                                    January
      2015Walgreens
                                    
                                    
                                    1
                                    
                                    
                                    1,550
                                    
                                    
                                    6.64
                                    %
                                    (6)
                                    
                                    
                                    Fixed
                                    
                                    
                                    August
      2019CVS
      I
                                    
                                    
                                    10
                                    
                                    
                                    23,524
                                    
                                    
                                    6.88
                                    %
                                    (7)
                                    
                                    
                                    Fixed
                                    
                                    
                                    October
      2019CVS
      II
                                    
                                    
                                    15
                                    
                                    
                                    32,820
                                    
                                    
                                    6.64
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    December
      2014Home
      Depot
                                    
                                    
                                    1
                                    
                                    
                                    12,150
                                    
                                    
                                    6.03
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    July
      2015BSFS
                                    
                                    
                                    6
                                    
                                    
                                    3,817
                                    
                                    
                                    6.61
                                    %
                                    (8)
                                    
                                    
                                    Fixed
                                    
                                    
                                    June
      2030Fresenius
                                    
                                    
                                    2
                                    
                                    
                                    6,054
                                    
                                    
                                    6.63
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    February
      2015Reckitt
      Benckiser
                                    
                                    
                                    1
                                    
                                    
                                    14,923
                                    
                                    
                                    6.23
                                    %
                                    (9)
                                    
                                    
                                    Fixed
                                    
                                    
                                    February
      2017Jack
      in the Box
                                    
                                    
                                    4
                                    
                                    
                                    4,373
                                    
                                    
                                    6.45
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    March
      2015Jack
      in the Box
                                    
                                    
                                    1
                                    
                                    
                                    968
                                    
                                    
                                    6.26
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    June
      2015FedEx
      III
                                    
                                    
                                    1
                                    
                                    
                                    15,000
                                    
                                    
                                    5.57
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    May
      2015Walgreens
      II
                                    
                                    
                                    1
                                    
                                    
                                    3,000
                                    
                                    
                                    5.58
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    May
      2015Super
      Stop & Shop
                                    
                                    
                                    1
                                    
                                    
                                    10,800
                                    
                                    
                                    5.32
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    July
      2015Advance
      Auto/
                                      Walgreens
      (10)
                                    
                                    
                                    7
                                    
                                    
                                    6,550
                                    
                                    
                                    5.58
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    September
      2015CSAA/Mixed
      (11)
                                    
                                    
                                    10
                                    
                                    
                                    19,600
                                    
                                    
                                    4.36
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    September
      2015CSAA/Home
      Depot
                                    
                                    
                                    1
                                    
                                    
                                    3,900
                                    
                                    
                                    4.56
                                    %
                                    
                                    
                                    
                                    Fixed
                                    
                                    
                                    October
      2015Total
                                    
                                    
                                    154
                                    
                                    $
                                    285,668
                                    
                                    
                                    5.92
                                    %





14
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
5 — Mortgage Notes Payable (continued)





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





Property
                              
                              Encumbered
      Properties
                              
                              Outstanding
                                Loan
      Amount
                              
                              Effective
      Interest Rate
                              
                              
                              Interest
      Rate
                              
                              MaturityFedEx
                              
                              
                              1
                              
                              $
                              6,965
                              
                              
                              6.29
                              %
                              
                              
                              
                              Fixed
                              
                              
                              September
      2037First
      Niagara
                              
                              
                              15
                              
                              
                              31,000
                              
                              
                              6.59
                              %
                              (1)
                              
                              
                              Fixed
                              
                              
                              January
      2018Rockland
                              
                              
                              18
                              
                              
                              23,649
                              
                              
                              4.92
                              %
                              (2)
                              
                              
                              Fixed
                              
                              
                              May
      2013PNC
      Bank
                              
                              
                              2
                              
                              
                              4,412
                              
                              
                              4.89
                              %
                              (3)
                              
                              
                              Fixed
                              
                              
                              September
      2013Rite
      Aid
                              
                              
                              6
                              
                              
                              12,808
                              
                              
                              6.97
                              %
                              
                              
                              
                              Fixed
                              
                              
                              September
      2017PNC
                              
                              
                              50
                              
                              
                              32,933
                              
                              
                              5.25
                              %
                              (4)
                              
                              
                              Fixed
                              
                              
                              November
      2013Walgreens
                              
                              
                              1
                              
                              
                              1,550
                              
                              
                              6.64
                              %
                              (6)
                              
                              
                              Fixed
                              
                              
                              August
      2019CVS
      I
                              
                              
                              10
                              
                              
                              23,710
                              
                              
                              6.88
                              %
                              (7)
                              
                              
                              Fixed
                              
                              
                              October
      2019CVS
      II
                              
                              
                              15
                              
                              
                              33,068
                              
                              
                              6.64
                              %
                              
                              
                              
                              Fixed
                              
                              
                              December
      2014Home
      Depot
                              
                              
                              1
                              
                              
                              13,716
                              
                              
                              6.34
                              %
                              
                              
                              
                              Fixed
                              
                              
                              December
      2012Total
                              
                              
                              119
                              
                              $
                              183,811
                              
                              
                              6.15
                              %




(1)
            -
            The
      effective interest rate resets at the end of year five to the then current
      five-year Treasury rate plus 2.25%, but in no event will be less than
      6.5%.(2)
            -
            Fixed
      as a result of entering into a rate lock agreement with a LIBOR floor and
      cap of 3.54% and 4.125%, respectively.(3)
            -
            Fixed
      as a result of entering into a swap agreement with a rate of 3.565% for a
      notional amount of $0.3 million and a rate lock agreement on a notional
      amount of $4.1 million with a LIBOR floor and cap of 3.37% and 4.45%,
      respectively, in connection with the entering into the
      mortgage.(4)
            -
            Fixed
      as a result of entering in a swap agreement for 3.6% plus a spread of
      1.65% in connection with  entering into the
      mortgage.(5)
            -
            Fixed
      as a result of entering in a swap agreement for 2.775% plus a spread of
      3.18% in connection with entering into the mortgage.(6)
            -
            The
      effective interest rate is fixed until 2014 then adjusts to the greater of
      6.55% or the five-year U.S. Treasury rate plus 3.50%. The note can be
      prepaid with no less than 30 days notice with a 1% minimum premium of the
      then outstanding principal balance.(7)
            -
            The
      effective interest rate adjusts at the discretion of the lender at the end
      of the sixth year.(8)
            -
            The
      effective rate is fixed for five years then adjusts based on the five-year
      treasury rate plus 4.00%.(9)
            -
            Fixed
      as a result of entering in a swap agreement for 3.295% plus a spread of
      2.85% in connection with entering into the mortgage.(10)
            -
            Loan
      is collateralized by the Advance Auto II, Advance Auto III and Walgreens
      III properties.(11)
            -
            Loan
      is collateralized by the CSAA/CVS, CSAA/First Fifth Bank, CSAA/Walgreens
      and CSAA/Chase Bank properties.








15
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note
5 — Mortgage Notes Payable (continued)





The
following table summarizes the scheduled aggregate principal repayments of the
mortgage notes payable for the five years subsequent to September 30, 2010 (in
thousands):





TotalSeptember 2010 to December
      2010
                    
                    $
                    5462011
                    
                    
                    3,0392012
                    
                    
                    3,2302013
                    
                    
                    59,6212014
                    
                    
                    33,6772015 and
      thereafter
                    
                    
                    185,555Total
                    
                    $
                    285,668




The
sources of secured financing generally require financial covenants, including
restrictions on corporate guarantees, the maintenance of certain financial
ratios (such as specified debt to equity and debt service coverage ratios) as
well as the maintenance of a minimum net worth. As of September 30, 2010, the
Company was in compliance with the debt covenants under its outstanding loan
agreements.




Note 6
— Long-Term Notes Payable





As of
September 30, 2010, the Company had issued $12.8 million of notes payable
(the “Notes”) in a private placement pursuant to Rule 506 of Regulation D
promulgated under the Securities Act.  The proceeds of the private
placement were used to repay outstanding short-term bridge equity fund
draws.





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





The
Company has the right to prepay the Notes in whole or in part any time following
the first anniversary of the closing date.  If repaid on or before the
second anniversary of the closing date, the Company will pay 2.0% of the
remaining amount due on the Notes as a prepayment premium.  If repaid
after the second anniversary of the closing date but before the third
anniversary of the closing date, the Company will pay 1% of the remaining amount
due on the Notes as a prepayment premium.  The foregoing
notwithstanding, the Company shall have the right to repay the amount due under
the Notes in whole or in part without penalty within 360 days of the maturity
date.  The Company will not have the right to prepay the amount due
under the notes during the two optional extension periods. The Notes are
unsecured. During the third quarter of 2010, the Company accommodated
noteholders' request to redeem notes of $0.2 million.





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





The
Company anticipates repaying the long-term notes payable by March 31,
2011.




As of
September 30, 2010, the Company was in compliance with all covenants included
within the Note agreement.





16
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note 7
— Fair Value of Financial Instruments





The
Company determines fair value based on quoted prices when available or through
the use of alternative approaches, such as discounting the expected cash flows
using market interest rates commensurate with the credit quality and duration of
the investment.  This alternative approach also reflects the
contractual terms of the derivatives, including the period to maturity, and uses
observable market-based inputs, including interest rate curves, and implied
volatilities. The guidance defines three levels of inputs that may be used to
measure fair value:





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




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





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





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





Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with those derivatives utilize Level 3
inputs, such as estimates of current credit spreads to evaluate the likelihood
of default by the Company and its counterparties.  However, as of
September 30, 2010 and December 31, 2009, 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.




