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 June 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 August 13, 2009
was 6,437,921 shares.










AMERICAN REALTY
CAPITAL TRUST, INC.


INDEX




PART
      I — FINANCIAL INFORMATIONItem 1.
      Financial StatementsConsolidated
      Balance Sheets as of June 30, 2009 (Unaudited) and December 31,
      2008
            3Consolidated
      Statements of Operations for the three months and six months ended June
      30, 2009 and 2008 (Unaudited)
            4Consolidated
      Statement of Stockholders’ Equity for the six months ended June 30, 2009
      (Unaudited)
            5Consolidated
      Statements of Cash Flows for the six months ended June 30, 2009 and 2008
      (Unaudited)
            6Notes
      to Consolidated Financial Statements (Unaudited)
            7Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
            23Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
            31PART
      II — OTHER INFORMATION
            32Item 1.
      Legal Proceedings
            32Item
      1A. Risk Factors
            32Item 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
            32Item 3.
      Defaults Upon Senior Securities
            32Item 4.
      Submission of Matters to a Vote of Security Holders
            32Item 4T.
      Controls and Procedures
            32Item 5.
      Other Information
            32Item 6.
      Exhibits
            32Signatures
            33







2





PART
I - Financial Information





Item
1. Financial Statements





AMERICAN REALTY CAPITAL
TRUST, INC.


CONSOLIDATED
BALANCE SHEETS





June
      30,
              2009
              (Unaudited)
            
            December
      31,
              2008ASSETSReal
      estate investments, at cost:Land
            
            $
            22,278,223
            
            
            $
            22,300,442Buildings,
      fixtures and improvements
            
            
            126,207,009
            
            
            
            126,022,191Acquired
      intangible lease assets
            
            
            16,448,018
            
            
            
            16,448,018Total
      real estate investments, at cost
            
            
            164,933,250
            
            
            
            164,770,631Less
      accumulated depreciation and amortization
            
            
            (6,476,256
            )
            
            
            (3,056,449
            )Total real estate investments, net
            
            
            158,456,994
            
            
            
            161,714,182Cash
            
            
            3,429,763
            
            
            
            886,868Restricted
      cash
            
            
            44,729
            
            
            
            47,937Prepaid
      expenses and other assets
            
            
            2,481,878
            
            
            
            302,472Deferred
      financing costs, net
            
            
            2,668,140
            
            
            
            1,990,992Total
      assets
            
            $
            167,081,504
            
            
            $
            164,942,451





LIABILITIES AND STOCKHOLDERS’
      EQUITYShort-term
      bridge funds:Short-term
      bridge funds
            
            $
            —
            
            
            $
            11,953,796Related
      party bridge facility
            
            
            3,053,172
            
            
            
            8,477,163Related
      party convertible bridge revolver
            
            
            —
            
            
            
            6,500,000Short-term
      convertible redeemable preferred
            
            
            —
            
            
            
            3,995,000Total
      short-term bridge funds
            
            
            3,053,172
            
            
            
            30,925,959Mortgage
      notes payable
            
            
            112,249,667
            
            
            
            112,741,810Long-term
      notes payable
            
            
            13,000,000
            
            
            
            1,089,500Below-market
      lease liabilities, net
            
            
            9,242,748
            
            
            
            9,400,293Derivatives,
      at fair value
            
            
            2,583,274
            
            
            
            4,232,865Due
      to affiliates
            
            
            —
            
            
            
            2,223,144Accounts
      payable and accrued expenses
            
            
            784,974
            
            
            
            1,687,932Deferred
      rent and other liabilities
            
            
            796,975
            
            
            
            781,538Distributions
      payable
            
            
            217,476
            
            
            
            69,263Investor
      contributions held in escrow
            
            
            30,824
            
            
            
            30,824Total
      liabilities
            
            
            141,959,110
            
            
            
            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, 4,332,141 and
      1,276,814 shares issued and outstanding at June 30, 2009 and December 31,
      2008, respectively
            
            
            43,321
            
            
            
            12,768Additional
      paid-in capital
            
            
            34,274,297
            
            
            
            9,219,901Accumulated
      other comprehensive loss
            
            
            (1,607,183
            )
            
            
            (2,675,515
            )Accumulated
      deficit
            
            
            (7,588,041
            )
            
            
            (4,797,831
            )Total
      stockholders’ equity
            
            
            25,122,394
            
            
            
            1,759,323Total
      liabilities and stockholders’ equity
            
            $
            167,081,504
            
            
            $
            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 June 30,
                        
                        
                        Six
      Months Ended June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Revenues:Rental
      income
                        
                        $
                        2,935,069
                        
                        
                        $
                        1,348,082
                        
                        
                        $
                        5,862,009
                        
                        
                        $
                        1,562,508Expenses:Property
      management fees to affiliate
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        4,230General
      and administrative
                        
                        
                        72,298
                        
                        
                        
                        83,740
                        
                        
                        
                        197,610
                        
                        
                        
                        272,599Depreciation
      and amortization
                        
                        
                        1,729,909
                        
                        
                        
                        736,483
                        
                        
                        
                        3,459,819
                        
                        
                        
                        907,960Total
      operating expenses
                        
                        
                        1,802,207
                        
                        
                        
                        820,223
                        
                        
                        
                        3,657,429
                        
                        
                        
                        1,184,789Operating
      income
                        
                        
                        1,132,862
                        
                        
                        
                        527,859
                        
                        
                        
                        2,204,580
                        
                        
                        
                        377,719Other
      income (expense):Interest
      expense
                        
                        
                        (2,318,504
                        )
                        
                        
                        (1,180,260
                        )
                        
                        
                        (4,770,129
                        )
                        
                        
                        (1,371,970
                        )Interest
      income
                        
                        
                        510
                        
                        
                        
                        1,216
                        
                        
                        
                        4,979
                        
                        
                        
                        1,216Gains
      on derivative instruments
                        
                        
                        512,121
                        
                        
                        
                        196,816
                        
                        
                        
                        548,966
                        
                        
                        
                        196,816Total
      other expenses
                        
                        
                        (1,805,873
                        )
                        
                        
                        (982,228
                        )
                        
                        
                        (4,216,184
                        )
                        
                        
                        (1,173,938
                        )Net
      loss
                        
                        $
                        (673,011
                        )
                        
                        $
                        (454,369
                        )
                        
                        $
                        (2,011,604
                        )
                        
                        $
                        (796,219
                        )Basic
      and diluted weighted averagecommon
      shares outstanding
                        
                        
                        3,151,715
                        
                        
                        
                        860,102
                        
                        
                        
                        2,343,796
                        
                        
                        
                        497,057Basic
      and diluted loss per share
                        
                        $
                        (0.21
                        )
                        
                        $
                        (0.53
                        )
                        
                        $
                        (0.86
                        )
                        
                        $
                        (1.60
                        )




The accompanying
notes are an integral part of these financial statements


4





AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


SIX
MONTHS ENDED JUNE 30, 2009


(Unaudited)




Common
      StockNumber
      of
              Shares
            
            
            Par
      Value
            
            
            Additional
              Paid-In
      Capital
            
            
            Accumulated
              Deficit
            
            
            Accumulated
              Other
              Comprehensive
              Income
            
            
            Total
              Stockholders’
              EquityBalance,
      December 31, 2008
            
            
            1,276,814
            
            
            $
            12,768
            
            
            $
            9,219,901
            
            
            $
            (4,797,831
            )
            
            $
            (2,675,515
            )
            
            $
            1,759,323Issuance
      of common stock
            
            
            3,030,568
            
            
            
            30,306
            
            
            
            30,065,308
            
            
            
