UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)


x
                    QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934For
      the quarterly period ended March 31, 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 May 7, 2009
was 2,864,474 shares.





AMERICAN REALTY CAPITAL TRUST,
INC.


INDEX




PART
      I — FINANCIAL INFORMATIONItem 1.
      Financial Statements
                3Consolidated
      Balance Sheets as of March 31, 2009 (Unaudited) and December 31,
      2008
                3Consolidated
      Statement of Operations for the three months ended March 31, 2009 and 2008
      (Unaudited)
                4Consolidated
      Statement of Stockholders’ Equity for the three months ended March 31,
      2009 (Unaudited)
                5Consolidated
      Statement of Cash Flows for the three months ended March 31, 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





March
      31,
                        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
                      
                      
                      (4,766,354
                      )
                      
                      
                      (3,056,449
                      )Total real estate investments, net
                      
                      
                      160,166,896
                      
                      
                      
                      161,714,182Cash
                      
                      
                      579,116
                      
                      
                      
                      886,868Restricted
      cash
                      
                      
                      27,432
                      
                      
                      
                      47,937Prepaid
      expenses and other assets
                      
                      
                      1,157,584
                      
                      
                      
                      302,472Deferred
      financing costs, net
                      
                      
                      2,560,501
                      
                      
                      
                      1,990,992Total
      assets
                      
                      $
                      164,491,529
                      
                      
                      $
                      164,942,451





LIABILITIES AND STOCKHOLDERS’
      EQUITYShort-term
      bridge equity funds:Short-term
      bridge funds
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          11,953,796Related
      party bridge facility
                                                                          
                                                                          
                                                                          6,665,515
                                                                          
                                                                          
                                                                          
                                                                          8,477,163Related
      party convertible bridge revolver
                                                                          
                                                                          
                                                                          4,749,480
                                                                          
                                                                          
                                                                          
                                                                          6,500,000Short-term
      convertible redeemable preferred
                                                                          
                                                                          
                                                                          3,995,000
                                                                          
                                                                          
                                                                          
                                                                          3,995,000Total
      short-term bridge funds
                                                                          
                                                                          
                                                                          15,409,995
                                                                          
                                                                          
                                                                          
                                                                          30,925,959Mortgage
      notes payable
                                                                          
                                                                          
                                                                          112,487,533
                                                                          
                                                                          
                                                                          
                                                                          112,741,810Long-term
      notes payable
                                                                          
                                                                          
                                                                          10,517,523
                                                                          
                                                                          
                                                                          
                                                                          1,089,500Below-market
      lease liabilities, net
                                                                          
                                                                          
                                                                          9,321,520
                                                                          
                                                                          
                                                                          
                                                                          9,400,293Derivatives,
      at fair value
                                                                          
                                                                          
                                                                          4,116,102
                                                                          
                                                                          
                                                                          
                                                                          4,232,865Due
      to affiliates
                                                                          
                                                                          
                                                                          3,487,137
                                                                          
                                                                          
                                                                          
                                                                          2,223,144Accounts
      payable and accrued expenses
                                                                          
                                                                          
                                                                          1,470,033
                                                                          
                                                                          
                                                                          
                                                                          1,687,932Deferred
      rent and other liabilities
                                                                          
                                                                          
                                                                          752,713
                                                                          
                                                                          
                                                                          
                                                                          781,538Distributions
      payable
                                                                          
                                                                          
                                                                          101,282
                                                                          
                                                                          
                                                                          
                                                                          69,263Investor
      contributions held in escrow
                                                                          
                                                                          
                                                                          30,824
                                                                          
                                                                          
                                                                          
                                                                          30,824Total
      liabilities
                                                                          
                                                                          
                                                                          157,694,662
                                                                          
                                                                          
                                                                          
                                                                          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, 2,032,514 and
      1,276,814 shares issued and outstanding at March 31, 2009 and December 31,
      2008, respectively
                                                                          
                                                                          
                                                                          20,325
                                                                          
                                                                          
                                                                          
                                                                          12,768Additional
      paid-in capital
                                                                          
                                                                          
                                                                          15,781,531
                                                                          
                                                                          
                                                                          
                                                                          9,219,901Accumulated
      other comprehensive income
                                                                          
                                                                          
                                                                          (2,616,341
                                                                          )
                                                                          
                                                                          
                                                                          (2,675,515
                                                                          )Accumulated
      deficit
                                                                          
                                                                          
                                                                          (6,388,648
                                                                          )
                                                                          
                                                                          
                                                                          (4,797,831
                                                                          )Total
      stockholder's equity
                                                                          
                                                                          
                                                                          6,796,867
                                                                          
                                                                          
                                                                          
                                                                          1,759,323Total
      liabilities and stockholders’ equity
                                                                          
                                                                          $
                                                                          164,491,529
                                                                          
                                                                          
                                                                          $
                                                                          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)




ThreeMonthsEnded
                            March
      31, 2009
                          
                          
                          Three
      Months
      Ended
                            March
      31, 2008Rental
      income
                          
                          $
                          2,926,940
                          
                          
                          $
                          214,426ExpensesProperty
      management fees to affiliate
                          
                          
                          —
                          
                          
                          
                          4,262General
      and administrative
                          
                          
                          125,312
                          
                          
                          
                          188,827Depreciation
      and amortization
                          
                          
                          1,729,910
                          
                          
                          