17
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)





Note 7
— Fair Value of Financial Instruments (continued)





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, 2010 and December 31, 2009, aggregated by the level in the
fair value hierarchy within which those instruments fall (amounts in
thousands):





Quoted
      Prices in
                  Active
      Markets
                  Level
      1
                
                
                Significant
      Other Observable Inputs
                  Level
      2
                
                
                Significant
                  Unobservable
      Inputs
                  Level
      3
                
                
                TotalSeptember
      30, 2010:Total
      derivatives liability, net
                
                $
                —
                
                
                $
                6,880
                
                
                $
                —
                
                
                $
                6,880December
      31, 2009:Total
      derivatives liability, net
                
                $
                —
                
                
                $
                2,768
                
                
                $
                —
                
                
                $
                2,768




The
Company is required to disclose the fair value of financial instruments for
which it is practicable to estimate the value. The fair value of short-term
financial instruments such as cash and cash equivalents, restricted cash, other
receivables, due from affiliates, short-term bridge funds, accounts payable and
accrued expenses and distributions payable approximates their carrying value on
the consolidated balance sheet due to their short-term nature. Mortgage notes
payable bear interest at fixed and variable rates. The fair value was obtained
by calculating the present value based on current market rates. The fair values
of the Company’s remaining financial instruments that are not reported at fair
value on the consolidated balance sheet are reported below (amounts in
thousands):





Carrying
      Amount at
                  September
      30, 2010
                
                
                Fair
      Value at
                  September
      30, 2010
                
                
                Carrying
                  Amount
      at
                  December
      31, 2009
                
                
                Fair
      Value at
                  December
      31, 2009Mortgage
      notes payable
                
                $
                285,668
                
                
                $
                300,761
                
                
                $
                183,811
                
                
                $
                171,728Other
      long-term notes payable
                
                
                12,790
                
                
                
                12,790
                
                
                
                13,000
                
                
                
                13,000




Note 8
— Derivative and Hedging Activities




Risk
Management Objective of Using Derivatives





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


18
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note 8
— Derivative and Hedging Activities (continued)





Cash
Flow Hedges of Interest Rate Risk





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





During
2010 and 2009, such derivatives were used to hedge the variable cash flows
associated with existing variable-rate debt.  The effective portion of
changes in the fair value of derivatives designated and that qualify as cash
flow hedges is recorded in accumulated other comprehensive income and is
subsequently reclassified into earnings in the period that the hedged forecasted
transaction affects earnings. The ineffective portion of the change in fair
value of the derivatives is recognized directly in earnings. The Company
recognized $49 thousand related to ineffectiveness of one of its cash flow
hedges during the three months and nine months ended September 30, 2010 and
an immaterial amount for the three and nine months ended September 30,
2009.





Amounts
reported in accumulated other comprehensive income related to derivatives will
be reclassified to interest expense as interest payments are made on the
Company’s variable-rate debt. During the next twelve months, the Company
estimates that an additional $2.1 million will be reclassified from other
comprehensive income as an increase to interest expense.




As of
September 30, 2010, the Company had the following outstanding interest rate
derivatives that were designated as cash flow hedges of interest rate risk
(dollar amounts in thousands):





Interest
      Rate Derivative
                    
                    
                    Number
      of Instruments
                    
                    
                    NotionalInterest
      Rate Swaps
                    
                    4
                    
                    $
                    63,760Interest
      Rate Collars
                    
                    1
                    
                    
                    4,115





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





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




Non-Designated
Hedges





Derivatives
not designated as hedges are not speculative. These derivatives are used to
manage the Company’s exposure to interest rate movements and other identified
risks but do not meet the strict hedge accounting requirements to be classified
as hedging instruments. The Company has one interest rate collar outstanding
with an aggregate notional amount of $23.4 million and $23.9 million at
September 30, 2010 and December 31, 2009, respectively, with an established
ceiling and floor for the underlying variable rate


19
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note 8
— Derivative and Hedging Activities (continued)




at 4.125%
and 3.54%, respectively. This contract was not able to be designated as a
hedging instrument as it does not qualify for hedge accounting based on the
results of the net written option test.  As such, all changes in the
fair value of the interest rate collar have been included in the Company’s
statement of operations for the three and nine months ended September 30, 2010
and 2009.  For the three months and nine months ended September 30,
2010, the Company has recorded unrealized losses of $0.3 million and gains of
$0.1 million, respectively, related to this derivative instrument. For the three
months and nine months ended September 30, 2009, the Company recorded unrealized
losses of $0.4 million and $0.2 million, respectively, related to derivative
instruments.





The table
below presents the fair value of the Company’s derivative financial instruments
as well as their classification on the Balance Sheet as of September 30, 2010
and December 31, 2009 (in thousands):





Fair
      Value (Liability)Balance
      Sheet Location
                              
                              September
      30, 2010
                              
                              
                              December
      31, 2009Derivatives
      designated as hedging instruments:Interest
      Rate Products
                              Derivatives,
      at fair value
                              
                              $
                              (5,239
                              )
                              
                              $
                              (1,646
                              )Derivatives
      not designated as hedging instruments:Interest
      Rate Products
                              Derivatives,
      at fair value
                              
                              
                              (1,641
                              )
                              
                              
                              (1,122
                              )




Derivatives in Cash Flow Hedging Relationships





The table
below details the location in the financial statements of the gain or loss
recognized on interest rate derivatives designated as cash flow hedges for the
three and nine months ended September 30, 2010 and 2009 (in
thousands):





Three
      Months Ended September 30,
                            
                            
                            Nine
      Months Ended September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Amount
      of gain (loss) recognized in accumulated  other comprehensive
      income as interest rate derivatives (effective portion)
                            
                            $
                            (1,657
                            )
                            
                            $
                            (710
                            )
                            
                            $
                            (5,057
                            )
                            
                            $
                            (195
                            )Amount
      of  loss reclassified from accumulated other comprehensive
      income into income as interest expense (effective portion)
                            
                            
                            (523
                            )
                            
                            
                            (313
                            )
                            
                            
                            (1,463
                            )
                            
                            
                            (866
                            )Amount
      of gain (loss) recognized in income on derivative as gain (loss) on
      derivative instruments (ineffective portion and amount excluded from
      effectiveness testing)
                            
                            
                            (49
                            )
                            
                            
                            1
                            
                            
                            
                            (49
                            )
                            
                            
                            1





20
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note 8
— Derivative and Hedging Activities (continued)





Derivatives Not Designated as Hedging Instruments





The table
below details the amount and location in the financial statements of the gain or
loss recognized on derivatives not designated as hedging instruments for the
three and nine months ended September 30, 2010 and 2009 (amounts in
thousands):





Location of Gain
      or (Loss)
      Recognized
                                Three
      Months Ended September 30,
                                
                                Nine
      Months Ended September 30,in
      Income on Derivative
                                2010
                                
                                2009
                                
                                2010
                                
                                2009Interest
      expense
                                
                                $
                                (577
                                )
                                
                                $
                                (199
                                )
                                
                                $
                                (581
                                )
                                
                                $
                                (568
                                )Gains
      (losses) on derivative instruments
                                
                                
                                (128
                                )
                                
                                
                                (196
                                )
                                
                                
                                (519
                                )
                                
                                
                                353Total
                                
                                $
                                (705
                                )
                                
                                $
                                (395
                                )
                                
                                $
                                (1,100
                                )
                                
                                $
                                (215
                                )





Credit-risk-related Contingent
Features





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





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





As of
September 30, 2010, the fair value of derivatives in a net liability position
related to these agreements was $6.8 million. As of September 30, 2010, the
Company has not posted any collateral related to these agreements and was not in
breach of any agreement provisions. If the Company had breached any of these
provisions it could have been required to settle its obligations under the
agreements at their aggregate termination value of $7.1 million.




Note 9—
Commitments and Contingencies




Litigation




In the
ordinary course of business, the Company may become subject to litigation or
claims. There are no material legal proceedings pending or known to be
contemplated against us.




Environmental
Matters




In
connection with the ownership and operation of real estate, the Company may
potentially be liable for costs and damages related to environmental matters.
The Company has not been notified by any governmental authority of any
non-compliance, liability or other claim, and the Company is not aware of any
other environmental condition that it believes will have a material adverse
effect on the consolidated results of operations.


21
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Note 10
- Related-Party Transactions and Arrangements





Fees
paid in connection with common stock offering




The
Company’s affiliated Dealer Manager receives selling commissions of 7% of the
gross offering proceeds from the sale of the Company’s common stock (as well as
sales of long-term notes and exchange transactions)  before
reallowance of commissions earned by participating broker-dealers.  The
Dealer Manager, reallows 100% of commissions earned to participating
broker-dealers. In addition, the Dealer Manager receives Dealer Manager fees of
3% of the gross offering proceeds before reallowance to participating
broker-dealers.  The Dealer Manager may reallow all or a portion of its
dealer manager fee to participating broker-dealers.





No
selling commissions or dealer-manager fees are paid to the Dealer Manager with
respect to shares issued under the DRIP.





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





Three
      Months Ended September 30,
                                
                                
                                Nine
      Months Ended September 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Total
      commissions paid to Dealer Manager
                                
                                $
                                11,208
                                
                                
                                $
                                4,623
                                
                                
                                $
                                25,423
                                
                                
                                $
                                8,332Less:Commissions
      to participating broker dealers
                                
                                
                                (7,397
                                )
                                
                                
                                (3,178
                                )
                                
                                
                                (17,201
                                )
                                
                                
                                (5,676
                                )Reallowance
      to participating broker dealers
                                
                                
                                (985
                                )
                                
                                
                                (304
                                )
                                
                                
                                (2,324
                                )
                                
                                
                                (510
                                )Net
      to affiliated Dealer Manager  (1)
                                
                                $
                                2,826
                                
                                
                                $
                                1,141
                                
                                
                                $
                                5,898
                                
                                
                                $
                                2,146





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







The
Company will reimburse the Advisor up to 1.5% of its gross offering proceeds.
The
following table details the results of such activities related to organizational
and offering costs reimbursed to the Advisor (amounts in
thousands):





Three
      Months Ended September 30,
                            
                            
                            Nine
      Months Ended September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Organizational
      and offering expense reimbursements
                            
                            $
                            1,078
                            
                            
                            $
                            1,821
                            
                            
                            $
                            3,881
                            
                            
                            $
                            3,917





Fees
Paid in Connection With the Operations of the Company





The
Advisor receives an acquisition fee of 1.0% of the contract purchase price of
each acquired property and is 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 acquisition and advisory fees and
acquisition expenses payable with respect to a particular investment exceed 4%
of the contract purchase price.


