As filed with the Securities and Exchange Commission on February 15, 2012

Registration No. 333-    

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM S-11

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES



 

AMERICAN REALTY CAPITAL TRUST, INC.

(Exact Name of Registrant as Specified in Its Governing Instruments)

106 York Road
Jenkintown, Pennsylvania 19046
(215) 887-2189

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)



 

Nicholas S. Schorsch
Chairman of the Board
AMERICAN REALTY CAPITAL TRUST, INC.
106 York Road
Jenkintown, Pennsylvania 19046
(215) 887-2189

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)



 

With a Copy to:

 
Peter M. Fass, Esq.
Steven L. Lichtenfeld, Esq.
Proskauer Rose LLP
Eleven Times Square
New York, New York 10036-8299
Tel: (212) 969-3000
Fax: (212) 969-2900
    
Alan I. Annex, Esq.
Greenberg Traurig, LLP
200 Park Avenue
New York, New York 10166
Tel: (212) 801-9200
Fax: (212) 805-9293


 

Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

CALCULATION OF REGISTRATION FEE

   
Title of Securities to Be Registered   Proposed Maximum
Aggregate
Offering Price(1)
  Amount of
Registration Fee
Common Stock, $0.01 par value per share   $ 87,285,000     $ 10,003  

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.


 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

 

 


 
 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion
Preliminary Prospectus dated February 15, 2012

PROSPECTUS

6,600,000 Shares

[GRAPHIC MISSING]

American Realty Capital Trust, Inc.

Common Stock



 

American Realty Capital Trust, Inc. is a leading self-administered real estate company that owns and acquires single tenant free standing commercial real estate properties that are primarily net leased on a long-term basis to investment grade credit rated and other creditworthy tenants. As of January 31, 2012, our property portfolio, which was 100% occupied, consisted of 485 single tenant, free standing properties, located in 43 states and Puerto Rico, with over 15.6 million leasable square feet leased to 61 different commercial enterprises doing business in 20 different industries.

We are offering 6,600,000 shares of our common stock and expect the public offering price to be $      per share. We have applied to list our common stock on The NASDAQ Global Select Market, or NASDAQ, under the symbol “ARCT.” Between 2008 and 2011, we raised equity capital primarily through a continuous public offering of our common stock for aggregate gross proceeds of approximately $1.8 billion, including shares issued pursuant to our Distribution Reinvestment Plan. As of January 31, 2012, there were 178.2 million shares of our common stock outstanding owned by approximately 40,000 stockholders. Currently, no public market exists for our shares and therefore this will be our first public offering of securities listed on a national stock exchange.

We are a Maryland corporation and have elected to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2008. Our charter contains a restriction on ownership of our common stock that prevents any person or entity from owning directly or indirectly more than 9.8% in value of the aggregate of our outstanding shares of stock and not more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock, subject to certain possible exceptions. These restrictions, as well as other share ownership and transfer restrictions contained in our charter, are designed, among other purposes, to enable us to comply with share accumulation and other restrictions imposed on REITs by the Internal Revenue Code of 1986, as amended, or the Code.

Investing in our common stock involves risks. Before buying any shares, you should carefully consider the risk factors described in “Risk Factors” beginning on page 23.



 

   
  Per
Share*
  Total
Public offering price   $              $           
Underwriting discount   $     $  
Proceeds, before expenses, to us   $     $  


 

We estimate that total expenses of this offering, excluding the underwriting discount, will be approximately $          .

The underwriters may also purchase up to an additional 990,000 shares of common stock from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus solely to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common stock on or about           , 2012.



 

LADENBURG THALMANN & CO. INC.

The date of this prospectus is           , 2012

* We are not currently listed on any exchange. We have assumed that the shares of common stock to be sold in this offering will be sold at a public offering price of $11.50 per share, which we have estimated based on our anticipated operating performance, trading levels of comparable companies and a dividend discount analysis. The actual offering price will be dependent on a number of factors, including the market price of shares of common stock at the time of the offering, and may be higher or lower than this assumed price.


