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 March 31, 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 has submitted electronically and posted on
its corporate website, 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 o




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 April 30, 2010
was 23,153,504 shares.








AMERICAN
REALTY CAPITAL TRUST, INC.


INDEX




PART
      I — FINANCIAL INFORMATIONItem 1.
      Financial StatementsConsolidated
      Balance Sheets as of March 31, 2010 (Unaudited) and December 31,
      2009
            3Consolidated
      Statements of Operations for the three months ended March 31, 2010 and
      2009 (Unaudited)
            4Consolidated
      Statement of Stockholders’ Equity for the three months ended March 31,
      2010 (Unaudited)
            5Consolidated
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009 (Unaudited)
            6Notes
      to Consolidated Financial Statements (Unaudited)
            7Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
            27Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
            39Item 4T.
      Controls and Procedures
            40PART
      II — OTHER INFORMATION
            40Item 1.
      Legal Proceedings
            40Item
      1A. Risk Factors
            40Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
            40Item 3.
      Defaults Upon Senior Securities
            40Item 4.
      Reserved
            40Item 5.
      Other Information
            40Item 6.
      Exhibits
            40Signatures
            41








2


PART
I - Financial Information


Item
1. Financial Statements


AMERICAN REALTY CAPITAL
TRUST, INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands except per share data)





March 31,
                  2010
                
                December 31,
                  2009(Unaudited)ASSETSReal
      estate investments, at cost:Land
                
                $
                48,856
                
                
                $
                37,779Buildings,
      fixtures and improvements
                
                
                320,979
                
                
                
                261,939Acquired
      intangible lease assets
                
                
                50,159
                
                
                
                38,838Total
      real estate investments, at cost
                
                
                419,994
                
                
                
                338,556Less
      accumulated depreciation and amortization
                
                
                (15,057
                )
                
                
                (11,292
                )Total real estate investments, net
                
                
                404,937
                
                
                
                327,264Cash
                
                
                2,778
                
                
                
                5,010Restricted
      cash
                
                
                51
                
                
                
                43Prepaid
      expenses and other assets
                
                
                6,215
                
                
                
                4,458Due
      from affiliates
                
                
                76
                
                
                
                —Deferred
      financing costs, net
                
                
                3,182
                
                
                
                2,502Total
      assets
                
                $
                417,239
                
                
                $
                339,277





LIABILITIES AND STOCKHOLDERS’
      EQUITYShort-term
      bridge equity funds
              
              $
              —
              
              
              $
              15,878Mortgage
      notes payable
              
              
              225,118
              
              
              
              183,811Long-term
      notes payable
              
              
              13,000
              
              
              
              13,000Below-market
      lease liabilities, net
              
              
              9,006
              
              
              
              9,085Derivatives,
      at fair value
              
              
              3,647
              
              
              
              2,768Accounts
      payable and accrued expenses
              
              
              1,525
              
              
              
              1,536Deferred
      rent and other liabilities
              
              
              1,355
              
              
              
              1,144Distributions
      payable
              
              
              1,085
              
              
              
              1,499Total
      liabilities
              
              
              254,736
              
              
              
              228,721Preferred
      stock, $0.01 par value; 10,000,000 shares authorized, none issued and
      outstanding
              
              
              —
              
              
              
              —Common
      stock, $.01 par value; 240,000,000 shares authorized, 20,558,974 and
      14,672,237 shares issued and outstanding March 31, 2010 and December 31,
      2009, respectively
              
              
              206
              
              
              
              147Additional
      paid-in capital
              
              
              173,933
              
              
              
              122,506Accumulated
      other comprehensive loss
              
              
              (2,458
              )
              
              
              (1,737
              )Accumulated
      deficit
              
              
              (16,873
              )
              
              
              (13,669
              )Total
      American Realty Capital Trust, Inc. stockholders’ equity
              
              
              154,808
              
              
              
              107,247Noncontrolling
      interests
              
              
              7,695
              
              
              
              3,309Total
      stockholders’ equity
              
              
              162,503
              
              
              
              110,556Total
      liabilities and stockholders’ equity
              
              $
              417,239
              
              
              $
              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 March
31,2010
              
              
              2009Revenue:Rental
      income
              
              $
              7,428
              
              
              $
              2,927Operating
      expenses:Acquisition
      and transaction related
              
              
              341
              
              
              
              —General
      and administrative
              
              
              224
              
              
              
              126Depreciation
      and amortization
              
              
              3,785
              
              
              
              1,730Total
      operating expenses
              
              
              4,350
              
              
              
              1,856Operating
      income
              
              
              3,078
              
              
              
              1,071Other
      income (expense):Interest
      expense
              
              
              (3,673
              )
              
              
              (2,451
              )Interest
      income
              
              
              11
              
              
              
              4Gains
      on sales to noncontrolling interest holders, net
              
              
              335
              
              
              
              —Gains
      (losses) on derivative instruments
              
              
              (152
              )
              
              
              37Total
      other expenses
              
              
              (3,479
              )
              
              
              (2,410
              )Net
      loss
              
              
              (401
              )
              
              
              (1,339
              )Net
      loss attributable to noncontrolling interests
              
              
              12
              
              
              
              —Net
      loss attributable to American Realty Capital Trust, Inc.
              
              $
              (389
              )
              
              $
              (1,339
              )Basic
      and diluted weighted averagecommon
      shares outstanding
              
              
              17,845,489
              
              
              
              1,526,901Basic
      and diluted loss per share attributable to
                American
      Realty Capital Trust, Inc.
              
              $
              (0.02
              )
              
              $
              (0.88
              )








The accompanying
notes are an integral part of these financial statements





4


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


THREE
MONTHS ENDED MARCH 31, 2010


(In
thousands except per share data)


(Unaudited)





Common Stock
                              
                              
                              
                              
                              
                              Accumulated
                              
                              
                              
                              
                              Total
                                American
                                Realty
                                CapitalNumber of
                                Shares
                              
                              
                              Par
                                Value
                              
                              
                              Additional
                                Paid-In
                                Capital
                              
                              
                              Other
                                Comprehensive
                                Loss
                              
                              Accumulated
                                Deficit
                              
                              
                              Trust
                                Stockholders'
                                Equity
                              
                              Noncontrolling
                                Interests
                              
                              
                              Total
                                Stockholders’
                                EquityBalance,
                                December 31,
    2009
                              
                              
                              14,672,237
                              
                              
                              $
                              147
                              
                              
                              $
                              122,506
                              
                              
                              $
                              (1,737
                              )
                              $
                              (13,669
                              )
                              $
                              107,247
                              
                              $
                              3,309
                              
                              
                              $
                              110,556Issuance
      of common stock, net
                              
                              
                              5,738,591
                              
                              
                              
                              58
                              
                              
                              
                              57,078
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              57,136
                              
                              
                              —
                              
                              
                              
                              57,136Offering
      costs, commissions and dealer manager fees
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (7,057
                              )
                              
                              
                              —
                              
                              
                              —
                              
                              
                              (7,057
                              )
                              
                              —
                              
                              
                              
                              (7,057
                              )Common
      stock issued through distribution reinvestment plan
                              
                              
                              148,146
                              
                              
                              
                              1
                              
                              
                              
                              1,406
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              1,407
                              
                              
                              —
                              
                              
                              
                              1,407Distributions
      declared
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              (2,815
                              )
                              
                              (2,815
                              )
                              
                              —
                              
                              
                              
                              (2,815
                              )Contributions
      from noncontrolling interests
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              5,035
                              
                              
                              
                              5,035Distributions
      to noncontrolling interests
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              (126
                              )
                              
                              
                              (126
                              )Gain
      on sale of assets to noncontrolling interest holders
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (511
                              )
                              
                              
                              (511
                              )Designated
      derivatives fair value adjustment
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (721
                              )
                              
                              —
                              
                              
                              (721
                              )
                              
                              —
                              
                              
                              
                              (721
                              )Net
      loss
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              (389
                              )
                              
                              (389
                              )
                              
                              (12
                              )
                              
                              
                              (401
                              )Total
      comprehensive loss
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              (1,110
                              )
                              
                              (12
                              )
                              
                              
                              (1,122
                              )Balance,
                                March 31, 2010
                              
                              
                              20,558,974
                              
                              
                              $
                              206
                              
                              
                              $
                              173,933
                              
                              
                              $
                              (2,458
                              )
                              $
                              (16,873
                              )
                              $
                              154,808
                              
                              $
                              7,695
                              
                              
                              $
                              162,503








The accompanying
notes are an integral part of these financial statements




5





AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)




Three Months Ended March
31,2010
                          
                          
                          2009Cash
      flows from operating activities:Net
      loss
                          
                          $
                          (401
                          )
                          
                          $
                          (1,339
                          )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
                          
                          
                          3,074
                          
                          
                          