22
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)





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





The
Company will pay the Advisor a yearly fee of up to 1% of the contract purchase
price of each property plus costs and expenses incurred by the Advisor in
providing asset management services, payable semiannually, based on assets held
by us on the measurement date, adjusted for appropriate closing dates for
individual property acquisitions.





For the
management and leasing of its properties, the Company will pay to an affiliate
of its Advisor, a property management fee of (a) 2% of gross revenues from its
single tenant properties and (b) 4% of gross revenues from its multi-tenant
properties, plus, in each case, market-based leasing commissions applicable to
the geographic location of the property.  The Company also will reimburse
the affiliate costs of managing the properties.  The affiliate may also
receive a fee for the initial leasing of newly constructed properties, which
would generally equal one month’s rent.  In the unlikely event that the
affiliate assists a tenant with tenant improvements, a separate fee may be
charged to, and payable by the Company.  This fee will not exceed 5% of the
cost of the tenant improvements.  The aggregate of all property management
and leasing fees paid to its affiliates plus all payments to third parties for
such fees will not exceed the amount that other nonaffiliated management and
leasing companies generally charge for similar services in the same geographic
location as determined by a survey of brokers and agents in such area. No such
fees were incurred or paid for the three and nine months ended
September 30, 2010 and 2009.





The
Company will reimburse its Advisor’s costs of providing administrative services,
subject to the limitation that it will not reimburse its Advisor 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 (a) 2% of average
invested assets, or (b) 25% of net income other than any additions to reserves
for depreciation, bad debt or other similar noncash reserves and excluding any
gain from the sale of assets for that period.  Additionally, the Company
will not reimburse the Advisor for personnel costs in connection with services
for which the Advisor receives acquisition fees or real estate commissions. No
such fees were incurred or paid for the three and nine months ended September
30, 2010 and 2009.





If the
Company’s Advisor provides services in connection with the origination or
refinancing of any debt that the Company obtains, and use to acquire properties
or to make other permitted investments, or that is assumed, directly or
indirectly, in connection with the acquisition of properties, the Company will
pay the Advisor a financing coordination fee equal to 1% of the amount available
and/or outstanding under such financing, subject to certain
limitations.





23
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


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





The
following table details amounts paid and reimbursed to affiliates as well as
amounts contractually due to the Advisor which were forgiven in connection with
the operations related services described above (amounts in
thousands):





Three
      Months Ended
                      September
      30, 2010
                    
                    
                    Nine
      Months Ended
                      September
      30, 2010Paid
                    
                    
                    Forgiven
                    
                    
                    Paid
                    
                    
                    ForgivenOne–time
      fees:Acquisition
      fees and related cost reimbursements
                    
                    $
                    2,591
                    
                    
                    $
                    —
                    
                    
                    $
                    5,567
                    
                    
                    $
                    —Financing
      coordination fees
                    
                    
                    1,009
                    
                    
                    
                    —
                    
                    
                    
                    1,775
                    
                    
                    
                    —Other
      cost reimbursements
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    82
                    
                    
                    
                    —Ongoing
      fees:Asset
      management fees
                    
                    
                    500
                    
                    
                    
                    927
                    
                    
                    
                    850
                    
                    
                    
                    2,595Property
      management and leasing fees
                    
                    
                    —
                    
                    
                    
                    222
                    
                    
                    
                    —
                    
                    
                    
                    536Total
      Operations Fees and reimbursements
                    
                    $
                    4,100
                    
                    
                    $
                    1,149
                    
                    
                    $
                    8,274
                    
                    
                    $
                    3,131











Three
      Months Ended
                      September
      30, 2009
                    
                    
                    Nine
      Months Ended
                      September
      30, 2009Paid
                    
                    
                    Forgiven
                    
                    
                    Paid
                    
                    
                    ForgivenOne–time
      fees:Acquisition
      fees and related cost reimbursements
                    
                    $
                    743
                    
                    
                    $
                    —
                    
                    
                    $
                    743
                    
                    
                    $
                    —Financing
      coordination fees
                    
                    
                    412
                    
                    
                    
                    —
                    
                    
                    
                    412
                    
                    
                    
                    —Ongoing
      fees:Asset
      management fees
                    
                    
                    70
                    
                    
                    
                    414
                    
                    
                    
                    70
                    
                    
                    
                    1,185Property
      management and leasing fees
                    
                    
                    —
                    
                    
                    
                    70
                    
                    
                    
                    —
                    
                    
                    
                    179Total
      Operations Fees and reimbursements
                    
                    $
                    1,225
                    
                    
                    $
                    484
                    
                    
                    $
                    1,225
                    
                    
                    $
                    1,364





In
accordance with the asset management fee agreement, $3.3 million and $1.6
million was prepaid to the Advisor at September 30, 2010 and December 31, 2009,
respectively.





Fees
Paid in Connection With the Liquidation or listing of the Company’s Real Estate
Assets





The
Company will pay a brokerage commission on the sale of property, not to exceed
the lesser of one-half of reasonable, customary and competitive real estate
commission or 3% of the contract price for property sold (inclusive of any
commission paid to outside brokers), in each case, payable to the Advisor if the
Advisor or its affiliates, as determined by a majority of the independent
directors, provided a substantial amount of services in connection with the
sale. Fees paid to the Advisor for the three and nine months ended September 30,
2010 were $85 thousand. No such fees were paid for the three and nine months
ended September 30, 2009.


24
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)








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





The
Company will pay a subordinated participation in the net sales proceeds of the
sale of real estate assets of 15% of remaining net sale proceeds after return of
capital contributions plus payment to investors of a 6% cumulative,
non-compounded return on the capital contributed by investors.  The Company
can not assure that it will provide this 6% return but the Advisor will not be
entitled to the subordinated participation in net sale proceeds unless its
investors have received a 6% cumulative non-compounded return on their capital
contributions. No such fees were incurred or paid for the three and nine
months ended September 30, 2010 or 2009.





The Company will pay a
subordinated incentive listing fee of15% of the amount by which the
adjusted market value of real estate assets plus distributions exceeds the
aggregate capital contributed by investors plus an amount equal to an 6%
cumulative, non-compounded annual return to investors.  The Company cannot
assure that it will provide this 6% return but the Advisor will not be entitled
to the subordinated incentive listing fee unless its investors have received a
6% cumulative non-compounded return on their capital contributions.





Financing





The OP
entered into an agreement with the principals of the Advisor whereby the OP can
obtain up to $10.0 million of bridge equity from the principals from time to
time as needed to provide short-term bridge equity for property acquisitions or
for general working capital purposes. Such bridge equity advances need to be
satisfied within a one year period and will accrue a yield of 8%. There were no
amounts outstanding under this facility as of September 30, 2010 and 2009. There
was no interest expense for this facility during 2010. During the three and nine
months ended September 30, 2009, the Company incurred related
party interest expense of $0.1 million on this facility.





The
Company entered into an unsecured bridge equity facility with a related party,
American Realty Capital Equity Bridge, LLC (“ARC Bridge”), whereby the Company
could obtain bridge equity of up to $10.0 million from time-to-time as needed to
provide short-term bridge equity relating to property acquisitions and for
general working capital purposes. ARC Bridge was a 50% joint venture between the
Sponsor and an unrelated third party. Bridge equity investments from this
facility accrued a yield at an annual rate of 30 day LIBOR plus 5% with a floor
of 8%. The bridge equity advances relating to the PNC Bank locations, Rite
Aid portfolio acquisitions and a distribution facility from FedEx Corp. were
$1.3 million, $5.3
million and $9.6 million, respectively. The related yield on such short-term
bridge equity was 8.11%. The Company incurred interest expense on these
advances of $0.1 million for the three and nine months ended September 30, 2009,
respectively. As of December 31, 2009, this facility was repaid in full and the
agreement was terminated.





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.








25
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)








Note 12
— Share-Based Compensation





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 the Company’s initial
public offering, and thereafter the exercise price for stock options granted
to 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, 2010, the Company had granted options to purchase 27,000 shares at
$10.00 per share, each with a two year vesting period and an expiration of 10
years. A total of 1,000,000 shares have been authorized and reserved for
issuance under the Plan.




The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. The following assumptions were used in the
determination of fair value: expected life of 10 years, risk free rate of 3.83%,
volatility of 5.0% and distribution yield of 6.5%.





During
each of the nine months ended September 30, 2010 and 2009, 9,000 shares
were issued and none were forfeited or exercised.  As of September 30,
2010, vested options to purchase 9,000 shares and unvested options to purchase
18,000 shares remained outstanding, with a weighted average contractual
remaining life of 8.5 years. The total compensation charge relating to these
option grants is immaterial.





Restricted
Share Plan





On
January 22, 2010, the Board of Directors adopted an employee and director
incentive restricted share plan (the “RSP”). The RSP provides for the automatic
grant of 3,000 restricted shares of common stock to each of the independent
directors, without any further action by the Company’s board of directors or the
stockholders, on the date of each annual stockholder’s meeting. Restricted stock
issued to independent directors will vest over a five-year period following the
first anniversary of the date of grant in increments of 20% annually. The
employee and director incentive restricted share plan provides the Company with
the ability to grant awards of restricted shares to the Company’s directors,
officers and employees (if the Company ever has employees), employees of the
Advisor and its affiliates, employees of entities that provide services to the
Company, directors of the Advisor or of entities that provide services to us,
certain of its consultants and certain consultants to the Advisor and its
affiliates or to entities that provide services to us. The total number of
common shares reserved for issuance under the RSP is equal to 1.0% of its
authorized shares.





Restricted
share awards entitle the recipient to common shares from the Company under terms
that provide for vesting over a specified period of time or upon attainment of
pre-established performance objectives. Such awards would typically be forfeited
with respect to the unvested shares upon the termination of the recipient’s
employment or other relationship with the Company. Restricted shares may not, in
general, be sold or otherwise transferred until restrictions are removed and the
shares have vested. Holders of restricted shares may receive cash distributions
prior to the time that the restrictions on the restricted shares have lapsed.
Any distributions payable in common shares shall be subject to the same
restrictions as the underlying restricted shares. As of September 30, 2010,
9,000 shares had been issued to independent Directors under this plan at a fair
value of $10.00 per share. The fair value of the shares will be expensed ratably
over the five-year vesting period. For the three and nine months ended September
30, 2010, expense of $7 thousand was recorded for the director restricted
shares. There were no restricted shares outstanding as of September 30,
2009.