                          171,477Total
      operating expenses
                          
                          
                          1,855,222
                          
                          
                          
                          364,566Operating
      income (loss)
                          
                          
                          1,071,718
                          
                          
                          
                          (150,140
                          )Other
      income (expenses)Interest
      expense
                          
                          
                          (2,451,625
                          )
                          
                          
                          (191,710
                          )Interest
      income
                          
                          
                          4,469
                          
                          
                          
                          —Gains
      on derivative instruments
                          
                          
                          36,845
                          
                          
                          
                          —Total
      other expenses
                          
                          
                          (2,410,311
                          )
                          
                          
                          (191,710
                          )Net
      loss
                          
                          $
                          (1,338,593
                          )
                          
                          $
                          (341,850
                          )Basic
      and diluted weighted averagecommon
      shares outstanding
                          
                          
                          1,526,901
                          
                          
                          
                          134,013Basic
      and diluted loss per share
                          
                          $
                          (.88
                          )
                          
                          $
                          (2.55
                          )





The accompanying
notes are an integral part of these financial
statements


4


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


THREE
MONTHS ENDED MARCH 31, 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
                  
                  
                  747,833
                  
                  
                  
                  7,478
                  
                  
                  
                  7,429,644
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  7,437,122Offering
      costs, commissions and dealer manager fees
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (942,679
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (942,679
                  )Common
      stock issued through dividend reinvestment program
                  
                  
                  7,867
                  
                  
                  
                  79
                  
                  
                  
                  74,666
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  74,745Distributions
      declared
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (252,225
                  )
                  
                  
                  —
                  
                  
                  
                  (252,225
                  )Designated
      derivatives fair value adjustment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  59,174
                  
                  
                  
                  59,174Net
      loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,338,593
                  )
                  
                  
                  —
                  
                  
                  
                  (1,338,593
                  )Total
      comprehensive loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,279,419
                  )Balance,
      March 31, 2009
                  
                  
                  2,032,514
                  
                  
                  $
                  20,325
                  
                  
                  $
                  15,781,532
                  
                  
                  $
                  (6,388,649
                  )
                  
                  $
                  (2,616,341
                  )
                  
                  $
                  6,796,867





The accompanying
notes are an integral part of these financial statements


5


AMERICAN
REALTY CAPITAL TRUST, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(Unaudited)




Three
      Months Ended March 31,2009
                        
                        
                        2008Cash
      flows from operating activities:Net
      loss
                        
                        $
                        (1,338,593
                        )
                        
                        $
                        (341,850
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                        
                        
                        1,382,138
                        
                        
                        
                        144,023Amortization
      of intangibles
                        
                        
                        347,772
                        
                        
                        
                        27,454Amortization
      of deferred finance costs
                        
                        
                        138,269
                        
                        
                        
                        3,138Accretion
      of below-market lease liability
                        
                        
                        (78,773
                        )
                        
                        
                        -Gains on
      derivative instruments
                        
                        
                        (36,844
                        )
                        
                        
                        -Changes
      in assets and liabilities:Prepaid
      expenses and other assets
                        
                        
                        (875,118
                        )
                        
                        
                        (1,023,770
                        )Accounts
      payable and accrued expenses
                        
                        
                        (238,644
                        )
                        
                        
                        837,363Due
      to affiliated entity
                        
                        
                        (486,527
                        )
                        
                        
                        -Deferred
      rent and other liabilities
                        
                        
                        (28,825
                        )
                        
                        
                        308,890Net
      cash used in operating activities
                        
                        
                        (1,215,145
                        )
                        
                        
                        (44,752
                        )Cash
      flows from investing activities:Investment
      in real estate and other assets
                        
                        
                        (162,618
                        )
                        
                        
                        (2,543,774
                        )Net
      cash used in investing activities
                        
                        
                        (162,618
                        )
                        
                        
                        (2,543,774
                        )Cash
      flows from financing activities:Payments
      on mortgage notes payable
                        
                        
                        (254,277
                        )
                        
                        
                        -Payments
      on related party bridge facility
                        
                        
                        (5,765,444
                        )
                        
                        
                        -Payments
      on short-term bridge funds
                        
                        
                        (8,000,000
                        )
                        
                        
                        -Proceeds
      from long-term notes payable
                        
                        
                        9,428,023
                        
                        
                        
                        -Proceeds
      from issuance of common stock, net
                        
                        
                        6,494,443
                        
                        
                        
                        3,118,402Payments
      of deferred financing costs
                        
                        
                        (707,778
                        )
                        
                        
                        -Distributions
      paid
                        
                        
                        (145,461
                        )
                        
                        
                        -Restricted
      cash
                        
                        
                        20,505
                        
                        
                        
                        -Net
      cash provided by financing activities
                        
                        
                        1,070,011
                        
                        
                        
                        3,118,402Net
      increase (decrease) in cash
                        
                        
                        (307,752
                        )
                        
                        
                        529,876Cash,
      beginning of period
                        
                        
                        886,868
                        
                        
                        
                        —Cash,
      end of period
                        
                        $
                        579,116
                        
                        
                        $
                        529,876Supplemental
      Disclosures of Non-Cash Investing and Financing
Activities:Debt
      assumed in real estate acquisitions
                        
                        $
                        —
                        
                        
                        $
                        45,918,796Common
      share issuance in real estate acquisition
                        