                          1,382Amortization
      of intangibles
                          
                          
                          711
                          
                          
                          
                          348Amortization
      of deferred finance costs
                          
                          
                          168
                          
                          
                          
                          138Accretion
      of below-market lease liability
                          
                          
                          (79
                          )
                          
                          
                          (79
                          )Gains
      on sales to noncontrolling interest holders
                          
                          
                          (511
                          )
                          
                          
                          —Losses
      (gains) on derivative instruments
                          
                          
                          152
                          
                          
                          
                          (37
                          )Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                          
                          
                          (1,177
                          )
                          
                          
                          (875
                          )Accounts
      payable and accrued expenses
                          
                          
                          (12
                          )
                          
                          
                          (238
                          )Due
      from affiliated entity
                          
                          
                          (76
                          )
                          
                          
                          (487
                          )Deferred
      rent and other liabilities
                          
                          
                          211
                          
                          
                          
                          (29
                          )Net
      cash provided by (used in) operating activities
                          
                          
                          2,060
                          
                          
                          
                          (1,216
                          )Cash
      flows from investing activities:Investment
      in real estate and other assets
                          
                          
                          (81,438
                          )
                          
                          
                          (163
                          )Net
      cash used in investing activities
                          
                          
                          (81,438
                          )
                          
                          
                          (163
                          )Cash
      flows from financing activities:Proceeds
      on mortgage notes payable
                          
                          
                          41,735
                          
                          
                          
                          —Payments
      on mortgage notes payable
                          
                          
                          (428
                          )
                          
                          
                          (254
                          )Payments
      on related party bridge facility
                          
                          
                          —
                          
                          
                          
                          (5,765
                          )Payments
      on short-term bridge funds
                          
                          
                          (15,878
                          )
                          
                          
                          (8,000
                          )Proceeds
      from long-term notes payable
                          
                          
                          —
                          
                          
                          
                          9,428Contributions
      from noncontrolling interests
                          
                          
                          5,035
                          
                          
                          
                          —Distributions
      to noncontrolling interests
                          
                          
                          (126
                          )
                          
                          
                          —Proceeds
      from issuances of common stock, net
                          
                          
                          49,479
                          
                          
                          
                          6,494Payments
      of deferred financing costs
                          
                          
                          (848
                          )
                          
                          
                          (708
                          )Distributions
      paid
                          
                          
                          (1,815
                          )
                          
                          
                          (145
                          )Restricted
      cash
                          
                          
                          (8
                          )
                          
                          
                          21Net
      cash provided by financing activities
                          
                          
                          77,146
                          
                          
                          
                          1,071Net
      decrease in cash
                          
                          
                          (2,232
                          )
                          
                          
                          (308
                          )Cash,
      beginning of period
                          
                          
                          5,010
                          
                          
                          
                          887Cash,
      end of period
                          
                          $
                          2,778
                          
                          
                          $
                          579Supplemental
      Disclosures of Investing and Financing Activities:Cash
      paid for income taxes
                          
                          $
                          317
                          
                          
                          $
                          —Cash
      paid for interest
                          
                          $
                          3,467
                          
                          
                          $
                          2,468





6


AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 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 our
stockholders may elect to have their distributions reinvested in additional
shares of the Company’s common stock at the greater of $9.50 per share or
95% of the estimated value of a share of common stock. The Company sold 20,000
shares to American Realty Capital II, LLC (the “Sponsor”) on August 17, 2007, at
$10.00 per share. As of March 31, 2010, the Company issued 20,558,974 shares of
common stock. Total gross proceeds from these issuances were $203.2 million. As
of March 31, 2010, the aggregate value of all share issuances and subscriptions
outstanding was $205.4 million based on a per share value of $10.00 (or $9.50
for shares issued under the DRIP).





Substantially
all of the Company’s business is conducted through American Realty Capital
Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. The
Company is the sole general partner of and owns a 99.01% partnership interest in
the OP. American Realty Capital Advisors, LLC (the “Advisor”), the Company’s
affiliated advisor, is the sole limited partner and owner of 0.99%
(noncontrolling interest) of the partnership interests of the OP. In March 2008,
the OP issued to the Company 20,000 Operating Partnership units in exchange for
$0.2 million. Additionally, in April 2008, the Advisor contributed $2 thousand
to the 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.





The
Company’s stock is not currently listed on a national securities exchange. The
Company may seek to list its stock for trading on a national securities exchange
only if a majority of its independent directors believe listing would be in the
best interest of its stockholders. The Company does not intend to list its
shares at this time. The Company does not anticipate that there would be any
market for its common stock until its shares are listed for trading. In the
event it does not obtain listing prior to the tenth anniversary of the
completion or termination of the Offering, its charter requires that it either:
(i) seek stockholder approval of an extension or amendment of this listing
deadline; or (ii) seek stockholder approval to adopt a plan of liquidation
of the corporation.





7


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





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
months ended March 31, 2010. No acquisitions were completed during the three
months ended March 31, 2009 (dollar amounts in thousands):





Real
      estate investments, at cost:
                
                Three
      Months
                  Ended
                  March
      31, 2010Land
                
                $
                11,077Buildings,
      fixtures and improvements
                
                
                59,04070,117Acquired
      intangibles:In-place
      leases
                
                
                11,321Below-market
      lease liabilities, net
                
                
                —Total
      assets acquired
                
                
                81,438Cash
      paid for acquired real estate investments
                
                $
                81,438Number
      of properties purchased during the three month period
                
                
                20








8


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 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
March 31, 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 if March 31,
2010 (dollar amounts in thousands):




Seller / Property Name
                                              
                                              Acquisition Date
                                              
                                              No. of
                                                Buildings
                                              
                                              Square
                                                Feet
                                              
                                              Percentage Ownership
                                              
                                              Remaining
                                                Lease
                                                Term (1)
                                              
                                              Base
                                                Purchase
                                                Price (2)
                                              
                                              Capitalization
                                                Rate (3)
                                              
                                              
                                              Total
                                                Purchase
                                                Price (4)
                                              
                                              Net
                                                Operating
                                                Income (5)FedEx
      Distribution Center
                                              
                                              March
      2008
                                              
                                              1
                                              
                                              55,440
                                              
                                              51%
                                              
                                              8.7
                                              
                                              $
                                              9,694
                                              
                                              7.53%
                                              
                                              $
                                              10,208
                                              
                                              $
                                              730First
      Niagara (formerly Harleysville National Bank) Portfolio
                                              
                                              March
      2008
                                              
                                              15
                                              
                                              177,774
                                              
                                              100%
                                              
                                              12.8
                                              
                                              
                                              40,976
                                              
                                              7.48%
                                              
                                              
                                              41,676
                                              
                                              
                                              3,064Rockland
      Trust Company Portfolio
                                              
                                              May
      2008
                                              
                                              18
                                              
                                              121,057
                                              
                                              100%
                                              
                                              11.3
                                              
                                              
                                              32,188
                                              
                                              7.86%
                                              
                                              
                                              33,117
                                              
                                              
                                              2,530PNC
      Bank (formerly National City Bank)
                                              
                                              September
      & October 2008
                                              
                                              2
                                              
                                              8,403
                                              
                                              (6)
                                              
                                              18.9
                                              
                                              
                                              6,664
                                              
                                              8.21%
                                              
                                              
                                              6,853
                                              
                                              
                                              547Rite
      Aid
                                              
                                              September
      2008
                                              
                                              6
                                              
                                              74,919
                                              
                                              100%
                                              
                                              13.3
                                              
                                              
                                              18,576
                                              
                                              7.79%
                                              
                                              
                                              18,839
                                              
                                              
                                              1,447PNC
      Bank Portfolio
                                              
                                              November
      2008
                                              
                                              50
                                              
                                              275,436
                                              
                                              100%
                                              
                                              8.7
                                              
                                              
                                              42,286
                                              
                                              7.35%
                                              
                                              
                                              44,813
                                              
                                              
                                              3,108FedEx       Distribution
      Center
                                              
                                              July
      2009
                                              
                                              1
                                              
                                              152,640
                                              
                                              100%
                                              
                                              13.6
                                              
                                              
                                              31,692
                                              
                                              8.84%
                                              
                                              
                                              31,692
                                              
                                              
                                              2,803Walgreens
                                              
                                              July
      2009
                                              
                                              1
                                              
                                              14,820
                                              
                                              56%
                                              
                                              22.3
                                              
                                              
                                              3,818
                                              
                                              8.12%
                                              
                                              
                                              3,818
                                              
                                              
                                              310CVS
      I
                                              
                                              September
      2009
                                              
                                              10
                                              
                                              131,105
                                              
                                              (7)
                                              