26
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)








Note 12
— Share-Based Compensation (continued)





In June
2010, the Company’s independent Directors approved and authorized the issuance
of up to 1,500,000 common restricted shares to the Advisor equaling 1% of
authorized shares under the primary offering, subject to certain terms and
conditions.  On September 13, 2010, the Advisor granted
1,400,000 restricted shares to key executive. Of the total shares
granted, 50% vest over a five year period commencing with the two
year anniversary of the grant date and remaining 50% vest only to the
extent the Company’s net asset value
plus distributions paid to stockholders equals 106% of the original selling
price of the Company’s common stock.
For the three and nine months ended September 30, 2010, $70 thousand of expense
was recorded for these restricted shares.





Note 13
— Net Loss Per Share





The
following is a summary of the basic and diluted net loss per share computation
for the three and nine months ended September 30, 2010 and 2009 (in thousands
except share and per share amounts):





Three
      Months Ended
                                        September
      30,
                                      
                                      
                                      Nine
      Months Ended
                                        September
      30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2009Net
      loss attributable to American Realty Capital Trust, Inc.
                                      
                                      $
                                      (74
                                      )
                                      
                                      $
                                      (1,484
                                      )
                                      
                                      $
                                      (1,453
                                      )
                                      
                                      $
                                      (3,496
                                      )Less:
      dividends paid on unvested  restricted stock
                                      
                                      
                                      (48
                                      )
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (48
                                      )
                                      
                                      
                                      —$
                                      (122
                                      )
                                      
                                      $
                                      (1,484
                                      )
                                      
                                      $
                                      (1,501
                                      )
                                      
                                      $
                                      (3,496
                                      )Weighted
      average common shares outstanding
                                      
                                      
                                      36,122,160
                                      
                                      
                                      
                                      6,639,111
                                      
                                      
                                      
                                      26,182,878
                                      
                                      
                                      
                                      3,791,302Loss
      per share, basic and diluted
                                      
                                      $
                                      (0.00
                                      )
                                      
                                      $
                                      (0.22
                                      )
                                      
                                      $
                                      (0.06
                                      )
                                      
                                      $
                                      (0.92
                                      )





As of
September 30, 2010, 27,000 stock options and 709,000 unvested restricted shares
were outstanding which were not included in the calculation of diluted earnings
per share since the inclusion is anti-dilutive.





Note
14 – Noncontrolling Interests





The
Company has investment arrangements with unaffiliated third parties whereby the
investor receives an ownership interest in the property and is entitled to
receive a proportionate share of the net operating cash flow derived from the
property. Upon disposition of the property, the investor will receive a
proportionate share of the net proceeds from the sale of the property. The
investor has no recourse to any other assets of the Company. Due to the
nature of the Company’s involvement with each of the arrangements described
below and the significance of its investment in relation to the investment of
the other interest holders the Company has determined that it is the primary
beneficiary in each of these arrangements and therefore the entities related to
these arrangements are consolidated with the Company’s financial
statements.





27
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)





Note
14 – Noncontrolling Interests (continued)





The
following table details information related to investments made by
noncontrolling interests as of September 30, 2010 (dollar amounts in
thousands):





Property/Portfolio Name
                                                
                                                No. of
                                                  Buildings
                                                
                                                Investment
      Date
                                                
                                                Investment
      Amount
                                                
                                                
                                                Third Party
                                                  Ownership
                                                  Percentage
                                                
                                                
                                                Total
      Assets Subject to Investment Agreement
                                                
                                                
                                                Total
      Liabilities Subject to Investment Agreement
                                                
                                                
                                                Distributions
      Three Months Ended September 30, 2010
                                                
                                                
                                                Distributions
      Nine Months Ended September 30, 2010Walgreens
                                                
                                                
                                                1
                                                
                                                July
      2009
                                                
                                                $
                                                1,200
                                                
                                                
                                                
                                                44.0%
                                                
                                                
                                                $
                                                3,652
                                                
                                                
                                                $
                                                1,550
                                                
                                                
                                                $
                                                20
                                                
                                                
                                                $
                                                60Fed
      Ex/PNC Bank
                                                
                                                
                                                2
                                                
                                                July
      2009 to January 2010
                                                
                                                
                                                2,567
                                                
                                                
                                                
                                                49.0%
                                                
                                                
                                                
                                                11,972
                                                
                                                
                                                
                                                8,962
                                                
                                                
                                                
                                                42
                                                
                                                
                                                
                                                126PNC
      Bank
                                                
                                                
                                                1
                                                
                                                September
      2009
                                                
                                                
                                                494
                                                
                                                
                                                
                                                35.2%
                                                
                                                
                                                
                                                3,493
                                                
                                                
                                                
                                                2,360
                                                
                                                
                                                
                                                9
                                                
                                                
                                                
                                                26CVS
      I
                                                
                                                
                                                3
                                                
                                                January
      2010 to March 2010
                                                
                                                
                                                3,050
                                                
                                                
                                                
                                                49.0%
                                                
                                                
                                                
                                                11,227
                                                
                                                
                                                
                                                6,765
                                                
                                                
                                                
                                                48
                                                
                                                
                                                
                                                128Rickett
      Benckiser
                                                
                                                
                                                1
                                                
                                                February
      2010
                                                
                                                
                                                2,500
                                                
                                                
                                                
                                                14.6%
                                                
                                                
                                                
                                                30,845
                                                
                                                
                                                
                                                14,923
                                                
                                                
                                                
                                                52
                                                
                                                
                                                
                                                135FedEx
      III
                                                
                                                
                                                1
                                                
                                                April
      2010
                                                
                                                
                                                3,000
                                                
                                                
                                                
                                                15.4%
                                                
                                                
                                                
                                                33,608
                                                
                                                
                                                
                                                15,000
                                                
                                                
                                                
                                                64
                                                
                                                
                                                
                                                114BSFS
      II
                                                
                                                
                                                6
                                                
                                                June
      2010 to September 2010
                                                
                                                
                                                6,688
                                                
                                                
                                                
                                                45.0%
                                                
                                                
                                                
                                                12,858
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                72
                                                
                                                
                                                
                                                72Total
                                                
                                                
                                                15
                                                
                                                
                                                
                                                $
                                                19,499
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                107,655
                                                
                                                
                                                $
                                                49,560
                                                
                                                
                                                $
                                                307
                                                
                                                
                                                $
                                                661





Note
15 — Subsequent Events





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





Acquisition
of Real Estate Investments




The
following table presents certain information about the properties that the
Company acquired subsequent to September 30, 2010 (dollar amounts in
thousands):




Seller
      / Property Name
                                                        Acquisition
      Date
                                                        
                                                        No.
      of Buildings
                                                        
                                                        Square
      Feet
                                                        
                                                        
                                                        Remaining
                                                          Lease
                                                          Term
      (1)
                                                        
                                                        
                                                        Base
      Purchase Price (2)
                                                        
                                                        
                                                        Capitalization
      Rate (3)
                                                        
                                                        
                                                        Net
      Operating Income (4)
                                                        
                                                        
                                                        Purchase
      Price (5)Total
      portfolio – September 30, 2010
                                                        
                                                        
                                                        226
                                                        
                                                        3,424,357
                                                        
                                                        
                                                        15.7
                                                        
                                                        
                                                        $
                                                        661,052
                                                        
                                                        
                                                        
                                                        8.36%
                                                        
                                                        
                                                        $
                                                        55,252
                                                        
                                                        
                                                        $
                                                        666,174Brown
      Shoe/Payless
                                                        October
      2010
                                                        
                                                        2
                                                        
                                                        1,179,232
                                                        
                                                        
                                                        15.0
                                                        
                                                        
                                                        
                                                        70,179
                                                        
                                                        
                                                        
                                                        9.37%
                                                        
                                                        
                                                        
                                                        6,573
                                                        
                                                        
                                                        
                                                        70,179St.
      Joseph’s Mercy Medical
                                                        October  2010
                                                        
                                                        3
                                                        
                                                        46,706
                                                        
                                                        
                                                        13.3
                                                        
                                                        
                                                        
                                                        10,021
                                                        
                                                        
                                                        
                                                        7.64%
                                                        
                                                        
                                                        
                                                        766
                                                        
                                                        
                                                        
                                                        10,021Advance
      Auto
                                                        November
      2010
                                                        
                                                        1
                                                        
                                                        6,124
                                                        
                                                        
                                                        14.9
                                                        
                                                        
                                                        
                                                        1,301
                                                        
                                                        
                                                        
                                                        8.15%
                                                        
                                                        
                                                        
                                                        106
                                                        
                                                        
                                                        
                                                        1,301Kum
      & Go II
                                                        November
      2010
                                                        
                                                        2
                                                        
                                                        8,008
                                                        
                                                        
                                                        9.0
                                                        
                                                        
                                                        
                                                        2,962
                                                        
                                                        
                                                        
                                                        8.95%
                                                        
                                                        
                                                        
                                                        265
                                                        
                                                        
                                                        
                                                        2,962Total portfolio
      –
                                                          November 10,2010
                                                        
                                                        
                                                        234
                                                        
                                                        4,664,427
                                                        
                                                        
                                                        15.5
                                                        
                                                        
                                                        $
                                                        745,515
                                                        
                                                        
                                                        
                                                        8.45%
                                                        
                                                        
                                                        $
                                                        62,962
                                                        
                                                        
                                                        $
                                                        750,637





28
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


________________________




(1)
      -
            Remaining
      lease term in years as of November10, 2010. If the portfolio has multiple locations with varying
      lease expirations, remaining lease term is calculated on a
      weighted-average basis.(2)
      -
            Contract
      purchase price excluding acquisition related
  costs.