            —
            
            
            
            —
            
            
            
            30,095,614Offering
      costs, commissions and dealer manager fees
            
            
            —
            
            
            
            —
            
            
            
            (5,245,876
            )
            
            
            —
            
            
            
            —
            
            
            
            (5,245,876
            )Common
      stock issued through dividend reinvestment program
            
            
            24,759
            
            
            
            247
            
            
            
            234,964
            
            
            
            —
            
            
            
            —
            
            
            
            235,211Distributions
      declared
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (778,606
            )
            
            
            —
            
            
            
            (778,606
            )Designated
      derivatives fair value adjustment
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,068,332
            
            
            
            1,068,332Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,011,604
            )
            
            
            —
            
            
            
            (2,011,604
            )Total
      comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (943,272
            )Balance,
      June 30, 2009
            
            
            4,332,141
            
            
            $
            43,321
            
            
            $
            34,274,297
            
            
            $
            (7,588,041
            )
            
            $
            (1,607,183
            )
            
            $
            25,122,394





The accompanying
notes are an integral part of these financial statements





5





AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)




Six
      Months Ended June 30,2009
            
            
            
            2008Cash
      flows from operating activities:Net
      loss
            $
            (2,011,604
            )
            
            $
            (796,219
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
            
            2,764,275
            
            
            
            760,540Amortization
      of intangibles
            
            695,544
            
            
            
            147,420Amortization
      of deferred finance costs
            
            276,445
            
            
            
            32,162Accretion
      of below-market lease liability
            
            (157,545
            )
            
            
            -Gains on
      derivative instruments
            
            (548,966
            )
            
            
            (196,816
            )Changes
      in assets and liabilities:Prepaid
      expenses and other assets
            
            (2,219,418
            )
            
            
            (125,004
            )Accounts
      payable and accrued expenses
            
            (935,251
            )
            
            
            603,201Due
      to affiliates
            
            (2,223,144
            )
            
            
            -Deferred
      rent and other liabilities
            
            15,437
            
            
            
            501,040Net
      cash (used in) provided by operating activities
            
            (4,344,227
            )
            
            
            926,324Cash
      flows from investing activities:Investment
      in real estate and other assets
            
            (162,619
            )
            
            
            (39,917,898
            )Net
      cash used in investing activities
            
            (162,619
            )
            
            
            (39,917,898
            )Cash
      flows from financing activities:Proceeds
      on mortgage notes payable
            
            -
            
            
            
            28,407,500Payments
      on mortgage notes payable
            
            (492,143
            )
            
            
            (72,426
            )Payments
      on related party bridge facility
            
            (5,423,991
            )
            
            
            -Proceeds
      on related party convertible bridge revolver
            
            -
            
            
            
            6,500,000Payments
      on related party convertible bridge revolver
            
            (6,500,000
            )
            
            
            -Payments
      on short-term bridge funds
            
            (11,953,796
            )
            
            
            -Payments
      on short-term convertible redeemable preferred
            
            (3,995,000
            )
            
            
            -Proceeds
      from long-term notes payable
            
            11,910,500
            
            
            
            -Proceeds
      from issuance of common stock, net
            
            24,849,738
            
            
            
            5,621,789Payments
      of deferred financing costs
            
            (953,593
            )
            
            
            (838,829
            )Distributions
      paid
            
            (395,182
            )
            
            
            (57,291
            )Restricted
      cash
            
            3,208
            
            
            
            (42,500
            )Net
      cash provided by financing activities
            
            7,049,741
            
            
            
            39,518,243Net
      increase in cash
            
            2,542,895
            
            
            
            526,669Cash,
      beginning of period
            
            886,868
            
            
            
            —Cash,
      end of period
            $
            3,429,763
            
            
            $
            526,669Supplemental
      Disclosures of Non-Cash Investing and Financing
Activities:Debt
      assumed in real estate acquisitions
            $
            —
            
            
            $
            41,918,796Common
      share issuance in real estate acquisition
            $
            —
            
            
            $
            2,609,971Investor
      contributions held in escrow
            $
            —
            
            
            $
            472,548Non-cash
      acquisition costs
            $
            —
            
            
            $
            76,300Cash
      paid for interest
            $
            4,909,397
            
            
            $
            970,481





The accompanying
notes are an integral part of these financial statements


6





AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





Note
1 — Organization





American
Realty Capital Trust, Inc. (the “Company”), incorporated on August 17, 2007, is
a newly formed 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 June 30, 2009, the Company issued 4,332,141 shares of common
stock, including 339,077 shares issued in connection with an acquisition in
March 2008. Total gross proceeds from these issuances were $42,050,937. As of
June 30, 2009, the aggregate value of all share issuances and subscriptions
outstanding was $45,325,046 based on a per share value of $10.00 (or $9.50 for
shares issued under the DRIP). This amount includes stock subscriptions of
$2,023,896 which are maintained at the Company’s third-party escrow agent,
to be released when certain escrow requirements have been achieved.





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





The
Company acquires and operates commercial properties. All such properties may be
acquired and operated by the Company alone or jointly with another party. As of
June 30, 2009, the Company owned 92 properties comprising approximately 713,000
square feet of freestanding, single tenant commercial space. As of June 30,
2009, these properties were 100% occupied.  The following table lists
tenants whose rental income represented greater than 10% of consolidated income
for the six months ended June 30, 2009 and 2008:





Six
      Months Ended June 30,2009
            
            2008PNC
      Bank
            32%
            
            -%Harleysville
      National Bank
            27%
            
            58%Rockland
      Trust Company
            22%
            
            27%Rite
      Aid
            13%
            
            -%Federal
      Express (a)
            -%
            
            15%




(a)
            Percentage for
      the six months ended June 30, 2009 was approximately
    6%.




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.





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




7





REALTY
CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





Note
2 — Summary of Significant Accounting Policies





Basis
of Presentation





Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or consolidated pursuant to the
rules and regulations of the Securities and Exchange Commission. Management
believes, however, that the disclosures are adequate to make the information
presented not misleading. The unaudited interim consolidated financial
statements should be read in conjunction with the audited financial statements
and the notes thereto included in the Company’s annual report on Form 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 accounting principles
generally accepted in the United States of America.





Principles
of Consolidation and Basis of Presentation





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





Use
of Estimates





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





Real
Estate Investments





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





Impairment
of Long Lived Assets





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





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





8





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





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.




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
June 30, 2009 and December 31, 2008, acquired lease intangible assets consisted
of above-market leases and in-place lease intangibles totaling $16,448,018, with
accumulated amortization of $1,217,600 and $522,056, as of June 30, 2009 and
December 31, 2008, respectively. The estimated amortization expense for the
years 2009, 2010, 2011, 2012 and 2013 will be approximately $1,043,000,
$1,391,000, $1,391,000, $1,391,000 and $1,391,000, respectively. In addition,
below-market lease liabilities totaled $9,426,551with accumulated amortization
of $183,803 and $26,258 as of June 30, 2009 and December 31, 2008, respectively.
The estimated accretion to revenues for the years 2009, 2010, 2011, 2012 and
2013 will be approximately $236,000, $315,000, $315,000, $315,000, and $315,000,
respectively.




9




AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)




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.





SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133,” (“SFAS No. 161”), amends and expands the
disclosure requirements of SFAS No. 133, “Accounting For Derivative Instruments
and Hedging Activities,” (“SFAS No. 133”) with the intent to provide users of
financial statements with an enhanced understanding of: (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about the fair value of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative instruments.





As
required by SFAS No. 133, 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 under SFAS
No. 133.