                                              24.0
                                              
                                              
                                              40,649
                                              
                                              8.48%
                                              
                                              
                                              40,649
                                              
                                              
                                              3,448CVS
      II
                                              
                                              November
      2009
                                              
                                              15
                                              
                                              198,729
                                              
                                              100%
                                              
                                              24.3
                                              
                                              
                                              59,788
                                              
                                              8.48%
                                              
                                              
                                              59,788
                                              
                                              
                                              5,071Home
      Depot
                                              
                                              December
      2009
                                              
                                              1
                                              
                                              465,600
                                              
                                              100%
                                              
                                              19.8
                                              
                                              
                                              23,532
                                              
                                              9.31%
                                              
                                              
                                              23,532
                                              
                                              
                                              2,192Bridgestone
      Firestone I
                                              
                                              December
      2009
                                                &
      January 2010
                                              
                                              6
                                              
                                              57,336
                                              
                                              100%
                                              
                                              14.2
                                              
                                              
                                              15,041
                                              
                                              9.08%
                                              
                                              
                                              15,041
                                              
                                              
                                              1,390Advance
      Auto
                                              
                                              December
      2009
                                              
                                              1
                                              
                                              7,000
                                              
                                              100%
                                              
                                              11.7
                                              
                                              
                                              1,730
                                              
                                              9.25%
                                              
                                              
                                              1,730
                                              
                                              
                                              160Fresenius
                                              
                                              January
      2010
                                              
                                              2
                                              
                                              140,000
                                              
                                              100%
                                              
                                              12.3
                                              
                                              
                                              12,462
                                              
                                              9.28%
                                              
                                              
                                              12,462
                                              
                                              
                                              1,159Reckitt
      Benckiser
                                              
                                              February
      2010
                                              
                                              1
                                              
                                              574,106
                                              
                                              85%
                                              
                                              11.9
                                              
                                              
                                              31,735
                                              
                                              8.40%
                                              
                                              
                                              31,735
                                              
                                              
                                              2,668Jack
      in the Box
                                              
                                              February
      2010
                                              
                                              4
                                              
                                              10,216
                                              
                                              100%
                                              
                                              19.9
                                              
                                              
                                              8,200
                                              
                                              7.75%
                                              
                                              
                                              8,200
                                              
                                              
                                              639Bridgestone
                                                Firestone
      II
                                              
                                              February
      &
                                                March
      2010
                                              
                                              12
                                              
                                              93,599
                                              
                                              100%
                                              
                                              13.8
                                              
                                              
                                              26,414
                                              
                                              8.69%
                                              
                                              
                                              26,414
                                              
                                              
                                              2,299Total
                                              
                                              
                                              
                                              146
                                              
                                              2,558,180
                                              
                                              
                                              
                                              16.0
                                              
                                              $
                                              405,445
                                              
                                              8.28%
                                              
                                              $
                                              410,567
                                              
                                              $
                                              33,565


________________________





(1)
            -
            Remaining
      lease term as of March 31, 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)
            -
            Base
      purchase for acquisitions prior to January 1, 2009 include capitalized
      acquisition related costs. Effective January 1, 2009, acquisition related
      costs are required to be expensed in accordance with
  GAAP.(5)
            -
            Annualized
      2010 rental income less property operating expenses, as
      applicable.(6)
            
            Ownership
      percentage is 51% of one branch and 65% of one branch.(7)
            
            Ownership
      percentage of three branches is 51% and 100% of the remaining seven
      branches.





9


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note
3 — Real Estate Investments (continued)





The
following table lists tenants whose rental income represents greater than 10% of
consolidated  rental income on an annualized basis as of March 31,
2010 and 2009:





2010
              
              2009CVS
              25%
              
              —PNC
      Bank
              11%
              
              32%FedEx
              11%
              
              —Bridgestone
      Firestone
              11%
              
              —First
      Niagara
              9%
              
              27%Rockland
      Trust Company
              8%
              
              22%Rite
      Aid
              4%
              
              13%





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





Note
4 — Short-Term Bridge Equity Funds





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





Funds
                        
                        Property
                        
                        
                        Outstanding
                          Loan
                          Amount (2)
                        
                        Effective
                          Interest Rate
                        
                        
                        Interest RateShort-term
      bridge funds
                        
                        FedEx
      Distribution Center
                        
                        
                        $
                        15,878
                        
                        
                        5.75
                        %
                        
                        
                        
                        
                        Variable
      (1)





(1) Funds
bear a floating interest rate based on the greater of prime rate plus 0.75% or
5.75%


(2) Such
borrowing was repaid in January 2010.





There
were no short-term equity bridge funds outstanding at March 31,
2010.





At March
31, 2010, the Company has available a $10.0 million revolving line of credit
unsecured bridge facility with an affiliated entity. There were no amounts
outstanding under this facility at March 31, 2010 or December 31,
2009.


10


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note
5 — Mortgage Notes Payable





The
Company’s mortgage notes payable as of March 31, 2010 consist of the following
(dollar amounts in thousands):





Property
                              
                              Encumbered
                                Properties
                              
                              Outstanding
                                Loan
                                Amount
                              
                              Effective
                                Interest Rate
                              
                              
                              Interest
                                Rate
                              
                              MaturityFedEx
      Distribution Center
                              
                              
                              1
                              
                              $
                              6,965
                              
                              
                              6.29
                              %
                              
                              
                              
                              
                              Fixed
                              
                              
                              September
      2037First
      Niagara (formerly Harleysville National Bank) Portfolio
                              
                              
                              15
                              
                              
                              31,000
                              
                              
                              6.59
                              %
                              
                              (1)
                              
                              
                              Fixed
                              
                              
                              January
      2018Rockland
      Trust Company Portfolio
                              
                              
                              18
                              
                              
                              23,534
                              
                              
                              4.92
                              %
                              
                              (2)
                              
                              
                              Fixed
                              
                              
                              May
      2013PNC
      Bank (formerly National City Bank) Portfolio
                              
                              
                              2
                              
                              
                              4,394
                              
                              
                              4.89
                              %
                              
                              (3)
                              
                              
                              Fixed
                              
                              
                              September
      2013Rite
      Aid
                              
                              
                              6
                              
                              
                              12,808
                              
                              
                              6.97
                              %
                              
                              
                              
                              
                              Fixed
                              
                              
                              September
      2017PNC
      Bank Portfolio
                              
                              
                              50
                              
                              
                              32,818
                              
                              
                              5.25
                              %
                              
                              (4)
                              
                              
                              Fixed
                              
                              
                              November
      2013Walgreens
                              
                              
                              1
                              
                              
                              1,550
                              
                              
                              6.64
                              %
                              
                              (5)
                              
                              
                              Fixed
                              
                              
                              August
      2019CVS
      I
                              
                              
                              10
                              
                              
                              23,649
                              
                              
                              6.88
                              %
                              
                              (6)
                              
                              
                              Fixed
                              
                              
                              October
      2019CVS
      II
                              
                              
                              15
                              
                              
                              32,979
                              
                              
                              6.64
                              %
                              
                              
                              
                              
                              Fixed
                              
                              
                              December
      2014Home
      Depot
                              
                              
                              1
                              
                              
                              13,716
                              
                              
                              6.55
                              %
                              
                              
                              
                              
                              Fixed
                              
                              
                              December
      2012FedEx
      Distribution Center
                              
                              
                              1
                              
                              
                              16,228
                              
                              
                              6.03
                              %
                              
                              (7)
                              
                              
                              Fixed
                              
                              
                              January
      2015Fresenius
                              
                              
                              2
                              
                              
                              6,082
                              
                              
                              6.72
                              %
                              
                              
                              
                              
                              Fixed
                              
                              
                              January
      2015Reckitt
      Benckiser
                              
                              
                              1
                              
                              
                              15,000
                              
                              
                              6.23
                              %
                              
                              (8)
                              
                              
                              Fixed
                              
                              
                              February
      2017Jack
      in the Box
                              
                              
                              4
                              
                              
                              4,395
                              
                              
                              6.45
                              %
                              
                              
                              
                              
                              Fixed
                              
                              
                              February
      2015Total
                              
                              
                              127
                              
                              $
                              225,118
                              
                              
                              6.17
                              %





11


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 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
      Distribution Center
                                            
                                            
                                            1
                                            
                                            $
                                            6,965
                                            
                                            
                                            6.29
                                            %
                                            
                                            
                                            
                                            
                                            Fixed
                                            
                                            
                                            September
      2037First
      Niagara (formerly Harleysville National Bank) Portfolio
                                            
                                            
                                            15
                                            
                                            
                                            31,000
                                            
                                            
                                            6.59
                                            %
                                            
                                            (1)
                                            
                                            
                                            Fixed
                                            
                                            
                                            January
      2018Rockland
      Trust Company Portfolio
                                            
                                            
                                            18
                                            
                                            
                                            23,649
                                            
                                            
                                            4.92
                                            %
                                            
                                            (2)
                                            