(3)
      -
            Net
      operating income divided by base purchase
price.


(4)
      -
            Annualized
      rental income less property operating expenses, as
    applicable.


(5)
      -
            Base
      purchase for acquisitions prior to January 1, 2009 include capitalized
      acquisition related costs. Effective January 1, 2009, acquisition and
      transaction related costs are required to be expensed as incurred in
      accordance with generally accepted accounting
  principles.





Financing
Arrangements




The
following table presents certain information about financing arrangements that
the Company entered into subsequent to September 30, 2010 (dollar amounts in
thousands):





Total
                          Purchase
                          Price
                        
                        
                        Mortgage
                          Notes
      (1)
                        
                        
                        Effective
                          Interest
                          Rate
                        
                        
                        Leverage
                          Ratio
      (2)Total
      portfolio – September 30, 2010
                        
                        $
                        666,174
                        
                        
                        $
                        285,668
                        
                        
                        
                        5.92%
                        
                        
                        
                        42.9%Brown
      Shoe/Payless
                        
                        
                        70,179
                        
                        
                        
                        28,200
                        
                        
                        
                        4.92%
                        
                        
                        
                        40.2%St.
      Joseph’s Mercy Medical
                        
                        
                        10,021
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Advance
      Auto
                        
                        
                        1,301
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Kum
      & Go II
                        
                        
                        2,962
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Less:
      amortization of principal
                        
                        
                        —
                        
                        
                        
                        (185
                        )
                        
                        
                        —
                        
                        
                        
                        —Total
      portfolio –November
      10, 2010
      (3)
                        
                        $
                        750,637
                        
                        
                        $
                        313,683
                        
                        
                        
                        5.83
                        %
                        
                        
                        41.8%


________________________




(1)
      -
            Consists
      of first mortgage long-term debt
only.


(2)
      -
            Mortgage
      debt divided by total purchase
price.




(3)
      -
            Weighted-average,
      as applicable.




In October 2010, the Company received
proceeds from an advance under one of its lines of credits in the amount of
$8.2million in connection with the acquisition of the Brown Shoe/ Payless
investment properties.


29
 AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)


Sources
of Capital





As of
October 31, 2010, the Company had issued48.5
millionshares of common stock, including shares issued under the DRIP.
Total gross proceeds from these issuances were $472.8 million. As of October 31,
2010, the aggregate value of all share issuances was $477.4 million based on a
per share value of $10.00 (or $9.50 per share for shares issued under the
DRIP).





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





Source
      of Capital
                    
                    Inception
      to
                      September
      30, 2010
                    
                    
                    October 1to
                      October
      31,
                      2010
                    
                    
                    TotalCommon
      shares, net of redemptions
                    
                    $
                    422,174
                    
                    
                    $
                    50,600
                    
                    
                    $
                    472,774Notes
      payable
                    
                    
                    12,790
                    
                    
                    
                    —
                    
                    
                    
                    12,790Exchange
      proceeds, net (1)
                    
                    
                    17,423
                    
                    
                    
                    6,506
                    
                    
                    
                    23,929Total
                    
                    $
                    452,387
                    
                    
                    $
                    57,106
                    
                    
                    $
                    509,493




(1)
            Includes
      amounts received by the Company in connection with transactions completed
      through its affiliate, American Realty Capital Exchange,
      LLC.  Such transactions include joint ventures whereby
      unaffiliated third-party investors co-invested in investment properties
      that are majority owned and controlled by the Company. See Note 14 –
      Noncontrolling Interests.







30





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 “OP” 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.





31


All
forward-looking statements should be read in light of the risks identified in
our Annual Report on Form 10-K for the year ended December 31, 2009, filed with
the SEC and the risks identified in this quarterly report.





Overview





We are a
Maryland corporation that elected to be taxed as a real estate investment trust,
or REIT, beginning with the taxable year ended December 31, 2008. On
September 10, 2007, we filed our Registration Statement with the SEC to offer a
minimum of 750,000 shares and a maximum of 150,000,000 shares of common stock
for sale to the public. The SEC declared the registration statement effective on
January 25, 2008, at which time we launched our ongoing initial public offering.
On March 11, 2008, we broke escrow in our ongoing initial public offering and
then commenced our real estate operations. As of September 30, 2010, we issued
43.4 million shares of common stock. Total gross proceeds from these issuances
were $422.2 million. As of September 30, 2010, the aggregate value of all share
issuances and subscriptions outstanding was $426.2 million based on a per share
value of $10.00 (or $9.50 for shares issued under the distribution reinvestment
plan, or DRIP). As of September 30, 2010, 159,680 shares of common stock had
been redeemed under our stock repurchase program at a value of $1.6 million and
an additional 89,010 shares with a redemption value of $0.9 million were accrued
for redemption subsequent to September 30, 2010. We are dependent upon the net
proceeds from the offering to conduct our proposed operations.





We intend
to use the proceeds of our ongoing initial public offering to acquire and manage
a diverse portfolio of real estate properties consisting primarily of
freestanding, single-tenant properties net leased to investment grade and other
creditworthy tenants throughout the United States and Puerto Rico. We plan to
own substantially all of our assets and conduct our operations through our OP,
of which we are the sole general partner. We have no paid employees. Our Advisor
conducts our operations and manages our portfolio of real estate
investments.





We intend
to continue our strategy of acquiring freestanding, single tenant properties
through sale-leaseback and marketed transactions with in-place leases that have
a minimum of ten years remaining under the primary term. Such leases generally
include renewal options. We typically fund our acquisitions with a combination
of equity and debt and in certain cases we may use only equity capital or we may
fund a portion of the purchase price of an acquisition through investments from
third parties. We expect to arrange long-term financing on both a secured and
unsecured fixed rate basis. We intend to continue to grow our existing
relationships and develop new relationships throughout various markets we serve,
which we expect will lead to further acquisition opportunities. We intend to
have an overall leverage ratio as it relates to long-term secured mortgage
financings of approximately 45% to 50%. As of September 30, 2010, our leverage
ratio was 42.9%.





As of
September 30, 2010, we owned 226 properties with 3.4 million square feet, 100%
leased with a weighted average remaining lease term of 15.7 years. In
constructing our portfolio, we are committed to diversification (industry,
tenant and geography).  As of September 30, 2010, rental revenues
derived from investment grade tenants (rated BBB+ or better by Standards &
Poor) approximated 78.3%. Of the
percentage of Investment Grade Tenantsas of
September 30, 2010, 8.52% is attributable to annualized net
operating income generated by 18 propertieswhose
lease payments are guaranteed by Bridgestone Retail Operations, LLC. For
business reasons we use the rating for the non-guarantor parent,
BridgestoneCorporation
(S&P BBB+ rated), as Bridgestone Retail, a wholly-owned subsidiary that
makes up less than 50% of the parent’s assets, is not rated and it does not
qualifyasaninvestment gradetenant. Our
strategy encompasses receiving the majority of our revenue from investment grade
tenants as we further acquire properties and enter into (or assume) long-term
lease arrangements.





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


32





Significant
Accounting Estimates and Critical Accounting Policies




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





Revenue
Recognition





Our
revenues, which are derived primarily from rental income, include rents that
each tenant pays in accordance with the terms of each lease reported on a
straight-line basis over the initial term of the lease. Since many of our leases
provide for rental increases at specified intervals, straight-line basis
accounting requires us to record a receivable, and include in revenues, unbilled
rent receivables that we will only receive if the tenant makes all rent payments
required through the expiration of the initial term of the lease.





We
continually review receivables related to rent and unbilled rent receivables and
determine collectability by taking into consideration the tenant’s payment
history, the financial condition of the tenant, business conditions in the
industry in which the tenant operates and economic conditions in the area in
which the property is located. In the event that the collectability of a
receivable is in doubt, we record an increase in our allowance for uncollectible
accounts or record a direct write-off of the receivable in our consolidated
statements of operations.




Investments
in Real Estate





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





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





We are
required to present the operations related to properties that have been sold or
properties that are intended to be sold as discontinued operations in the
statement of operations for all periods presented, Properties that are intended
to be sold are to be designated as “held for sale” on the balance
sheet.





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





Events or changes in circumstances that could cause an evaluation
for impairment include the following:





•
            a
      significant decrease in the market price of a long-lived
      asset;





33





•
            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





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





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





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


34





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





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





In making
estimates of fair values for purposes of allocating purchase price, we utilize a
number of sources, including independent appraisals that may be obtained in
connection with the acquisition or financing of the respective property and
other market data. We also consider information obtained about each property as
a result of our pre-acquisition due diligence, as well as subsequent marketing
and leasing activities, in estimating the fair value of the tangible and
intangible assets acquired and intangible liabilities assumed. The allocations
presented in the accompanying consolidated balance sheets are substantially
complete; however, there are certain items that we will finalize once we receive
additional information. Accordingly, these allocations are subject to revision
when final information is available, although we do not expect future revisions
to have a significant impact on our financial position or results of
operations.





Derivative
Instruments





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




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





Results
of Operations





As of
September 30, 2010, we owned 226 properties which are 100% leased, compared to
104 properties which were 100% leased at September 30, 2009, an increase of
117%. Accordingly, our results of operations for the three and nine months ended
September 30, 2010, as compared to the three and nine months ended September 30,
2009, reflect significant increases in most categories.


35


Comparison
of Three Months Ended September 30, 2010 and 2009





Rental
Income





Rental
income increased $8.1 million to $11.9 million for the three months ended
September 30, 2010, compared to $3.8 million for the three months ended
September 30, 2009. The increase in rental income was driven by our acquisition
of 122 net leased property subsequent to September 30, 2009 with total square
footage of 2.4 million. These properties were acquired at an average 8.34%
cap rate.




Asset
Management Fees to Affiliate





Our
Advisor is entitled to fees for the management of our properties as well as fees
for purchases and sales of properties. The Advisor was paid $0.5 million and $70
thousand in asset management fees for the three months ended September 30, 2010
and 2009, respectively.  For the three months ended September 30, 2010
and 2009, we would have incurred additional asset management fees of $0.9
million and $0.4 million, respectively, had they not been waived by our
Advisor.