Investor
contributions held in Escrow





The
Company is currently engaged in a public offering of its common stock. Included
in investor contributions held in escrow on the accompanying balance sheets is
$30,824 of offering proceeds for which shares of common stock had not been
issued as of June 30, 2009.




Revenue
Recognition





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




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




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





Organization,
Offering, and Related Costs





Organization
and offering costs (other than selling commissions and the dealer manager fee)
of the Company may be paid by the Advisor, the Dealer Manager or their
affiliates on behalf of the Company. Such organization and offering costs
include all expenses to be paid by the Company in connection with the Offering,
including but not limited to (i) legal, accounting, printing, mailing, and
filing fees; (ii) escrow related fees; (iii) reimbursement of the Dealer Manager
for amounts it may pay to reimburse the bona fide diligence expenses of
broker-dealers; and (iv) reimbursement to the Advisor for the salaries of its
employees and other costs in connection with preparing supplemental sales
materials. 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.





10





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)








Reportable
Segments





The
Financial Accounting Standards Board (“FASB”) issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information,” (“SFAS
No. 131”), which establishes standards for reporting financial and descriptive
information about an enterprise’s reportable segments. The Company determined
that it has one reportable segment, with activities related to investing in real
estate. The Company’s investments in real estate generate rental revenue and
other income through the leasing of properties, which comprised 100% of our
total consolidated revenues for the three and six-month periods ended June 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.





Recent
Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) 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. SFAS No. 141(R) 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, SFAS
No. 141(R) 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. SFAS No. 141(R) is effective for fiscal years beginning on
or after December 15, 2008 with early adoption prohibited. The effective
date for the Company is January 1, 2009. The adoption of SFAS No. 141(R) did not
have a material effect on the Company’s results of operations and financial
position.




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







11





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)




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





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




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




In May 2009, the FASB issued SFAS
No. 165, “Subsequent Events” (“SFAS No. 165”), which 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 SFAS is 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 required disclosures upon adoption of this statement can
be found in Note 14.




In April 2009, the FASB issued FSP SFAS
No. 107-1 and APB Opinion No. 28-1, “Interim
Disclosures about Fair Value of Financial Instruments,”(“FSP SFAS No. 107-1 and APB Opinion No.
28-1”). FSP SFAS No. 107-1 and APB Opinion No. 28-1 requires fair value
disclosures for financial instruments that are not reflected in the Condensed
Consolidated Balance Sheets at fair value. Prior to the issuance of FSP SFAS No.
107-1 and APB Opinion No. 28-1, the fair values of those assets and liabilities
were disclosed only once each year. With the issuance of FSP SFAS No. 107-1 and
APB Opinion No. 28-1, this information will be required to be disclosed on a
quarterly basis, providing quantitative and qualitative information about fair
value estimates for all financial instruments not measured in the Condensed
Consolidated Balance Sheets at fair value. FSP SFAS No. 107-1 and APB Opinion
No. 28-1 was adopted by the Company in the second quarter of 2009. The adoption
of this staff position did not have a material impact on the Company’s results
of operations or financial position.
  In April 2009, the FASB issued FSP SFAS
No. 157-4,Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly(“FSP SFAS No. 157-4”). FSP
SFAS No. 157-4 clarifies the methodology used to determine fair value when there
is no active market or where the price inputs being used represent distressed
sales. FSP SFAS No. 157-4 also reaffirms the objective of fair value
measurement, as stated in SFAS No. 157, “Fair Value Measurements,” 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 fair values when markets have become
inactive. FSP SFAS No. 157-4 was adopted by the Company in the second quarter of
2009. The adoption of this staff position did not have a material impact on the
Company’s results of operations or financial position.
  In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
(“SFAS No. 168”). SFAS No. 168 requires that the FASB Accounting Standards
Codification (the “Codification”) become the source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Once the
Codification is in effect, all of its content will carry the same level of
authority, effectively superseding SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company expects that the adoption of SFAS 168 will not have a
significant impact on its financial statements or disclosures.
  In June 2009, the FASB issued Statement
No. 167,Amendments to FASB
Interpretation No. 46(R)(“SFAS 167”). SFAS 167 changes how a
company determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. The
determination of 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 impact the
entity’s economic performance. SFAS No. 167 will be applied prospectively and
will be effective for interim and annual reporting periods ending after November
15, 2009. The adoption of this statement is not anticipated to have a material
impact on the Company’s consolidated financial statements.
  12




AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





Note
3 — Real Estate Acquisitions





No real
estate investments were acquired during the six months ended June 30, 2009. The
following table represents the Company’s real estate portfolio as of June 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
            
            9.42
            
            $
            9,694,179
            
            7.53%
            
            10,207,674
            
            $
            730,065Harleysville
      National Bank Portfolio
            
            March
      2008
            
            15
            
            177,774
            
            13.51
            
            
            40,976,218
            
            7.48%
            
            41,675,721
            
            
            3,063,912Rockland
      Trust Company Portfolio
            
            May
      2008
            
            18
            
            121,057
            
            12.09
            
            
            32,188,000
            
            7.86%
            
            33,117,419
            
            
            2,529,665PNC
      Bank (formally National City Bank)
            
            Sept. & Oct. 2008
            
            2
            
            8,403
            
            19.64
            
            
            6,663,786
            
            8.21%
            
            6,853,419
            
            
            546,943Rite
      Aid Portfolio
            
            September
      2008
            
            6
            
            74,919
            
            14.04
            
            
            18,575,727
            
            7.79%
            
            18,839,392
            
            
            1,446,843PNC
      Bank Portfolio
            
            November
      2008
            
            50
            
            275,436
            
            9.42
            
            
            42,285,714
            
            7.35%
            
            44,813,074
            
            
            3,107,754Total
            
            
            
            92
            
            713,029
            
            12.10
            
            $
            150,383,624
            
            7.60%
            
            155,506,699
            
            $
            11,425,182


________________________


(1)
      -
            Remaining
      lease term as of June 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 acquisition related costs.(5)
      -
            Annualized
      2009 rental income less property operating expenses, as
      applicable.










13





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





Note
4 — Mortgage Notes Payable





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




Property
            
            Encumbered
              Properties
            
            Outstanding
              Loan
      Amount
            
            Effective
      Interest
              Rate
            
            Interest
      Rate
            
            MaturityFederal
      Express Distribution Center
            
            1
            
            $
            6,965,000
            
            6.29
      %
            
            Fixed
            
            September
      2037Harleysville
      National Bank Portfolio
            
            15
            
            
            31,000,000
            
            6.59
      %
            (1)
            Fixed
            
            January
      2018Rockland
      Trust Company Portfolio
            
            18
            
            
            23,880,175
            
            4.92
      %
            (2)
            Variable
            
            May
      2013PNC
      Bank (formally National City Bank)
            
            2
            
            
            4,447,953
            
            4.89
      %
            (3)
            Variable
            
            September
      2013Rite
      Aid Portfolio
            
            6
            
            
            12,808,265
            
            6.97
      %
            
            Fixed
            
            September
      2017PNC
      Bank Portfolio
            
            50
            
            
            33,148,274
            
            5.25
      %
            (4)
            Variable
            
            November
      2013Total
            
            92
            
            $
            112,249,667


________________________




(1)  -
            The
      effective interest rate resets at the end of year five to the then current
      5-year Treasury rate plus 2.25%, but in no event will be less than
      6.5%.(2)  -
            The
      Company limited its interest rate exposure by entering into a rate lock
      agreement with a LIBOR floor and cap of 3.54% and 4.125% (initial year),
      respectively.(3)  -
            The
      Company limited its interest rate exposure by entering into a rate lock
      agreement with a LIBOR floor and cap of 3.37% and 4.45% (initial year),
      respectively, for a notional contract amount of approximately $4,115,000
      and a fixed rate of 3.565% on a notional contract amount of approximately
      $385,000.(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%.