                                            
                                            Fixed
                                            
                                            
                                            May
      2013PNC
      Bank (formerly National City Bank) Portfolio
                                            
                                            
                                            2
                                            
                                            
                                            4,412
                                            
                                            
                                            4.89
                                            %
                                            
                                            (3)
                                            
                                            
                                            Fixed
                                            
                                            
                                            September
      2013Rite
      Aid
                                            
                                            
                                            6
                                            
                                            
                                            12,808
                                            
                                            
                                            6.97
                                            %
                                            
                                            
                                            
                                            
                                            Fixed
                                            
                                            
                                            September
      2017PNC
                                            
                                            
                                            50
                                            
                                            
                                            32,933
                                            
                                            
                                            5.25
                                            %
                                            
                                            (4)
                                            
                                            
                                            Fixed
                                            
                                            
                                            November
      2013Walgreens
                                            
                                            
                                            1
                                            
                                            
                                            1,550
                                            
                                            
                                            6.64
                                            %
                                            
                                            (5)
                                            
                                            
                                            Fixed
                                            
                                            
                                            August
      2019CVS
      I
                                            
                                            
                                            10
                                            
                                            
                                            23,710
                                            
                                            
                                            6.88
                                            %
                                            
                                            (6)
                                            
                                            
                                            Fixed
                                            
                                            
                                            October
      2019CVS
      II
                                            
                                            
                                            15
                                            
                                            
                                            33,068
                                            
                                            
                                            6.64
                                            %
                                            
                                            
                                            
                                            
                                            Fixed
                                            
                                            
                                            December
      2014Home
      Depot
                                            
                                            
                                            1
                                            
                                            
                                            13,716
                                            
                                            
                                            6.34
                                            %
                                            
                                            
                                            
                                            
                                            Fixed
                                            
                                            
                                            December
      2012Total
                                            
                                            
                                            120
                                            
                                            $
                                            183,811
                                            
                                            
                                            6.15
                                            %




(1)
            -
            The
      effective interest rate resets at the end of year five to the then current
      5-year Treasury rate plus 2.25%, but in no event will be less than
      6.5%.(2)
            -
            Fixed
      as a result of entering into a rate lock agreement with a LIBOR floor and
      cap of 3.54% and 4.125%, 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 the entering into the
mortgage.(5)
            -
            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.(6)
            -
            The
      effective interest rate adjusts at the discretion of the lender at the end
      of the sixth year.(7)
            -
            Fixed
      as a result of entering in a swap agreement for 2.775% plus a spread of
      3.18% in connection with the entering into the
mortgage.(8)
            -
            Fixed
      as a result of entering in a swap agreement for 3.295% plus a spread of
      2.85% in connection with the entering into the
  mortgage.





12


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 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 March 31, 2010 (in
thousands):





TotalApril 2010 to December
      2010
                  
                  $
                  1,5342011
                  
                  
                  2,9632012
                  
                  
                  16,8672013
                  
                  
                  60,0472014
                  
                  
                  35,1352015 and
      thereafter
                  
                  
                  108,572Total
                  
                  $
                  225,118





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 March 31, 2010, the
Company was in compliance with the debt covenants under its outstanding loan
agreements.





Note 6
— Long-Term Notes Payable





As of
March 31, 2010, the Company had issued $13.0 million of notes payable (the
“Notes”) in a private placement pursuant to Rule 506 of Regulation D promulgated
under the Securities Act.  The proceeds of the private placement were
used to repay outstanding short-term bridge equity fund draws (see Note 4 –
Short-Term Bridge Equity Funds).





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





The
Company has the right to prepay the Notes in whole or in part any time following
the first anniversary of the closing date.  If repaid on or before the
second anniversary of the closing date, the Company will pay 2.0% 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 not
withstanding, the Company shall have the right to repay the amount due under the
Notes in whole or in part without penalty within 360 days of the maturity
date.  The Company will not have the right to prepay the amount due
under the notes during the two optional extension periods. The Notes are
unsecured.





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





As of
March 31, 2010, the Company was in compliance with all covenants included within
the Note agreement.





13


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 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
March 31, 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.


14


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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


Quoted Prices in
                  Active Markets
                  Level 1
                
                
                Significant Other
                  Observable Inputs
                  Level 2
                
                
                Significant
                  Unobservable Inputs
                  Level 3
                
                
                TotalMarch
      31, 2010:Total
      derivatives, net
                
                $
                —
                
                
                $
                3,647
                
                
                $
                —
                
                
                $
                3,647December
      31, 2009:Total
      derivatives, net
                
                $
                —
                
                
                $
                2,768
                
                
                $
                —
                
                
                $
                2,768





The
Company is required to disclose the fair value of financial instruments for
which it is practicable to estimate that value. The fair value of short-term
financial instruments such as cash and cash equivalents, restricted cash, other
receivables, due 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 interest
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
                  March 31,
                  2010
                
                
                Fair Value at
                  March 31,
                  2010
                
                
                Carrying
                  Amount at
                  December 31,
                  2009
                
                
                Fair Value at
                  December 31,
                  2009Mortgage
      notes payable
                
                $
                225,118
                
                
                $
                218,299
                
                
                $
                183,811
                
                
                $
                171,728Other
      long-term notes payable
                
                
                13,000
                
                
                
                13,000
                
                
                
                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.





Cash
Flow Hedges of Interest Rate Risk





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





15


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note 8
— Derivative and Hedging Activities (continued)





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.  During
the three months ended March 31, 2010 and 2009, the Company recognized income of
$400 and loss of $375, respectively, related to hedge
ineffectiveness.





Amounts
reported in accumulated other comprehensive income related to derivatives will
be reclassified to interest expense as interest payments are made on the
Company’s variable-rate debt. During the next twelve months, the Company
estimates that an additional $2.0 million will be reclassified from other
comprehensive income as an increase to interest expense.





As of
March 31, 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
              
              $
              64,189Interest
      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 contract
outstanding, with an aggregate notional amount of $23.5 million and $23.7
million at March 31, 2010 and December 31, 2009, respectively, with an
established ceiling and floor for the underlying variable rate at 4.125% and
3.54%, respectively. This contract was not able to be designated as a hedging
instrument as it does not qualify for hedge accounting based on the results of
the net written option test.  As such, all changes in the fair value
of the interest rate collar have been included in the Company’s statement of
operations for the three months ended March 31, 2010 and 2009.  For
the three months ended March 31, 2010 and 2009, the Company has recorded
unrealized losses of $0.4 million and $0.1 million, respectively, related to
this derivative instrument.


16





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note 8
— Derivative and Hedging Activities (continued)





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





Fair Value (Liability)Balance
                            Sheet
                            Location
                          
                          March 31,
                            2010
                          
                          December 31,
                            2009Derivatives
      designated as hedging instruments:Interest
      Rate Products
                          Derivatives,
                            at
      fair value
                          
                          $
                          (2,372
                          )
                          $
                          (1,646)Derivatives
      not designated as hedging instruments:Interest
      Rate Products
                          Derivatives,
                            at
      fair value
                          
                          
                          (1,275
                          )
                          
                          (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 months ended March 31, 2010 and 2009 (in thousands):





Three Months Ended March
31,2010
                        
                        2009Amount
      of gain recognized in accumulated  other comprehensive income as
      interest rate derivatives (effective portion)
                        
                        $
                        1,144
                        
                        $
                        (205)Amount
      of  loss reclassified from accumulated other comprehensive
      income into income as interest expense (effective portion)
                        
                        
                        (424
                        )
                        
                        (264)Amount
      of gain recognized in income on derivative as gain on derivative
      instruments (ineffective portion and amount excluded from effectiveness
      testing)
                        
                        
                        —
                        
                        
                        —





Derivatives Not Designated as Hedging Instruments





The table
below details the amount and location in the financials statements of the gain
or loss recognized on derivatives not designated as hedging instruments for the
three months ended March 31, 2010 and 2009 (amounts in thousands):




Location of Gain or(Loss)
      Recognized
                      in Income on Derivative
                    Three Months Ended March
31,2010
                    
                    
                    2009Interest
      expense
                    
                    $
                    (200
                    )
                    
                    $
                    (180
                    )Gains
      (losses) on derivative instruments
                    
                    
                    (152
                    )
                    
                    
                    37Total
                    
                    $
                    (352
                    )
                    
                    
                    (143
                    )





17


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note 8
— Derivative and Hedging Activities (continued)





Credit-risk-related
Contingent Features





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





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





As of
March 31, 2010, the fair value of derivatives in a net liability position,
related to these agreements was $3.6 million. As of March 31, 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 $4.0 million.