                        $
                        —
                        
                        
                        $
                        1,621,205Investor
      contributions held in escrow
                        
                        $
                        —
                        
                        
                        $
                        1,461,315Non-cash
      acquisition costs
                        
                        $
                        —
                        
                        
                        $
                        306,797Cash
      paid for interest
                        
                        $
                        2,468,289
                        
                        
                        $
                        —





The accompanying
notes are an integral part of these financial statements


6


AMERICAN REALTY CAPITAL TRUST,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 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 March 31, 2009, the Company issued 2,032,514 shares of common
stock, including 339,077 shares issued in connection with an acquisition in
March 2008. Total gross proceeds from these issuances were $19,229,978. As of
March 31, 2009, the aggregate value of all share issuances and subscriptions
outstanding was $21,997,084 based on a per share value of $10.00 (or $9.50 for
shares issued under the DRIP). This amount includes stock subscriptions of
$1,683,755 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
March 31, 2009, the Company owned 92 properties comprising approximately 713,000
square feet of freestanding, single tenant commercial space. As of March 31,
2009, these properties were 100% occupied.  Rental income from
Harleysville National Bank, Rockland Trust Company, Rite Aid and PNC Bank, or
their respective affiliates, represented the following percentages of total
rental income for the three months ended March 31, 2009:





Three
      Months Ended March 31,2009
                                                    
                                                    2008PNC
      Bank
                                                    32%
                                                    
                                                    -%Harleysville
      National Bank
                                                    27%
                                                    
                                                    75%Rockland
      Trust Company
                                                    22%
                                                    
                                                    -%Rite
      Aid
                                                    13%
                                                    
                                                    -%Federal
      Express (a)
                                                    -%
                                                    
                                                    25%




(a)
              Percentage for
      the 3 months ended March 31, 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


March
31, 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,
consisting only of normal recurring adjustments, necessary to present fairly the
consolidated financial position of the Company and the consolidated results of
its operations and its cash flows, are included. The results of operations for
such interim periods are not necessarily indicative of the results for the full
year.





Basis
of Accounting





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





Principles
of Consolidation and Basis of Presentation





The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, 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 a straightline method over the estimated useful life of 40 years
for buildings, five to ten years for building fixtures and improvements and the
remaining lease term for acquired intangible lease assets.





Impairment
of Long Lived Assets





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





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


8
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 March
31, 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
March 31, 2009 and 2008, acquired lease intangible assets consisted of above
market leases and in-place lease intangibles totaling $16,448,018 and $0,
respectively with accumulated amortization of $869,828 and $0, 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 and $1,391,000,
respectively.In addition, below market lease liabilities totaled
$9,426,551 and $0 with accumulated amortization of $105,031 and $0 as of March
31, 2009 and 2008, respectively. The
estimated accretion income 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


March
31, 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.





Statement
of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS
161), amends and expands the disclosure requirements of FASB Statement
No. 133  (SFAS 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 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 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 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
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 March 31, 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. In
accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in
Financial Statements,” the Company will defer the recognition of contingent
rental income, such as percentage rents, until the specific target that triggers
the contingent rental income is achieved. Cost recoveries from tenants are
included in tenant reimbursement income in the period the related costs are
incurred, as applicable.
  The
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.


10


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 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-month period ended March 31, 2009.
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 141(R)”). SFAS 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 its 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
 March
31, 2009
 (Unaudited)


In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities,” an amendment of FASB Statement
No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS No. 161”) requires entities to provide greater transparency about
how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for under SFAS No. 133, and how
derivative instruments and related hedged items affect an entity’s financial
position, results of operations, and cash flows. The statement is effective for
financial statements 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 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.





12


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(Unaudited)





Note 3 — Real Estate Acquisitions





No real
estate acquisitions were concluded during the three months ended March 31,
2009.





The
following table represents the Company’s real estate portfolio as of March 31,
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
                                          
                                          9.67
                                          
                                          $
                                          9,694,179
                                          
                                          7.53%
                                          
                                          10,207,674
                                          
                                          $
                                          730,065Harleysville
      National Bank Portfolio
                                          
                                          March
      2008
                                          
                                          15
                                          
                                          177,774
                                          
                                          13.76
                                          
                                          
                                          40,976,218
                                          
                                          7.48%
                                          
                                          41,675,721
                                          
                                          
                                          3,063,912Rockland
      Trust Company Portfolio
                                          
                                          May
      2008
                                          
                                          18
                                          
                                          121,057
                                          
                                          12.34
                                          
                                          
                                          32,188,000
                                          
                                          7.86%
                                          
                                          33,117,419
                                          
                                          
                                          2,529,665PNC
      Bank (formally National City Bank)
                                          
                                          Sept. & Oct. 2008
                                          
                                          2
                                          
                                          8,403
                                          
                                          19.89
                                          
                                          
                                          6,663,786
                                          
                                          8.21%
                                          
                                          6,853,419
                                          
                                          
                                          546,943Rite
      Aid Portfolio
                                          
                                          September
      2008
                                          
                                          6
                                          
                                          74,919
                                          
                                          14.29
                                          
                                          
                                          18,575,727
                                          
                                          7.79%
                                          
                                          18,839,392
                                          
                                          
                                          1,446,843PNC
      Bank Portfolio
                                          
                                          November
      2008
                                          
                                          50
                                          
                                          275,436
                                          
                                          9.67
                                          
                                          
                                          42,285,714
                                          
                                          7.35%
                                          
                                          44,813,074
                                          
                                          
                                          3,107,754Total
                                          
                                          
                                          