Property
Management Fees to Affiliate





Our
affiliated Property Manager has elected to waive the property management fees
for the three months ended September 30, 2010 and 2009 in order to improve our
working capital. Such fees represent amounts that had they not been forgiven,
would have been paid to our Property Manager to manage and lease our properties,
as applicable. For the three months ended September 30, 2010 and 2009, we would
have incurred property management fees of $0.2 million and $70 thousand,
respectively, had the fees not been waived by our Property Manager.





Acquisition
and Transaction Related Costs





We
incurred acquisition and transaction related costs of $0.8 million on
acquisitions with a total cost of $151.8 million for the three months ended
September 30, 2010. For the three months ended September 30, 2009 we incurred
acquisition and transaction costs of $0.3 million on acquisitions with a total
cost of $76.3 million. Acquisition and transaction costs are mainly comprised of
legal costs, deed transfer costs and other costs related to real estate purchase
transactions.





General
and Administrative Expenses





General
and administrative expenses increased $0.2 million to $0.3 million for the three
months ended September 30, 2010, compared to $0.1 million for the three months
ended September 30, 2009.  The majority of the general and
administrative expenses for the three months ended September 30, 2010 included
$69 thousand of insurance expense, $39 thousand of professional fees, and $95
thousand of fees to our board of directors and stock compensation expense. The
increase from the three months ended September 30, 2009 is mainly due to
expenses to support our larger real estate portfolio.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased $3.6 million to $5.7 million for the three
months ended September 30, 2010, compared to $2.1 million for the three months
ended September 30, 2009. The increase in depreciation and amortization expense
was the result of our acquisition of real estate during 2009 and in 2010. These
properties were placed into service when acquired and are being depreciated for
the period held.




Interest
Expense





Interest
expense increased $2.2 million to $4.7 million for the three months ended
September 30, 2010, compared to $2.5 million for the three months ended
September 30, 2009. The increase in interest expense was the mainly the result
of a higher debt balance due to the financing of a portion of our property
acquisitions. The first mortgage debt as of September 30, 2010 and 2009 was
$285.7 million and $137.3 million, respectively, an increase of 108%. We view
these secured financing sources as an efficient and accretive means to acquire
properties. During
the period, we continue to lower our overall use of long-term secured mortgage
financings. Our leverage ratio (mortgage debt divided by the total purchase
price of real estate investments) was 42.9% as of the most recently completed
quarter end compared to 59.3% as of September 30, 2009.




36




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.





Interest
Income





Interest
income increased to $35 thousand for the three months ended  September
30, 2010 from $18 thousand for the three months ended September 30, 2009.
Interest income relates to cash on deposit in short-term investment
accounts.





Gains
(Losses) on Derivative Instruments





Included
in other income was a loss in the fair value of derivative instruments of $0.2
million for the three months ended September 30, 2010, compared to a loss of
$0.2 million for the three months ended September 30, 2009.  These
losses and gains are related to changing market interest rates. Such
activity is unrealized and relates to non-cash, mark-to-market adjustments
required under the rules applicable to accounting for derivatives.




Gains
on Disposition of Property





A gain on
the disposition of property of $143 thousand for the three months ended
September 30, 2010, was realized from the sale of a PNC property in
September 2010.





Gains
on Sales to Noncontrolling Interest Holders, Net





Net gains
on sales to noncontrolling interest holders of $67 thousand for the three months
ended September 30, 2010, is comprised of the excess of proceeds received over
the amortized basis of the property sold in joint venture and other
agreements with third parties net of related federal and state income tax
effects.





Comparison
of Nine Months Ended September 30, 2010 and 2009





Rental
Income





Rental
income increased $19.1 million to $28.7 million for the nine months ended
September 30, 2010, compared to $9.6 million for the nine months ended September
30, 2009. The increase in rental income was driven by our acquisition of $431.4
million of net leased property subsequent to September 30, 2009 with total
square footage of 2.4 million. These properties were acquired at an average
8.59% cap rate.




Asset
Management Fees to Affiliate





Our
Advisor is entitled to fees for the management of our properties as well as fees
for purchases and sales of properties. The Advisor was paid $0.9 million in
asset management for the nine months ended September 30, 2010 and paid $70
thousand for the nine months ended September 30, 2009. For the nine months ended
September 30, 2010 and 2009, we would have incurred additional asset management
fees of $2.6 million and $1.2 million, respectively, had they not been waived by
our Advisor.




Property
Management Fees to Affiliate





Our
affiliated Property Manager has elected to waive the property management fees
for the nine months ended September 30, 2010 and 2009 in order to improve our
working capital. Such fees represent amounts that had they not been forgiven,
would have been paid to our Property Manager to manage and lease our properties.
For the nine months ended September 30, 2010 and 2009, we would have incurred
property management fees of $0.5 million and $0.2 million, respectively, had the
fees not been waived by our Property Manager.


37





Acquisition
and Transaction Related Costs





We
incurred acquisition and transaction related costs of $1.8 million on
acquisitions with a total cost of $334.0 million for the nine months ended
September 30, 2010. For the nine months ended September 30, 2009 we incurred
acquisition and transaction costs of $0.3 million on acquisitions with a total
cost of $76.3 million. Acquisition and transaction costs are mainly comprised of
legal costs, deed transfer costs and other costs related to real estate purchase
transactions.





General
and Administrative Expenses





General
and administrative expenses increased $0.5 million to $0.8 million for the nine
months ended September 30, 2010, compared to $0.3 million for the nine months
ended September 30, 2009.  The majority of the general and
administrative expenses for the nine months ended September 30, 2010 included
$196 thousand of insurance expense, $277 thousand of professional fees, $147
thousand of compensation to the board of directors and restricted stock grant
expense and $90 thousand of taxes. The increase from the nine months ended
September 30, 2009 is mainly due to expenses to support our larger real estate
portfolio.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased $8.7 million to $14.2 million for the nine
months ended September 30, 2010, compared to $5.5 million for the nine months
ended September 30, 2009. The increase in depreciation and amortization expense
was the result of our acquisition of real estate during 2009 and in 2010. These
properties were placed into service when acquired and are being depreciated for
the period held.




Interest
Expense





Interest
expense increased $5.2 million to $12.5 million for the nine months ended
September 30, 2010, compared to $7.3 million for the nine months ended September
30, 2009. The increase in interest expense was the mainly the result of a higher
debt balance due to the financing of a portion of our property acquisitions. The
first mortgage debt as of September 30, 2010 and 2009 was $285.7 million and
$137.3 million, respectively, an increase of 108%. We view these secured
financing sources as an efficient and accretive means to acquire properties.
During
the period, we continue to lower our overall use of long-term secured mortgage
financings. Our leverage ratio (mortgage debt divided by the total purchase
price of real estate investments) was 42.9% as of the most recently completed
quarter end compared to 59.3% as of September 30, 2009.


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.





Interest
Income





Interest
income increased to $67 thousand for the nine months ended September 30, 2010
from $22 thousand for the nine months ended September 30, 2009. Interest income
relates to cash on deposit in short-term investment accounts.





Gains
(losses) on Derivative Instruments





Included
in other income was a loss in the fair value of derivative instruments of $0.6
million for the nine months ended September 30, 2010, compared to a gain of $0.4
million for the nine months ended September 30, 2009.  These losses
and gains are related to changing market interest rates. Such
activity is unrealized and relates to non-cash, mark-to-market adjustments
required under the rules applicable to accounting for derivatives.


Gains
on Disposition of Property





38


A gain on
the disposition of property of $143 thousand for the nine months ended September
30, 2010, was realized from the sale of a PNC property in September
2010.





Gains
on Sales to Noncontrolling Interest Holders, Net





Net gains
on sales to noncontrolling interest holders of $0.4 million for the nine months
ended September 30, 2010, is comprised of the excess of proceeds received over
the amortized costs of the property sold in joint venture and other agreements
with third parties net of related federal and state income tax
effects.





Funds
from Operations and Modified 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 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.




We
believe that modified funds from operations (“MFFO”) is helpful to investors as
a measure of operating performance because it excludes charges that management
considers more reflective of investing activities or non-operating valuation
changes.  By providing FFO and MFFO, we present information that assists
investors and analysts in aligning their analysis with management’s analysis of
long-term operating activities.  We believe fluctuations in MFFO are
indicative of changes in operating activities and provide comparability in
evaluating our performance over time and as compared to other real estate
companies that may not be affected by impairments, write-offs of capitalized
costs or have acquisition activities.  As explained below, management’s
evaluation of our operating performance excludes the items considered in the
calculation of MFFO based on the following economic considerations:




·
            Acquisition-related
      costs.  In evaluating investments in real estate, management’s
      investment models and analysis differentiate costs to acquire the
      investment from the operations derived from the investment.  Prior to
      2009, acquisition costs for these types of investments were capitalized;
      however beginning in 2009 acquisition costs related to business
      combinations are expensed.  We believe by excluding expensed
      acquisition costs, MFFO provides useful supplemental information that is
      comparable with other companies that do not currently engage in
      acquisition activities and is consistent with management’s analysis of the
      investing and operating performance of our
  properties.





·
            Other infrequent
      charges not related to the operating performance or our properties.  Impairment charges, write-offs of previously capitalized
      assets such as costs associated with financing activities, certain
      non-cash charges and other infrequent charges, if any, may be
      excluded from MFFO if we believe these charges are not useful in the
      evaluation of our operating performance. An impairment charge represents a
      downward adjustment to the carrying amount of a long-lived asset to
      reflect the current valuation of the asset even when the asset is intended
      to be held long-term.  Such adjustment, when properly recognized
      under GAAP, may lag the underlying consequences related to rental rates,
      occupancy and other operating performance trends.  The valuation is
      also based, in part, on the impact of current market fluctuations and
      estimates of future capital requirements and long-term operating
      performance that may not be directly attributable to current operating
      performance.  Other charges such as the write-off of capitalized
      financing costs upon the early disposition of a debt obligation or other
      non recurring charges are adjustments excluded from MFFO because we
      believe that MFFO provides useful supplemental information by focusing on
      the changes in our operating fundamentals rather than on market valuation
      changes or other infrequent events not related to our normal
      operations.


