UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)


x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934For
      the quarterly period ended September 30, 2009ORo
            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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





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





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





The
number of outstanding shares of the registrant’s common stock on November 12,
2009 was 11,467,433
shares.







AMERICAN
REALTY CAPITAL TRUST, INC.


INDEX




PART
      I — FINANCIAL INFORMATIONItem 1.
      Financial StatementsConsolidated
      Balance Sheets as of September 30, 2009 (Unaudited) and December 31,
      2008
            3Consolidated
      Statements of Operations for the three months and nine months ended
      September 30, 2009 and 2008 (Unaudited)
            4Consolidated
      Statement of Stockholders’ Equity for the nine months ended September 30,
      2009 (Unaudited)
            5Consolidated
      Statements of Cash Flows for the Nine months ended September 30, 2009 and
      2008 (Unaudited)
            6Notes
      to Consolidated Financial Statements (Unaudited)
            8Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
            31Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
            45Item 4T.
      Controls and Procedures
            45PART
      II — OTHER INFORMATION
            46Item 1.
      Legal Proceedings
            46Item
      1A. Risk Factors
            46Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
            46Item 3.
      Defaults Upon Senior Securities
            46Item 4.
      Submission of Matters to a Vote of Security Holders
            46Item 5.
      Other Information
            47Item 6.
      Exhibits
            47Signatures
            48










2


PART
I - Financial Information


Item
1. Financial Statements


AMERICAN REALTY CAPITAL
TRUST, INC.


CONSOLIDATED
BALANCE SHEETS


September 30,
                2009
              
              December 31,
                2008(Unaudited)ASSETSReal
      estate investments, at cost:Land
              
              $
              30,610,286
              
              
              $
              22,300,422Buildings,
      fixtures and improvements
              
              
              184,527,739
              
              
              
              126,022,191Acquired
      intangible lease assets
              
              
              25,953,668
              
              
              
              16,448,018Total
      real estate investments, at cost
              
              
              241,091,693
              
              
              
              164,770,631Less
      accumulated depreciation and amortization
              
              
              (8,540,170
              )
              
              
              (3,056,449
              )Total real estate investments, net
              
              
              232,551,523
              
              
              
              161,714,182Cash
              
              
              8,697,197
              
              
              
              886,868Restricted
      cash
              
              
              38,025
              
              
              
              47,937Prepaid
      expenses and other assets
              
              
              3,072,306
              
              
              
              302,472Deferred
      financing costs, net
              
              
              2,621,673
              
              
              
              1,990,992Total
      assets
              
              $
              246,980,724
              
              
              $
              164,942,451





LIABILITIES AND STOCKHOLDERS’
      EQUITYShort-term
      bridge equity funds:Short-term
      bridge funds
              
              $
              15,878,495
              
              
              $
              11,953,796Related
      party bridge facility
              
              
              —
              
              
              
              8,477,163Related
      party convertible bridge revolver
              
              
              —
              
              
              
              6,500,000Short-term
      convertible redeemable preferred
              
              
              —
              
              
              
              3,995,000Total
      short-term bridge equity funds
              
              
              15,878,495
              
              
              
              30,925,959Mortgage
      notes payable
              
              
              137,309,568
              
              
              
              112,741,810Long-term
      notes payable
              
              
              13,000,000
              
              
              
              1,089,500Below-market
      lease liabilities, net
              
              
              9,163,975
              
              
              
              9,400,293Derivatives,
      at fair value
              
              
              3,173,358
              
              
              
              4,232,865Due
      to affiliates
              
              
              209,574
              
              
              
              2,223,144Accounts
      payable and accrued expenses
              
              
              919,389
              
              
              
              1,687,932Deferred
      rent and other liabilities
              
              
              1,079,241
              
              
              
              781,538Distributions
      payable
              
              
              455,148
              
              
              
              69,263Investor
      contributions held in escrow
              
              
              —
              
              
              
              30,824Total
      liabilities
              
              
              181,188,748
              
              
              
              163,183,128Preferred
      stock, $0.01 par value; 10,000,000 shares authorized, none issued and
      outstanding
              
              
              —
              
              
              
              —Common
      stock, $.01 par value; 240,000,000 shares authorized, 9,086,143 and
      1,276,814 shares issued and outstanding at September 30, 2009 and December
      31, 2008, respectively
              
              
              90,861
              
              
              
              12,768Additional
      paid-in capital
              
              
              74,871,263
              
              
              
              9,219,901Accumulated
      other comprehensive loss
              
              
              (2,003,944
              )
              
              
              (2,675,515
              )Accumulated
      deficit
              
              
              (10,193,109
              )
              
              
              (4,797,831
              )Total
      American Realty Capital Trust, Inc. stockholders’ equity
              
              
              62,765,071
              
              
              
              1,759,323Noncontrolling
      interests
              
              
              3,026,905
              
              
              
              —Total
      stockholders’ equity
              
              
              65,791,976
              
              
              
              1,759,323Total
      liabilities and stockholders’ equity
              
              $
              246,980,724
              
              
              $
              164,942,451




The accompanying
notes are an integral part of these financial statements


3


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)




Three Months Ended September
      30,
              
              
              Nine Months Ended September
    30,2009
              
              
              2008
              
              
              2009
              
              
              2008Revenues:Rental
      income
              
              $
              3,773,998
              
              
              $
              1,593,871
              
              
              $
              9,636,008
              
              
              $
              3,156,379Operating
      expense reimbursement
              
              
              6,928
              
              
              
              —
              
              
              
              6,928
              
              
              
              —Total
      revenues
              
              
              3,780,926
              
              
              
              1,593,871
              
              
              
              9,642,936
              
              
              
              3,156,379Operating
      expenses:Asset
      management fees to affiliate
              
              
              70,000
              
              
              
              —
              
              
              
              70,000
              
              
              
              —Property
      management fees to affiliate
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,230Acquisition
      and transaction related
              
              
              347,036
              
              
              
              —
              
              
              
              347,036
              
              
              
              —General
      and administrative
              
              
              109,505
              
              
              
              19,188
              
              
              
              307,114
              
              
              
              291,787Depreciation
      and amortization
              
              
              2,083,919
              
              
              
              857,187
              
              
              
              5,543,738
              
              
              
              1,765,149Total
      operating expenses
              
              
              2,610,460
              
              
              
              876,375
              
              
              
              6,267,888
              
              
              
              2,061,166Operating
      income
              
              
              1,170,466
              
              
              
              717,496
              
              
              
              3,375,048
              
              
              
              1,095,213Other
      income (expense):Interest
      expense
              
              
              (2,522,122
              )
              
              
              (1,386,655
              )
              
              
              (7,292,251
              )
              
              
              (2,758,625
              )Interest
      income
              
              
              17,646
              
              
              
              691
              
              
              
              22,623
              
              
              
              1,907Gains
      (losses) on derivative instruments
              
              
              (195,054
              )
              
              
              (176,656
              )
              
              
              353,912
              
              
              
              20,160Total
      other expenses
              
              
              (2,699,530
              )
              
              
              (1,562,620
              )
              
              
              (6,915,716
              )
              
              
              (2,736,558
              )Net
      loss
              
              
              (1,529,064
              )
              
              
              (845,124
              )
              
              
              (3,540,668
              )
              
              
              (1,641,345
              )Net
      loss attributable to noncontrolling interests
              
              
              45,052
              
              
              
              —
              
              
              
              45,052
              
              
              
              —Net
      loss attributable to American Realty Capital Trust, Inc.
              
              $
              (1,484,012
              )
              
              $
              (845,124
              )
              
              $
              (3,495,616
              )
              
              $
              (1,641,345
              )Basic
      and diluted weighted averagecommon
      shares outstanding
              
              
              6,639,111
              
              
              
              1,101,127
              
              
              
              3,791,302
              
              
              
              699,883Basic
      and diluted loss per share attributable to American Realty Capital Trust,
      Inc.
              
              $
              (0.22
              )
              
              $
              (0.77
              )
              
              $
              (0.92
              )
              
              $
              (2.35
              )








The accompanying
notes are an integral part of these financial statements







4


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


NINE
MONTHS ENDED SEPTEMBER 30, 2009


(Unaudited)





Common StockNumber of
                    Shares
                  
                  
                  Par Value
                  
                  
                  Additional
                    Paid-In Capital
                  
                  
                  Accumulated
                    Other
                    Comprehensive
                    Loss
                  
                  
                  Accumulated
                    Deficit
                  
                  
                  Noncontrolling
                    Interests
                  
                  
                  Total
                    Stockholders’
                    EquityBalance,
      December 31, 2008
                  
                  
                  1,276,814
                  
                  
                  $
                  12,768
                  
                  
                  $
                  9,219,901
                  
                  
                  $
                  (2,675,515
                  )
                  
                  $
                  (4,797,831
                  )
                  
                  $
                  —
                  
                  
                  $
                  1,759,323Issuance
      of common stock
                  
                  
                  7,746,899
                  
                  
                  
                  77,470
                  
                  
                  
                  76,822,471
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  76,899,941Offering
      costs, commissions and dealer manager fees
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (11,763,964
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (11,763,964
                  )Common
      stock issued through distribution reinvestment program
                  
                  
                  62,430
                  
                  
                  
                  623
                  
                  
                  
                  592,855
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  593,478Distributions
      declared
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,899,662
                  )
                  
                  
                  —
                  
                  
                  
                  (1,899,662
                  )Contributions
      from noncontrolling interests
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,107,879
                  
                  
                  
                  3,107,879Distributions
      to noncontrolling interests
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (35,922
                  )
                  
                  
                  (35,922
                  )Designated
      derivatives fair value adjustment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  671,571
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  671,571Net
      loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (3,495,616
                  )
                  
                  
                  (45,052
                  )
                  
                  
                  (3,540,668
                  )Total
      comprehensive loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (2,869,097
                  )Balance,
      September 30, 2009
                  
                  
                  9,086,143
                  
                  
                  $
                  90,861
                  
                  
                  $
                  74,871,263
                  
                  
                  $
                  (2,003,944
                  )
                  
                  $
                  (10,193,109
                  )
                  
                  $
                  3,026,905
                  
                  
                  $
                  65,791,976










The accompanying
notes are an integral part of these financial statements


5


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)




Nine Months Ended September
    30,2009
                              
                              
                              2008Cash
      flows from operating activities:Net
      loss
                              
                              $
                              (3,540,668
                              )
                              
                              $
                              (1,641,345
                              )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
                              
                              
                              4,412,435
                              
                              
                              
                              1,477,951Amortization
      of intangibles
                              
                              
                              1,131,303
                              
                              
                              
                              287,198Amortization
      of deferred finance costs
                              
                              
                              418,457
                              
                              
                              
                              72,761Accretion
      of below-market lease liability
                              
                              
                              (236,318
                              )
                              
                              
                              —Gains on
      derivative instruments
                              
                              
                              (353,912
                              )
                              
                              
                              (20,160
                              )Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                              
                              
                              (2,829,853
                              )
                              
                              
                              (751,274
                              )Accounts
      payable and accrued expenses
                              
                              
                              (802,566
                              )
                              
                              
                              1,312,062Due
      to affiliated entity
                              
                              
                              (2,013,570
                              )
                              
                              
                              —Deferred
      rent and other liabilities
                              
                              
                              297,703
                              
                              
                              