                                          92
                                          
                                          713,029
                                          
                                          12.35
                                          
                                          $
                                          150,383,624
                                          
                                          7.60%
                                          
                                          155,506,699
                                          
                                          $
                                          11,425,182


________________________


(1)
      -
            Remaining
      lease term as of March 31, 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
 March
31, 2009
 (Unaudited)


Note
4 — Mortgage Notes Payable





The
following table represents the mortgages outstanding as of March 31,
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
                    
                    
                    23,993,280
                    
                    4.92
      %
                    (2)
                    Variable
                    
                    May
      2013PNC
      Bank (formally National City Bank)
                    
                    2
                    
                    
                    4,465,302
                    
                    4.89
      %
                    (3)
                    Variable
                    
                    September
      2013Rite
      Aid Portfolio
                    
                    6
                    
                    
                    12,808,265
                    
                    6.97
      %
                    
                    Fixed
                    
                    September
      2017PNC
      Bank Portfolio
                    
                    50
                    
                    
                    33,255,686
                    
                    5.25
      %
                    (4)
                    Variable
                    
                    November
      2013Total
                    
                    92
                    
                    $
                    112,487,533


________________________




(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%.








14


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(Unaudited)





The
following table summarizes the scheduled aggregate principal repayments for the
five years subsequent to March 31, 2009:




Mortgage
                    Notes2009
                  
                  $
                  721,2372010
                  
                  
                  1,012,3322011
                  
                  
                  1,855,0752012
                  
                  
                  1,991,4432013
                  
                  
                  58,780,5862014
      and thereafter
                  
                  
                  48,126,860Total
                  
                  $
                  112,487,533





As of
March 31, 2009, the Company was in compliance with the debt covenants under the
loan agreements.





Note
5 — Long-Term Notes Payable





As of
March 31, 2009, the Company had issued $10,517,523 of a possible
$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
initial $8,000,000 of proceeds was 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
March 31, 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 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
 March
31, 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
March 31, 2009, the Company has assessed the significance of the impact of the
credit valuation adjustments on the overall valuation of its derivative
positions and has determined that the credit valuation adjustments are not
significant to the overall valuation of the Company’s derivatives.  As
a result, the Company has determined that its derivative valuations in their
entirety are classified in Level 2 of the fair value
hierarchy.





The
following table presents information about the Company’s assets (including
derivatives that are presented net) measured at fair value on a recurring basis
as of March 31, 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
                March 31, 2009Total
      derivatives, net
              
              $
              —
              
              
              $
              4,116,102
              
              
              $
              —
              
              
              $
              4,116,102





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 months ended
March 31, 2009, the Company recorded a $375 loss related to hedge
ineffectiveness in earnings.


16


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 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 $972,289 will be reclassified as an increase to
interest expense.





As of
March 31, 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
                                            
                                            
                                            $
                                            33,471,544Interest
      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 $24,014,157 at March 31, 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 months ended
March 31, 2009.  For the three months ended March 31, 2009, the
Company has recorded a loss of $142,837.





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 March 31,
2009:





Balance Sheet Location
                                
                                Fair ValueDerivatives
      designated as hedging instruments under SFAS 133Interest
      Rate Products
                                Derivatives,
      at fair value
                                
                                ($2,536,524)Derivatives
      not designated as
      hedging instruments under SFAS 133Interest
      Rate Products
                                Derivatives,
      at fair value
                                
                                ($1,579,578)





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 Statement of Operations for the three months
ended March 31, 2009.


17
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 March
31, 2009
 (Unaudited)
  Derivatives
inSFAS
133 CashFlow
HedgingRelationships


Amount
      of
                                        Gain
      or (Loss)
                                        Recognized
      in
                                        OCI
      on
                                        Derivative
                                        (Effective
                                        Portion)
                                      
                                      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 Gain
                                        or
      (Loss)
                                        Recognized
      in
                                        Income
      on
                                        Derivative
                                        (Ineffective
                                        Portion
      and
                                        Amount
                                        Excluded
      from
                                        Effectiveness
                                        Testing)
                                      
                                      Amount
      of
                                        Gain
      or (Loss)
                                        Recognized
      in
                                        Income
      on
                                        Derivative
                                        (Ineffective
                                        Portion
      and
                                        Amount
                                        Excluded
      from
                                        Effectiveness
                                        Testing)($204,991)
                                      
                                      Interest
      expense
                                      
                                      ($264,165)
                                      
                                      Gains
      (losses) on
                                        derivative
      instruments
                                      
                                      ($375)




Derivatives
NotDesignated
as HedgingInstruments
UnderSFAS
133


Location
      of Gain or
                                              (Loss)
      Recognized
                                              in
      Income on
                                              Derivative
                                            
                                            Amount
      of Gain or (Loss)
                                              Recognized
      in Income on
                                              DerivativeInterest
      expense
                                            
                                            
                                            
                                            (180,057)Gains
      (losses) on
                                              derivative
      instruments
                                            
                                            
                                            
                                            37,220Total
                                            
                                            
                                            $
                                            (142,837)





Credit-risk-related
Contingent Features





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





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





As of
March 31, 2009, the fair value of derivatives in a net liability position,
excludes any adjustment for nonperformance risk, related to these agreements was
$4,116,102. As of March 31, 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 March 31, 2009, it could
have been required to settle its obligations under the agreements at their
termination value of $4,116,102.