 
 

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  Page
Prospectus Summary     1  
Risk Factors     23  
Forward-Looking Statements     54  
Use of Proceeds     55  
Distribution Policy     56  
Capitalization     59  
Dilution     60  
Selected Consolidated Financial and Pro Forma Data     61  
Management’s Discussion and Analysis of Financial Condition and Results of Operations     63  
Quantitative and Qualitative Disclosures about Market Risk     76  
Business and Properties     77  
Management     107  
Principal Stockholders     123  
Certain Relationships and Related Transactions     125  
Policies With Respect to Certain Activities     128  
Description of Capital Stock     132  
Certain Provisions of the Maryland General Corporation Law and our Charter and Bylaws     142  
Description of Partnership Agreement of American Realty Capital Operating Partnership L.P.     144  
Shares Eligible for Future Sale     149  
Material U.S. Federal Income Tax Considerations     151  
ERISA Considerations     171  
Underwriting     173  
Legal Matters     177  
Experts     177  
Where You Can Find Additional Information     177  
Index to Consolidated Financial Statements     F-1  
Part II — Information not Required in Prospectus     II-1  

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You should rely on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide you with different information. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front cover of this prospectus.



 

We use market data and industry forecasts and projections throughout this prospectus, including market and industry data from publicly available industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry, and there is no assurance that any of the projected amounts will be achieved. We believe that the surveys and market research others have performed are reliable, but we have not independently verified this information.



 

The term “fully-diluted basis” when used in reference to our shares of common stock means all outstanding shares of common stock at such time plus all outstanding shares of restricted stock, phantom shares, shares of common stock issuable upon the exercise of outstanding options that have vested and shares of common stock exchangeable, at our discretion, for common units of limited partnership interest in our operating partnership, or “OP units,” on a one-for-one basis, which is not the same as the meaning of “fully-diluted” under generally accepted accounting principles, or “GAAP.” In addition, “pro forma” or “on a pro forma basis” means that the information presented gives effect to this offering, as well as our internalization transaction and our tender offer (each as described herein under “Selected Consolidated Financial and Pro Forma Data”), in each case as if such transactions had occurred on January 1, 2011. For pro forma purposes, we have assumed that we will acquire pursuant to the tender offer $200.0 million of shares of our common stock at a price per share of $10.75, which we believe is the probable result of our tender offer.



 

We use certain defined terms throughout this prospectus that have the following meanings:

We use the term “net lease” throughout this prospectus. Under a net lease, the tenant occupying the leased property (usually as a single tenant) does so in much the same manner as if the tenant were the owner of the property. There are various forms of net leases, most typically classified as “triple net” or “double net.” Triple net leases typically require the tenant to pay all costs associated with a property, including real estate taxes, insurance, utilities and routine maintenance in addition to the base rent. Double net leases typically require the tenant to pay all the costs as triple net leases, but hold the landlord responsible for capital expenditures, including the repair or replacement of specific structural and/or bearing components of a property, such as the roof or structure of the building. Accordingly, the owner receives the rent “net” of these expenses, rendering the cash flow associated with the lease predictable for the term of the lease. Under a net lease, the tenant generally agrees to lease the property for a significant term and agrees that it will have either no ability or only limited ability to terminate the lease or abate rent prior to the expiration of the term of the lease as a result of real estate driven events such as casualty, condemnation or failure by the landlord to fulfill its obligations under the lease. Substantially all the leases of our properties are net leases.
We use the term “modified gross lease” throughout this prospectus. Under a modified gross lease, the commercial enterprises occupying the leased property pay base rent plus a proportional share of some of the other costs associated with the property, such as property taxes, utilities, insurance and maintenance. Some (but not a material portion) of our properties are subject to modified gross leases.