                              554,124Net
      cash (used in) provided by operating activities
                              
                              
                              (3,516,989
                              )
                              
                              
                              1,291,317Cash
      flows from investing activities:Investment
      in real estate and other assets
                              
                              
                              (76,321,062
                              )
                              
                              
                              (49,067,597
                              )Net
      cash used in investing activities
                              
                              
                              (76,321,062
                              )
                              
                              
                              (49,067,597
                              )Cash
      flows from financing activities:Proceeds
      on mortgage notes payable
                              
                              
                              25,300,000
                              
                              
                              
                              26,475,000Payments
      on mortgage notes payable
                              
                              
                              (732,242
                              )
                              
                              
                              (181,065
                              )Proceeds
      on related party bridge facility
                              
                              
                              9,553,172
                              
                              
                              
                              7,147,587Payments
      on related party bridge facility
                              
                              
                              (18,030,335
                              )
                              
                              
                              —Proceeds
      on related party convertible bridge revolver
                              
                              
                              2,714,946
                              
                              
                              
                              6,500,000Payments
      on related party convertible bridge revolver
                              
                              
                              (9,214,946
                              )
                              
                              
                              —Proceeds
      on short-term bridge funds
                              
                              
                              15,878,495
                              
                              
                              
                              —Payments
      on short-term bridge funds
                              
                              
                              (11,953,796
                              )
                              
                              
                              —Proceeds
      on short-term convertible redeemable preferred
                              
                              
                              —
                              
                              
                              
                              3,995,000Payments
      on short-term convertible redeemable preferred
                              
                              
                              (3,995,000
                              )
                              
                              
                              —Proceeds
      from long-term notes payable
                              
                              
                              11,910,500
                              
                              
                              
                              —Contributions
      from noncontrolling interests
                              
                              
                              3,107,879
                              
                              
                              
                              —Distributions
      to noncontrolling interests
                              
                              
                              (35,922
                              )
                              
                              
                              —Proceeds
      from issuance of common stock, net
                              
                              
                              65,105,154
                              
                              
                              
                              5,980,149Payments
      of deferred financing costs
                              
                              
                              (1,049,137
                              )
                              
                              
                              (1,047,541
                              )Distributions
      paid
                              
                              
                              (920,300
                              )
                              
                              
                              (167,957
                              )Restricted
      cash
                              
                              
                              9,912
                              
                              
                              
                              (50,232
                              )Net
      cash provided by financing activities
                              
                              
                              87,648,380
                              
                              
                              
                              48,650,941Net
      increase in cash
                              
                              
                              7,810,329
                              
                              
                              
                              874,661Cash,
      beginning of period
                              
                              
                              886,868
                              
                              
                              
                              —Cash,
      end of period
                              
                              $
                              8,697,197
                              
                              
                              $
                              874,661


6


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)


(Unaudited)





Nine Months Ended September
    30,2009
              
              
              
              2008Supplemental
      Disclosures of Investing and Financing Activities:Debt
      assumed in real estate acquisitions
              
              $
              —
              
              
              $
              54,727,061Common
      share issuance in real estate acquisition
              
              $
              —
              
              
              $
              3,051,695Investor
      contributions held in escrow
              
              $
              —
              
              
              $
              30,824Non-cash
      acquisition costs
              
              $
              —
              
              
              $
              42,118Reclassification
      of deferred offering costs
              
              $
              —
              
              
              $
              938,157Cash
      paid for interest
              
              $
              7,418,057
              
              
              $
              2,344,825





The accompanying
notes are an integral part of these financial statements






7


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
1 — Organization





American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a Maryland corporation that qualified as a real estate investment trust (“REIT”)
for federal income tax purposes during the taxable year ended December 31, 2008.
On January 25, 2008, the Company commenced an initial public offering on a
“best efforts” basis of up to 150,000,000 shares of common stock offered at
a price of $10.00 per share, subject to certain volume and other discounts,
pursuant to a Registration Statement on Form S-11 filed with the Securities
and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended
(the “Offering”). The Registration Statement also covered up to
25,000,000 shares available pursuant to a distribution reinvestment plan
(the “DRIP”) under which our stockholders may elect to have their distributions
reinvested in additional shares of the Company’s common stock at the greater of
$9.50 per share or 95% of the estimated value of a share of common stock.
The Company sold 20,000 shares to American Realty Capital II, LLC (the
“Sponsor”) on August 17, 2007, at $10.00 per share. As of September 30, 2009,
the Company issued 9,086,143 shares of common stock, including 339,077 shares
issued in connection with an acquisition in March 2008. Total gross proceeds
from these issuances were $89,213,532. As of September 30, 2009, the aggregate
value of all share issuances and subscriptions outstanding was $90,822,339 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% (minority
interest) of the partnership interests of the OP. In March 2008, the OP issued
to the Company 20,000 Operating Partnership units in exchange for $200,000.
Additionally, in April 2008, the Advisor contributed $2,000 to the Operating
Partnership in exchange for a 0.99% limited partner interest in the Operating
Partnership. The limited partner interests have the right to convert Operating
Partnerships units into cash or, at the option of the Company, an equal number
of common shares of the Company, as allowed by the limited partnership
agreement. The remaining rights of the limited partner interests are limited,
however, and do not include the ability to replace the general partner or to
approve the sale, purchase or refinancing of the Operating Partnership’s
assets.





The
Company acquires and operates commercial properties. All such properties may be
acquired and operated by the Company alone or jointly with another party. As of
September 30, 2009, the Company owned 104 properties comprising approximately
1,012,000 square feet of freestanding, single tenant commercial space. As of
September 30, 2009, these properties were 100% occupied.  The
following table lists tenants whose rental income represented greater than 10%
of consolidated income for the nine months ended September 30, 2009 and
2008:





Nine Months Ended September
    30,2009
              
              2008Harleysville
      National Bank
              27%
              
              53%Rockland
      Trust Company
              22%
              
              33%PNC
      Bank
              21%
              
              -%Federal
      Express
              14%
              
              13%Rite
      Aid
              13%
              
              -%




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





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







8


REALTY
CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
1 — Organization (continued)





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.








Note
2 — Summary of Significant Accounting Policies





Basis
of Presentation





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) have been condensed or consolidated pursuant
to the rules and regulations of the Securities and Exchange Commission.
Management believes, however, that the disclosures are adequate to make the
information presented not misleading. The unaudited interim consolidated
financial statements should be read in conjunction with the audited financial
statements and the notes thereto included in the Company’s annual report on Form
10-K for the year ended December 31, 2008. In management’s opinion, all
adjustments necessary to present fairly the consolidated financial position of
the Company and the consolidated results of its operations and its cash flows,
have been included in these consolidated interim financial statements. The
results of operations for such interim periods are not necessarily indicative of
the results for the full year.





Basis
of Accounting





The
accompanying consolidated financial statements of the Company are prepared on
the accrual basis of accounting in accordance with GAAP.





Principles
of Consolidation and Basis of Presentation





The
consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries, the OP and companies for which the Company holds
a primary beneficiary interest. Substantially all of the Company’s business
activities are conducted through this subsidiary. The OP consolidates various
special purpose entities which hold interests in real estate investments. All
significant intercompany accounts and transactions have been eliminated in
consolidation.





Noncontrolling
Interests




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





Use
of Estimates





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





9





REALTY
CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
2 — Summary of Significant Accounting Policies (continued)





Real
Estate Investments





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





Impairment
of Long Lived Assets





The
Company establishes a single accounting model for the impairment or disposal of
long-lived assets. Operations related to properties that have been sold or
properties that are intended to be sold are presented as discontinued operations
in the statement of operations for all periods presented, and properties
intended to be sold are designated as “held for sale” on the balance
sheet.





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





Allocation of
Purchase Price of Acquired Assets





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





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





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





10








REALTY
CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
2 — Summary of Significant Accounting Policies (continued)





The
determination of the fair values of the assets and liabilities acquired requires
the use of significant assumptions with regard to the current market rental
rates, rental growth rates, discount rates and other variables. The use of
inappropriate estimates would result in an incorrect assessment of the purchase
price allocations, which could impact the amount of the Company’s reported net
income. Initial purchase price allocations are subject to change until all
information is finalized, which is generally within one year of the acquisition
date.





As of
September 30, 2009 and December 31, 2008, acquired lease intangible assets
consisted of above-market leases and in-place lease intangibles totaling
$25,953,668 and $16,448,018, with accumulated amortization of $1,653,358 and
$522,056, as of September 30, 2009 and December 31, 2008, respectively. The
estimated amortization expense for the remainder of 2009 will be approximately
$481,000 and $1,922,000 for the years 2010, 2011, 2012 and 2013. In addition,
below-market lease liabilities totaled $9,426,551 at September 30, 2009 and
December 31, 2008, with accumulated amortization of $262,576 and $26,258 as of
September 30, 2009 and December 31, 2008, respectively. The estimated accretion
to rental income for the remainder of 2009 will be approximately $79,000 and
$315,000 for the years 2010, 2011, 2012 and 2013.





Derivative
Instruments





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





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





Investor
contributions held in Escrow





The
Company is currently engaged in a public offering of its common stock. As of
September 30, 2009, there are no offering proceeds for which shares of common
stock had not been issued.




Revenue
Recognition





Upon the
acquisition of real estate, certain properties will have leases where minimum
rent payments increase during the term of the lease. The Company will record
rental revenue for the full term of each lease on a straight-line basis. When
the Company acquires a property, the term of existing leases is considered to
commence as of the acquisition date for the purposes of this calculation. Cost
recoveries from tenants are included in tenant reimbursement income in the
period the related costs are incurred, as applicable.




11





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
2 — Summary of Significant Accounting Policies (continued)





The
Company’s revenues, which are derived primarily from rental income, include
rents that each tenant pays in accordance with the terms of each lease reported
on a straight-line basis over the initial term of the lease. Since many of the
leases provide for rental increases at specified intervals, straight-line basis
accounting requires the Company to record a receivable, and include in revenues,
unbilled rent receivables that the Company will only receive if the tenant makes
all rent payments required through the expiration of the initial term of the
lease. The Company defers the revenue related to lease payments received from
tenants in advance of their due dates.





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





Organization,
Offering, and Related Costs





Organization
and offering costs (other than selling commissions and the dealer manager fee)
of the Company may be paid by the Advisor, the Dealer Manager or their
affiliates on behalf of the Company. Such organization and offering costs
include all expenses to be paid by the Company in connection with the Offering,
including but not limited to (i) legal, accounting, printing, mailing, and
filing fees; (ii) escrow related fees; (iii) reimbursement of the Dealer Manager
for amounts it may pay to reimburse the bona fide diligence expenses of
broker-dealers; and (iv) reimbursement to the Advisor for the salaries of its
employees and other costs in connection with preparing supplemental sales
materials and related Offering activities. Pursuant to the Advisory Agreement
and the Dealer Manager Agreement, the Company is obligated to reimburse the
Advisor or its affiliates, as applicable, for organization and offering costs
paid by them on behalf of the Company, provided that the Advisor is obligated to
reimburse the Company to the extent organization and offering costs (excluding
selling commissions, the dealer manager fee and bonafide due diligence cost
reimbursements) incurred by the Company in the Offering exceed 1.5% of gross
offering proceeds. As a result, these costs are only a liability of the Company
to the extent selling commissions, the dealer manager fee and other organization
and offering costs do not exceed 15% of the gross proceeds of this Offering –
See Note 10 – Related Party Transactions and Arrangements.