14





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





The
following table summarizes the scheduled aggregate principal repayments for the
five years subsequent to June 30, 2009:




Mortgage
              Notes2009
      (Remaining portion of year)
            
            $
            483,3712010
            
            
            1,012,3322011
            
            
            1,855,0752012
            
            
            1,991,4432013
            
            
            58,780,5862014
      and thereafter
            
            
            48,126,860Total
            
            $
            112,249,667





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





Note
5 — Long-Term Notes Payable





As of
June 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 the short-term bridge equity (see Note 8 – Bridge
Equity).





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





Note
6 — Fair Value of Financial Instruments





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





15





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)




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





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





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





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





Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with those derivatives utilize Level 3
inputs, such as estimates of current credit spreads to evaluate the likelihood
of default by the Company and its counterparties.  However, as of June
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 assets (including
derivatives that are presented net) measured at fair value on a recurring basis
as of June 30, 2009, aggregated by the level in the fair value hierarchy within
with those instruments fall:




Quoted
      Prices in
              Active
      Markets
              Level
      1
            
            
            Significant
              Other
              Observable
              Inputs
              Level
      2
            
            
            Significant
              Unobservable
      Inputs
              Level
      3
            
            
            Balance
      as of
              June
      30, 2009Total
      derivatives, net
            
            $
            —
            
            
            $
            2,583,274
            
            
            $
            —
            
            
            $
            2,583,274




SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of 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, restricted cash, due to affiliates, related party
bridge facility and accounts payable and accrued expenses approximates their
carrying value on the consolidated balance sheet. In addition, the fair value of
long term notes payable approximates carrying value on the consolidated balance
sheets.
  The fair
values of the Company’s remaining financial instruments that are not reported at
fair value on the consolidated Balance Sheets are reported
below:
 
 Fair
      Value of Financial InstrumentsJune
      30, 2009
              
              
              December
      31, 2008Carrying
      Value
              
              
              Fair
      Value
              
              
              Carrying
      Value
              
              
              Fair
      ValueMortgage
      notes payable
              
              $
              112,249,667
              
              
              $
              104,334,437
              
              
              $
              112,741,810
              
              
              $
              105,617,656


Note 7
— 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 others purposes other than interest rate risk
management. The use of derivative financial instruments carries certain risks,
including the risk that the counterparties to these contractual arrangements are
not able to perform under the agreements. To mitigate this risk, the Company
only enters into derivative financial instruments with counterparties with high
credit ratings and with major financial institutions with which the Company and
its affiliates may also have other financial relationships. The Company does not
anticipate that any of the counterparties will fail to meet their
obligations.





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 six months
ended June 30, 2009, the Company recorded income (loss) of $64 and a ($311),
respectively, related to hedge ineffectiveness in earnings.





16





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)




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 $1,055,502 will be reclassified as an increase to
interest expense.





As of
June 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
            
            $
            33,347,101Interest
      Rate Collars
            
            1
            
            $
            4,115,268





Non-Designated
Hedges





Derivatives
not designated as hedges are not speculative and 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 of SFAS 133. The Company has
one interest rate collar contract outstanding, with an aggregate notional amount
of $23,901,052 at June 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 under SFAS No. 133 as it does not qualify for hedge
accounting based on the results of the net written option test.  As
such, all changes in the fair value of the interest rate collar have been
included in the Company’s statement of operations for the three and six months
ended June 30, 2009.  For the three and six months ended June 30,
2009, the Company has recorded income of $322,386 and $179,550, respectively.
For the three and six months ended June 30, 2008, the Company recorded a loss of
$196,816.





Tabular
Disclosure of Fair Values of Derivative Instruments on the Balance
Sheet





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 June 30,
2009:





Balance
      Sheet Location
            
            Fair
      ValueDerivatives designated
      as hedging instruments under SFAS No. 133Interest
      Rate Products
            Derivatives,
      at fair value
            
            ($1,515,754)Derivativesnotdesignated
      as hedging instruments under SFAS No.
    133Interest
      Rate Products
            Derivatives,
      at fair value
            
            ($1,067,520)





Tabular
Disclosure of the Effect of Derivative Instruments on the Income
Statement





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


17





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)




Derivatives
in SFAS No.
133 Cash Flow
Hedging Relationships


Derivatives
      in SFAS No. 133 Cash
              Flow
      Hedging Relationships
            
            Amount
      of Gain or (Loss) Recognized in OCI on
              Derivative
      (Effective Portion)Three
      Months Ended June 30, 2009
            
            Six
      Months Ended June 30, 2009Interest
      Rate Derivatives
            
            $708,810
            
            $483,073




Location
      of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective
      Portion)
              
              Amount
      of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective
      Portion)
              
              Location
      of Gainor
      (Loss)Recognized
      inIncome
      onDerivative(IneffectivePortion
      andAmountExcluded
      fromEffectivenessTesting)
              
              Amount
      ofGain
      or (Loss)Recognized
      inIncome
      onDerivative(IneffectivePortion
      andAmountExcluded
      fromEffectivenessTesting)Three
      Months Ended
                June
      30, 2009
              
              Six
      Months
                Ended
                June
      30, 2009
              
              
              
              Three
      Months Ended
                June
      30, 2009
              
              Six
                Months
      Ended
                June
      30, 2009Interest
      Expense
              
              ($300,348)
              
              ($585,258)
              
              Gains
      (Losses) on Derivative Instruments
              
              $64
              
              ($311)







Derivatives
Not Designated
as Hedging Instruments
Under SFAS No.
133


Amount
      of Gain or (Loss)
                        Recognized
      in Income on DerivativeLocation
      of Gain or (Loss)
                      Recognized
      in Income on Derivative
                    
                    Three
      Months Ended June 30, 2009
                    
                    
                    Six
      Months Ended June 30, 2009Interest
      expense
                    
                    $
                    (189,671
                    )
                    
                    $
                    (369,727
                    )Gains
      (losses) onderivative
      instruments
                    
                    
                    512,057
                    
                    
                    
                    549,277Total
                    
                    $
                    322,386
                    
                    
                    $
                    179,550


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
June 30, 2009, the fair value of derivatives in a net liability position,
related to these agreements was $2,583,274. As of June 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
June 30, 2009, it could have been required to settle its obligations under the
agreements at their aggregate termination value of $2,848,995.





Note
8 — Bridge Equity





During
the year ended December 31, 2008, the OP entered into an agreement with the
principals of the Advisor whereby the OP can make use of unsecured equity
financing from the principals up to $10.0 million from time to time as needed to
provide short-term bridge equity relating to property acquisitions and for
general working capital purposes. Such short-term bridge equity is expected to
be satisfied within a six-month period and will accrue a yield at 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 $4.0 and $2.5 million, 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 during the three months ended June 30, 2009.





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 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. During the six months ended June
30, 2009, the Company satisfied approximately $5.4 million of unsecured
bridge equity. Such repayments were funded by proceeds from the sale of the
Company’s common shares. The outstanding balance on the related party bridge
equity facility was $3,053,172 as of June 30, 2009.


18





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)




During
the year ended December 31, 2008, the REIT obtained short-term bridge equity and
short-term convertible redeemable preferred equity of approximately $12.0
million and $4.0 million, respectively, from an unrelated third
party.  The bridge equity 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. The
short-term convertible redeemable preferred equity of approximately $4.0
million 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.