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We use the term “credit tenant” throughout this prospectus. When we refer to a “credit tenant,” we mean a tenant that has entered into a lease and that we determine is creditworthy and may include tenants with an investment grade or below investment grade credit rating, as determined by major credit rating agencies, or unrated tenants. To the extent we determine that a tenant is a “credit tenant” even though it does not have an investment grade credit rating, we do so based on our reasonable determination that a tenant should have the financial wherewithal to honor its obligations under its lease with us. This reasonable determination is based on our substantial experience closing net lease transactions and is made after evaluating all tenants’ due diligence materials that are made available to us, including financial statements and operating data.
We use the term “average annual rent” throughout this prospectus. When we refer to “average annual rent,” we mean the rental income under our leases reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by GAAP, as further adjusted to reflect the effect of (i) tenant concessions and abatements such as free rent, as applicable, (ii) in respect of our modified gross leased properties, the effect of operating expense reimbursement revenue less property operating expenses, as applicable, and (iii) with respect to our properties that are subject to ground leases, the effect of ground lease payments.

We use the following terms throughout this prospectus:

“our former advisor,” which refers to American Realty Capital Advisors, LLC, a Delaware limited liability company;
“our property manager,” which refers to American Realty Capital Properties, LLC, a Delaware limited liability company; and
“ARC,” which refers to AR Capital, LLC, a Delaware limited liability company (formerly known as American Realty Capital II, LLC).


 

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission, or the SEC. You may read and copy any document that we file at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 25049. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC’s electronic data gathering, analysis and retrieval system, or EDGAR, via electronic means, including the SEC’s home page on the Internet (www.sec.gov).

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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed information regarding our company, including under the caption “Risk Factors,” and our historical and pro forma consolidated financial statements and related notes appearing elsewhere in this prospectus for a more complete understanding of this offering before deciding to invest in our common stock. Except where the context suggests otherwise, the terms “we,” “us,” “our” and “our company” refer to American Realty Capital Trust, Inc., together with its subsidiaries, including American Realty Capital Operating Partnership L.P., which we refer to as our “operating partnership.” Unless otherwise indicated, the information in this prospectus assumes and reflects: (i) the completion of our internalization of our management and the termination of our advisory agreement with our former advisor and the purchase by us for nominal consideration of our property manager, each on the terms described in this prospectus, which we refer to as our Internalization, (ii) the purchase by us of approximately 18.6 million shares of our common stock at a price of $10.75 per share (representing an aggregate purchase price of $200.0 million), which is the mid-point of the range of prices set forth in the tender offer with the final purchase price being determined through a modified Dutch auction process, which we refer to as our “Tender Offer”, (iii) the amendment and restatement of the agreement of limited partnership of our operating partnership, (iv) the amendment and restatement of our bylaws, (v) the common stock to be sold in this offering is sold at $      per share, (vi) no exercise by the underwriters of their option to purchase up to an additional 990,000 shares of our common stock solely to cover over-allotments, if any, and (vii) all property information is as of January 31, 2012.

Our Company

Overview

We are a leading self-administered real estate company that invests in single tenant free standing retail, distribution warehouse and office properties that are primarily net leased to investment grade rated and other credit tenants. As of January 31, 2012, 71.1% of our average annual rent is derived from tenants that have an investment grade credit rating as determined by a major credit agency, and 100.0% of our average annual rent is derived from tenants who we believe are credit tenants, including FedEx Corporation, or FedEx, Walgreen Co., or Walgreens, CVS Caremark Corporation, or CVS, and the General Service Administration, or GSA. Our portfolio is diversified by tenant, property type and geography, and our properties are generally subject to long-term leases that have an average duration to expiration of 13.5 years. The majority of our leases have tenant extension options. Our targeted retail properties are well-located on “the corner of Main Street and Main Street, USA,” and our office and distribution warehouse properties are typically situated along high traffic transit corridors at locations carefully selected by our tenants to support operationally essential activities. As of January 31, 2012, our portfolio is 100% occupied and consists of 485 properties located in 43 states and Puerto Rico, with over 15.6 million square feet, leased to 61 different commercial enterprises doing business in 20 separate industries.

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The following is a summary of our portfolio diversity based on geography, property type and tenant credit quality (all percentages based on average annual rent):

 
Property Geographic Distribution   Property Type Distribution
[GRAPHIC MISSING]   [GRAPHIC MISSING]

Tenant Credit Quality Distribution

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We expect to maintain our current balance of properties by type and tenant credit quality and to continue to diversify our portfolio geographically.