Reportable
Segments





The
Company determined in accordance with standards set by the Financial Accounting
Standards Board (“FASB”), that it has one reportable segment, with activities
related to investing in real estate. The Company’s investments in real estate
generate rental revenue and other income through the leasing of properties,
which comprised 100% of our total consolidated revenues for the three and
nine-month periods ended September 30, 2009 and 2008. Although the Company’s
investments in real estate will be geographically diversified throughout the
United States, management evaluates operating performance on an individual
property level. The Company’s properties have been aggregated into one
reportable segment.


12


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
2 — Summary of Significant Accounting Policies (continued)





Recent
Accounting Pronouncements





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




In
December 2007, the FASB issued guidance that requires companies to measure an
acquisition of noncontrolling (minority) interest at fair value in the equity
section of the acquiring entity’s balance sheet. The objective of the guidance
is to improve the comparability and transparency of financial data as well as to
help prevent manipulation of earnings. The changes introduced by the new
standards are likely to affect the planning and execution, as well as the
accounting and disclosure, of merger transactions. The effective date to adopt
the guidance for the Company was January 1, 2009. The adoption of the
guidance did not have a material effect on the Company’s results of
operations and financial position.





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





In
April 2008, the FASB issued guidance that amends the factors that must be
considered in developing renewal or extension assumptions used to determine the
useful life over which to amortize the cost of a recognized intangible asset.
The guidance requires an entity to consider its own assumptions about renewal or
extension of the term of the arrangement, consistent with its expected use of
the asset, and is an attempt to improve consistency between the useful life of a
recognized intangible asset and the period of expected cash flows used to
measure the fair value of the asset. The guidance was effective for fiscal years
beginning after December 15, 2008, and the guidance for determining the
useful life of a recognized intangible asset must be applied prospectively to
intangible assets acquired after the effective date. The adoption of the
guidance did not have a significant impact on the Company’s results of
operations or financial position.




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





13


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)




Note
2 — Summary of Significant Accounting Policies (continued)




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




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




In May 2009, the FASB issued guidance on
subsequent events that establishes accounting standards for recognition and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. These standards are essentially similar to
current accounting principles with few exceptions that do not result in a change
in general practice. This guidance was effective on a prospective basis for
interim or annual financial periods ending after June 15, 2009. The Company
adopted this pronouncement effective June 30, 2009.The adoption of this guidance
hadnoimpact on the Company’s results of
operations or financial
position.




In June 2009, the FASB issued guidance
requiring that the FASB Accounting Standards Codification become the source of
authoritative U.S. GAAP recognized by the FASB to be applied to nongovernmental
entities. This guidance was effective for financial statements issued for
interim periods and annual periods ending after September 15, 2009. The adoption
of this guidance had no material impact on the Company’s financial statements or
disclosures.





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





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





14


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
3 — Real Estate Acquisitions





During
the three and nine months ended September 30, 2009, the Company acquired 12
properties in three separate transactions. The following table presents the
allocation of the assets acquired and liabilities assumed during the periods
indicated:





Three
      and Nine
                      Months
      Ended
                      September
      30,
                    
                    
                    Three
      Months
                      Ended
                      September
      30,
                    
                    
                    Nine
      Months
                      Ended
                      September
      30,2009
                    
                    
                    2008
                    
                    
                    2008Real
      estate investments, at cost:Land
                    
                    $
                    8,332,062
                    
                    
                    $
                    2,991,519
                    
                    
                    $
                    14,633,064Buildings,
      fixtures and improvements
                    
                    
                    58,483,349
                    
                    
                    
                    16,951,939
                    
                    
                    
                    82,842,99266,815,412
                    
                    
                    
                    19,943,458
                    
                    
                    
                    97,476,056Intangibles
      and other assets:In-place
      leases
                    
                    
                    9,505,651
                    
                    
                    
                    1,980,324
                    
                    
                    
                    9,443,239Total
      assets acquired
                    
                    
                    76,321,062
                    
                    
                    
                    21,923,782
                    
                    
                    
                    106,919,295Liabilities
      assumed:Mortgage
      notes
                    
                    
                    —
                    
                    
                    
                    (12,808,265
                    )
                    
                    
                    (50,773,265
                    )Mezzanine
      financing
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (3,953,796
                    )Investor
      contributions held in escrow
                    
                    
                    —
                    
                    
                    
                    441,724
                    
                    
                    
                    (30,824
                    )Other
      liabilities
                    
                    
                    —
                    
                    
                    
                    34,182
                    
                    
                    
                    (42,118
                    )Total
      liabilities assumed
                    
                    
                    —
                    
                    
                    
                    (12,332,359
                    )
                    
                    
                    (54,800,003
                    )Issuance
      of common shares
                    
                    
                    —
                    
                    
                    
                    (441,724
                    )
                    
                    
                    (3,051,695
                    )Cash
      paid
                    
                    $
                    76,321,062
                    
                    
                    $
                    9,149,699
                    
                    
                    $
                    49,067,597





15





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
3 — Real Estate Acquisitions (continued)





The
following table represents the Company’s real estate portfolio as of September
30, 2009:







Seller / Property Name
                                                  
                                                  Acquisition Date
                                                  
                                                  No. of
                                                    Buildings
                                                  
                                                  Square Feet
                                                  
                                                  Remaining
                                                    Lease Term (1)
                                                  
                                                  Base Purchase
                                                    Price (2)
                                                  
                                                  Capitalization
                                                    Rate (3)
                                                  
                                                  Total Purchase Price (4)
                                                  
                                                  Net Operating
                                                    Income (5)Federal
      Express Distribution Center
                                                  
                                                  March
      2008
                                                  
                                                  1
                                                  
                                                  55,440
                                                  
                                                  9.17
                                                  
                                                  $
                                                  9,694,179
                                                  
                                                  7.53%
                                                  
                                                  $
                                                  10,207,674
                                                  
                                                  $
                                                  730,065Harleysville
      National Bank Portfolio
                                                  
                                                  March
      2008
                                                  
                                                  15
                                                  
                                                  177,774
                                                  
                                                  13.26
                                                  
                                                  
                                                  40,976,218
                                                  
                                                  7.48%
                                                  
                                                  
                                                  41,675,721
                                                  
                                                  
                                                  3,063,912Rockland
      Trust Company Portfolio
                                                  
                                                  May
      2008
                                                  
                                                  18
                                                  
                                                  121,057
                                                  
                                                  11.84
                                                  
                                                  
                                                  32,188,000
                                                  
                                                  7.86%
                                                  
                                                  
                                                  33,117,419
                                                  
                                                  
                                                  2,529,665PNC
      Bank (formally National City Bank)
                                                  
                                                  Sept. & Oct. 2008
                                                  
                                                  2
                                                  
                                                  8,403
                                                  
                                                  19.39
                                                  
                                                  
                                                  6,663,786
                                                  
                                                  8.21%
                                                  
                                                  
                                                  6,853,419
                                                  
                                                  
                                                  546,943Rite
      Aid Portfolio
                                                  
                                                  September
      2008
                                                  
                                                  6
                                                  
                                                  74,919
                                                  
                                                  13.79
                                                  
                                                  
                                                  18,575,727
                                                  
                                                  7.79%
                                                  
                                                  
                                                  18,839,392
                                                  
                                                  
                                                  1,446,843PNC
      Bank Portfolio
                                                  
                                                  November
      2008
                                                  
                                                  50
                                                  
                                                  275,436
                                                  
                                                  9.17
                                                  
                                                  
                                                  42,285,714
                                                  
                                                  7.35%
                                                  
                                                  
                                                  44,813,074
                                                  
                                                  
                                                  3,107,754Federal
      Express Distribution Center
                                                  
                                                  July
      2009
                                                  
                                                  1
                                                  
                                                  152,640
                                                  
                                                  14.05
                                                  
                                                  
                                                  31,691,989
                                                  
                                                  8.84%
                                                  
                                                  
                                                  31,691,989
                                                  
                                                  
                                                  2,803,044Walgreens
      Property
                                                  
                                                  July
      2009
                                                  
                                                  1
                                                  
                                                  14,820
                                                  
                                                  22.76
                                                  
                                                  
                                                  3,817,733
                                                  
                                                  8.12%
                                                  
                                                  
                                                  3,817,733
                                                  
                                                  
                                                  310,000CVS
      Pharmacy Portfolio
                                                  
                                                  September
      2009
                                                  
                                                  10
                                                  
                                                  131,105
                                                  
                                                  24.55
                                                  
                                                  
                                                  40,648,721
                                                  
                                                  8.48%
                                                  
                                                  
                                                  40,648,721
                                                  
                                                  
                                                  3,448,362Total
                                                  
                                                  
                                                  
                                                  104
                                                  
                                                  1,011,594
                                                  
                                                  14.56
                                                  
                                                  $
                                                  226,542,067
                                                  
                                                  7.94%
                                                  
                                                  $
                                                  231,665,142
                                                  
                                                  $
                                                  17,986,588


________________________


(1) -
            Remaining lease term as of
      September 30, 2009, in years. If the portfolio has multiple locations with
      varying lease expirations, the remaining lease term is calculated on
      a weighted-average basis.


(2) -
            Contract purchase price excluding
      acquisition related costs.


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


(4) -
            Base purchase price plus all
      capitalized acquisition related costs, as applicable. See Note 2 - Recent
      Accounting Pronouncements in regards to recent changes to accounting
      for acquisition and transaction related costs effective January 1,
      2009.


(5) -
            Annualized 2009 rental income less
      property operating expenses, as
  applicable.





In
July 2009, the Company acquired a distribution facility leased to Federal
Express Corp located in Houston, TX. In connection with the purchase, the
Company funded a portion of the transaction with a short-term bridge facility of
$15,878,495, which bears interest at the greater of the Prime rate plus 0.75% or
5.75%. This facility requires interest payments monthly until July 2010, with
the remaining principal balance due. The outstanding balance under this
short-term credit facility can be repaid in whole or in part at any time during
this one-year period without penalty.  In addition, the Company
borrowed $9,553,172 from its related party bridge facility. See Note 10 –
Related Party Transactions and Arrangements. These funds were repaid prior to
September 30, 2009. The Company also funded a portion of the acquisition with
$2,714,946 under its related party convertible bridge revolver. These funds were
repaid in August 2009. The lease expires in October 2023.





In
July 2009, the Company acquired a retail location leased to Walgreen Co. located
in Sealy, TX. In connection with this transaction, the Company financed a
portion of the purchase price with a mortgage note obligation of $1,550,000
which bears an effective interest rate of the greater of 6.55% or the rate of
the 5 year U.S. Treasury obligation plus 3.5%. The note requires interest
payments monthly until July 2014 when the principal balance of the note is due.
The lease expires in July 2032.







16


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
3 — Real Estate Acquisitions (continued)








In
September 2009, the Company acquired a portfolio of 10 retail locations leased
to subsidiary companies of CVS Caremark Corporation, which are located
throughout the United States. In connection with this transaction, the Company
financed a portion of the purchase price with a ten-year mortgage note
obligation of $23,750,000, which bears an effective interest rate fixed at
6.88%, subject to reset in the sixth year at the lender’s discretion. The
principal balance of the note amortizes over a ten-year period. The lease
expirations vary on a per property basis, with a weighted average term of 24.6
years.