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 approximately
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, accruing a
preferred yield of 8.0% and can be paid off without penalty. 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.





During
the year ended December 31, 2008, the REIT entered into an unsecured bridge
equity facility with a related party, American Realty Capital Bridge, LLC (“ARC
Bridge”), whereby the REIT can obtain up to $10.0 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 three months ended March 31, 2009 the
Company satisfied approximately $1.8 million of unsecured bridge equity.
Such amount was funded by proceeds from the sale of the Company’s
shares.


18
  AMERICAN
REALTY CAPITAL TRUST, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 March
31, 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 three months ended March, 31, 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 bears a fixed preferred yield of 14.27% and will
be satisfied in May 2009. Such amounts are non-recourse.





Note
9 — Commitments and Contingencies





Litigation





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





Environmental
Matters





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




Note 10
— Related-Party Transactions and Arrangements





Certain
affiliates of the Company receive, and will continue to receive, fees and
compensation in connection with the sale of the Company’s common stock, and the
acquisition, management and sale of the assets of the Company. The Dealer
Manager receives, and will continue to receive, a selling commission of up to
7.0% of gross offering proceeds before reallowance of commissions earned by
participating broker-dealers. The Dealer Manager reallows, and intends to
continue to reallow, 100% of commissions earned to participating broker-dealers.
In addition, the Dealer Manager will receive up to 3.0% of the gross proceeds
from the Offering, before reallowance to participating broker-dealers, as a
dealer-manager fee. The Dealer Manager, in its sole discretion, may reallow all
or a portion of its dealer-manager fee to such participating broker-dealers,
based on such factors as the volume of shares sold by such participating
broker-dealers and marketing support incurred as compared to those of other
participating broker-dealers. No selling commissions or dealer-manager fees are
paid to the Dealer Manager in respect of shares sold under the DRIP. During the
three months ended March 31, 2009 and 2008, the Company paid $706,012 and $0,
respectively, to the Dealer Manager for commissions and dealer manager fees, of
which $45,010 was reallowed to participating broker-dealers.





All
organization and offering expenses associated with the sale of the Company’s
common stock (excluding selling commissions and the dealer-manager fee) are paid
for by the Advisor or its affiliates and are reimbursed by the Company up to
1.5% of gross offering proceeds. The Advisor receives an acquisition and
advisory fee of 1.0% of the contract purchase price of each acquired property
and will be reimbursed for acquisition costs incurred in the process of
acquiring properties, but not to exceed 0.5% of the contract purchase price. In
no event will the total of all fees and acquisition expenses payable with
respect to a particular property or investment exceed 4.0% of the contract
purchase price. During the three months ended March 31, 2009 and 2008, the
Company reimbursed the Advisor $0 and $119,207 for organizational and offering
expenses. The organizational and offering expenses paid during the three months
ended March 31, 2008 were subsequently refunded by the Advisor to improve the
Company’s overall working capital position. The Advisor has elected to waive its
reimbursement for organizational and offering costs for the three months ended
March 31, 2009. No acquisition costs were incurred or paid during the three
months ended March 31, 2009 and 2008. The company incurred and paid acquisition
advisory fees of $0 and $510,237, during the three months ended March 31, 2009
and 2008, respectively.




19


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(Unaudited)





The
Advisor receives a financing coordination fee equal to 1.0% of the amount
available under such financing. During the three months ended March 31, 2009 and
2008, the Company incurred finance coordination fees of $0 and $379,650,
respectively, payable to its affiliated Advisor.





The
Company pays its affiliated Property Manager fees for the management and leasing
of the Company’s properties. Such fees equal 2.0% of gross revenues from the
Company’s single tenant properties and 4.0% of the gross revenues from its
multi-tenant properties, plus reimbursement of the Property Managers’ costs of
managing the properties. In the event that the Property Manager assists a tenant
with tenant improvements, a separate fee may be charged to the tenant by the
Property Manager at a fee not to exceed 5.0% of the cost of such tenant
improvements. The Property Manager will be paid leasing commissions at
prevailing market rates and may also receive a fee for the initial leasing of
newly constructed properties, which generally would equal one month’s rent. The
aggregate of all property management and leasing fees paid to affiliates plus
all payments to third parties will not exceed the amount that other
nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. The Property Manager may subcontract
its duties for a fee that may be less than the fee provided for in the property
management agreement. During the three months ended March 31, 2009 and 2008, the
Company paid the Property Manager $0 and $4,230 for property management fees,
respectively. The Property Manager has elected to waive its management fee for
the three months ended March 31, 2009.





The
Company pays the Advisor an annualized asset management fee of 1.0% based on the
aggregate contract purchase price of all properties. The asset management fee is
payable quarterly in advance on the first day of the month following the end of
each calendar quarter end. The Company incurred asset management fees of $28,000
and $0 during the three months ended March 31, 2009 and 2008, respectively. The
Company was entitled to $383,441 of asset management fees during the quarter.
The difference, $355,441, was waived (not deferred) by the Advisor in order for
the Company to fund its distributions to shareholders fully from funds from
operations. These fees remained unpaid as of March 31, 2009 and were included in
due to affiliates in the accompanying balance sheets.