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, 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. During
the three and six months ended June 30, 2009, the Company paid $2,125,868, and
$2,831,880, respectively, to the Dealer Manager for commissions and dealer
manager fees, of which $150,479 and $195,489, was reallowed to participating
broker-dealers for the three and six months ended June 30, 2009, respectively.
During the three and six months ended June 30, 2008, the Company paid $37,206,
and $0, respectively, to the Dealer Manager for commissions and dealer manager
fees, of which $0 and was reallowed to participating
broker-dealers.




All
organization and offering expenses associated with the sale of the Company’s
common stock (excluding selling commissions and the dealer-manager fee) are paid
for by the Advisor or its affiliates and are reimbursed by the Company up to
1.5% of gross offering proceeds. The Advisor receives an acquisition and
advisory fee of 1.0% of the contract purchase price of each acquired property
and will be reimbursed for acquisition costs incurred in the process of
acquiring properties, but not to exceed 0.5% of the contract purchase price. In
no event will the total of all fees and acquisition expenses payable with
respect to a particular property or investment exceed 4.0% of the contract
purchase price. The
Company reimbursed organization and offering expenses of $2,090,817. Such amount
includes $1,410,714 of offering costs incurred by the affiliated Advisor and
Dealer Manager that exceeds 1.5% of gross offering proceeds earned as of June
30, 2009. 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 proceeds. During
the three and six months ended June 30, 2008, the Company reimbursed $0 and
$119,207 for organizational and offering expenses, respectively. The
organizational and offering expenses reimbursed during the six months ended June
30, 2008 were subsequently refunded by the Advisor to improve the Company’s
overall working capital position. No acquisition related costs were reimbursed
by the Company during the three and six months ended June 30, 2009. The Company
incurred and paid acquisition advisory fees of $321,880 and $832,117 during the
three and six months ended June 30, 2008, respectively.


19





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





The
Advisor receives a financing coordination fee equal to 1.0% of amounts borrowed
under such financing arrangements. No finance coordination fees were incurred
during the three and six months ended June 30, 2009. During the three and six
months ended June 30, 2008, the Company incurred and paid finance coordination
fees of $244,125 and $623,775, respectively, to its affiliated
Advisor.





The
Company pays its affiliated Property Manager fees for the management and leasing
of the Company’s properties. Such fees equal 2.0% of gross revenues from the
Company’s single tenant properties and 4.0% of the gross revenues from its
multi-tenant properties, plus reimbursement of the Property Managers’ costs of
managing the properties. In the event that the Property Manager assists a tenant
with tenant improvements, a separate fee may be charged to the tenant by the
Property Manager at a fee not to exceed 5.0% of the cost of such tenant
improvements. The Property Manager will be paid leasing commissions at
prevailing market rates and may also receive a fee for the initial leasing of
newly constructed properties, which generally would equal one month’s rent. The
aggregate of all property management and leasing fees paid to affiliates plus
all payments to third parties will not exceed the amount that other
nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. The Property Manager may subcontract
its duties for a fee that may be less than the fee provided for in the property
management agreement. The Property Manager elected to waive its management fees
for the three and six months ended June 30, 2009. During the three and six
months ended June 30, 2008, the Company incurred property management fees of $0
and $4,230, respectively. The property management fees incurred during the six
months ended June 30, 2008 were subsequently refunded by the Property Manager to
improve the Company’s working capital position.





The
Company pays the 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. The Advisor was entitled to
asset management fees of $771,143 and $214,102 during the six months ended June
30, 2009 and 2008, respectively. These fees have been waived (not deferred) by
the Advisor, contributing to the Company funding its distributions to
shareholders entirely from cash generated from funds from operations. As of June
30, 2009, the Company paid the Advisor $950,000 of asset management fees for the
subsequent two quarterly periods. Such amount is included within prepaid
expenses on the accompanying balance sheet.





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 six months ended June 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 six months ended June 30,
2009 and 2008, the Company did not reimburse the Advisor for any such
costs.




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, the Company obtained bridge equity of $4,000,000 and $2,500,000
respectively. This bridge equity was repaid during the six months ended June 30,
2009. During the three and six months ended June 30, 2009, the Company incurred
related party interest expense of $81,130 and $209,350, respectively.
During the three and six months ended June 30, 2008, the Company incurred
related party interest expense of $112,658 and $130,192, respectively. As of
June 30, 2009, these balances had been paid in full.




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. The bridge equity investments relating
to the PNC bank locations (formerly National City Bank) and Rite Aid portfolio
acquisitions were $
1,329,576 and $5,335,939, respectively. These bridge equity investments are due
one year from the investment date and can be satisfied at any time without
penalty. During the six months ended June 30, 2009, the Company satisfied
$5,423,991 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 six months ended June 30, 2009, respectively. The Company
incurred interest expense on these advances of $112,808 and $263,521 for
the three and six month periods ended June 30, 2009. During the three and six
months ended June 30, 2008, the Company incurred interest expense on these
advances of $112,658 and $130,192, respectively. As of June 30, 2009, $3,053,173
remained outstanding under this facility as well as $10,177 of accrued interest
payable.





20




AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)








Note 11
— Economic Dependency





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





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





Note 12
— Independent Directors’ Stock Option Plan





The
Company has a stock option plan (the “Plan”), which authorizes the grant of
nonqualified stock options to the Company’s independent directors, subject to
the absolute discretion of the board of directors and the applicable limitations
of the Plan. The Company intends to grant options under the Plan to each
qualifying director annually. The exercise price for all stock options granted
under the Plan will be fixed at $10.00 per share until the termination of our
initial public offering, and thereafter the exercise price for stock options
granted to our independent directors will be equal to the fair market value of a
share on the last business day preceding the annual meeting of stockholders. As
of June 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 accounts for the issuance of stock options under SFAS No. 123R,
“Share-Based Payment,” which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and
directors, including stock options related to the Plan, based on estimated fair
values.





During
the six months ended June 30, 2009, 9,000 options were granted, none were
forfeited or exercised and 4,500 became vested. As of June 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 9.25 years. The
total compensation charge relating to these option grants under SFAS No. 123R 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 six months ended
June 30, 2009 and 2008:




Basic
      and Diluted
              Three
      Months Ended
              June
      30,
            
            Basic
      and Diluted
              Three
      Months Ended
              June
      30,
            
            Basic
      and Diluted
              Six
      Months Ended
              June
      30,
            
            
            Basic
      and Diluted
              Six
      Months Ended
              June
      30,2009
            
            2008
            
            2009
            
            
            2008Net
      loss
            $   (673,011
            )
            $    (454,369
            )
            $
            (2,011,604
            )
            
            $
            (796,219
            )Total
      weighted average common
              shares
      outstanding
            3,151,715
            
            860,102
            
            
            2,343,796
            
            
            
            497,057Loss
      per share
            $        (0.21
            )
            $    (0.53
            )
            $
            (0.86
            )
            
            $
            (1.60
            )




21





AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


(Unaudited)





Note
14 — Subsequent Events





Sale
of Shares of Common Stock





The
Company has evaluated subsequent events through the filing of this Form 10-Q on
August 14, 2009, and determined that there have not been any events that have
occurred that would require adjustments to or additional disclosures
in the unaudited consolidated financial statements except for the following
transactions:





On July
1, 2009 the Company broke escrow on approximately $1.9 million of subscriptions
from investors from Massachusetts and Pennsylvania, which were maintained
at the Company’s third-party escrow agent, Boston Private Bank & Trust
Company, until the Company had sold at least $45 million of shares of common
stock.