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We have virtually no lease expirations over the next six years, with only 0.9% of our average annual rent expiring through December 31, 2017, and well-staggered lease maturities thereafter. Our average remaining lease term is 13.5 years as of January 31, 2012. We believe our high-quality properties and long-term leases to credit tenants result in strong predictability of cash flows. The following is a summary of our lease expirations over the next ten years as of January 31, 2012:

[GRAPHIC MISSING]

Our properties generally have been recently constructed or renovated and have a weighted average age, as of January 31, 2012, of 5.3 years. We believe that the low average age and modern amenities of our properties make them attractive to tenants, and result in higher current rents, lower vacancies and a higher number of alternative uses.

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Our executive management team and our Chairman of the Board possess substantial expertise in all aspects of net leased property acquisition, leasing, management and finance. Nicholas S. Schorsch, one of our company’s co-founders and our Chairman of the Board, and William M. Kahane, one of our company’s co-founders and our President and Chief Executive Officer, have been actively involved, since the formation of our company and through January 31, 2012, in the acquisition of all our 485 net leased properties, with more than 61 credit tenants. Messrs. Schorsch and Kahane also have substantial public REIT operating experience, Mr. Schorsch as the former Chief Executive Officer and Vice Chairman of American Financial Realty Trust, Inc., or AFRT, a

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New York Stock Exchange, or NYSE, listed REIT, and the current Chairman and Chief Executive Officer of American Realty Capital Properties, Inc., or ARCP, a NASDAQ Stock Market listed REIT, and Mr. Kahane as a former trustee of AFRT, the former Non-Executive Chairman of the Board of Catellus Development Corp., or Catellus, a NYSE-listed growth-oriented real estate development company, and President and Chief Operating Officer of ARCP (a position he will resign concurrently with the consummation of the offering). As of the closing of this offering, we expect to employ approximately ten individuals, including accounting, reporting, asset and property management, human resources, investor relations and capital markets and acquisitions professionals.

Our principal executive office is located at 106 York Road, Jenkintown, PA 19046; our telephone number is (215) 887-2189. Our website address is www.arctreit.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to the SEC.

Our Competitive Strengths

High-Quality Net Leased Property Portfolio.  Our 485-property portfolio consists of high-quality free standing single tenant properties that are geographically diversified in strategic locations in well-defined target markets, with properties located in 43 states and Puerto Rico. We have a diverse tenant roster made up of 61 different national and regional commercial enterprises doing business in 20 separate industries. We believe our tenant credit quality is among the strongest in the public net lease REIT industry, and our leases have an average remaining life of 13.5 years. We have minimal scheduled lease expirations over the next six years, with only 0.9% of our average annual rent expiring through December 31, 2017. As of January 31, 2012, 71.1% of average annual rent is generated from tenants with an investment grade rating (92.0% of average annual rent is from rated tenants), as determined by major credit rating agencies. Our properties have been constructed relatively recently, with an average age of 5.3 years. As of January 31, 2012, our properties had a 100.0% occupancy rate and we have not had any vacancies in our properties since their purchase by us. We believe that the low average age and recent design of our properties make them attractive to tenants and result in higher current rents, lower vacancies and a higher number of alternative uses.
Growth Oriented Capital Structure.  Our capital structure provides us with significant financial capacity to fund future growth. As of December 31, 2011, our pro forma debt to total market capitalization ratio would have been 42.5%, assuming a price per share of $     . On a pro forma basis, as of December 31, 2011, and giving effect to the use of proceeds as set forth under “Use of Proceeds,” we anticipate we will have $89.8 million available under our $230.0 million revolving credit facility with RBS Citizens, N.A., or RBS Citizens, assuming a price of $      per share in this offering and assuming our lenders increase their aggregate commitments to $230.0 million as we expect. As of the consummation of this offering, 232 of our properties will be unencumbered.
Proven Acquisition Capabilities.  We believe one of our competitive strengths is our ability to source and close on a larger number of smaller, “off-market” acquisitions than our competitors. Our acquisition capabilities are driven by our extensive network of industry relationships within the corporate, brokerage, development and investor community. The majority of the acquisitions we completed, based on total purchase price, have been sourced in transactions where there has been no formal sales process. A significant portion of our acquisitions has been from sellers with whom we have had repeat business and transaction activities. Our strong relationship with the tenant and leasing brokerage communities aids in attracting and retaining tenants. Additionally, we believe that Mr. Schorsch’s prior and current experience with two exchange-traded REITs, AFRT and ARCP, and Mr. Kahane’s prior and current experience with three exchange-traded REITs, AFRT, Catellus and ARCP, as well as being the founders and senior executive officers of our former advisor and of ARC, a sponsor of non-traded REITs,