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 months ended March 31, 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 months ended March 31, 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 bridge equity from the
principals up to $10,000,000 from time to time as needed to provide short-term
bridge equity relating to property acquisitions or for general working capital
purposes. Such bridge equity needs to be satisfied within a six month period and
will accrue a preferred yield at approximately 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, accruing a preferred yield at an annual
return on investment of 8.0%. Such bridge equity can be paid off, at any time,
without penalty. During the three months ended March 31, 2009 and 2008, the
Company incurred related party interest expense of $128,219 and $17,534,
respectively. As of March 31, 2009, $44,165 remained unpaid and is included in
due to affiliates in the accompanying balance sheets.




During
the year ended December 31, 2008, the REIT entered into an unsecured bridge
equity facility with a related party, American Realty Capital Bridge, LLC (“ARC
Bridge”), whereby the REIT can obtain bridge equity of up to $10,000,000 from
time-to-time as needed to provide short-term bridge equity relating to property
acquisitions and for general working capital purposes. ARC Bridge is a 50% joint
venture between the Sponsor and an unrelated third party. Bridge equity
investments from this facility accrue a yield at an annual rate of 30 day LIBOR
plus 5% with a floor of 8%. This facility was used for two acquisitions during
the year ended December 31, 2008. The bridge equity investments relating to the
National City Bank and Rite Aid 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
three months ended March 31, 2009 the Company satisfied $1,811,648 of the bridge
equity investment related to the Rite Aid acquisitions. The related yield on
such short-term bridge equity was 8.11% for both the National City Bank and Rite
Aid acquisitions, as of March 31, 2009. The Company incurred interest
expense on these investments of $150,715 for the period ended March 31, 2009. As
of March 31, 2009, $24,082 remained unpaid and is included in due to affiliates
in the accompanying balance sheets.


20


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(Unaudited)





At March
31, 2009 and December 31, 2008, the Company had approximately $1,736,617 and
$2,233,144 respectively, due to affiliates, which is included in due to
affiliates in the accompanying consolidated balance sheets and is payable
primarily to the Advisor.





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 March 31, 2009, the Company had granted options to purchase 9,000 shares at
$10.00 per share, each with a two year vesting period. A total of 1,000,000
shares have been authorized and reserved for issuance under the Plan. The
Company accounts for the issuance of stock options under SFAS No. 123R,
“Share-Based Payment,” which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and
directors, including stock options related to the Plan, based on estimated fair
values.





During
the three months ended March 31, 2009, no options were granted, forfeited or
exercised and 4,500 became vested. As of March 31, 2009, unvested options to
purchase 4,500 shares at $10.00 per share remained outstanding with a weighted
average contractual remaining life of approximately 8.75 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 months ended March 31,
2009 and 2008:




Basic and
                  Diluted
                  Three
                  Months Ended
                  March 31,
                  2009
                
                
                Basic and
                  Diluted
                  Three
                  Months Ended
                  March 31,
                  2008Net
      loss
                
                $
                (1,338,593
                )
                
                $
                (341,850
                )Total
      weighted average common shares outstanding
                
                
                1,526,901
                
                
                
                134,013Loss
      per share
                
                $
                (.88
                )
                
                $
                (2.55
                )


21


AMERICAN
REALTY CAPITAL TRUST, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(Unaudited)





Note
14 — Subsequent Events (to be updated)





Sale
of Shares of Common Stock





As of May
7, 2009, the Company had issued 2,864,474 shares of common stock, including
339,077 shares issued in connection with an acquisition in March 2008. Total
gross proceeds from these issuances were $27,445,412. As of May 7, 2009, the
aggregate value of all share issuances and subscriptions outstanding was
$30,421,658 based on a per share value of $10.00 (or $9.50 for shares issued
under the DRIP). This amount includes stock subscriptions of $1,793,661
which are maintained at the Company’s third-party escrow agent, to be
released when certain escrow requirements have been achieved. As of May 7, 2009,
approximately $1.21 billion (121 million shares) remained available for sale to
the public under the Offering, exclusive of shares available under the
DRIP.




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 Registration Statement on Form S-11 for the period from August 17, 2007
(dated of inception) to April 27, 2009, filed with the SEC and the risks
identified in this quarterly report.





Overview





We are a
Maryland corporation that elected to be taxed as a real estate investment trust,
or REIT, beginning with the taxable year ended December 31, 2008. On
September 10, 2007, we filed 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 March 31,
2009, we issued 2,032,514 shares of common stock, including 339,077 shares
issued in connection with an acquisition in March 2008. Total gross proceeds
from these issuances were $19,230,213. As of March 31, 2009, the aggregate value
of all share issuances and subscriptions outstanding was $21,997,084 based on a
per share value of $10.00 (or $9.50 per share for shares issued under the DRIP).
This amount includes stock subscriptions of $1,683,755 which are maintained
at our third-party escrow agent, to be released when certain escrow requirements
have been achieved. As of March 31, 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 as well as
certain other real-estate related investments. We plan to own substantially all
of our assets and conduct our operations through our Operating Partnership, of
which we are the sole general partner. We have no paid employees. Our advisor,
American Realty Capital Advisors, LLC, conducts our operations and manages our
portfolio of real estate investments.