Note
4 — Mortgage Notes Payable





The
following table represents the mortgages outstanding as of September 30,
2009:




Property
                          
                          Encumbered
                            Properties
                          
                          Mortgage Notes
                          
                          Effective Interest
                            Rate
                          
                          Interest Rate
                          
                          MaturityFederal
      Express Distribution Center
                          
                          1
                          
                          $
                          6,965,000
                          
                          6.29
      %
                          
                          Fixed
                          
                          September
      2037Harleysville
      National Bank Portfolio
                          
                          15
                          
                          
                          31,000,000
                          
                          6.59
      %
                          (1)
                          Fixed
                          
                          January
      2018Rockland
      Trust Company Portfolio
                          
                          18
                          
                          
                          23,764,837
                          
                          4.92
      %
                          (2)
                          Variable
                          
                          May
      2013PNC
      Bank (formally National City Bank)
                          
                          2
                          
                          
                          4,430,604
                          
                          4.89
      %
                          (3)
                          Variable
                          
                          September
      2013Rite
      Aid Portfolio
                          
                          6
                          
                          
                          12,808,265
                          
                          6.97
      %
                          
                          Fixed
                          
                          September
      2017PNC
      Bank Portfolio
                          
                          50
                          
                          
                          33,040,862
                          
                          5.25
      %
                          (4)
                          Variable
                          
                          November
      2013Walgreens
      Property
                          
                          1
                          
                          
                          1,550,000
                          
                          6.64%
                          (5)
                          Variable
                          
                          August
      2019CVS
      Portfolio
                          
                          10
                          
                          
                          23,750,000
                          
                          6.88%
                          (6)
                          Fixed
                          
                          October
      2019Total
                          
                          103
                          
                          $
                          137,309,568


________________________




(1)
            The
      effective interest rate resets at the end of year five to the then current
      5-year U.S. Treasury rate plus 2.25%, but in no event will be less than
      6.5%.(2)
            The
      Company limited its interest rate exposure by entering into a rate lock
      agreement with a LIBOR floor and cap of 3.54% and 4.125%,
      respectively.(3)
            The
      Company limited its interest rate exposure by entering into a rate lock
      agreement with a LIBOR floor and cap of 3.37% and 4.45%, respectively, for
      a notional contract amount of approximately $4,115,000 and a fixed rate of
      3.565% on a notional contract amount of approximately
      $385,000.(4)
            The
      Company limited its interest rate exposure by entering into a rate lock
      agreement that swapped the underlying variable rate for a fixed rate of
      3.60%, plus a spread of 1.65%.(5)
            The
      effective interest rate adjusts to the greater of 6.55% or the five-year
      U.S. Treasury rate plus 3.50%.The note can be prepaid with no less than 30
      days notice with a 1% premium of the then outstanding principal
      balance.(6)
            The effective interest rate
      adjusts at the discretion of the lender in the 6th
      year.







17








AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





The
following table summarizes the scheduled aggregate principal repayments
subsequent to September 30, 2009:




Mortgage
                  Notes2009
      (Remaining portion of year)
                
                $
                283,2922010
                
                
                1,262,2972011
                
                
                2,122,7772012
                
                
                2,278,1412013
                
                
                59,087,6272014
      and thereafter
                
                
                72,275,434Total
                
                $
                137,309,568





As of
September 30, 2009, the Company was in compliance with its debt covenants under
the loan agreements.





Note
5 — Short-Term Bridge Equity Funds





During
the year ended December 31, 2008, the REIT obtained short-term bridge funds of
approximately $12,000,000 from an unrelated third party.  The bridge
funds bore fixed preferred yields of between 8.0% and 12.49% and was satisfied,
during the first quarter of 2009, from proceeds received from the issuance of
notes payable, an additional drawdown on the related party bridge revolver and
proceeds from the Company’s Offering. In July 2009, in connection with the
acquisition of a distribution facility leased to Federal Express Corp., the
Company funded a portion of the transaction with a short-term bridge facility of
$15,878,495, which bears interest at the greater of the Prime rate plus 0.75% or
5.75%. This facility requires interest payments monthly until July 2010, when
the remaining principal balance is due. The outstanding balance under this
short-term credit facility can be repaid in whole or in part at any time during
this one-year period without penalty.





During
the year ended December 31, 2008, the REIT entered into an unsecured bridge
facility with a related party, American Realty Capital Equity Bridge, LLC (“ARC
Bridge”), whereby the REIT can obtain up to $10.0 million from time to time as
needed to provide short-term equity financing relating to property acquisitions
and for general working capital purposes (see Note 10 — Related-Party
Transactions and Arrangements). The facility is for a one year term with the
option to extend the term of the facility for an additional year. During the
nine months ended September 30, 2009, the Company satisfied approximately
$18,030,335 of the related party bridge facility. Such repayments were
funded by proceeds from the sale of the Company’s common shares. In July 2009,
in connection with the acquisition of a distribution facility leased to Federal
Express Corp., the Company funded a portion of the transaction with $9,553,172
of funds under this facility. These funds were repaid prior to September
2009.





During
the year ended December 31, 2008, the OP entered into an agreement with the
principals of the Advisor for a convertible bridge revolver whereby the OP can
make use of unsecured equity financing from the principals 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 (see Note 10 –
Related-Party Transactions and Arrangements). Borrowings under the convertible
bridge revolver are expected to be satisfied within a six-month period and will
accrue a yield at 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 Harleysville National Bank and the Rockland Trust Company
portfolios, the Company obtained bridge equity of $4,000,000 and $2,500,000,
respectively. In March 2008, the Agreement was modified to allow outstanding
draws to be converted into common shares at $9.00 per share at the Company’s
election. These funds were repaid in full as of June 30, 2009.  In
July 2009, in connection with the acquisition of a distribution facility leased
to Federal Express Corp., the Company funded a portion of the transaction with
$2,714,946 of short-term bridge funds under this facility. These funds were
repaid in August 2009.





During
the year ended December 31, 2008, the REIT obtained short-term convertible
redeemable preferred equity of approximately $4,000,000 from an unrelated third
party.. The short-term convertible redeemable preferred equity bore a fixed
preferred yield of 14.27% and was satisfied in May 2009, from proceeds received
from the issuance of notes payable and proceeds from the Company’s Offering.
Such amounts were non-recourse.


18





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
6 — Long-Term Notes Payable





As of
September 30, 2009, the Company had issued $13,000,000 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 5 – Short-Term Bridge Equity Funds).





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





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





The
Company is required to prepay the Notes out of any proceeds derived from the
sale or refinancing of the PNC Bank properties after any required payments of
the principal and interest due under the mortgage notes payable on those
properties (see Note 4 – Mortgage Notes Payable).  Such prepayment is
subject to the prepayment premiums described above.




As of
September 30, 2009, the Company was in compliance with all covenants included
within the Note agreement.





Note
7 — Fair Value of Financial Instruments





Effective
January 1, 2008, the Company adopted new guidance related to the fair value of
financial instruments that defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
guidance for measuring fair value requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The Company determines fair value based on quoted prices when
available or through the use of alternative approaches, such as discounting the
expected cash flows using market interest rates commensurate with the credit
quality and duration of the investment.  This alternative approach
also reflects the contractual terms of the financial instrument, 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.


19








AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)








Note
7 — Fair Value of Financial Instruments (continued)








As of
September 30, 2009, derivative instruments are the only financial instrument
held by the Company to which this guidance applies. Although the Company has
determined that the majority of the inputs used to value its derivatives fall
within Level 2 of the fair value hierarchy, the credit valuation
adjustments associated with those derivatives utilize Level 3 inputs, such
as estimates of current credit spreads to evaluate the likelihood of default by
the Company and its counterparties.  However, as of September 30,
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.





The
following table presents information about the Company’s derivatives instruments
that are presented on a net basis measured at fair value as of September 30,
2009, aggregated by the level in the fair value hierarchy within with those
instruments fall:




Quoted Prices in
                  Active Markets
                  Level 1
                
                
                SignificantOther
                  ObservableInputs
                  Level 2
                
                
                Significant
                  Unobservable Inputs
                  Level 3
                
                
                Balance at
                  September 30, 2009Derivatives,
      net
                
                $
                —
                
                
                $
                3,173,358
                
                
                $
                —
                
                
                $
                3,173,358





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





Carrying Amount at
                  September 30, 2009
                
                
                Fair Value at
                  September30, 2009
                
                
                Carrying Amount at
                  December 31, 2008
                
                
                Fair Value at
                  December31, 2008Mortgage
      notes payable
                
                $
                137,309,568
                
                
                $
                127,697,465
                
                
                $
                112,741,801
                
                
                $
                105,617,656Other
      long-term notes payable
                
                
                13,000,000
                
                
                
                13,000,000
                
                
                
                1,089,500
                
                
                
                1,089,500





20


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





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.





During
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 and
nine months ended September 30, 2009, the Company recognized a gain of $903 and
$592, respectively, related to hedge ineffectiveness.







21


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)











Note 8
— Derivative and Hedging Activities (continued)







Amounts
reported in accumulated other comprehensive income related to derivatives will
be reclassified to interest expense as interest payments are made on the
Company’s variable-rate debt. During the next twelve months, the Company
estimates that an additional $1,142,050 will be reclassified as an increase to
interest expense.





As of
September 30, 2009, the Company had the following outstanding interest rate
derivatives that were designated as cash flow hedges of interest rate
risk:





Interest Rate Derivative
                        
                        
                        Number of Instruments
                        
                        
                        NotionalInterest
      Rate Swaps
                        
                        2
                        
                        $
                        33,222,658Interest
      Rate Collars
                        
                        1
                        
                        $
                        4,115,268





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 $23,785,714 at September 30,
2009, 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 and nine months ended September 30,
2009.  For the three and nine months ended September 30, 2009, the
Company has recorded losses of $394,590 and $215,040, respectively related to
this derivative instrument.





The table
below presents the fair value of the Company’s derivative financial instruments
as well as their classification on the Balance Sheet as of September 30,
2009:





Balance Sheet Location
                
                Fair Value (liability)Derivatives
      designated as hedging instruments:Interest
      Rate Products
                Derivatives,
      at fair value
                
                ($1,909,882)Derivatives
      not designated as hedging instruments:Interest
      Rate Products
                Derivatives,
      at fair value
                
                ($1,263,476)





The
tables below present the effect of the Company’s derivative financial
instruments on the Consolidated Statements of Operations for the three and nine
months ended September 30, 2009:







22


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)




Note 8
— Derivative and Hedging Activities (continued)








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:





Three Months
                        Ended
                        September 30,
                        2009
                      
                      
                      Nine Months
                        Ended
                        September30,
                        2009Amount
      of loss recognized in accumulated  other comprehensive income as
      interest rate derivatives (effective portion)
                      
                      $
                      (709,894
                      )
                      
                      $
                      (194,528
                      )Amount
      of  loss reclassified from accumulated other comprehensive
      income into income as interest expense (effective portion)
                      
                      $
                      (313,134
                      )
                      
                      $
                      (866,099
                      )Amount
      of gain recognized in income on derivative as gain on derivative
      instruments (ineffective portion and amount excluded from effectiveness
      testing)
                      
                      $
                      903
                      
                      
                      $
                      592





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:




Location of Gain or(Loss)
      Recognized
                        in Income on Derivative
                      
                      Three Months Ended
                        September 30, 2009
                      
                      
                      Nine Months Ended
                        September 30, 2009Interest
      expense
                      
                      $
                      (198,633
                      )
                      
                      $
                      (568,360
                      )Gains
      (losses) on derivative instruments
                      
                      
                      (195,957
                      )
                      
                      
                      353,320Total
                      
                      $
                      (394,590
                      )
                      
                      $
                      (215,040
                      )





Credit-risk-related
Contingent Features





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





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





As of
September 30, 2009, the fair value of derivatives in a net liability position,
related to these agreements was $3,173,358. As of September 30, 2009, the
Company has not posted any collateral related to these agreements and was not in
breach of any agreement provisions. If the Company had breached any of these
provisions at September 30, 2009, it could have been required to settle its
obligations under the agreements at their aggregate termination value of
$3,441,474.