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allows them to enjoy long-standing relationships with both public and private owners of net leased properties, corporate tenants, brokers and other key industry participants that provide a level of transaction flow not otherwise available to the general investment community.
Experienced and Committed Team. Nicholas S. Schorsch, our Chairman of the Board, and William M. Kahane, our President and Chief Executive Officer, collectively have over 70 years commercial real estate experience and collectively have over 20 years experience focused on the net-lease real estate sector. Additionally, each of our Chairman of the Board and Chief Executive Officer has significant public company operating experience, with each having held and currently holding senior positions at publicly traded REITs. Upon completion of this offering, our officers and directors and their affiliates are expected to collectively own less than 1.0% of the equity interest in our company on a fully-diluted basis and our Chairman of the Board and our Chief Executive Officer will receive only performance-based compensation from us, which aligns executive management’s interests with those of our stockholders.

Business and Growth Strategies

Our principal business objectives are to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations, or FFO, per share and to grow cash available for distributions through accretive acquisitions and have embedded rental rate growth leases that provide for increasing cash rents over time. We expect to accomplish these objectives by continuing to assemble a high-quality well located portfolio of net leased properties diversified by tenant, industry, geography and lease duration. We intend to pursue a fully-integrated acquisition and investment approach that will allow us to maximize cash flow and achieve sustainable long-term growth in FFO, thereby maximizing total return to our stockholders.

Based on our portfolio’s current lease expiration schedule and the profile of our target assets, we expect that we will not have any significant lease expirations until 2018. We believe the anticipated stability of our cash flows during the next six years differentiates our portfolio from other publicly traded REITs that invest in net lease properties which have substantial annual lease expirations that require management time and focus. As such, we intend to focus our efforts during this period on expanding our business and enhancing our diversified portfolio of high-quality properties with credit tenants.

Investing in Properties Occupied by High-Quality Tenants.  Our portfolio of properties consists of free standing, single tenant net leased properties where 100% of the underlying tenants are of high credit quality (as determined by us consistent with our definition of credit tenant, or based on credit ratings as determined by major credit rating agencies), and it is our intention to continue to invest in properties leased to high credit quality tenants. We believe that investing in properties leased to credit tenants provides us with a stable and reliable source of cash flow from our properties.
Acquiring “Critical-Use” Net Leased Properties.  We intend to acquire and own additional commercial properties subject to net leases to credit tenants, with a substantial focus on acquiring properties that are of “critical use” to the tenants occupying such properties or that have multiple clear alternative uses. “Critical use” means that, based on a property’s location and physical characteristics, it is positioned to be fundamentally important to its tenant’s business. We will be focused on acquiring net leased properties at or below replacement cost and in geographies where the market fundamentals will give us the flexibility to renew or extend the lease with the existing tenant or reposition the property for alternative uses. We intend to continue to acquire retail, distribution warehouse and office properties and, over time, will seek to have rents from our retail properties constitute at least 60% of our average annual rent.
Focus on Capital Preservation.  Our management team focuses on protecting and preserving capital by performing a comprehensive risk-reward analysis on each