As of
March 31, 2009, we owned 92 properties compromising approximately 713,000 square
feet, 100% leased with an initial weighted average remaining lease term of 12.35
years. In constructing our portfolio, we intend to target and derive
approximately 50% to 60% of our revenues from investment-grade tenants.
Additionally, we intend to target approximately 50% of our revenues from
financial institutions.





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





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





Significant
Accounting Estimates and Critical Accounting Policies





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





Revenue
Recognition





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





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





Investments
in Real Estate





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





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





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





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


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





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





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





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





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





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




Derivative
Instruments
 
 We may
use derivative financial instruments to hedge all or a portion of the interest
rate risk associated with our 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.
  Statement
of Financial Accounting Standards No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS
161), amends and expands the disclosure requirements of FASB Statement
No. 133  (SFAS 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 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 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 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 133.
  25




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





Results
of Operations





Comparison
of the Three Months Ended March 31, 2009 and 2008





As of
March 31, 2009, we owned 92 properties which are 100% leased, compared to 16
properties which were 100% leased at March 31, 2008, an increase of
approximately 475%. Accordingly, our results of operations for the three months
ended March 31, 2009 as compared to the three months ended March 31, 2008
reflect significant increases in most categories.





Rental
Income





Rental
income increased approximately $2,713,000 to approximately $2,927,000 for the
three months ended March 31, 2009, compared to approximately $214,000 for the
three months ended March 31, 2008. The
increase in rental income was driven by our acquisition of approximately $100.0
million of net leased property during the last three quarters of 2008. These
properties, acquired at an average 7.65% 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 March 31, 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 March 31, 2008.





General
and Administrative Expenses





General
and administrative expenses decreased 34% to approximately $125,000 for the
three months ended March 31, 2009, compared to approximately $188,000 for the
three months ended March 31, 2008. The decrease was primarily due to a decrease
in the reimbursement for organizational and offering costs offset by increases
in all other categories of expenses.  During the three months ended
March 31, 2008, we reimbursed our Advisor approximately $119,000 for various
organizational costs. These reimbursements were subsequently refunded to us for
working capital needs. There was no reimbursement for organizational costs
during the three months ended, March 31, 2009. The majority of general and
administrative expenses as of March 31, 2009 included $46,000 of insurance
expense amortization of our directors’ and officers’ insurance policy, $28,000
of asset management fees, $20,000 of board member compensation and $16,000 of
professional fees.





Depreciation
and Amortization Expense





Depreciation
and amortization expense increased approximately $1,559,000 to approximately
$1,730,000 for the three months ended March 31, 2009, compared to approximately
$171,000 for the three months ended March 31, 2008. The
increase in depreciation expense was the result of our acquisition of
approximately $100.0 million of real estate during the last three quarters of
2008. These properties were placed into service when acquired and were being
depreciated for the majority of the year. In contrast, the prior year number
reflects the depreciation and amortization expense for a partial period as our
first acquisitions were during March 2008.





Interest
Expense





Interest
expense increased approximately $2,260,000 to $2,452,000 for the three months
ended March 31, 2009, compared to approximately $192,000 for the three months
ended March 31, 2008. The
increase in interest expense was the result of our purchase of 76 properties
with a total value of approximately $100.0 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. 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





During
the three months ended March 31, 2009 we incurred a gain of approximately
$37,000 related to marking our derivative instruments to market. No such gain
was incurred during the three months ended March 31, 2008 as we had no
derivative instruments outstanding.


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.  FFO is
not applicable for the three months ended March 31, 2009, as no dividends were
paid during such period.




Three
      Months
                  Ended
                  March
      31, 2009Net
      loss
                
                $
                (1,338,593
                )Add:Depreciation
      of real estate assets
                
                
                1,362,132Amortization
      of intangible lease assets
                
                
                347,772Amortization
      of below- and above-market leases
                
                
                (78,773
                )Mark-to-market
      adjustment (1)
                
                
                (57,590
                )FFO
                
                $
                234,948Dividends
      paid (2)
                
                $
                220,205FFO
      coverage ratio
                
                
                106.70
                %FFO
      payout ratio
                
                
                93.7
                %


___________________________


(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.


27


Cash
Flows for the Three Months Ended March 31, 2009





During
the three months ended March 31, 2009, net cash used in operating activities was
approximately $1,215,000. 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 $875,000 principally resulting from the acquisition
$636,000 of non-real estate investment furniture and fixtures during the three
months ended March 31, 2009. Accounts payable and accrued expenses decreased by
approximately $238,000, the majority of which relates to professional fees,
accrued interest and finance coordination fees.





Net cash
used in investing activities during the three months ended March 31, 2009 was
approximately $163,000, relating to prior period acquisition related
costs.





Net cash
provided by financing activities totaled approximately $1,070,000 during the
three months ended March 31, 2009. Such amount consisted primarily of net
proceeds from other notes payable and issuance of common stock of approximately
$9,428,000 and $6,494,000, respectively. These amounts were offset by the
satisfaction of our short-term bridge funds and related party bridge facility of
$8,000,000 and approximately $5,765,000, respectively. During the period, we
issued 747,833 shares of common stock which generated approximately $7,437,000
of gross proceeds, reduced by approximately $943,000 of related offering costs
and commissions. Net cash of approximately $145,000 was used for shareholder
dividends. Net cash was increased by approximately $21,000 related to a decrease
in restricted cash.