23








AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)







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.





The
following table details the results of such activities related to the Dealer
Manager:





Three Months Ended
                September 30,
              
              
              Nine Months Ended
                September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Total
      Commissions paid to Dealer Manager
              
              $
              4,622,557
              
              
              $
              55,996
              
              
              $
              8,332,294
              
              
              $
              93,201Less:Commissions
      to participating broker dealers
              
              
              (3,177,812
              )
              
              
              (22,417
              )
              
              
              (5,676,367
              )
              
              
              (48,460
              )Reallowance
      to participating broker dealers
              
              
              (303,612
              )
              
              
              (3,035
              )
              
              
              (509,509
              )
              
              
              (3,035
              )Net
      to affiliated Dealer Manager  (1)
              
              $
              1,141,133
              
              
              $
              30,544
              
              
              $
              2,146,418
              
              
              $
              41,706





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


24


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)




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








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 gross offering
proceeds.





The
following table details amounts paid to the Advisor for the activities described
above:





Three Months Ended
                September 30,
              
              
              Nine Months Ended
                September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Acquisition
      cost reimbursements
              
              $
              742,546
              
              
              $
              215,757
              
              
              $
              742,546
              
              
              $
              1,047,874Financing
      coordination fees
              
              
              411,784
              
              
              
              187,212
              
              
              
              411,784
              
              
              
              810,987Organizational
      and offering expense reimbursements
              
              
              1,821,000
              
              
              
              —
              
              
              
              3,916,836
              
              
              
              119,207Refund
      of organization and offering expense by Advisor (1)
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (60,000
              )Net
      to affiliated Advisor
              
              $
              2,975,330
              
              
              $
              402,969
              
              
              $
              5,071,166
              
              
              $
              1,918,068





(1)
Advisor reimbursed fees to improve the Company’s working capital.





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 quarterly 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. The Company incurred asset management fees of $28,000 during the three
months ended March 31, 2009, which were subsequently refunded by the Advisor to
improve the Company’s working capital position.





25


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





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





The
following table outlines activity related to asset management fees:





Three Months Ended September
      30,
              
              
              Nine Months Ended September
    30,2009
              
              
              2008
              
              
              2009
              
              
              2008Earned
      asset management fee
              
              $
              483,878
              
              
              $
              216,551
              
              
              $
              1,255,021
              
              
              $
              430,730Paid
      to affiliate
              
              
              (70,000
              )
              
              
              —
              
              
              
              (70,000
              )
              
              
              —Waived
      by affiliate (not deferred)
              
              
              (413,878
              )
              
              
              (216,551
              )
              
              
              (1,185,021
              )
              
              
              (430,730
              )Net
      asset management fee activity
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —Prepaid
      asset management fees
              
              $
              1,134,500
              
              
              $
              —
              
              
              $
              1,134,500
              
              
              $
              —





If the
Advisor or its affiliates provides a substantial amount of services, as
determined by the Company’s independent directors, in connection with the sale
of property, the Company will pay the Advisor a brokerage commission not to
exceed the lesser of one-half of a reasonable, customary and competitive real
estate commission or 3.0% of the contract price for the property sold, inclusive
of any commission paid to outside brokers provided, however, in no event may the
real estate commissions paid to the Advisor, its affiliates or unaffiliated
third-parties exceed 6% of the contract price. In addition, after investors have
received a return of their net capital contributions and a 6.0% annual
cumulative, non-compounded return, then the Advisor is entitled to receive 15.0%
of remaining net sale proceeds. During the three and nine months ended September
30, 2009 and 2008, the Company did not pay any fees or amounts to the Advisor
relating to the sale of properties.





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





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





The
Company may reimburse the Advisor for all expenses it paid or incurred in
connection with the services provided to the Company, subject to the limitation
that the Company does not reimburse for any amount by which its operating
expenses (including the asset management fee) at the end of the four preceding
fiscal quarters exceeds the greater of (i) 2.0% of average invested assets, or
(ii) 25% of net income other than any additions to reserves for depreciation,
bad debts or other similar non-cash reserves and excluding any gain from the
sale of assets for that period. The Company will not reimburse for personnel
costs in connection with services for which the Advisor receives acquisition
fees or real estate commissions. During the three and nine months ended
September 30, 2009 and 2008, the Company did not reimburse the Advisor for any
such costs.





26








AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(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 and nine months ended September 30, 2009,
the Company would have incurred property management fees of $70,413 and
$179,409, respectively, however, these fees were waived by the Property Manager
to improve the Company’s working capital. During the three and nine months ended
September 30, 2008, the Company would have incurred property management fees of
$30,557 and $60,902, however, these fees were waived by the property manager to
improve the Company’s working capital position except for $4,230 paid for the
nine months ended September 30, 2008. This amount paid was subsequently refunded
by the Property Manager.




During
the year ended December 31, 2008, the OP entered into an agreement with the
principals of the Advisor whereby the OP can obtain up to $10,000,000 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 Harleysville National Bank and the Rockland Trust Company
portfolios and a Federal Express Corp. distribution facility, the Company
obtained bridge equity of $4,000,000, $2,500,000 and $2,714,946 respectively.
This bridge equity was repaid as of September 30, 2009. During the three and
nine months ended September 30, 2009, the Company incurred related
party interest expense of $12,115 and $221,485, respectively. During the
three and nine months ended September 30, 2008, the Company incurred related
party interest expense of $131,069 and $261,261, respectively.




During
the year ended December 31, 2008, the REIT entered into an unsecured bridge
equity facility with a related party, American Realty Capital Equity Bridge, LLC
(“ARC Bridge”), whereby the REIT can obtain bridge equity of up to $10,000,000
from time-to-time as needed to provide short-term bridge equity relating to
property acquisitions and for general working capital purposes. ARC Bridge is a
50% joint venture between the Sponsor and an unrelated third party. Bridge
equity investments from this facility accrue a yield at an annual rate of 30 day
LIBOR plus 5% with a floor of 8%. This facility was used for two acquisitions
during the year ended December 31, 2008 and one acquisition in 2009. The bridge
equity investments relating to the PNC bank locations (formerly National City
Bank),  Rite Aid portfolio acquisitions and a distribution facility
from Federal Express Corp. were $ 1,329,576, $5,335,939 and
$9,553,172, respectively. These bridge equity investments are due one year from
the investment date and can be satisfied at any time without penalty. During the
nine months ended September 30, 2009, the Company satisfied $18,030,335 of
outstanding draws under this facility. The related yield on such short-term
bridge equity was 8.11% for both the PNC and Rite Aid acquisitions for the three
and nine months ended September 30, 2009, respectively. The Company
incurred interest expense on these advances of $126,983 and $435,118 for
the three and nine month periods ended September 30, 2009. During the three and
nine months ended September 30, 2008, the Company incurred interest expense on
these advances of $6,651. As of September 30, 2009 this facility was repaid in
full.





Note 11 — Economic
Dependency





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





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







27


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)








Note 12
— Independent Directors’ Stock Option Plan





The
Company has a stock option plan (the “Plan”), which authorizes the grant of
nonqualified stock options to the Company’s independent directors, subject to
the absolute discretion of the board of directors and the applicable limitations
of the Plan. The Company intends to grant options under the Plan to each
qualifying director annually. The exercise price for all stock options granted
under the Plan will be fixed at $10.00 per share until the termination of our
initial public offering, and thereafter the exercise price for stock options
granted to our independent directors will be equal to the fair market value of a
share on the last business day preceding the annual meeting of stockholders. As
of September 30, 2009, the Company had granted options to purchase 18,000 shares
at $10.00 per share, each with a two year vesting period. A total of 1,000,000
shares have been authorized and reserved for issuance under the Plan. The
Company measures and records compensation expense for all share-based payment
awards made to employees and directors, including stock options related to the
Plan, based on estimated fair values.





During
the nine months ended September 30, 2009, 9,000 options were granted, none were
forfeited or exercised and 4,500 became vested. As of September 30, 2009,
unvested options to purchase 13,500 shares at $10.00 per share remained
outstanding with a weighted average contractual remaining life of approximately
8.98 years. The total compensation charge relating to these option grants is
immaterial.





Note 13
— Net Loss Per Share





The
following is a reconciliation of the numerator and denominator of the basic and
diluted net loss per share computation for the three and nine months ended
September 30, 2009 and 2008:




Basic and Diluted
                        Three Months Ended
                        September 30,
                      
                      
                      Basic and Diluted
                        Nine Months
                        Ended September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Net
      loss attributable to American Realty  Capital Trust,
      Inc.
                      
                      $
                      (1,484,012
                      )
                      
                      $
                      (845,124
                      )
                      
                      $
                      (3,495,616
                      )
                      
                      $
                      (1,641,345
                      )Total
      weighted average common shares outstanding
                      
                      
                      6,639,111
                      
                      
                      
                      1,101,127
                      
                      
                      
                      3,791,302
                      
                      
                      
                      699,883Loss
      per share
                      
                      $
                      (0.22
                      )
                      
                      $
                      (0.77
                      )
                      
                      $
                      (0.92
                      )
                      
                      $
                      (2.35
                      )







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
$1,068,000 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. Distributions of  $16,611 were paid to the
noncontrolling interest holder of this property for the three and nine months
ended September 30, 2009.





28


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
14 — Noncontrolling Interests (continued)





In
the third quarter of 2009, the Company contributed a 49% interest in two
properties to a newly created taxable REIT subsidiary (“TRS”) and sold
interests in such properties for net proceeds of $1,595,457 under a Delaware
statutory trust structure. This investment represents a 39.4% 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. Distributions of
$17,289 were paid to the noncontrolling interest holders of these properties for
the three and nine months ended September 30, 2009.





In  September
2009, the Company contributed a partial interest of a property to a newly
created TRS and sold an interest in the property for net proceeds of $444,422
under a Delaware statutory trust structure. 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.
Distributions of $2,022 were paid to the noncontrolling interest holder of these
properties for the three and nine months ended September 30, 2009.








Note
15 — Subsequent Events





Sale
of Shares of Common Stock





The
Company has evaluated subsequent events through the filing of this Form 10-Q on
November 16, 2009, and determined that there have not been any events that have
occurred that would require adjustments to our disclosures in the unaudited
consolidated financial statements except for the following
transactions:





As of
November 12, 2009, the Company had issued 11,467,433shares of common stock, including 342,502 shares issued in
connection with an acquisition in March 2008. Total gross proceeds from these
issuances were $112.9
million. As of November 12, 2009, the aggregate value of all share
issuances and subscriptions outstanding was $114.6
million based on a per share value of $10.00 (or $9.50 for shares
issued under the DRIP). As of November 12, 2009, approximately $1.14
billion (114
million shares) remained available for sale to the public under the Offering,
exclusive of shares available under the DRIP.