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investment, with a rigorous focus on relative values and replacement cost among the target assets that are available in the market. Our investment strategy employs appropriate leverage to enhance equity returns while avoiding unwarranted levels of debt, interest rate risk or re-financing exposure. Prior to effecting any acquisitions, we analyze (1) the property’s design, construction quality, efficiency, functionality and location with respect to the immediate sub-market, city and region; (2) lease integrity with respect to the term, rental rate increases, corporate guarantees and property maintenance provisions, if any; (3) present and anticipated conditions in the local real estate market; and (4) prospects for selling or re-leasing the property on favorable terms in the event of a vacancy. We also evaluate each potential tenant’s financial strength, growth prospects, competitive position within its respective industry, business model, and a property’s strategic location and function within a tenant’s operations or distribution systems. We believe that our comprehensive underwriting process is critical to the assessment of long-term profitability of any investment by us.
Maximize Cash Flow Through Internal Growth.  We seek investments that provide for attractive returns initially and increasing returns over the remaining lease term with fixed rent escalations, Consumer Price Index, or CPI, based escalations and/or percentage rent features that allow participation in the financial performance of the property. We have typically structured our property acquisitions to achieve a positive spread between our cost of capital and the rental amounts paid by our tenants. We also have embedded rental rate growth in our existing leases. During such lease term and any renewal periods, our leases typically provide for periodic increases in rent and/or percentage rent based upon a percentage of the tenant’s prior sales over a predetermined level. As of January 31, 2012, 74.4% of our leases relating to our properties provided for fixed periodic increases in rent, which increases averaged 1.26% per annum on a weighted average basis, excluding potential increases for leases with increases based on CPI. Additionally, we believe there is embedded potential for growth in our properties.

Financing Strategy

We intend to finance future acquisitions with the most advantageous source of capital available to us at the time of each transaction, which may include a combination of public and private offerings of our equity and debt securities, secured and unsecured corporate-level debt, property-level debt and mortgage financing and other public, private or bank debt. In addition, we may acquire properties in exchange for the issuance of common stock or OP units.

As of December 31, 2011, our outstanding secured debt was approximately 31.7% of the book value of our portfolio. We expect to maintain a prudent capital structure by generally targeting our debt to gross undepreciated asset value at 45.0% or below and our debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio at 6.0x or below. In addition to these targets, our revolving credit facility includes covenants that restrict our level of indebtedness, and which may be more restrictive than these targets. See “Business and Properties —  Revolving Credit Facility.” On a pro forma basis, we will have a remaining borrowing capacity of $89.8 million under our $230.0 million revolving credit facility, which will be available to us, upon notice, provided that no default exists, we satisfy certain collateral requirements and other financial ratio requirements and assuming our lenders increase their aggregate commitments to $230.0 million as we expect. See “Business and Properties — Revolving Credit Facility” below. We expect that we will incur additional corporate-level debt and property level debt in the future.

We began the process to garner a corporate credit rating and received our first rating from a major rating agency in late-2010. By early-2011, we secured a second corporate credit rating from another major rating agency. We intend to focus on improving our balance sheet and performance metrics in keeping with the rating agencies’ methodologies. We intend to maintain leverage, coverage and other levels consistent with our existing ratings and to seek to have our ratings increased when appropriate.

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Background

We were founded in 2007 by ARC as an externally-advised REIT to focus on the acquisition and operation of free standing, single tenant commercial properties net leased to investment grade and other credit tenants located throughout the United States and Puerto Rico. Our day-to-day business and operations were managed by our former advisor, and our properties were managed by our property manager, both of which are affiliates of ARC, under the supervision of our Board of Directors. Upon the listing of our common stock on NASDAQ, which we anticipate will occur on or about March 1, 2012, the advisory agreement with our former advisor will be terminated subject to a 60-day notice period (subject to our right to extend this agreement for three consecutive one month periods) and we will purchase our property manager from ARC for $10.00 and our property manager will agree to waive any fees payable by us under the property management agreement to which we are a party. As a result of our Internalization, we will become a self-administered and self-advised REIT.

Between 2008 and 2011, we raised equity capital to finance our real estate investment activities primarily through a continuous public offering of our common stock for aggregate gross proceeds of approximately $1.8 billion, including shares issued pursuant to our Distribution Reinvestment Plan. Accordingly, we have been filing periodic reports with, and have been subject to the rules and regulations of, the SEC since January 25, 2008. As part of our Internalization, we have applied to list our common stock on NASDAQ, which we expect to occur on or about March 1, 2012. As of January 31, 2012, there were 178.2 million shares of our common stock outstanding which were owned by approximately 40,000 stockholders.