As of
August 13, 2009, the Company had issued 6,437,921 shares of common stock,
including 339,077 shares issued in connection with an acquisition in March 2008.
Total gross proceeds from these issuances were $64,393,404. As of August 13,
2009, approximately $1.19 billion (119 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
              June
      30, 2009
            
            
            July
      1 to
              August13,
      2009
            
            
            TotalCommon
      shares
            
            $
            42,050,937
            
            
            $
            22,342,467
            
            
            $
            64,393,404Notes
      payable
            
            
            13,000,000
            
            
            
            -
            
            
            
            13,000,000Exchange
      proceeds (1)
            
            
            -
            
            
            
            2,830,000
            
            
            
            2,830,000Total
            
            $
            55,050,937
            
            
            $
            25,172,467
            
            
            $
            80,223,404




(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.





Real
Estate Acquisitions





FedEx
Freight Facility – Houston, TX





On July
8, 2009, the REIT acquired a 152,640 square foot, newly constructed freight
facility located in Houston, TX, net leased to FedEx Freight and guaranteed by
FedEx Corporation (the “FedEx Facility”).  The purchase price for the
FedEx Facility is approximately $31.7 million. The Fed Ex Facility is net leased
to FedEx, pursuant to which FedEx is required to pay substantially all operating
expenses (other than the costs to maintain and repair the roof and structure of
the building) and capital expenditures in addition to base rent, simultaneously
with the acquisition of the properties.  The primary lease term is
fifteen years, having commenced on October 16, 2008, and provides for up to two
successive five-year extensions. Annual rent is approximately $2.6 million for
the first year of the initial lease term, and annual rent will increase by 8%
every five years.





The
purchase price is funded by a combination of short-term bridge financing and
proceeds from the sale of common shares.  The Company entered into a
one-year bridge credit facility with a lender and received proceeds of
approximately $15.9 million.  The credit facility bears interest at an
annual rate of equal to 5.75%.  The remaining portion of the purchase
price was funded using available funds under the Company’s related party bridge
facilities and equity capital





Walgreens
Location – Sealy, TX





On July
17, 2009, the REIT acquired a fee ownership interest in a 14,850 square foot
Walgreens retail location net leased to Walgreens Co., located in Sealy,
TX.  The Walgreens location is net leased to Walgreens Co., pursuant
to which Walgreens Co. 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, simultaneously with
the acquisition of the properties.  The primary lease term is twenty
five years, having commenced June 18, 2007. Annual rent is
$310,000.





The
purchase price, excluding transaction costs and fees, is approximately $3.8
million and is comprised of a combination of mortgage financing, proceeds from
the sale of common shares and funds received from an unaffiliated joint venture
partner.  The Company entered into a ten-year financing agreement and
received proceeds of approximately $1.6 million. The note agreement bears
interest at an initial rate of 6.55%.  Upon completion of this
acquisition, the Company owns an approximate 56% interest in the asset, while
the joint venture investor owns an approximate 44%
interest.








Real
Estate Investments and Mortgage Notes





Subsequent to the acquisitions
highlighted above, the Company has total real estate investments of
approximately $191.0 million.  These assets are encumbered by
long-term mortgage notes totaling $113.8 million, or aggregate first mortgage
position leverage of 59.6%.





Bridge
Equity





In July
2009, the Company repaid the remaining outstanding balance of $3,053,172
outstanding under its related party bridge facility.





In
connection with acquiring the FedEx Facility, the Company utilized availability
under its related party bridge equity facilities to partially fund the purchase
and has subsequently began repaying such advances.  Outstanding
short-term bridge equity advances as of August 12, 2009, total
$4,803,172.


22





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.





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 June 30,
2009, we issued 4,332,141 shares of common stock, including 339,077 shares
issued in connection with an acquisition in March 2008. Total gross proceeds
from these issuances were $42,050,937. As of June 30, 2009, the aggregate value
of all share issuances and subscriptions outstanding was $45,325,046 based on a
per share value of $10.00 (or $9.50 for shares issued under the DRIP). This
amount includes stock subscriptions of $2,023,896 which are maintained at
our third-party escrow agent, to be released when certain escrow requirements
have been achieved. As of June 30, 2009, we had not redeemed any shares sold in
our ongoing initial public offering pursuant to our share repurchase program. We
are dependent upon the net proceeds from the offering to conduct our proposed
operations.




23





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
June 30, 2009, we owned 92 100% leased properties representing approximately
713,000 square feet, with a weighted average remaining lease term of 12.1 years.
In constructing our portfolio, we are committed to diversification (industry,
tenant and geography).  As of June 30, 2009, rental revenues derived
from investment grade tenants (rated BBB+ or better by Standards & Poor)
approximated 90%.  Our strategy encompasses receiving the majority of
our revenue from investment grade tenants as we further acquire properties and
enter into (or assume) long-term lease arrangements.





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





Significant
Accounting Estimates and Critical Accounting Policies





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





Revenue
Recognition





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





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





Investments
in Real Estate





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





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





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





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


24


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





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





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





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





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





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





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





Purchase
Price Allocation




Pursuant
to SFAS No. 141R, “Business Combinations” we follow the purchase method of
accounting for all business combinations. As such, we recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions.


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





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





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





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





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




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 Company’s
operating and financial structure as well as to hedge specific anticipated
transactions.




SFAS No.
161, “Disclosures about Derivative Instruments and Hedging Activities, an
amendment of SFAS No. 133,” (“SFAS No. 161”)  amends and expands the
disclosure requirements of SFAS No. 133  “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”), with the intent to provide
users of financial statements with an enhanced understanding of: (a) how and why
an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about the fair value of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative instruments.





As
required by SFAS No. 133, 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 under SFAS No. 133.





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.




25








Results
of Operations





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





As of
June 30, 2009, we owned 92 properties which are 100% leased, compared to 34
properties which were 100% leased at June 30, 2008, an increase of approximately
171%. Accordingly, our results of operations for the three months ended June 30,
2009 as compared to the three months ended June 30, 2008 reflect significant
increases in most categories.





Rental
Income





Rental
income increased approximately $1,587,000 to approximately $2,935,000 for the
three months ended June 30, 2009, compared to approximately $1,348,000 for the
three months ended June 30, 2008. The increase in rental income was driven by
our acquisition of approximately $70.0 million of net leased property during the
last two quarters of 2008. These properties, acquired at an average 7.56% cap
rate, are leased from 10 to 20 years to primarily investment grade
tenants.




Property
Management Fees to Affiliate





American
Realty Capital Properties, LLC has elected to waive the property management fees
for the three months ended June 30, 2009. Such fees represent amounts paid to
our affiliated property manager, American Realty Capital Properties, LLC, to
manage and lease our properties. Property management fees of approximately
$4,000 were incurred during the three months ended June 30, 2008. Our Property
Manager elected to refund these fees subsequent to June 30, 2008 to improve our
working capital.





General
and Administrative Expenses





General
and administrative expenses decreased 14% to approximately $72,000 for the three
months ended June 30, 2009, compared to approximately $84,000 for the three
months ended June 30, 2008.  During the three months ended June 30, 2009,
the Advisor reimbursed $28,000 of asset management fees paid in the three months
ended March 31, 2009.  The majority of the general and administrative
expenses for the three months ended June 30, 2009 included $46,000 of amortized
insurance expense relating to our directors’ and officers’ insurance policy,
$33,000 of board member compensation and $16,000 of professional
fees.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased approximately $993,000 to approximately
$1,730,000 for the three months ended June 30, 2009, compared to approximately
$737,000 for the three months ended June 30, 2008. The increase in depreciation
and amortization expense was the result of our acquisition of approximately
$70.0 million of real estate during the last two quarters of 2008. These
properties were placed into service when acquired and were being depreciated for
the full year to date. In contrast, the prior year number reflects the
depreciation and amortization expense for a partial period as an acquisition of
approximately $33.0 million of real estate occurred during May
2008.