Note 9—
Commitments and Contingencies





Litigation





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





Environmental
Matters





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





Note 10
- Related-Party Transactions and Arrangements





Certain
affiliates of the Company receive, and will continue to receive, fees and
compensation in connection with the sale of the Company’s common stock (as well
as sales of long-term notes and exchange transactions) and the acquisition,
management and sale of the assets of the Company. The Dealer Manager receives,
and will continue to receive, a selling commission of up to 7.0% of gross
offering proceeds before reallowance of commissions earned by participating
broker-dealers. The Dealer Manager reallows, and intends to continue to reallow,
100% of commissions earned to participating broker-dealers. In addition, the
Dealer Manager will receive up to 3.0% of the gross proceeds from the Offering,
before reallowance to participating broker-dealers, as a dealer-manager fee. The
Dealer Manager, in its sole discretion, may reallow all or a portion of its
dealer-manager fee to such participating broker-dealers, based on such factors
as the volume of shares sold by such participating broker-dealers and marketing
support incurred as compared to those of other participating broker-dealers. No
selling commissions or dealer-manager fees are paid to the Dealer Manager with
respect to shares sold under the DRIP.





18


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





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





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





Three Months
                  Ended
                  March 31,2010
                
                
                2009Total
      commissions paid to Dealer Manager
                
                $
                5,357
                
                
                $
                705Less:Commissions
      to participating broker dealers
                
                
                (3,765
                )
                
                
                (483
                )Reallowance
      to participating broker dealers
                
                
                (605
                )
                
                
                (45
                )Net
      to affiliated Dealer Manager  (1)
                
                $
                987
                
                
                $
                177





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





The
Advisor receives an acquisition and advisory fee of 1.0% of the contract
purchase price of each acquired property and will be reimbursed for acquisition
costs incurred in the process of acquiring properties, but not to exceed 0.5% of
the contract purchase price. In no event will the total of all fees and
acquisition expenses payable with respect to a particular property or investment
exceed 4.0% of the contract purchase price.





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





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





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





Three Months
                  Ended
                  March 31,2010
                
                
                2009Acquisition fees
      and related cost reimbursements
                
                $
                798
                
                
                $
                —Financing
      coordination fees
                
                
                417
                
                
                
                —Organizational
      and offering expense reimbursements
                
                
                1,103
                
                
                
                —Net
      to affiliated Advisor
                
                $
                2,318
                
                
                $
                —





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





19


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





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





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





Three Months
                  Ended March 31,2010
                
                
                2009Earned
      asset management fee
                
                $
                891
                
                
                $
                383Waived
      by affiliate (not deferred)
                
                
                (891
                )
                
                
                (355
                )Paid
      to affiliate
                
                $
                —
                
                
                $
                28Prepaid
      asset management fees
                
                $
                2,012
                
                
                $
                —





If the
Advisor or its affiliates provides a substantial amount of services, as
determined by the Company’s independent directors, in connection with the sale
of property, the Company will pay the Advisor a brokerage commission not to
exceed the lesser of one-half of a reasonable, customary and competitive real
estate commission or 3.0% of the contract price for the property sold, inclusive
of any commission paid to outside brokers provided, however, in no event may the
real estate commissions paid to the Advisor, its affiliates or unaffiliated
third-parties exceed 6.0% of the contract price. In addition, after investors
have received a return of their net capital contributions and a 6.0% annual
cumulative, non-compounded return, then the Advisor is entitled to receive 15.0%
of remaining net sale proceeds. During the three months ended March 31, 2010 and
2009, the Company did not pay any fees or amounts to the Advisor relating to the
sale of properties.





In the
event the Company’s common stock is listed in the future on a national
securities exchange, a subordinated incentive listing fee equal to 15.0% of the
amount by which the market value of the Company’s outstanding stock plus all
distributions paid by the Company prior to listing, exceeds the sum of the total
amount of capital raised from investors plus an amount equal to a 6.0% annual
cumulative, non-compounded return to investors will be paid to the
Advisor.





In the
event that the advisory agreement with the Advisor is terminated upon a change
of control of the Company, by the Company without cause, or by the Advisor for
good reason (as such terms may be defined in the definitive agreement
memorializing the engagement of the Advisor by the Company), the Company shall
pay the Advisor a termination fee not to exceed 15.0% of the amount, if any, by
which the appraised value of the properties owned by the Company on the date of
such termination, less amounts of all indebtedness secured by such properties
exceeds the dollar amount equal to the sum of a 6.0% cumulative non-compound
return on the Company's stockholders' net investment plus the amount of such
investment.





The
Company may reimburse the Advisor for all expenses it paid or incurred in
connection with the services provided to the Company, subject to the limitation
that the Company does not reimburse for any amount by which its operating
expenses (including the asset management fee) at the end of the four preceding
fiscal quarters exceeds the greater of (i) 2.0% of average invested assets, or
(ii) 25.0% of net income other than any additions to reserves for depreciation,
bad debts or other similar non-cash reserves and excluding any gain from the
sale of assets for that period. The Company will not reimburse for personnel
costs in connection with services for which the Advisor receives acquisition
fees or real estate commissions. During the three months ended March 31, 2010
and 2009, the Company did not reimburse the Advisor for any such
costs.


20


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





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





The
Company pays its affiliated Property Manager fees for the management and leasing
of the Company’s properties. Such fees equal 2.0% of gross revenues from the
Company’s single tenant properties and 4.0% of the gross revenues from its
multi-tenant properties, plus reimbursement of the Property Managers’ costs of
managing the properties. In the event that the Property Manager assists a tenant
with tenant improvements, a separate fee may be charged to the tenant by the
Property Manager at a fee not to exceed 5.0% of the cost of such tenant
improvements. The Property Manager will be paid leasing commissions at
prevailing market rates and may also receive a fee for the initial leasing of
newly constructed properties, which generally would equal one month’s rent. The
aggregate of all property management and leasing fees paid to affiliates plus
all payments to third parties will not exceed the amount that other
nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. The Property Manager may subcontract
its duties for a fee that may be less than the fee provided for in the property
management agreement. For the three months ended March 31, 2010 and 2009, the
Company would have incurred property management fees of $0.1 million in each
period, however, these fees were waived by the Property Manager to improve the
Company’s working capital.





In 2008,
the OP entered into an agreement with the principals of the Advisor whereby the
OP can obtain up to $10.0 million of bridge equity from the principals from time
to time as needed to provide short-term bridge equity relating to property
acquisitions or for general working capital purposes. Such bridge equity needs
to be satisfied within a six month period and will accrue a yield of 8%. In
November 2008, the board approved an extension of the satisfaction period of an
additional six months. In connection with the acquisition of the First Niagara
(formerly Harleysville National Bank) and the Rockland Trust Company portfolios
and a FedEx Corp. distribution facility, the Company obtained bridge equity of
$4.0 million, $2.5 million and $2.7 million respectively. This bridge equity was
repaid in 2009. During the three months ended March 31, 2009, the Company
incurred related party interest expense of $0.1 on this
facility.





During
the three months ended December 31, 2008, the Company entered into an unsecured
bridge equity facility with a related party, American Realty Capital Equity
Bridge, LLC (“ARC Bridge”), whereby the Company can obtain bridge equity of up
to $10.0 million from time-to-time as needed to provide short-term bridge equity
relating to property acquisitions and for general working capital purposes. ARC
Bridge is a 50% joint venture between the Sponsor and an unrelated third party.
Bridge equity investments from this facility accrued a yield at an annual rate
of 30 day LIBOR plus 5% with a floor of 8%. The bridge equity investments
relating to the PNC bank locations (formerly National City Bank), 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 $0.2 million for the three months ended March 31, 2009. As of March 31, 2010
this facility was repaid in full.





Note 11 — Economic Dependency





Under
various agreements, the Company has engaged or will engage the Advisor and its
affiliates to provide certain services that are essential to the Company,
including asset management services, supervision of the management and leasing
of properties owned by the Company, asset acquisition and disposition decisions,
the sale of shares of the Company’s common stock available for issue, as well as
other administrative responsibilities for the Company including accounting
services and investor relations.





As a
result of these relationships, the Company is dependent upon the Advisor and its
affiliates. In the event that these companies were unable to provide the Company
with the respective services, the Company would be required to find alternative
providers of these services.


21


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 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 our
initial public offering, and thereafter the exercise price for stock options
granted to our independent directors will be equal to the fair market value of a
share on the last business day preceding the annual meeting of stockholders. As
of March 31, 2010, the Company had granted options to purchase 18,000 shares at
$10.00 per share, each with a two year vesting period and an expiration of 10
years. A total of 1,000,000 shares have been authorized and reserved for
issuance under the Plan.