Summary Risk Factors

An investment in our common stock involves various risks, and prospective investors should carefully consider the matters discussed in the section “Risk Factors” beginning on page 23 prior to deciding whether to invest in our common stock. These risks include, but are not limited to, the following:

Our investments in real estate assets are concentrated in the commercial real estate sector, and our business could be adversely affected by an economic downturn in that sector.
Our growth will partially depend upon our ability to successfully acquire future properties, and we may be unable to enter into and consummate property acquisitions on advantageous terms or our property acquisitions may not perform as we expect.
We depend on key personnel, including William M. Kahane and Brian D. Jones, and the loss of services from key members of the management group or a limitation in their availability could adversely affect us.
Unless both Messrs. Schorsch and Kahane remain as members of our Board of Directors, we will be in default under our revolving credit facility.
Several of our employment and director relationships could result in various conflicts of interest and decisions that are not in the best interests of our stockholders. William M. Kahane, our President and Chief Executive Officer, and Nicholas S. Schorsch, our Chairman of the Board, each owns substantial equity interests in ARC and its affiliates, certain of which are companies that sponsor and/or advise other REITs and are entitled to receive fees and distributions in connection with such management, including asset management fees, acquisition fees, financing fees, disposition fees and incentive fees and distributions upon the sale or listing of such REITs. Additionally, Mr. Schorsch is the Chief Executive Officer and Chairman of the Board of eight other REITs, three of which invest in single tenant, free standing commercial real estate as we do. In addition, we expect Mr. Schorsch and ARC to form other REITs that will also invest in our target properties.

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Our acquisition activities are largely dependent on external capital, and our operating results and financial condition could be adversely affected if we do not continue to have access to capital on favorable terms.
Our advisory agreement with our former advisor, which requires our former advisor to provide to us certain services including asset management, advisory services, accounting, property management, investor relations, legal, operations and other essential services, has been terminated and will expire 60 days following the closing of this offering (subject to our right to extend this agreement for three consecutive one month periods), and to the extent our employees and our infrastructure are inadequate to effectively provide any such services to us, our operations and the market price of our common stock would be adversely affected.
We rely on two major tenants, FedEx and Walgreens, for approximately 27% of our average annual rent and, therefore, are subject to tenant concentration that makes us more susceptible to adverse events with respect to these tenants.
Our net income per share and FFO per share in the near term may decrease as a result of our Internalization due to increased expenses related to being self-advised, including expenses for compensation and benefits of our officers and other employees, which previously were paid by our former advisor, and the continuation of asset based compensation (all of which will be prepaid upon consummation of this offering) to our former advisor at the same rate it was paid prior to our Internalization through at least 60 days after the completion of this offering.
In connection with the listing of our common stock on NASDAQ, ARC or its affiliate will be entitled to a subordinated incentive listing fee equal to 15% of the amount, if any, by which (a) the market value of our common stock, based on the average market value of the shares issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed or included for quotation plus distributions paid by us prior to listing, exceeds (b) the sum of the total amount of capital raised from stockholders during our prior continuous offering and the amount of cash flow necessary to generate a 6.0% annual cumulative, non-compounded return to such stockholders. To the extent such fee is earned we will become increasingly leveraged by the principal amount of the note issued in respect of the payment of such fee (which fee would equal approximately $45.1 million if the market value of our common stock for this purpose is $      per share, and which fee would increase by approximately $6.7 million in respect of each $0.25 increase in the value of each share of common stock above such $      amount). In the event the subordinated incentive listing fee is earned, at maturity and at the option of the holder, such note can be converted into shares of our common stock, the number of which will be based on the valuation described above which, if such conversion occurs, may decrease our net income per share and FFO per share at such time by increasing the total number of shares outstanding.
We are structured as an umbrella partnership REIT, or UPREIT, which means that we own our properties through our operating partnership and its subsidiaries. Our UPREIT structure may result in potential conflicts of interest. Upon the consummation of this offering, we will own 99.99% of the OP units in our operating partnership, and circumstances may arise in the future when the interests of the other limited partners in our operating partnership may conflict with the interests of our stockholders.
We are dependent on tenants for our revenues, and defaults by our tenants, as a result of bankruptcy, insolvency or otherwise, could cause us to reduce the amount of distributions to stockholders. In addition, our ability to renew leases or re-lease space on favorable terms as leases expire significantly affects our business. Furthermore, a property that incurs a vacancy could be difficult to sell or re-lease.