Interest
Expense





Interest
expense increased approximately $1,139,000 to $2,319,000 for the three months
ended June 30, 2009, compared to approximately $1,180,000 for the three months
ended June 30, 2008. The increase in interest expense was the result of our
purchase of 58 properties with a total value of approximately $70.0 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 June 30, 2009 and June 30, 2008 was $112,368,600 and $52,111,935,
respectively. We view these unsecured 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 $315,000 to $512,000 for the
three months ended June 30, 2009, compared to approximately $197,000 for the
three months ended June 30, 2008.  These gains are related to marking
our derivative instruments to market.





Comparison
of the Six Months Ended June 30, 2009 and 2008





As of
June 30, 2009, we owned 92 properties which are 100% leased, compared to 34
properties which were 100% leased at June 30, 2008, an increase of approximately
171%. Accordingly, our results of operations for the six months ended June 30,
2009 as compared to the six months ended June 30, 2008 reflect significant
increases in most categories.





Rental
Income





Rental
income increased approximately $4,300,000 to approximately $5,862,000 for the
six months ended June 30, 2009, compared to approximately $1,562,000 for the six
months ended June 30, 2008. The increase in rental income was driven by our
acquisition of approximately $70.0 million of net leased property during the
last two quarters of 2008. These properties, acquired at an average 7.56% cap
rate, are leased from 10 to 20 years to primarily investment grade
tenants.




Property
Management Fees to Affiliate





American
Realty Capital Properties, LLC has elected to waive the property management fees
for the six months ended June 30, 2009. Such fees represent amounts paid to our
affiliated property manager, American Realty Capital Properties, LLC, to manage
and lease our properties. Property management fees of approximately $4,000 were
incurred during the six months ended June 30, 2008. Our Property Manager elected
to refund these fees subsequent to June 30, 2008 to improve our working
capital.





General
and Administrative Expenses





General
and administrative expenses decreased 28% to approximately $198,000 for the six
months ended June 30, 2009, compared to approximately $273,000 for the six
months ended June 30, 2008. General and administrative expenses for the six
months ended June 30, 2009 consisted primarily of $96,000 of amortized insurance
expense relating to our directors’ and officers’ insurance policy, $52,000 of
board member compensation and $21,000 of professional fees.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased approximately $2,552,000 to approximately
$3,460,000 for the six months ended June 30, 2009, compared to approximately
$908,000 for the six months ended June 30, 2008. The increase in depreciation
and amortization expense was the result of our acquisition of approximately
$70.0 million of real estate during the last two quarters of 2008. These
properties were placed into service when acquired and were being depreciated for
the full year-to-date. In contrast, the prior year number reflects the
depreciation and amortization expense for a partial period as our first
acquisition occurred during March of 2008.




Interest
Expense





Interest
expense increased approximately $3,398,000 to $4,770,000 for the six months
ended June 30, 2009, compared to approximately $1,372,000 for the six months
ended June 30, 2008. The increase in interest expense was the result of our
purchase of 58 properties with a total value of approximately $70.0 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 six months ended
June 30, 2009 and June 30, 2008 was $112,493,003 and $34,741,290,
respectively.  We view these unsecured 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 $352,000 to $549,000 for the six
months ended June 30, 2009, compared to approximately $197,000 for the six
months ended June 30, 2008.  These gains are related to marking our
derivative instruments to market.




26


Funds
From Operations





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





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





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





Three
      Months Ended
              June
      30,
            
            Six
      Months Ended
              June
      30,2009
            
            2008
            
            2009Net
      Loss
            
            
            (673,011
            )
            
            
            (454,369
            )
            
            
            (2,011,604
            )Add:Depreciation
      of real estate assets
            
            
            1,362,131
            
            
            
            616,517
            
            
            
            2,724,263Amortization
      of intangible lease assets
            
            
            268,999
            
            
            
            119,966
            
            
            
            537,998Mark-to
      market adjustment (1)
            
            
            (523,669
            )
            
            
            (196,816
            )
            
            
            (581,259
            )FFO
            
            $
            434,450
            
            
            $
            85,298
            
            
            $
            669,398Distributions
      paid (2)(3)
            
            $
            410,188
            
            
            $
            79,899
            
            
            $
            630,393FFO
      coverage ratio
            
            
            105.9%
            
            
            
            106.8%
            
            
            
            106.2%FFO
      payout ratio
            
            
            94.4%
            
            
            
            93.7%
            
            
            
            94.2%


___________________________


(1)  -
            the
      Company excludes non-cash mark-to-market adjustments relating to its
      hedging activities from its FFO calculation.(2)  -
            includes
      shares issued under the DRIP.(3)  -
            FFO
      is not applicable for the six months ended June 30, 2008, as the first
      distribution was paid during the three months ended June 30,
      2008.






27





Cash
Flows for the Six Months Ended June 30, 2009





During
the six months ended June 30, 2009, net cash used in operating activities was
approximately $4,344,227. The level of cash flows provided by (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 $2,219,000 principally resulting from the acquisition
$636,000 of non-real estate investment furniture and fixtures and the prepayment
of $950,000 of asset management fees during the six months ended June 30, 2009.
Accounts payable and accrued expenses decreased by approximately $935,000, the
majority of which relates to professional fees, accrued interest and finance
coordination fees. Finally due to affiliates decreased approximately $2,233,000
during the six months ended June 30, 2009.





Net cash
used in investing activities during the six months ended June 30, 2009 was
approximately $163,000, relating to prior period acquisition related
costs.





Net cash
provided by financing activities totaled approximately $7,050,000 during the six
months ended June 30, 2009. Such amount consisted primarily of net proceeds from
other notes payable and issuance of common stock of approximately $11,911,000
and $24,850,000, respectively. These amounts were offset by the satisfaction of
our short-term bridge funds, related party bridge facility, related party
convertible bride revolver and short-term convertible redeemable preferred of
approximately $11,954,000, approximately $5,424,000, $6,500,000 and $3,995,000,
respectively. During the period, we issued 3,030,568 shares of common stock
which generated approximately $30,096,000 of gross proceeds, reduced by
approximately $5,246,000 of related offering costs and commissions. Net cash of
approximately $395,000 was used for shareholder dividends. Net cash was
increased by approximately $3,000 related to a decrease in restricted
cash.




Cash paid
for interest during the six months ended June 30, 2009 was approximately $4.9
million.





Cash
Flows for the Six Months June 30, 2008





During
the six months ended June 30, 2008, net cash provided by operating activities
was approximately $926,000. The level of cash flows provided by operating
activities is affected by both the timing of interest payments and amount of
borrowings outstanding during the period. It is also affected by the receipt of
scheduled rent payments and disbursement of deposits required in connection with
property acquisitions. Prepaid expenses and other assets increased by
approximately $125,000 principally resulting from payments relating to annual
Board of Trustee retainers and the partial funding of our Directors’ and
Officers’ insurance policy. This amount is offset by the increase in accounts
payable and accrued expenses of approximately $603,000, 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 $501,000,
primarily representing rent payments received in advance of the respective due
date.





Net cash
used in investing activities during the six months ended June 30, 2008 totaled
approximately $39,918,000 relating to investment properties acquired during the
period.