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





During
the three months ended March 31, 2010 and 2009, no options were
issued, forfeited, or were exercised and 4,500 options became vested. As of
March 31, 2010, vested options to purchase 9,000 shares and unvested options to
purchase 9,000 shares at $10.00 per share 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 restricted share plan 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%
per annum. 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 our 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 employee and director
incentive restricted share plan is equal to 1.0% of our 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 dividends
prior to the time that the restrictions on the restricted shares have lapsed.
Any dividends payable in common shares shall be subject to the same restrictions
as the underlying restricted shares. The Board of Directors has no present
intention to issue any restricted shares under the employee and director
incentive restricted share plan.


22


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note 13
— Net Loss Per Share





The
following is a summary of the basic and diluted net loss per share computation
for the three months ended March 31, 2010 and 2009 (in thousands):





Three Months
                  Ended March 31,2010
                
                
                2009Net
      loss attributable to American Realty Capital Trust, Inc.
                
                $
                (389
                )
                
                $
                (1,339
                )Weighted
      average common shares outstanding
                
                
                17,845
                
                
                
                1,527Loss
      per share, basic and diluted
                
                $
                (0.02
                )
                
                $
                (0.88
                )





The Company intends to grant options under its Stock Option Plan
(“the Plan”) to each qualifying director annually. The exercise price for all
stock options granted under the Plan will be fixed at $10.00 per share until the
termination of the Company’s initial public offering, and thereafter the
exercise price for stock
options granted to the independent directors will be equal to the fair market
value of a share on the last business day preceding the annual meeting of
stockholders.





As of
March 31, 2010, 18,000 antidilutive stock options were outstanding.





Note
14 – Noncontrolling Interests





In July
2009, the Company purchased a Walgreens location under a tenant in common
structure with an unaffiliated third party. The third party’s investment of $1.1
million represented a 44.0% ownership interest in the property and entitles the
investor to receive a proportionate share of the net operating cash flow derived
from the property. Upon disposition of the property, the tenant in common will
receive a proportionate share of the net proceeds from the sale of the property.
The tenant in common has no recourse to any other assets of the
Company.  Distributions of $20 thousand were paid to the
noncontrolling interest holder of this property for the three months ended March
31, 2010. At March 31, 2010, there were $3.7 million of real estate assets which
collateralized $1.6 million of mortgage debt that were subject to this
arrangement.





In the
third quarter of 2009, the Company contributed a 49% interest in a FedEx
distribution facility in Snow Shoe, PA and a PNC bank branch in Palm Coast, FL,
to a newly created taxable REIT subsidiary (“TRS”) and sold interests in such
properties for net proceeds of $2.0 million under a Delaware statutory trust.
This investment represents a 49% ownership interest in these properties and
entitles the investors to receive a proportionate share of the net operating
cash flow from the properties. Upon disposition of the properties, the
noncontrolling interest holders will receive a proportionate share of the net
proceeds from the sale of the properties. The interest holders have no recourse
to any other assets of the Company. Distributions of $42 thousand were paid to
the noncontrolling interest holders of these properties for the three months
ended March 31, 2010. At March 31, 2010, there were $12.2 million
of real estate assets which collateralized $9.0 million of mortgage debt
subject to this agreement.





In
September 2009, the Company contributed a partial interest of a PNC bank branch
in Pompano, FL to a newly created TRS and sold an interest in the property for
net proceeds of $0.4 million under a Delaware statutory trust. This investment
represents a 35.2% ownership interest in this property and entitles the investor
to receive a proportionate share of the net operating cash flow from the
properties. Upon disposition of the property, the noncontrolling interest holder
will receive a proportionate share of the net proceeds from the sale of the
property. The interest holder has no recourse to any other assets of the
Company.  Distributions of $9 thousand were paid to the noncontrolling
interest holder of these properties for the three months ended March 31, 2010.
At March 31, 2010, there were $3.6 million of real estate assets which
collateralized $2.4 million of mortgage debt subject to this
agreement.


23


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Note
14 – Noncontrolling Interests (continued)





In
January 2010, the Company contributed a partial interest of three CVS Pharmacy
locations in Visalia, CA, Smyrna, GA and Chicago, IL to a newly created TRS and
sold an interest in the properties for net proceeds of $2.6 million under a
Delaware statutory trust. This investment represents a 49% ownership interest in
these properties and entitles the investors to receive a proportionate share of
the net operating cash flow from the properties. Upon disposition of the
properties, the noncontrolling interest holders will receive a proportionate
share of the net proceeds from the sale of the properties. The interest holder
has no recourse to any other assets of the Company.  Distributions of
$30 thousand were paid to the noncontrolling interest holders of these
properties for the three months ended March 31, 2010. At March 31, 2010, there
were $11.5 million of real estate assets which collateralized $6.8 million
of mortgage debt subject to this agreement.





In
February 2010, the Company purchased a Reckitt Benckiser location in Tooele, UT
with unaffiliated third parties. The third party’s net investment of $2.4
million represented a 14.6% ownership interest in the property and entitles the
investors to receive a proportionate share of the net operating cash flow
derived from the property. Upon disposition of the property, the third parties
will receive a proportionate share of the net proceeds from the sale of the
property. The third parties have no recourse to any other assets of the
Company.  Distributions of $25 thousand were accrued to be paid to the
noncontrolling interest holders of this property for the three months ended
March 31, 2010. At March 31, 2010, there were $31.6 million of real estate
assets which collateralized $15.0 million of mortgage debt that were subject to
this arrangement.





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


24


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





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 our disclosures in the consolidated financial statements
except for the following transactions:





Completion
of Acquisition of Assets





The
following table presents certain information about the properties that the
Company acquired subsequent to March 31, 2010 (dollar amounts in
thousands):




Seller /
                                          Property Name
                                        
                                        Acquisition
                                          Date
                                        
                                        No. of
                                          Buildings
                                        
                                        Square
                                          Feet
                                        
                                        Remaining
                                          Lease
                                          Term (1)
                                        
                                        Net
                                          Operating
                                          Income (2)
                                        
                                        Base
                                          Purchase
                                          Price (3)
                                        
                                        Capitalization
                                          Rate (4)
                                        
                                        Purchase
                                          Price (5)Total
      portfolio – March 31, 2010
                                        
                                        
                                        
                                        146
                                        
                                        2,558,180
                                        
                                        16.0
                                        
                                        $
                                        33,565
                                        
                                        $
                                        405,445
                                        
                                        8.28%
                                        
                                        $
                                        410,567Jack
      in the Box
                                        
                                        April  2010
                                        
                                        1
                                        
                                        2,037
                                        
                                        20.0
                                        
                                        
                                        142
                                        
                                        
                                        1,810
                                        
                                        7.82%
                                        
                                        
                                        1,810FedEx
                                        
                                        April  2010
                                        
                                        1
                                        
                                        118,796
                                        
                                        11.2
                                        
                                        
                                        3,087
                                        
                                        
                                        34,171
                                        
                                        9.03%
                                        
                                        
                                        34,141Jared
      Jewelers
                                        
                                        May
      2010
                                        
                                        3
                                        
                                        18,942
                                        
                                        18.2
                                        
                                        
                                        682
                                        
                                        
                                        5,422
                                        
                                        12.58%
                                        
                                        
                                        5,422Total
      portfolio –
                                          May
      7, 2010
                                        
                                        
                                        
                                        151
                                        
                                        2,697,955
                                        
                                        15.6
                                        
                                        $
                                        37,476
                                        
                                        $
                                        446,848
                                        
                                        8.38%
                                        
                                        $
                                        451,940


________________________




(1)
      -
            Remaining
      lease term in years as of May 7, 2010. If the portfolio has multiple
      locations with varying lease expirations, remaining lease term is
      calculated on a weighted-average basis.(2)
      -
            Annualized
      rental income less property operating expenses, as
    applicable.(3)
      -
            Contract
      purchase price excluding acquisition related costs.(4)
      -
            Net
      operating income divided by base purchase price.(5)
      -
            Base
      purchase price plus all acquisition related
  costs.





Financing
arrangements





The
following table presents certain information about financing arrangements that
the Company entered into subsequent to March 31, 2010 (dollar amounts in
thousands):





Purchase
                                Price
      (1)
                              
                              
                              Mortgage
                                Debt
      (2)
                              
                              
                              Effective
                                Interest
                                Rate
                              
                              
                              Leverage
                                Ratio
      (3)Total
      portfolio – March 31, 2010
                              
                              $
                              410,567
                              
                              
                              $
                              225,118
                              
                              
                              
                              6.17
                              %
                              
                              
                              54.8
                              %Jack
      in the Box
                              
                              
                              1,816
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —FedEx
                              
                              
                              34,141
                              
                              
                              
                              15,000
                              
                              
                              
                              5.57
                              %
                              
                              
                              43.8
                              %Jared
      Jewelers
                              
                              
                              5,422
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Less:
      amortization of principal
                              
                              
                              —
                              
                              
                              
                              (160
                              )
                              
                              
                              —
                              
                              
                              
                              —Total
      portfolio – May 7, 2010 (4)
                              
                              $
                              451,940
                              
                              
                              $
                              239,958
                              
                              
                              
                              6.13
                              %
                              
                              
                              53.1
                              %


________________________





(1)
      -
            Base
      purchase price plus all acquisition related costs.(2)
      -
            Consists
      of first mortgage long-term debt only.(3)
      -
            Mortgage
      debt divided by total purchase price.(4)
      -
            Weighted-average,
      as applicable.