Total
capital raised to date is as follows:





Source of Capital
                    
                    Inception to
                      September 30, 2009
                    
                    
                    October 1 to
                      November 12, 2009
                    
                    
                    TotalCommon
      shares
                    
                    $
                    89,213,532
                    
                    
                    $
                    25,399,337
                    
                    
                    $
                    114,612,869Notes
      payable
                    
                    
                    13,000,000
                    
                    
                    
                    —
                    
                    
                    
                    13,000,000Exchange
      proceeds (1)
                    
                    
                    3,739,260
                    
                    
                    
                    64,000
                    
                    
                    
                    3,803,260Total
                    
                    $
                    105,952,792
                    
                    
                    $
                    25,463,337
                    
                    
                    $
                    131,416,129








(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.




’


29


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


(Unaudited)





Note
15 — Subsequent Events (continued)





Pending
Real Estate Acquisitions





The
following acquisitions are expected to be completed in the fourth quarter of
2009, however, there can be no assurance that the acquisitions will be completed
in the estimated time frame or under the terms described below.





CVS
Portfolio





The
Company has entered into a Purchase and Sale Agreement to acquire 15 newly
constructed CVS Pharmacy locations, in six states, totaling 274,520 square feet
of retail space. These properties will be net leased to subsidiaries of CVS
Caremark Corporation pursuant to which CVS Caremark Corporation is required to
pay substantially all operating expenses (including all costs to maintain and
repair the roof and structure of the building) and capital expenditures in
addition to base rent. The primary lease term will be twenty five years and will
commence on the acquisition date. Annual rent will be approximately $5,000,000
for the first five years and increases by 5% every five years.





The
purchase price excluding transaction costs and fees is approximately $58,000,000
and is expected to be funded from $34,355,000 of mortgage financing and proceeds
from the sale of common shares.





Bridgestone
Portfolio





The
Company has entered into a Purchase and Sale Agreement to acquire 6 recently
constructed Morgan Tire and Auto stores located in Oklahoma and Florida,
totaling 49,588 square feet of retail space. These properties will be net leased
to subsidiaries of Bridgestone Corporation pursuant to which Bridgestone
Corporation is required to pay substantially all operating expenses (including
all costs to maintain and repair the roof and structure of the building) and
capital expenditures in addition to base rent. The primary lease term is
fifteen years with a remaining term of approximately fourteen years on the
acquisition date. Annual rent will be approximately $1,270,000 for the first
five years and increases by 6.25% every five years.





The
purchase price excluding transaction costs and fees is approximately $15,109,000
and is expected to be funded from proceeds from the sale of common
shares.





Home
Depot Distribution Center





The
Company has entered into a Purchase and Sale Agreement to acquire a newly
constructed Home Depot distribution center located in Topeka, KS, totaling
465,000 square feet. This property will be net leased to The Home Depot, Inc.
pursuant to which The Home Depot, Inc. is required to pay substantially all
operating expenses (including all costs to maintain and repair the roof and
structure of the building) and capital expenditures in addition to base rent.
The primary lease term will be twenty years and will commence on the acquisition
date. Annual rent will be approximately $1,800,000 and will increase by 2%
annually.





The
purchase price excluding transaction costs and fees is approximately $23,300,000
and is expected to be funded from seller financing of approximately $14,000,000
and proceeds from the sale of common shares.


30


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





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





Forward-Looking
Statements





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





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





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





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





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





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





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





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





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





All
forward-looking statements should be read in light of the risks identified in
our Annual Report on Form 10-K for the year ended December 31, 2008, filed with
the SEC and the risks identified in this quarterly report.


31


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 a registration statement on Form S-11 with the SEC
to offer a minimum of 750,000 shares and a maximum of 150,000,000 shares of
common stock for sale to the public. The SEC declared the registration statement
effective on January 25, 2008, at which time we launched our ongoing initial
public offering. On March 11, 2008, we broke escrow in our ongoing initial
public offering and then commenced our real estate operations. As of September
30, 2009, we issued 9,086,143 shares of common stock, including 339,077 shares
issued in connection with an acquisition in March 2008. Total gross proceeds
from these issuances were $89,213,532. As of September 30, 2009, the aggregate
value of all share issuances and subscriptions outstanding was $90,822,339 based
on a per share value of $10.00 (or $9.50 for shares issued under the
distribution reinvestment program, or DRIP. As of September 30, 2009, 3,000
shares of common stock had been redeemed under our stock repurchase program at a
value of $28,875. We are dependent upon the net proceeds from the offering to
conduct our proposed operations.





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





We intend
to continue our strategy of acquiring freestanding, single tenant properties
through sale-leaseback and marketed transactions with in-place leases that have
a minimum of ten years remaining under the primary term. Such leases generally
include renewal options. We typically fund our acquisitions with a combination
of equity and debt. We expect to arrange long-term financing on both a secured
and unsecured fixed rate basis. We intend to continue to grow our existing
relationships and develop new relationships throughout various markets we serve,
which we expect will lead to further acquisition opportunities. We intend to
have an overall leverage ratio as it relates to long-term secured mortgage
financings of approximately 55% by the end of 2009.  This goal is
expected to be realized by using lower amounts of long-term debt in connection
with acquiring future real estate investments.  In certain cases, we
may acquire properties using only equity capital.  Additionally, we
generally arrange for our mortgage note agreements to include monthly principal
payments together with interest.  This amortization results in
lowering our overall mortgage notes balance on a continuous basis.





As of
September 30, 2009, we owned 104 properties compromising approximately 1,012,000
square feet, 100% leased with a weighted average remaining lease term
of 15.0 years. In constructing our portfolio, we are committed to
diversification (industry, tenant and geography).  As of September 30,
2009, rental revenues derived from investment grade tenants (rated BBB+ or
better by Standards & Poor) approximated 92%.  Our strategy
encompasses receiving the majority of our revenue from investment grade tenants
as we further acquire properties and enter into (or assume) long-term lease
arrangements.





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





Significant
Accounting Estimates and Critical Accounting Policies





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





32





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





Investments
in Real Estate





Investments
in real estate are recorded at cost. Improvements and replacements are
capitalized when they extend the useful life of the asset. Costs of repairs and
maintenance are expensed as incurred. Depreciation is computed using the
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.





33


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





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





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





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





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





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





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





Purchase
Price Allocation





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





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





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


34





The
aggregate value of 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 the 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 are attributable to the hedged risk in a fair
value hedge or the earnings effect of the hedged forecasted transactions in a
cash flow hedge.  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.


35


Results
of Operations





Comparison
of the Three Months Ended September 30, 2009 and 2008





As of
September 30, 2009, we owned 104 properties which are 100% leased, compared to
41 properties which were 100% leased at September 30, 2008, an increase of
approximately 154%. Accordingly, our results of operations for the three months
ended September 30, 2009 as compared to the three months ended September 30,
2008 reflect significant increases in most categories.





Rental
Income





Rental
income increased approximately $2,180,000 to approximately $3,774,000 for the
three months ended September 30, 2009, compared to approximately $1,594,000 for
the three months ended September 30, 2008. The increase in rental income was
driven by our acquisition of approximately $121.0 million of net leased property
during the last quarter of 2008 and the third quarter of 2009. These properties,
acquired at an average 8.16% cap rate, are leased from 10 to 25 years to
primarily investment grade tenants.




Asset
Management Fees to Affiliate
 
 Our
affiliate, American Realty Capital Advisors, LLC, is entitled to fees for the
management of our properties as well as fees for purchases and sales of
properties. The advisor has elected to waive all asset management fees
except for $70,000 for the three months ended September 30, 2009 and waived its
entire fee for the three months ended September 2008. For the three months ended
September 30, 2009 and 2008, we would have incurred asset management fees of
approximately $484,000 and $217,000, respectively, had they not been
waived.




Property
Management Fees to Affiliate





Our
affiliate, American Realty Capital Properties, LLC, has elected to waive the
property management fees for the three months ended September 30, 2009 and 2008
to improve our working capital. Such fees represent amounts that had they not
been waived, would have been paid to, American Realty Capital Properties, LLC,
to manage and lease our properties. For the three months ended September 30,
2009 and 2008, we would have incurred property management fees of approximately
$70,000 and $30,000 respectively, had the fees not been waived.





Acquisition
and Transaction Related Costs





Beginning
January 1, 2009, costs related to acquisitions of properties are required to be
expensed in the period incurred. Prior to that date acquisition costs were
capitalized and allocated to the fair value of the assets acquired. For the
three months ended September 30, 2009 acquisition costs of $347,000 were
required to be expensed in accordance with new accounting guidance for business
combinations.





General
and Administrative Expenses





General
and administrative expenses increased to approximately $110,000 for the three
months ended September 30, 2009, compared to approximately $19,000 for the three
months ended September 30, 2008.  The majority of the general and
administrative expenses for the three months ended September 30, 2009 included
$46,000 of amortized insurance expense relating to our directors’ and officers’
insurance policy, $20,000 of board member compensation, $11,000 of contingency
liability insurance and $10,000 of professional fees.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased approximately $1,227,000 to approximately
$2,084,000 for the three months ended September 30, 2009, compared to
approximately $857,000 for the three months ended September 30, 2008. The
increase in depreciation and amortization expense was the result of our
acquisition of approximately $121.0 million of real estate during the last
quarter of 2008 and the third quarter of 2009. These properties were placed into
service when acquired and are being depreciated for the period held. In
contrast, the prior year number reflects no depreciation and amortization for
assets acquired after September 30, 2008.


36





Interest
Expense





Interest
expense increased approximately $1,135,000 to $2,522,000 for the three months
ended September 30, 2009, compared to approximately $1,387,000 for the three
months ended September 30, 2008. The increase in interest expense was the result
of our purchase of 63 properties with a total value of approximately $121.0
million. These properties were purchased using proceeds from our Offering and
first mortgage debt.  In addition, we used various sources of
unsecured financing including drawing on various bridge equity lines and issuing
long term notes payable. The average first mortgage debt balance for the three
months ended September 30, 2009 and, 2008 was approximately $125,000,000 and
$62,000,000, respectively. We view these secured financing sources as an
efficient and accretive means to acquire properties in advance of raising equity
capital.




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





Other
Income





Losses on
derivative instruments increased approximately $18,000 to $195,000 for the three
months ended September 30, 2009, compared to losses of approximately $177,000
for the three months ended September 30, 2008.  These losses are
related to marking our derivative instruments to market.





Comparison
of the Nine Months Ended September 30, 2009 and 2008





As of
September 30, 2009, we owned 104 properties which are 100% leased, compared to
41 properties which were 100% leased at September 30, 2008, an increase of
approximately 154%. Accordingly, our results of operations for the nine months
ended September 30, 2009 as compared to the nine months ended September 30, 2008
reflect significant increases in most categories.