Cash Flows for the Three Months Ended
March 31, 2008





During the three months ended March 31,
2008, net cash used in operating activities was approximately $45,000. 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 $1,024,000
principally resulting from payments for a $500,000 deposit on an acquisition
that closed in May 2008 (Rockland Trust Company portfolio), $420,000 of finance
coordination fees incurred during the period, net of amortization, as well as
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 $837,000, 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 $309,000, primarily representing rent payments received in advance
of the respective due date.





Net cash used in investing activities
during the three months ended March 31, 2008 totaled approximately $2,544,000
relating to investment properties acquired during the
period.





Net cash provided by financing
activities totaled approximately $3,118,000 during the three months ended March
31, 2008. Such amount consisted of approximately $3,818,000 of proceeds received
from the issuance of 424,253 shares of common stock, reduced by approximately
$700,000 of related offering costs.





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 March 31, 2009, we issued 2,032,514
shares of common stock, including 339,077 shares issued in connection with an
acquisition in March 2008. Total gross proceeds from these issuances were
$19,229,978. As of March 31, 2009, the aggregate value of all share issuances
and subscriptions outstanding was $21,997,084 based on a per share value of
$10.00 (or $9.50 for shares issued under the DRIP). This amount includes stock
subscriptions of $1,683,755 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 March 31, 2009 totaled
$9,428,000.





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 proceeds from
fee waivers and refunds.





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
shareholders 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, will result in an annualized
distribution rate of 6.7%. During the three months ended March 31, 2009,
distributions paid totaled $220,205 inclusive of $74,744 of common shares issued
under the dividend reinvestment plan.  As of March 31, 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 March 31, 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 March 31, 2009, we had $4.7
million of bridge equity outstanding under our related party revolving bridge
equity facility, bridge equity of approximately $6.7 million under our related
party bridge equity facility, and approximately $4.0 million of convertible
redeemable preferred equity. Excluding such short-term bridge equity, our
leverage ratio approximated 68% (secured mortgage notes payable as a percentage
of total real estate investments, at cost) as of March 31,
2009.


29


As of
March 31, 2009, we had cash of approximately $579,000, which we expect to be
used primarily to satisfy short-term bridge funds, pay operating expenses and
pay stockholder distributions. In
addition, the approximate $17.9 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 March 31,
2009:




Payments Due During the Years Ending
      December 31Contractual Obligations
                  
                  Total
                  
                  
                  Remainder of 2009
                  
                  
                  
                  2010-2011
                  
                  
                  
                  2012-2013
                  
                  
                  ThereafterMortgage
      notes payable (1)
                  
                  $
                  112,437,533
                  
                  
                  $
                  721,237
                  
                  
                  $
                  2,867,407
                  
                  
                  $
                  60,772,029
                  
                  
                  $
                  48,126,860Short-term
      convertible redeemable preferred equity
                  
                  
                  3,995,000
                  
                  
                  
                  3,995,000
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Related
      party bridge equity (1)
                  
                  
                  6,500,000
                  
                  
                  
                  6,500,000
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Related
      party bridge equity facility (1)
                  
                  
                  6,665,515
                  
                  
                  
                  6,665,515
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Other
      notes payable
                  
                  
                  10,517,523
                  
                  
                  
                  
                  
                  
                  
                  10,517,523Purchase
      obligations (2)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —$
                  140,165,571
                  
                  
                  $
                  17,881,752
                  
                  
                  $
                  2,867,407
                  
                  
                  $
                  60,772,029
                  
                  
                  $
                  48,126,860


___________________________





(1)
            Amounts
      include principal payments only. We incurred interest expense of
      approximately $2,314,000, excluding amortization of deferred financing
      costs, during the three months ended March 31, 2009, and expect to incur
      interest in future periods on outstanding debt
  obligations.


(2)
            The
      Company has agreed to purchase a Federal Express distribution center,
      subject to due diligence and underwriting procedures. The transaction is
      expected to close in the second quarter of
2009.





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 debt used to
acquire properties.  Our interest rate risk management objectives are to
limit the impact of interest rate changes on earnings and cash flows and to
lower overall borrowing costs. To achieve these objectives, we may borrow at
fixed rates or variable rates with the lowest margins available and in some
cases, the ability to convert variable rates to fixed rates. With regard to
variable rate financing, we will assess interest rate cash flow risk by
continually identifying and monitoring changes in interest rate exposures that
may adversely impact expected future cash flows and by evaluating hedging
opportunities.  At March 31, 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 to the proceeds in the
distribution reinvestment plan; provided, however, that shares subject to a
repurchase requested upon the death or disability of a stockholder will not be
subject to this cap. The cash available for repurchase of our shares will be
limited to the proceeds from the sale of shares pursuant to our distribution
reinvestment plan legally available for the repurchase of our
stock.





No shares
were redeemed under this program during the quarter ended March 31,
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 March
31, 2009 that has materially affected, or is reasonable likely to materially
affect, our internal controls over financial reporting.





Item5. Other
Information




None




Item6. 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.
              (Registrant)By:
            
            /s/ Nicholas S. SchorschNicholas
      S. SchorschChief
      Executive OfficeBy:
            
            /s/ Brian S. BlockBrian
      S. BlockSenior
      Vice President, Chief Financial Office, and Principal
              Accounting
      Officerr





Date: May
8, 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 March 31, 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