25


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





Sources
of Capital





As of
April 30, 2010, the Company had issued 23,503,668 shares of common stock,
including shares issued under the DRIP. Total gross proceeds from these
issuances were $323.5 million. As of April 30, 2010, the aggregate value of all
share issuances was $324.9 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
                March 31, 2010
              
              
              April 1 to
                May 7, 2010
              
              
              TotalCommon
      shares
              
              $
              203,161
              
              
              $
              37,129
              
              
              $
              240,290Notes
      payable
              
              
              13,000
              
              
              
              —
              
              
              
              13,000Exchange
      proceeds, net (1)
              
              
              8,492
              
              
              
              3,000
              
              
              
              11,492Total
              
              $
              224,653
              
              
              $
              40,129
              
              
              $
              264,782




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





On
October 5, 2009, the Company’s Board of Directors approved an increased the
distribution per share to $0.70 effective April 1, 2010.





Noncontrolling
Interest





In April
2010, the Company purchased a FedEx location in Sacramento, CA with unaffiliated
third parties. The third party’s net investment of $3.0 million represented a
15.4% ownership interest in the property and entitles the investors to receive a
proportionate share of the net operating cash flow derived from the property.
Upon disposition of the property, the third parties will receive a proportionate
share of the net proceeds from the sale of the property. The third parties have
no recourse to any other assets of the Company.  At April 30, 2010, there
were $34.2 million of real estate assets which collateralized $15.0 million of
mortgage debt that were subject to this arrangement.





26


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.





27


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 March 31, 2010, we issued
20,558,974 shares of common stock, including 339,077 shares issued in connection
with an acquisition in March 2008. Total gross proceeds from these issuances
were $203.2 million. As of March 31, 2010, the aggregate value of all share
issuances and subscriptions outstanding was $205.4 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 March 31, 2010, 3,000 shares of common stock had been
redeemed under our stock repurchase program at a value of $29 thousand. We are
dependent upon the net proceeds from the offering to conduct our proposed
operations.





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





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 55%. As of March 31, 2010 our leverage ratio was
54.8%. We generally arrange for our mortgage note agreements to include monthly
principal payments together with interest.  This amortization results
in lowering our overall mortgage notes balance on a continuous
basis.





As of
March 31, 2010, we owned 146 properties compromising 2.6 million square feet,
100% leased with a weighted average remaining lease term of 16 years. In
constructing our portfolio, we are committed to diversification (industry,
tenant and geography).  As of March 31, 2010, rental revenues derived
from investment grade tenants (rated BBB+ or better by Standards & Poor)
approximated 90%.  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.


28


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:


29





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





•
            a significant adverse change in
      the extent or manner in which a long-lived asset is being used or in its
      physical condition;





•
            a significant adverse change in
      legal factors or in the business climate that could affect the value of a
      long-lived asset, including an adverse action or assessment by a
      regulator;





•
            an accumulation of costs
      significantly in excess of the amount originally expected for the
      acquisition or construction of a long-lived asset;
    and





•
            a current-period operating or
      cash flow loss combined with a history of operating or cash flow losses or
      a projection or forecast that demonstrates continuing losses associated
      with the use of a long-lived
asset.





We review
our portfolio on an on-going basis to evaluate the existence of any of the
aforementioned events or changes in circumstances that would require us to test
for recoverability. In general, our review of recoverability is based on an
estimate of the future undiscounted cash flows, excluding interest charges,
expected to result from the property’s use and eventual disposition. These
estimates consider factors such as expected future operating income, market and
other applicable trends and residual value expected, as well as the effects of
leasing demand, competition and other factors. If impairment exists due to the
inability to recover the carrying value of a property, an impairment loss is
recorded to the extent that the carrying value exceeds the estimated fair value
of the property. We are required to make subjective assessments as to whether
there are impairments in the values of our investments in real estate. These
assessments have a direct impact on our net income because recording an
impairment loss results in an immediate negative adjustment to net
income.





Purchase
Price Allocation





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.


30


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





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





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





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





Comparison
of Three Months Ended March 31, 2010 and 2009





As of
March 31, 2010, we owned 146 properties which are 100% leased, compared to 92
properties which were 100% leased at March 31, 2009, an increase of 58.7%.
Accordingly, our results of operations for the three months ended March 31, 2010
as compared to the three months ended March 31, 2009 reflect significant
increases in most categories.


31


Rental
Income





Rental
income increased $4.5 million to $7.4 million for the three months ended March
31, 2010, compared to $2.9 million for the three months ended March 31, 2009.
The increase in rental income was driven by our acquisition of $255.1 million of
net leased property subsequent to March 31, 2009 with total square footage of
1.8 million. These properties, acquired at an average 8.68% cap rate, with a
remaining lease term of 8.7 to 24.3 years primarily to investment grade
tenants.





Asset
Management Fees to Affiliate





Our
Advisor is entitled to fees for the management of our properties as well as fees
for purchases and sales of properties. The Advisor has elected to waive all
asset management for the three months ended March 31, 2010 and waived all but
$28 thousand for the three months ended March 31, 2009 to improve our working
capital. For the three months ended March 31, 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.





Property
Management Fees to Affiliate





Our
affiliated Property Manager has elected to waive the property management fees
for the three months ended March 31, 2010 and 2009 in order to improve our
working capital. Such fees represent amounts that had they not been waived,
would have been paid to our Property Manager to manage and lease our properties.
For the three months ended March 31, 2010 and 2009, we would have incurred
property management fees of $0.1 million in each period had the fees not been
waived.





Acquisition
and Transaction Related Costs





We
incurred acquisition and transaction related costs of $0.3 million on
acquisitions with a total cost of $81.4 million for the three months ended March
31, 2010. We did not complete any acquisitions in the three months ended March
31, 2009 and therefore no acquisition and transactions costs were recognized
during that period.





General
and Administrative Expenses





General
and administrative expenses increased $0.1 million or 77.8% to $0.2 million for
the three months ended March 31, 2010, compared to $0.1 million for the three
months ended March 31, 2009.  The majority of the general and
administrative expenses for the three months ended March 31, 2010 included $59
thousand of insurance expense, $58 thousand of professional fees, and $45
thousand of taxes. The increase from the three months ended March 31, 2009 is
mainly due to expenses to support our larger real estate portfolio.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased $2.1 million, or 118.8%, to $3.8 million for
the three months ended March 31, 2010, compared to $1.7 million for the three
months ended March 31, 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 $1.2 million, or 49.9% to $3.7 million for the three months
ended March 31, 2010, compared to $2.4 million for the three months ended March
31, 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 March 31, 2010 and 2009 was $225.1 million and $112.5
million, respectively, an increase of 100.1%. We view these secured financing
sources as an efficient and accretive means to acquire
properties.


32


Our
interest expense in future periods will vary based on our level of future
borrowings, which will depend on the level of proceeds raised in the Offering,
the cost of borrowings, and the opportunity to acquire real estate assets which
meet our investment objectives.





Derivative
Instruments





Included
in other income was a loss in the fair value of derivative instruments of $0.2
million for the three months ended March 31, 2010, compared to a gain of $37
thousand for the three months ended March 31, 2009.  These losses and
gains are related to marking our derivative instruments to fair
value.





Gains
on Sales to Noncontrolling Interest Holders, Net





Net gains
on sales to noncontrolling interest holders of $0.3 million for the three months
ended March 31, 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





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 differentiates 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.


33


·
            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 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.





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.