Rental
Income





Rental
income increased approximately $6,480,000 to approximately $9,636,000 for the
nine months ended September 30, 2009, compared to approximately $3,156,000 for
the nine months ended September 30, 2008. The increase in rental income was
driven by our acquisition of approximately $121.0 million of net leased property
during the last quarter of 2008 and the nine months ended September 30, 2009.
These properties, acquired at an average 8.16% cap rate, are leased from 10 to
25 years to primarily investment grade tenants.




Asset
Management Fees to Affiliate
 
 Our
affiliate, American Realty Capital Advisors, LLC, 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 asset management fees except
for $70,000 for the nine months ended September 30, 2009, and waived its entire
fee for the nine months ended September 2008. For the nine months ended
September 30, 2009 and 2008, we would have incurred asset management fees of
approximately $1,255,000 and $431,000, respectively, had they not been
waived.




Property
Management Fees to Affiliate





American
Realty Capital Properties, LLC has elected to waive the property management fees
for the nine months ended September 30, 2009 and 2008 to improve our working
capital. Such fees represent amounts that had they not been waived, would have
been paid to our affiliated property manager, American Realty Capital
Properties, LLC, to manage and lease our properties. For the nine months ended
September 30, 2009 and 2008, we would have incurred property management fees of
approximately $179,000 and $61,000, respectively, had they not been
waived.





Acquisition
and Transaction Related Costs





Beginning
January 1, 2009, costs related to acquisitions of properties are required to be
expensed in the period incurred. Prior to that date acquisition costs were
capitalized and allocated to the fair value of the assets acquired. For the nine
months ended September 30, 2009, acquisition costs of approximately $347,000
were required to be expensed in accordance with new accounting guidance for
business combinations.


37





General
and Administrative Expenses





General
and administrative expenses increased 5% to approximately $307,000 for the nine
months ended September 30, 2009, compared to approximately $292,000 for the nine
months ended September 30, 2008. General and administrative expenses for
the nine months ended September 30, 2009 consisted primarily of $139,000 of
amortized insurance expense relating to our directors’ and officers’ insurance
policy, $72,000 of board member compensation and $27,000 of professional
fees.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased approximately $3,779,000 to approximately
$5,544,000 for the nine months ended September 30, 2009, compared to
approximately $1,765,000 for the nine months ended September 30, 2008. The
increase in depreciation and amortization expense was the result of our
acquisition of approximately $121.0 million of real estate during the last
quarter of 2008 and third quarter of 2009 These properties were placed into
service when acquired and are being depreciated for the period held. In
contrast, the prior year number reflects the depreciation and amortization
expense for a partial period for approximately $33.0 million of real estate
occurred during May 2008, and reflects no depreciation and amortization for
assets acquired after September 30, 2008.




Interest
Expense





Interest
expense increased approximately $4,534,000 to $7,292,000 for the nine months
ended September 30, 2009, compared to approximately $2,759,000 for the nine
months ended September 30, 2008. The increase in interest expense was the result
of our purchase of 63 properties with a total value of approximately $121.0
million. These properties were purchased using proceeds from our Offering and
first mortgage debt.  In addition, we used various sources of
unsecured financing including drawing on various bridge equity lines and issuing
long term notes payable. The average first mortgage debt balance for the nine
months ended September 30, 2009 and 2008 was approximately $119,000,000 and
$35,000,000, respectively.  We view these secured financing sources as
an efficient and accretive means to acquire properties in advance of raising
equity capital.




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





Other
Income





Gains on
derivative instruments increased approximately $334,000 to $354,000 for the nine
months ended September 30, 2009, compared to approximately $20,000 for the nine
months ended September 30, 2008.  These gains are related to marking
our derivative instruments to market.





38




Funds
From Operations





We
consider funds from operations (“FFO”) a useful indicator of the performance of
a REIT. Because FFO calculations exclude such factors as depreciation and
amortization of real estate assets and gains or losses from sales of operating
real estate assets (which can vary among owners of identical assets in similar
conditions based on historical cost accounting and useful-life estimates), they
facilitate comparisons of operating performance between periods and between
other REITs in our peer group. Accounting for real estate assets in accordance
with generally accepted accounting principles in the United States (“GAAP”)
implicitly assumes that the value of real estate assets diminishes predictably
over time. Since real estate values have historically risen or fallen with
market conditions, many industry investors and analysts have considered the
presentation of operating results for real estate companies that use historical
cost accounting to be insufficient by themselves. As a result, we believe that
the use of FFO, together with the required GAAP presentations, provide a more
complete understanding of our performance relative to our peers and a more
informed and appropriate basis on which to make decisions involving operating,
financing, and investing activities. Other REITs may not define FFO in
accordance with the current National Association of Real Estate Investment
Trust’s (“NAREIT”) definition (as we do) or may interpret the current NAREIT
definition differently than we do. Consequently, our presentation of FFO may not
be comparable to other similarly titled measures presented by other
REITs.





FFO is a
non-GAAP financial measure and does not represent net income as defined by GAAP.
FFO does not represent cash flows from operations as defined by GAAP, it is not
indicative of cash available to fund all cash flow needs and liquidity,
including our ability to pay distributions and should not be considered as an
alternative to net income, as determined in accordance with GAAP, for purposes
of evaluating our operating performance. Effective January 1, 2009, new
accounting guidance for business combinations requires that we expense
acquisition and related transaction costs which were previously capitalized and
included with the purchase price of the respective acquired real estate
investment. Therefore, to improve comparability of our FFO calculation, we
present FFO results and exclude such costs to present a modified
FFO.




FFO and
modified FFO is presented in the following table for the period ended as
indicated:





Three Months Ended
                    September 30,
                  
                  
                  Nine Months Ended
                    September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008 (5)Net
      Loss
                  
                  $
                  (1,484,012
                  )
                  
                  $
                  (845,124
                  )
                  
                  $
                  (3,495,616
                  )
                  
                  $
                  (1,299,493
                  )Depreciation
      of real estate assets
                  
                  
                  1,628,155
                  
                  
                  
                  717,410
                  
                  
                  
                  4,352,418
                  
                  
                  
                  1,333,927Amortization
      of intangible lease assets, net
                  
                  
                  356,986
                  
                  
                  
                  139,777
                  
                  
                  
                  894,985
                  
                  
                  
                  259,743Mark-to
      market adjustment (1)
                  
                  
                  193,323
                  
                  
                  
                  176,656
                  
                  
                  
                  (387,936
                  )
                  
                  
                  (20,160
                  )Noncontrolling
      interest adjustment (2)
                  
                  
                  (88,246
                  )
                  
                  
                  —
                  
                  
                  
                  (88,246
                  )
                  
                  
                  —FFO
                  
                  
                  606,206
                  
                  
                  
                  188,719
                  
                  
                  
                  1,275,605
                  
                  
                  
                  274,017Acquisition
      and trasaction related costs(3)
                  
                  
                  347,036
                  
                  
                  
                  —
                  
                  
                  
                  347,036
                  
                  
                  
                  —Modified
      FFO
                  
                  $
                  953,242
                  
                  
                  $
                  188,719
                  
                  
                  $
                  1,622,641
                  
                  
                  $
                  274,017Distributions
      paid (4)
                  
                  $
                  883,481
                  
                  
                  $
                  174,029
                  
                  
                  $
                  1,513,874
                  
                  
                  $
                  253,920Modified
      FFO coverage ratio
                  
                  107.9%
                  
                  
                  108.4%
                  
                  
                  107.2%
                  
                  
                  107.9%Modified
      FFO payout ratio
                  
                  92.7%
                  
                  
                  92.2%
                  
                  
                  93.3%
                  
                  
                  92.7%


___________________________


(1)  -
            The
      Company excludes non-cash mark-to-market adjustments 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 mark-to market
      adjustments.(3)  -
            Amounts
      represent acquisition related costs that are required by GAAP to be
      expensed as incurred as of January 1, 2009.(4)  -
            Includes
      shares issued under the DRIP.(5)  -
            The
      first distribution was paid during the three months ended June 30, 2008,
      therefore, the information presented is for the quarters ended June 30,
      2008 and September 30, 2008 only.


39





Cash
Flows for the Nine Months Ended September 30, 2009





During
the nine months ended September 30, 2009, net cash used in operating activities
was approximately $3,517,000. The level of cash flows used in operating
activities is affected by both the timing of interest payments and amount of
borrowings outstanding during the period. It is also affected by the receipt of
scheduled rent payments and disbursement of deposits required in connection with
property acquisitions. Prepaid expenses and other assets increased by
approximately $2,830,000 principally resulting from the acquisition of $636,000
of non-real estate investment furniture and fixtures, the prepayment of
$1,135,000 of asset management fees and straight-line rents of $647,000 during
the nine months ended September 30, 2009. Accounts payable and accrued expenses
decreased by approximately $803,000, the majority of which relates to
professional fees, accrued interest and finance coordination fees. Finally due
to affiliates decreased approximately $2,014,000 during the nine months ended
September 30, 2009.





Net cash
used in investing activities during the nine months ended September 30, 2009,
was approximately $76,321,000, principally relating to
acquisitions completed in the third quarter of 2009.





Net cash
provided by financing activities totaled approximately $87,648,000 during the
nine months ended September 30, 2009. Such amount consisted primarily of
approximately $65,105,000 from issuance of common stock and the net proceeds
from mortgage notes payable, short-term bridge fund and other notes payable of
approximately $25,300,000, $15,878,000 and  $11,911,000, respectively.
These amounts were offset by the satisfaction of our mortgage notes
payable,  short-term bridge funds, related party bridge facility,
related party convertible bride revolver and short-term convertible redeemable
preferred of approximately $732,000, $11,954,000, $8,477,000, $6,500,000 and
$3,995,000, respectively. During the period, we issued 7,746,899 shares of
common stock which generated approximately $76,900,000 of gross proceeds,
reduced by approximately $11,764,000 of related offering costs and commissions.
Net cash of approximately $920,000 was used for shareholder distributions. Net
cash was increased by approximately $10,000 related to a decrease in restricted
cash.




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





Cash
Flows for the Nine Months September 30, 2008





During
the nine months ended September 30, 2008, net cash provided by operating
activities was approximately $1,291,000. Prepaid expenses and other assets
increased by approximately $751,000 principally resulting from a deposit paid to
secure financing on a portfolio which was acquired subsequent to September 30,
2008. This amount is offset by the increase in accounts payable and accrued
expenses of approximately $1,312,000, the majority of which relates to
professional fees, accrued interest and finance coordination fees, as well as an
increase in deferred rent and liabilities of approximately $554,000, primarily
representing rent payments received in advance of the respective due
date.





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





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





40





Liquidity and Capital
Resources





We expect
to continue to raise capital through the sale of our common stock and to utilize
the net proceeds from the sale of our common stock and proceeds from secured
financings to complete future property acquisitions and satisfy outstanding
short-term bridge equity amounts. As of September 30, 2009, we issued 9,086,143
shares of common stock, including 339,077 shares issued in connection with an
acquisition in March 2008. Total gross proceeds from these issuances were
$89,213,532. As of September 30, 2009, the aggregate value of all share
issuances and subscriptions outstanding was $90,822,339 based on a per share
value of $10.00 (or $9.50 for shares issued under the DRIP). As of September 30,
2009, an additional 140,992,048 shares were available for issuance under the
current registration statement and an additional 24,921,809 shares were
available to be issued pursuant to the DRIP. We will offer these shares until
January 25, 2011, when our current registration statement is due to
expire.