39





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




40


Our
calculation of FFO, which we believe is consistent with the calculation of FFO
as defined by NAREIT, and MFFO is presented in the following table for the three
and nine months ended September 30, 2010 and 2009 (amounts in
thousands):





Three
      Months Ended September 30,
                          
                          
                          Nine
      Months Ended September 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Net
      loss
                          
                          $
                          (74
                          )
                          
                          $
                          (1,484
                          )
                          
                          $
                          (1,453
                          )
                          
                          $
                          (3,496
                          )Add:Depreciation
      of real estate assets
                          
                          
                          4,552
                          
                          
                          
                          1,628
                          
                          
                          
                          11,355
                          
                          
                          
                          4,318Amortization
      of intangible lease assets
                          
                          
                          1,159
                          
                          
                          
                          434
                          
                          
                          
                          2,822
                          
                          
                          
                          1,131Amortization
      of below-market lease liabilities
                          
                          
                          (78
                          )
                          
                          
                          (79
                          )
                          
                          
                          (235
                          )
                          
                          
                          (235
                          )Fair
      value adjustment (1)
                          
                          
                          177
                          
                          
                          
                          195
                          
                          
                          
                          568
                          
                          
                          
                          (354
                          )Gain
      on disposition of property
                          
                          
                          (143
                          )
                          
                          
                          —
                          
                          
                          
                          (143
                          )
                          
                          
                          —Noncontrolling interest
      adjustment (2)
                          
                          
                          (292
                          )
                          
                          
                          (88
                          )
                          
                          
                          (682
                          )
                          
                          
                          (88
                          )Gains
      on sales to noncontrolling interest holders, net
                          
                          
                          (67
                          )
                          
                          
                          —
                          
                          
                          
                          (419
                          )
                          
                          
                          —FFO
                          
                          
                          5,234
                          
                          
                          
                          606
                          
                          
                          
                          11,813
                          
                          
                          
                          1,276Acquisition
      and transaction related costs
                          
                          
                          785
                          
                          
                          
                          347
                          
                          
                          
                          1,766
                          
                          
                          
                          347Modified
      FFO
                          
                          $
                          6,019
                          
                          
                          $
                          953
                          
                          
                          $
                          13,579
                          
                          
                          $
                          1,623Distributions
      paid (3)(4)
                          
                          
                          5,681
                          
                          
                          
                          883
                          
                          
                          
                          12,753
                          
                          
                          
                          1,514Modified
      FFO coverage ratio
                          
                          
                          105.9
                          %
                          
                          
                          107.9
                          %
                          
                          
                          106.5
                          %
                          
                          
                          107.2
                          %Modified
      FFO payout ratio
                          
                          
                          94.4
                          %
                          
                          
                          92.7
                          %
                          
                          
                          93.9
                          %
                          
                          
                          93.3
                          %





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


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


(3)
      -
            Includes
      a special dividend of $0.7 million paid in January
  2010.


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





Cash
Flows for the Nine Months Ended September 30, 2010





During
the nine months ended September 30, 2010, net cash provided by operating
activities was $11.2 million. 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.  Prepaid expenses and other assets increased
by $4.1 million principally resulting from the prepayment of $1.7 million of
asset management, and straight line rent adjustments of $1.7
million incurred during the nine months ended September 30, 2010. Deferred
rent increased by $0.2 million and accounts payable increased by $2.0
million.





41


Net cash
used in investing activities during the nine months ended September 30, 2010,
was $337.5 million principally relating to acquisitions completed in
2010.





Net cash
provided by financing activities totaled approximately $325.7 million during the
nine months ended September 30, 2010. Such amount consisted primarily of $246.0
million from issuance of common stock and the net proceeds from mortgage notes
payable of $105.4 million and contributions from noncontrolling interest holders
of $14.0 million, partially offset by the repayment of short-term bridge funds
and notes payable of $15.9 million and $3.5 million, respectively, distributions
to common stockholders of $12.7 million, payments of deferred financing costs of
$4.2 million, payments for common stock redemptions of $2.5 million and
distributions to noncontrolling interest holders of $0.7
million.





Cash paid
for interest during the nine months ended September 30, 2010 was $14.5
million.





Cash
Flows for the Nine Months Ended September 30, 2009





During
the nine months ended September 30, 2009, net cash used in operating activities
was $3.5 million. Prepaid expenses and other assets increased by $2.8 million
principally resulting from the acquisition of $0.6 million of non-real estate
investment furniture and fixtures and the prepayment of $1.1 million of asset
management fees and straightline rent adjustments of $0.6 million. Accounts
payable and accrued expenses decreased by $0.8 million, the majority of which
relates to professional fees, accrued interest and finance coordination fees.
Due to affiliates decreased by $2.0 million during the nine months ended
September 30, 2009.





Net cash
used in investing activities during the nine months ended September 30, 2009,
was $76.3 million, principally relating to acquisition costs completed during
the third quarter of 2009.





Net cash
provided by financing activities totaled $87.6 million during the nine months
ended September 30, 2009. Such amount consisted primarily of $65.1 million from
issuance of common stock, proceeds from mortgage notes payable of $25.3 million,
proceeds from short-term bridge funds of $15.9 million and net proceeds from
long-term notes payable of $11.9 million. Cash of $0.9 million was used for
distributions to shareholders.




Cash paid
for interest during the nine months ended September 30, 2009 was $7.4
million.





Liquidity
and Capital Resources





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





We expect
to meet our future short-term operating liquidity requirements through a
combination of net cash provided by our current property operations and the
operations of properties to be acquired in the future and proceeds from the sale
of common stock.  Management expects that in the future, as our
portfolio matures, our properties will generate sufficient cash flow to cover
all operating expenses and the payment of a monthly distribution. The
majority of our long-term, triple net leases contain contractual rent
escalations during the primary term of the lease. Other
potential future sources of capital include proceeds from secured or unsecured
financings from banks or other lenders, proceeds from private offerings,
proceeds from the sale of properties and undistributed funds from
operations.





We expect
to continue to raise capital through the sale of our common stock and to utilize
the net proceeds from the sale of our common stock and proceeds from secured
financings to complete future property acquisitions. As of September 30, 2010,
we issued 43.4 million shares of common stock. Total gross proceeds from these
issuances were $422.2 million. As of September 30, 2010, the aggregate value of
all share issuances and subscriptions outstanding was $426.2 million based on a
per share value of $10.00 (or $9.50 for shares issued under the distribution
reinvestment plan, or DRIP). As of September 30, 2010 an additional 106.7
million shares were available for issuance under the current registration
statement and an additional 24.2 million shares were available to be issued
under the DRIP.


42





On
August 5, 2010, the Company filed a registration statement on Form S-11 to
register $32.5 millions shares of common stock in connection with the
follow on offering to its initial public offering.   The initial
public offering was originally set to expire on January 25, 2011, three years
after its effective date. However, as permitted by Rule 415 of the Securities
Act, the Company will now continue its initial public offering until the earlier
of July 24, 2011 or the date that the SEC declares the registration statement
for the follow on offering effective. Total capital raised under the current
registration and follow on offering will not exceed $1.5 billion.





At
September 30, 2010, we have available a $10.0 million revolving line of credit
unsecured bridge facility with an affiliated entity. There were no amounts
outstanding under this facility at September 30, 2010 or December 31,
2009.  There are no unused borrowing fees associated with this
facility.





On July
27, 2010, we entered into a credit agreement with Capital One, N.A. to obtain a
secured revolving credit facility in an aggregate maximum principal amount of
$30 million. The proceeds of loans made under the credit agreement will be used
to finance the acquisition of net leased, investment or non-investment grade
properties. The initial term of the credit agreement is 30 months, which may be
extended by 12 months, subject to satisfaction of certain conditions, including
payment of an extension fee.





Any loan
made under the credit agreement shall bear floating interest at per annum rates
equal to either one month LIBOR plus 3.25% or three month LIBOR plus 3.25%, at
our sole option. In the event of a default, Capital One has the right to
terminate its obligations under the credit agreement, including the funding of
future loans, and to accelerate the payment on any unpaid principal amount of
all outstanding loans. The line of credit requires a 0.25% non-usage fee on the
unused balance. In October 2010, we received proceeds from an advance under this
facility to finance a portion of the purchase price of a real estate
acquisition in the same month.





On August
5, 2010, we entered into a credit agreement with U.S. Bank, N.A. to obtain a
secured revolving credit facility in an aggregate maximum principal amount of
$20 million, which shall be increased to $30 million six months after closing.
The proceeds of loans made under the credit agreement will be used to finance
the acquisition of net leased, investment or non-investment grade properties.
The initial term of the credit agreement is 24 months, with a one-time extension
option of 12 months, subject to satisfaction of certain conditions, including
payment of an extension fee.





Any loan
made under the credit agreement shall bear floating interest at a per annum rate
equal to one month LIBOR plus 3.25%. In the event of a default, U.S. Bank has
the right to suspend the funding of future loans and to accelerate the payment
on any unpaid principal amount of the outstanding loans. We intend to
collateralize the line of credit with certain properties which are currently
owned or will be acquired. The Company has not yet drawn on the line of credit.
The line of credit requires a 0.25% non-usage fee on the unused
balance.





We must
collateralized the Capital One and U.S. Bank lines of credit with certain of our
properties in addition to meeting certain minimum cash deposit requirements.





Acquisitions





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.


43




Distributions





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





In
February 2008, the board of directors declared a distribution for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of real
estate investments. The first monthly distribution was paid in April 2008. The
distribution is calculated based on stockholders of record each day during the
applicable period at a rate that, if paid each day for a 365-day period, would
equal a specified annualized rate based on a share price of $10.00. The initial
annualized rate was 6.5% based on the share price of $10.00. On November 5,
2008, the board of directors of approved an increase in its annual cash
distribution from $0.65 to $0.67 per share. Based on a $10.00 share price, this
20 basis point increase, effective January 2, 2009, resulted in an annualized
distribution rate of 6.7%. Effective April 1, 2010 our daily distribution rate
increased by another 30 basis points, resulting in an annualized distribution
rate of 7.0%.