34


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
applicable periods during the three months ended March 31, 2010 and 2009
(amounts in thousands):




Three Months Ended March
31,2010
                
                
                2009Net
      loss
                
                $
                (389
                )
                
                $
                (1,339
                )Add:Depreciation
      of real estate assets
                
                
                3,054
                
                
                
                1,362Amortization
      of intangible lease assets
                
                
                633
                
                
                
                270Fair
      value adjustment (1)
                
                
                158
                
                
                
                (58
                )Noncontrolling interest
      adjustment (2)
                
                
                (148
                )
                
                
                —Gains
      on sales to noncontrolling interest holders, net
                
                
                (335
                )
                
                
                —FFO
                
                
                2,973
                
                
                
                235Acquisition
      and transaction related costs
                
                
                341
                
                
                
                —Modified
      FFO
                
                $
                3,314
                
                
                $
                235Distributions
      paid (3)(4)
                
                $
                3,228
                
                
                $
                220Modified
      FFO coverage ratio
                
                
                102.7
                %
                
                
                106.7
                %Modified
      FFO payout ratio
                
                
                97.4
                %
                
                
                93.7
                %


________________________





(1)
      -
            This
      adjustment represents a non-cash fair value adjustment relating to the use
      of hedging our debt yield. It is the Companies general strategy to fix its
      variable rate debt to mitigate against interest rate volatility. The
      Company excludes this non-cash fair value adjustment relating to its
      hedging activities from its FFO calculation.(2)
      -
            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 Three Months Ended March 31, 2010





During
the three months ended March 31, 2010, net cash provided by operating activities
was $2.0 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 and disbursement of deposits required in connection with property
acquisitions. Prepaid expenses and other assets increased by $1.2 million
principally resulting from the prepayment of $0.4 million of asset management
fees and straight-line rents of $0.4 million during the three months ended March
31, 2010. Deferred rent decreased by $0.2 million and receivables from
affiliates increased $0.1 million.





Net cash
used in investing activities during the three months ended March 31, 2010, was
$81.4 million principally relating to acquisitions completed in the first
quarter of 2010.





Net cash
provided by financing activities totaled approximately $77.1 million during the
three months ended March 31, 2010. Such amount consisted primarily of
approximately $49.5 million from issuance of common stock and the net proceeds
from mortgage notes payable of $41.7 million and contributions from
noncontrolling interest holders of $5.0 million, partially offset by the
repayment of short-term bridge funds of $15.9 million, distributions to common
stockholders of $1.8 million, payments of deferred financing costs of $0.8
million and distributions to noncontrolling interest holders of $0.1
million.





Cash paid
for interest during the three months ended March 31, 2010 was $3.5
million.


35


Cash
Flows for the Three Months Ended March 31, 2009





During
the three months ended March 31, 2009, net cash used in operating activities was
$1.2 million. Prepaid expenses and other assets increased by $0.9 million
principally resulting from the acquisition of $0.6 million of non-real estate
investment furniture and fixtures. Accounts payable and accrued expenses
decreased by $0.2 million, the majority of which relates to professional fees,
accrued interest and finance coordination fees.





Net cash
used in investing activities during the three months ended March 31, 2009, was
$0.2 million, principally relating to prior period acquisition related
costs.





Net cash
provided by financing activities totaled $1.1 million during the three months
ended March 31, 2009. Such amount consisted primarily of net proceeds from
long-term notes payable of $9.4 million and $6.5 million from issuance of common
stock. These amounts were offset by the satisfaction of $8.0 million of
short-term bridge funds and $5.8 million of related party bridge facility funds.
Cash of $0.1 million was used for distributions to shareholders.





Cash paid
for interest during the three months ended March 31, 2010 was $2.5
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 form the sale
of common stock.  Management expects that in the future, as our
portfolio grows, our properties will generate sufficient cash flow to cover
operating expenses and the payment of a monthly distribution. Other potential
future sources of capital include proceeds from secured or unsecured financings
from banks or other lenders, proceeds from private offerings, proceeds from the
sale of properties and undistributed funds from operations.





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 March 31, 2010, we
issued 20,558,974 shares of common stock, including shares issued under our DRIP
and 339,077 shares issued in connection with an acquisition in March 2008. Total
gross proceeds from these issuances were $203.2 million. As of March 31, 2010,
the aggregate value of all share issuances and subscriptions outstanding was
$205.4 million based on a per share value of $10.00 (or $9.50 per share for
shares issued under the DRIP). As of March 31, 2010 an additional 129,740,415
shares were available for issuance under the current registration statement and
an additional 24,700,611 shares were available to be issued under the DRIP. We
will continue to offer these shares until January 25, 2011, when our current
registration statement expires.





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.


36


Distributions





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





In
February 2008, the board of directors declared a distribution for each monthly
period commencing 30 days subsequent to acquiring our initial portfolio of real
estate investments. The first monthly distribution was paid in April 2008. The
distribution is calculated based on stockholders of record each day during the
applicable period at a rate that, if paid each day for a 365-day period, would
equal a specified annualized rate based on a share price of $10.00. The initial
annualized rate was 6.5% annualized rate based on the share price of $10.00. On
November 5, 2008, the board of directors of approved an increase in its annual
cash distribution from $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 will increase by another 30 basis points, resulting in an
annualized distribution rate of 7.0%.





The
Company, our board of directors and Advisor share a similar philosophy with
respect to paying our distribution. The distribution should principally be
derived from cash flows generated from real estate operations. During the three
months ended March 31, 2010 and 2009, distributions paid totaled $3.2 million
and $0.4 million, respectively, inclusive of $1.4 million and $0.1 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 of $0.9 million and $0.1 million,
respectively, for the three months ended March 31, 2010 and $0.7 million and
$0.1 million, respectively, for the three months ended March 31, 2009. The fees
that were waived relating to the activity during the three months ended March
31, 2010 and 2009 are not deferrals and accordingly, will not be paid by the
Company. As our real estate portfolio grows, 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 waiving
fees and may charge the full fee owed to it in accordance with our agreements
with the Advisor.





Loan
Obligations





The
payment terms of our loan obligations vary. In general, principal and
interest are payable monthly with all unpaid principal and interest due at
maturity. Certain of our mortgage loans have initial payments of interest only
but require principal repayment in subsequent years. Some of our loan agreements
stipulate that we comply with specific reporting and financial covenants mainly
related to debt coverage ratios and loan to value ratios. Each loan that
has these requirements has specific ratio thresholds that must be met. As of
March 31, 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 54.8% (secured mortgage notes payable as a
percentage of total real estate investments, at cost) as of March 31,
2010.


37


In
addition as of March 31, 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.





Other
Obligations





Our board
of directors has adopted a SRP that enables our stockholders to sell their
shares to us under limited circumstances. At the time a shareholder requests
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 March 31, 2010 we have had requests to repurchase a total
of 3,000 shares at a value of $29 thousand.





As of
March 31, 2010, we had cash and cash equivalents of $2.8 million, which we
expect to be used primarily to invest in additional real estate, pay operating
expenses and pay stockholder distributions.





Contractual
Obligations





The
following is a summary of our contractual obligations as of March 31, 2010 (in
thousands):




As of March 31, 2010,Principal
      Payments Due:
              
              Total
              
              
              Less Than
                One Year
              
              
              1-3 Years
              
              
              3-5 Years
              
              
              ThereafterMortgage
      notes payable
              
              $
              225,118
              
              
              $
              2,273
              
              
              $
              19,969
              
              
              $
              115,726
              
              
              $
              87,150Other
      notes payable
              
              
              13,000
              
              
              
              —
              
              
              
              13,000
              
              
              
              —
              
              
              
              —Purchase
      obligations (1)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —$
              238,118
              
              
              $
              2,273
              
              
              $
              32,969
              
              
              $
              115,726
              
              
              $
              87,150





Interest
      Payments Due:Mortgage
      notes payable
              
              $
              77,170
              
              
              $
              11,979
              
              
              $
              23,616
              
              
              $
              16,418
              
              
              $
              25,157Other
      notes payable
              
              
              2,060
              
              
              
              1,175
              
              
              
              885
              
              
              
              —
              
              
              
              —Purchase
      obligations (1)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —$
              79,230
              
              
              $
              13,154
              
              
              $
              24,501
              
              
              $
              16,418
              
              
              $
              25,157


_______________





(1)
            Subsequent to March 31, 2010, we
      acquired a Jack in the Box property, a FedEx Distribution facility and
      three Jared Jewelers. 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
three months ended March 31, 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.


38


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
March 31, 2010, our debt included fixed-rate debt with a carrying value of
$131.6 million and a fair value of $127.8 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 March 31,
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 $9.1 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 $12.8 million.





As of
March 31, 2010, our debt included variable-rate mortgage notes payable with a
carrying value of $90.5 million. Interest rate volatility associated with this
variable-rate mortgage debt has been mitigated by the use of hedge instruments.
The sensitivity analysis related to our variable-rate debt assumes an immediate
100 basis point move in interest rates from their March 31, 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.





As the
information presented above includes only those exposures that existed as of
March 31, 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.


39


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





Item
4T. Controls and Procedures





In
accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), we, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act)
as of the end of the period covered by this Quarterly Report on Form 10-Q 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
March 31, 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.


40


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 (Principal Executive Officer)By:
                
                /s/ Brian S. BlockBrian
      S. BlockExecutive  Vice
      President, Chief Financial Officer
                  (Principal
      Accounting Officer)





Date: May
7, 2010











41








EXHIBIT
INDEX





The
following exhibits are included, or incorporated by reference, in this Quarterly
Report on Form 10-Q for the quarter ended March 31, 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).





42