The
amount of distributions payable to our stockholders is determined by our board
of directors and is dependent on a number of factors, including funds available
for distribution, financial condition, capital expenditure requirements, as
applicable, and annual distribution requirements needed to qualify and maintain
our status as a REIT under the Internal Revenue Code of 1986, as amended.
Operating cash flows are expected to increase as additional properties are
acquired in our investment portfolio.





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





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





On
February 25, 2008, our board of directors declared a distribution for each
monthly period commencing 30 days subsequent to acquiring our initial portfolio
of real estate investments, payable in cash on the 2nd day following each month
end to stockholders of record at the close of business each day during the
applicable period. We acquired our initial real estate investment on March 5,
2008.  Accordingly, our daily distribution commenced accruing on April
5, 2008.  The REIT’s initial distribution payment was paid to
stockholders on May 21, 2008, representing distributions accrued from April 5,
2008 through April 30, 2008.  Subsequently, we modified the payment
date to the 2nd day following each month end to stockholders of record at the
close of business each day during the applicable period.  The
distribution is calculated based on stockholders of record each day during the
applicable period at a rate of $0.00178082191 per day, and equals a daily amount
that, if paid each day for a 365-day period, would equal a 6.5% annualized rate
based on the share price of $10.00.  On November 5, 2008,
the board of directors approved an increase in our annual cash distribution from
$.65 to $.67 per share.  Based on a $10.00 share price, this 20 basis
point increase, effective January 2, 2009, results in an annualized distribution
rate of 6.7%. During the three and nine months ended September 30, 2009,
distributions paid totaled $883,455 and $1,513,848, respectively. These amounts
include $358,367 and $593,578 of common shares issued under the DRIP for the
three and nine months ended September 30, 2009, respectively.  As of
September 30, 2009, cash used to pay our distributions was entirely generated
from funds received from operating activities and fee waivers from our
Advisor.  Our distributions have not been paid from any other
sources.  We have continued to pay distributions to our shareholders each
month since our initial distribution payment.





In
addition, we may continue to raise capital through the issuance of
unsecured notes payable.  Proceeds from such issuances will augment the
capital being raised through the sale of common stock.  We believe our
notes programs offer an efficient and cost effective source of funds.  The
term of these notes will generally be between three and five years.  Total
gross proceeds from note issuances for the nine months ended September 30, 2009
were $11,911,000.





41





The
payment terms of our loan obligations vary. In general, principal and interest
is payable monthly with all unpaid principal and interest due at maturity.
Certain of our mortgage loans have initial payments of interest only but require
principal repayment in subsequent years. Our loan agreements stipulate that we
comply with specific reporting and financial covenants. As of September 30,
2009, we were in compliance with the debt covenants under our loan
agreements.





Our
Advisor may, with approval from our independent board of directors, seek to
borrow short-term bridge equity that, combined with secured mortgage financing,
exceeds our targeted leverage ratio. Such short-term bridge equity may be
derived from the $10.0 million revolving bridge equity facility established
between principals of the Advisor and the OP, or the $10.0 million related
party bridge facility established between ARC Bridge and the REIT as described
in Note 10 of our financial statements — Related-Party Transactions and
Arrangements. In addition, short-term bridge equity may be obtained from
third-parties on a case-by-case basis as acquisition opportunities present
themselves simultaneous with our capital raising efforts. We view the use of
short-term bridge equity as an efficient and accretive means of acquiring real
estate in advance of raising equity capital. Accordingly, we can take advantage
of buying opportunities as we expand our fund raising activities. As additional
equity capital is obtained in connection with our offering, these short-term
bridge equity investments will be satisfied. As of September 30, 2009, we had
$10.0 million available under our related party bridge equity facility and there
were no borrowings outstanding under this facility. Excluding such short-term
bridge equity and other notes payable, our leverage ratio approximated 59%
(secured mortgage notes payable as a percentage of total real estate
investments, at cost) as of September 30, 2009.





It is our
expectation to continue to use availability under our revolving related party
credit facilities.  The use of these funds is an efficient and
accretive means of acquiring real estate investments while we continue to raise
equity capital through our continuous Offering.  We attempt to time
our acquisitions appropriately as we negotiate with sellers, seek long-term
mortgage financings and receive proceeds from the issuance of our common
shares.  Our revolving bridge facilities afford us an opportunity to
acquire high quality properties that meet our core strategy while we are
furthering our efforts with respect to raising equity capital.  Since
December 31, 2008, excluding the approximately $15,900,000 of non-related party
bridge equity borrowings repaid, approximately $27,245,000 of outstanding
advances under our revolving related party facilities was
satisfied.








42


As of
September 30, 2009, we had cash of approximately $8,697,000, which we expect to
be used for acquisitions of new properties, to satisfy short-term bridge funds,
pay operating expenses and pay stockholder distributions. In addition, the
approximate $283,000 of debt and other contractual obligations coming due during
the remainder of 2009 will be paid with cash flow generated from operations and
proceeds from our Offering.




Contractual
Obligations





The
following is a summary of our contractual obligations as of September 30,
2009:




Principal Payments Due During the Years Ending
      December 31Contractual
                  Obligations
                
                Total
                
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                ThereafterMortgage
      notes payable
                
                $
                137,309,568
                
                
                $
                283,292
                
                
                $
                1,262,297
                
                
                $
                2,122,777
                
                
                $
                2,278,141
                
                
                $
                59,087,627
                
                
                $
                72,275,434Short-term
      bridge equity
                
                
                15,878,495
                
                
                
                —
                
                
                
                15,878,495
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Long-term
      notes payable
                
                
                13,000,000
                
                
                
                —
                
                
                
                —
                
                
                
                13,000,000
                
                
                
                —
                
                
                
                —
                
                
                
                —Purchase
      obligations (1)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —$
                166,188,063
                
                
                $
                283,292
                
                
                $
                17,140,792
                
                
                $
                15,122,777
                
                
                $
                2,278,141
                
                
                $
                59,087,627
                
                
                $
                72,275,434






Interest Payments Due During the Years Ending
      December 31Contractual
                Obligations
              
              Total
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              ThereafterMortgage
      notes payable
              
              $
              63,247,051
              
              
              $
              2,585,376
              
              
              $
              8,221,668
              
              
              $
              8,099,289
              
              
              $
              7,981,943
              
              
              $
              6,834,237
              
              
              $
              29,524,538Short-term
      bridge equity
              
              
              710,122
              
              
              
              233,326
              
              
              
              476,796
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Long-term
      notes payable
              
              
              2,546,744
              
              
              
              296,208
              
              
              
              1,175,173
              
              
              
              1,075,363
              
              
              
              —
              
              
              
              —
              
              
              
              —$
              66,503,917
              
              
              $
              3,114,910
              
              
              $
              9,873,637
              
              
              $
              9,174,652
              
              
              $
              7,981,943
              
              
              $
              6,834,237
              
              
              $
              29,524,538





(1)
            As
      of September 30, 2009, we have commitments to purchase a Home Depot
      distribution facility, a portfolio of CVS pharmacies and a portfolio of
      Bridgestone retail facilities at a total purchase price of approximately
      $93.5 million. The acquisitions will be acquired with a combination of
      cash and financing arrangements. The terms of financing arrangements are
      not yet finalized.


43





Election
as a REIT





We are
qualified and have elected to be taxed as a REIT under Sections 856 through
860 of the Code commencing with our taxable year ended December 31, 2008.
We generally are not 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. 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.





Inflation





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





Related-Party
Transactions and Agreements





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





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements that 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.





44





Item
3. Quantitative and Qualitative Disclosures About Market Risk





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





As of
September 30, 2009, our debt included fixed-rate debt with a carrying value of
approximately $74,523,000 and a fair value of approximately $64,911,000. Changes
in market interest rates on our fixed rate debt impact fair value of the debt,
but it has no impact on interest incurred or cash flow. For instance, if
interest rates rise 100 basis points and our fixed rate debt balance remains
constant, we expect the fair value of our debt to decrease, the same way the
price of a bond declines as interest rates rise. The sensitivity analysis
related to our fixed–rate debt assumes an immediate 100 basis point move in
interest rates from their September 30, 2009 levels, with all other variables
held constant. A 100 basis point increase in market interest rates would result
in a decrease in the fair value of our fixed rate debt by approximately
$4,943,000. A 100 basis point decrease in market interest rates would result in
an increase in the fair value of our fixed-rate debt by approximately
$5,775,000.





As of
September 30, 2009, our debt included variable-rate mortgage notes payable with
a carrying value of $62,786,000. 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 September 30, 2009 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 approximately $628,000 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
September 30, 2009, it does not consider exposures or positions arising after
that date. The information represented herein has limited predictive value. As a
result, the ultimate realized gain or loss with respect to interest rate
fluctuations will depend on cumulative exposures, hedging strategies employed
and the magnitude of fluctuations.





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 nine months ended
September 30, 2009 that has materially affected, or is reasonable likely to
materially affect, our internal controls over financial
reporting.


45


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, 2008.





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





Share
Redemption Program





Our board of directors has adopted a
share repurchase program that enables our stockholders to sell their shares to
us in limited circumstances. In order to provide stockholders with the benefit
of interim liquidity, stockholders who have held their shares for at least one
year and who purchased their shares from us or received the shares through a
non-cash transaction, not in the secondary market, may present all or a portion
of the holder’s shares to us for repurchase. At that time, we may, subject to
the conditions and limitations, redeem the shares presented for repurchase for
cash to the extent that we have sufficient funds available to us to fund such
repurchase. Upon the death or disability of a stockholder, upon request, we will
waive the one-year holding requirement. Shares repurchased in connection with
the death or disability of a stockholder will be repurchased at a purchase price
equal to the price actually paid for the shares during the offering, or if not
engaged in the offering, the current net asset value of the shares if higher.
During any calendar year, the number of shares we will repurchase will be
limited in any calendar year to 5% of the weighted average number of shares
outstanding during the prior year; provided, however, that shares subject to a
repurchase requested upon the death or disability of a stockholder will not be
subject to this cap.  The cash available for repurchase of our shares
is funded by our DRIP, as well as from proceeds of the sale of shares in a
public offering, and with other available allocated operating
funds.





As of
September 30, 2009, 3,000 shares have been redeemed under this program at a
total redemption value of $28,875.





Item
3. Defaults Upon Senior Securities




None





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




None


46





Item 5. Other
Information




None




Item 6. Exhibits





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





47


SIGNATURES





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




American
      Realty Capital Trust, Inc.By:
                  
                  /s/ Nicholas S. SchorschNicholas
      S. SchorschChief
      Executive Officer (Principal Executive Officer)By:
                  
                  /s/ Brian S. BlockBrian
      S. BlockExecutive  Vice
      President, Chief Financial Officer
                    (Principal
      Accounting Officer)





Date: November
16, 2009





48


EXHIBIT
INDEX





The
following exhibits are included, or incorporated by reference, in this Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009 (and are numbered
in accordance with Item 601 of Regulation S-K).





Exhibit
      No.
            Description





31.1
            Certification
      of the Principal Executive Officer of the Company pursuant to Securities
      Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002 (filed
  herewith).





31.2
            Certification
      of the Principal Financial Officer of the Company pursuant to Securities
      Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002 (filed
  herewith).





32
            Written
      statements of the Principal Executive Officer and Principal Financial
      Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
      herewith).





49