Net cash
provided by financing activities totaled approximately $39,918,000 during the
six months ended June 30, 2008. Such amount consisted primarily of net proceeds
from notes payable and our related party credit facility of approximately
$28,335,000 and $6,500,000, respectively. During the period, we issued 1,012,652
shares of common stock which generated approximately $6,522,000 of gross
proceeds, reduced by approximately $900,000 of related offering costs and
commissions. Net cash was reduced by approximately $43,000 related to restricted
cash.





Liquidity and Capital
Resources





We expect
to continue to raise capital through the sale of our common stock and to utilize
the net proceeds from the sale of our common stock and proceeds from secured
financings to complete future property acquisitions and satisfy outstanding
short-term bridge equity amounts. As of June 30, 2009, we issued 4,332,141
shares of common stock, including 339,077 shares issued in connection with an
acquisition in March 2008. Total gross proceeds from these issuances were
$42,050,937. As of June 30, 2009, the aggregate value of all share issuances and
subscriptions outstanding was $45,325,046 based on a per share value of $10.00
(or $9.50 for shares issued under the DRIP). This amount includes stock
subscriptions of $2,023,896 which are maintained at our third-party escrow
agent, to be released when certain escrow requirements have been
achieved.




In
addition, we expect to 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 quarter ended June 30, 2009 totaled
$2,483,000.





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


28







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





We expect
to meet our future short-term operating liquidity requirements through net cash
provided by our current property operations and the operations of properties to
be acquired in the future. Management also expects that our properties will
generate sufficient cash flow to cover operating expenses and the payment of a
monthly distribution. Other potential future sources of capital include proceeds
from secured or unsecured financings from banks or other lenders, proceeds from
the sale of properties, 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 dividend commenced accruing on April 5,
2008.  The REIT’s initial distribution payment was paid to
stockholders on May 21, 2008, representing dividends 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 six months ended June 30, 2009, distributions
paid totaled $410,188 and $630,393, respectively. These amounts include $160,466
and $235,211 of common shares issued under the dividend reinvestment plan for
the three and six months ended June 30, 2009, respectively.  As of
June 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 dividend payment.





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 June 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 O.P. 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 June 30, 2009, we had $3.1
million outstanding under our related party bridge equity facility. Excluding
such short-term bridge equity and other notes payable, our leverage ratio
approximated 72% (secured mortgage notes payable as a percentage of total real
estate investments, at cost) as of June 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 $11,900,000 of outstanding
advances under our revolving related party facilities was
satisfied.   29




As of
June 30, 2009, we had cash of approximately $3,430,000, which we expect to be
used primarily to satisfy short-term bridge funds, pay operating expenses and
pay stockholder distributions. In addition, the approximate $3.5 million of debt
and other contractual obligations coming due during the remainder of 2009 will
be paid with proceeds from our Offering.




Contractual
Obligations





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




Principal
      Payments Due During the Years Ending December 31Contractual
      Obligations (1)
                                                                                    
                                                                                    Total
                                                                                    
                                                                                    2009
                                                                                    
                                                                                    2010
                                                                                    
                                                                                    2011
                                                                                    
                                                                                    2012
                                                                                    
                                                                                    2013
                                                                                    
                                                                                    ThereafterMortgage
      notes payable
                                                                                    
                                                                                    $
                                                                                    112,249,667
                                                                                    
                                                                                    $
                                                                                    483,371
                                                                                    
                                                                                    $
                                                                                    1,012,332
                                                                                    
                                                                                    $
                                                                                    1,855,075
                                                                                    
                                                                                    $
                                                                                    1,991,443
                                                                                    
                                                                                    $58,780,586
                                                                                    
                                                                                    $
                                                                                    48,126,860Short-term
      bridge equity
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —Short-term
      convertible redeemable preferred equity
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —Related
      party bridge revolver
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —Long-term
      notes payable
                                                                                    
                                                                                    
                                                                                    13,000,000
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    13,000,000
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —Short-term
      bridge equity facility
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —Related
      party bridge equity facility
                                                                                    
                                                                                    
                                                                                    3,053,172
                                                                                    
                                                                                    
                                                                                    3,053,172
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —Purchase
      obligations (2)
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —
                                                                                    
                                                                                    —
                                                                                    
                                                                                    
                                                                                    —$
                                                                                    128,302,839
                                                                                    
                                                                                    $
                                                                                    3,536,543
                                                                                    
                                                                                    $
                                                                                    1,012,332
                                                                                    
                                                                                    $
                                                                                    14,855,075
                                                                                    
                                                                                    $
                                                                                    1,991,443
                                                                                    
                                                                                    $58,780,586
                                                                                    
                                                                                    $
                                                                                    48,126,860


___________________________


Interest
      Payments Due During the Years Ending
    December 31Contractual
      Obligations (1)
              
              Total
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              ThereafterMortgage
      notes payable
              
              $
              48,074,986
              
              
              $
              3,284,779
              
              
              $
              6,497,883
              
              
              $
              6,393,343
              
              
              $
              6,294,819
              
              
              $
              5,167,855
              
              
              $
              20,436,307Short-term
      bridge equity
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Short-term
      convertible redeemable preferred equity
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Related
      party bridge revolver
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Long-term
      notes payable
              
              
              2,842,952
              
              
              
              592,416
              
              
              
              1,175,173
              
              
              
              1,075,364
              
              
              
              —
              
              
              
              —
              
              
              
              —Short-term
      bridge equity facility
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Related
      party bridge equity facility
              
              
              4,071
              
              
              
              4,071
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —$
              50,922,009
              
              
              $
              3,881,266
              
              
              $
              7,673,056
              
              
              $
              7,468,707
              
              
              $
              6,294,819
              
              
              $
              5,167,855
              
              
              $
              20,436,307





(1)
            Amounts
      include principal payments only. We incurred interest expense of
      approximately $4,494,000, excluding amortization of deferred financing
      costs, during the six months ended June 30, 2009, and expect to incur
      interest in future periods on outstanding debt
  obligations.(2)
            We
      were not contractually obligated to acquire any real estate investments as
      of quarter end.





Election
as a REIT





We are
qualified and have elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code commencing with our taxable year ended
December 31, 2008. We generally are not be subject to federal corporate
income tax to the extent we distribute our REIT taxable income to our
stockholders, and so long as we distribute at least 90% of our REIT taxable
income. REITs are subject to a number of other organizational and operational
requirements. 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.


30







Item
3. Quantitative and Qualitative Disclosures About Market Risk





We are
exposed to interest rate changes primarily as a result of long-term mortgage
financing used to partially fund the acquisition of real estate
investments.  Our interest rate risk management objectives are to limit the
impact of interest rate changes on earnings and cash flows and to lower overall
borrowing costs. To achieve these objectives, we may borrow at fixed rates or
variable rates with the lowest margins available and in some cases, the ability
to convert variable rates to fixed rates. With regard to variable rate
financing, we will assess interest rate cash flow risk by continually
identifying and monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging opportunities. 
At June 30, 2009, our interest rate exposure was mitigated by various hedging
instruments - See Note 6 and Note 7.





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





31







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 Distribution Reinvestment Plan, as well as from proceeds of the
sale of shares in a public offering, and with other available allocated
operating funds.





No shares
were redeemed under this program during the quarter ended June 30,
2009.





Item
3. Defaults Upon Senior Securities




None





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




None




Item
4T. Controls and Procedures





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





No change
occurred in our internal controls over financial reporting (as defined in Rule
13a-15(f) and 15d-15(f) of the Exchange Act) during the three  months
ended June 30, 2009 that has materially affected, or is reasonable likely to
materially affect, our internal controls over financial reporting.





Item 5. Other
Information




None




Item 6. Exhibits




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





32




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:
August 14, 2009


33





EXHIBIT
INDEX





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





34