The
Company, our board of directors and Advisor share a similar philosophy with
respect to paying our distribution. The distribution should principally be
derived from cash flows generated from real estate operations. During the nine
months ended September 30, 2010 and 2009, distributions paid totaled $12.8
million and $0.9 million, respectively, inclusive of $5.7 million and $0.6
million, respectively, of common shares issued under the DRIP. In order to
improve our operating cash flows and our ability to pay dividends from operating
cash flows, our related party Advisor agreed to waive certain fees including
asset management and property management fees. See Note 10 – Related Party
transactions in the notes to the consolidated financial statements contained
elsewhere in this report for more information on fees that were forgiven by our
Advisor.  The fees that were waived relating to the activity
during the nine months ended September 30, 2010 and 2009 are not deferrals and
accordingly, will not be paid by the Company. As our real estate portfolio
matures, we expect cash flows from operations to cover a more significant
portion of our dividend distributions and over time to cover the entire
distribution. As the cash flows from operations become more significant our
Advisor may discontinue its past practice of forgiving fees and may charge
the entire fee in accordance with our agreements with the
Advisor.





Loan
Obligations





The
payment terms of our loan obligations vary. In general, only interest
amounts are payable monthly with all unpaid principal and interest due at
maturity. Some of our loan agreements stipulate that we comply with specific
reporting and financial covenants mainly related to debt coverage ratios
and loan to value ratios. Each loan that has these requirements has
specific ratio thresholds that must be met. As of September 30, 2010, we were in
compliance with the debt covenants under our loan agreements.





Our
Advisor may, with approval from our independent board of directors, seek to
borrow short-term capital that, combined with secured mortgage financing,
exceeds our targeted leverage ratio. Such short-term borrowings may be obtained
from third-parties on a case-by-case basis as acquisition opportunities present
themselves simultaneous with our capital raising efforts. We view the use of
short-term borrowings as an efficient and accretive means of acquiring real
estate in advance of raising equity capital. Accordingly, we can take advantage
of buying opportunities as we expand our fund raising activities. As additional
equity capital is obtained, these short-term borrowings will be repaid. Our
leverage ratio approximated 42.9% (secured mortgage notes payable as a
percentage of total real estate investments, at cost) as of September 30,
2010.





In
addition as of September 30, 2010 we have an unused short-term equity line
available to us from a related party entity that allows us to draw a maximum of
$10.0 million, and two additional lines of credit that would allow us to draw an
additional $41.8 million if certain requirements are met, net of an outstanding
advance under one of these facilities subsequent to September 30,
2010.


44





Other
Obligations





Our board
of directors has adopted a share repurchase program (“SRP”) that enables our
stockholders to sell their shares to us under limited circumstances. At the time
a shareholder requests redemption, we may, subject to certain conditions, redeem
the shares presented for repurchase for cash to the extent we have sufficient
funds available to fund such purchase. As of September 30, 2010, 159,680 shares
of common stock had been redeemed under our share repurchase program at a value
of $1.6 million and an additional 89,010 shares with a value redemption value of
$0.9 million were accrued for redemption subsequent to September 30,
2010.




As of
September 30, 2010, we had cash and cash equivalents of $4.4 million, which we
expect to be used primarily to invest in additional real estate as well
as pay debt service, operating expenses and stockholder
distributions.




Contractual
Obligations




The
following is a summary of our contractual obligations as of September 30, 2010
(in thousands):




Principal
      Payments Due:
                    
                    Total
                    
                    
                    Less
      Than One Year
                    
                    
                    1-3
      Years
                    
                    
                    3-5
      Years
                    
                    
                    ThereafterMortgage
      notes payable
                    
                    $
                    285,668
                    
                    
                    $
                    2,804
                    
                    
                    $
                    32,459
                    
                    
                    $
                    159,341
                    
                    
                    $
                    91,065Other
      notes payable
                    
                    
                    12,790
                    
                    
                    
                    —
                    
                    
                    
                    12,790
                    
                    
                    
                    —
                    
                    
                    
                    —Purchase
      obligations (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —$
                    298,458
                    
                    
                    $
                    2,804
                    
                    
                    $
                    45,249
                    
                    
                    $
                    159,341
                    
                    
                    $
                    91,065





Interest
      Payments Due:Mortgage
      notes payable
                
                $
                98,804
                
                
                $
                16,902
                
                
                $
                32,870
                
                
                $
                23,693
                
                
                $
                25,339Other
      notes payable
                
                
                1,444
                
                
                
                1,156
                
                
                
                288
                
                
                
                —
                
                
                
                —Purchase
      obligations (1)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —$
                100,248
                
                
                $
                18,058
                
                
                $
                33,158
                
                
                $
                23,693
                
                
                $
                25,339


_______________





(1)
            Subsequent
      to September 30, 2010, we acquired two Brown Shoe/Payless locations, three
      St. Joseph’s Mercy Medical locations, an Advance Auto and  two
      Kum & Go locations.
      See Note 15 of the consolidated financial statements included in
      this Form 10-Q for more information about the financing arrangements
      related to these acquisitions.





Election
as a REIT




We
elected to be taxed as a REIT under Sections 856 through 860 of the Code
commencing with our taxable year ended December 31, 2008. If we continue to
qualify for taxation as a REIT, we generally will not be subject to federal
corporate income tax to the extent we distribute our REIT taxable income to our
stockholders, and so long as we distribute at least 90% of our REIT taxable
income. REITs are subject to a number of other organizational and operational
requirements. Even if we qualify for taxation as a REIT, we may be subject to
certain state and local taxes on our income and property, and federal income and
excise taxes on our undistributed income. We believe we are organized and
operating in such a manner as to qualify to be taxed as a REIT for the taxable
nine months ended September 30, 2010.




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.


45




Related-Party
Transactions and Agreements




We have
entered into agreements with American Realty Capital II, LLC and its
wholly-owned affiliates, whereby we pay certain fees or reimbursements to our
Advisor or its affiliates for acquisition fees and expenses, organization and
offering costs, sales commissions, dealer manager fees, asset and property
management fees and reimbursement of operating costs. See Note 10 to our
consolidated financial statements included in this report for a discussion of
the various related-party transactions, agreements and fees.





Off-Balance
Sheet Arrangements




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





Item
3. Quantitative and Qualitative Disclosures About Market Risk





The
market risk associated with financial instruments and derivative financial
instruments is the risk of loss from adverse changes in market prices or rates.
Our market risk arises primarily from interest rate risk relating to
variable-rate borrowings the maturity of which is fixed with the use of hedge
instruments. To meet our short and long-term liquidity requirements, we borrow
funds at a combination of fixed and variable rates. Borrowings under our
short-term bridge equity funds bear interest at fixed and variable rates. Our
long-term debt, which consists of secured financings, typically bears interest
at fixed rates. Our interest rate risk management objectives are to limit the
impact of interest rate changes in earnings and cash flows and to lower our
overall borrowing costs. To achieve these objectives, from time to time, we may
enter into interest rate hedge contracts such as swaps, collars, and treasury
lock agreements in order to mitigate our interest rate risk with respect to
various debt instruments. We do not hold or issue these derivative contracts for
trading or speculative purposes.





As of
September 30, 2010, our debt included fixed-rate debt with a carrying value of
$194.9 million and a fair value of $210.0 million. Changes in market interest
rates on our fixed rate debt impact fair value of the debt, but it has no impact
on interest incurred or cash flow. For instance, if interest rates rise 100
basis points and our fixed rate debt balance remains constant, we expect the
fair value of our debt to decrease, the same way the price of a bond declines as
interest rates rise. The sensitivity analysis related to our fixed–rate debt
assumes an immediate 100 basis point move in interest rates from their September
30, 2010 levels, with all other variables held constant. A 100 basis point
increase in market interest rates would result in a decrease in the fair value
of our fixed rate debt by approximately $12.7 million. A 100 basis point
decrease in market interest rates would result in an increase in the fair value
of our fixed-rate debt by $14.0 million.





As of
September 30, 2010, our debt included variable-rate mortgage notes payable with
a carrying value of $90.8 million. Interest rate volatility associated with this
variable-rate mortgage debt has been mitigated by the use of hedge instruments
entered into simultaneously when the corresponding mortgage note was executed.
The sensitivity analysis related to our variable-rate debt assumes an immediate
100 basis point move in interest rates from their September 30, 2010 levels,
with all other variables held constant. A 100 basis point increase or decrease
in variable interest rates on our variable-rate notes payable would increase or
decrease our interest expense by $0.9 million annually.





These
amounts were determined by considering the impact of hypothetical interest rate
changes on our borrowing costs, and, assume no other changes in our capital
structure.


46





As the
information presented above includes only those exposures that existed as of
September 30, 2010, it does not consider exposures or positions arising after
that date. The information represented herein has limited predictive value. As a
result, the ultimate realized gain or loss with respect to interest rate
fluctuations will depend on cumulative exposures, hedging strategies employed
and the magnitude of fluctuations.





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





Item 4. 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 and
determined that the disclosure controls and procedures are
effective.





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, 2010 that has materially affected, or is reasonable likely to
materially affect, our internal controls over financial reporting.





PART II


OTHER
INFORMATION





Item
1. Legal Proceedings





As of the
end of the period covered by this Quarterly Report on Form 10-Q, 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 10-K for year ended December 31, 2009.





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





None





Item
3. Defaults Upon Senior Securities




None





Item
4. Reserved





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.




47


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.By:
                
                /s/
      Nicholas S. SchorschNicholas
      S. SchorschChief
      Executive Officer and Chairman of the Board of Directors
                  (Principal
      Executive Officer)By:
                
                /s/
      Brian S. BlockBrian
      S. BlockExecutive  Vice
      President, Chief Financial Officer
                  (Principal
      Accounting Officer)





Date: November
15, 2010










48







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, 2010 (and are numbered
in accordance with Item 601 of Regulation S-K).





Exhibit
      No.
            Description





31.1
            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 (filed
      herewith).












49