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Each of our properties is leased to a single tenant and, therefore, the financial failure of, or default by, one of these tenants under their leases is likely to cause a complete reduction in the cash flows of the properties subject to those leases.
We may have increased exposure to liabilities from litigation as a result of our operating partnership’s participation in investment programs structured to reinvest proceeds for a real estate sale and qualify for like-kind exchange treatment under Code Section 1031.
We are subject to risks associated with co-tenancy arrangements that are not otherwise present in a real estate investment and these risks could reduce the value of our co-tenancy investments and your overall return.
Uninsured losses, including losses from floods, earthquakes, acts of war, acts of terrorism or riots, relating to real property may adversely affect your returns. Similarly, contingent or unknown liabilities with respect to our properties, including environmentally hazardous conditions, could adversely affect our financial condition.
Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur, which could cause our operating results and financial condition to be adversely affected if we are unable to make required principal and interest payments on our outstanding indebtedness, comply with the other covenants with respect to our indebtedness or refinance our indebtedness at maturity on favorable terms or at all.
Our charter and Maryland law contain provisions that may delay, defer or prevent a change of control transaction that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
We may change our investment and financing strategies and enter into new lines of business without stockholder consent, which may result in our making investments and engaging in business activities that are different from, and possibly riskier than, the investments and businesses described in this prospectus.
As of January 31, 2012, we had 178.2 million shares of common stock issued and outstanding, all of which are freely tradable and substantially all of which are not subject to any volume limitations on trading under the federal securities laws, and neither we nor any third party have any control over the timing or volume of the potential sale of these shares. Prior to the listing of our shares of common stock on NASDAQ, our shares were not listed on any national exchange, and the ability of stockholders to liquidate their investments was limited. Subsequent to our listing on NASDAQ, a large volume of sales of these shares, or the perception that such sales could occur, could decrease the prevailing market prices of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future.
Purchasers of our common stock in this offering will experience an immediate dilution in the net tangible book value of the common stock purchased in this offering because the price per share of common stock in this offering is substantially higher than the net tangible book value of each share of common stock outstanding immediately after this offering.
Our qualification as a REIT depends on our satisfaction of numerous requirements established under highly technical and complex provisions of the Code and our failure to continue to so qualify would subject us to taxation as a corporation and adversely affect our operations, our ability to make distributions and the market price of our common stock.

Market Opportunity

We believe that there is a significant opportunity to earn attractive risk-adjusted returns by investing in the net lease real estate market. Corporations and many other users of real estate utilize single tenant properties for a variety of purposes, including free standing retail stores such

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as major discount stores, drug stores, gas stations and convenience stores, casual dining and quick-service restaurants, automotive maintenance and repair, big box retail and home improvement stores, office buildings for corporate headquarters and regional operations and distribution warehouses for the storage and distribution of goods. While investments in credit tenant net lease properties are subject to the same credit risk as unsecured bond obligations (the failure of the underlying tenant or bond issuer), we believe the yields on credit tenant net lease properties generally exceed the yields on comparably rated bonds. In addition, unlike unsecured bond obligations, the value of the real estate underlying a credit tenant and lease may increase recovery in any tenant bankruptcy or default, thereby providing an overall lower risk investment.

The U.S. net lease market is comprised of a wide range of property types and tenant operations and includes virtually every geographic market in the country. We will target properties net leased to investment grade and other credit tenants, which are typically larger companies operating at multiple locations. The market overview below focuses on ten of the larger market segments (by annual sales) that we encounter when evaluating acquisition opportunities. We estimate that as of December 31, 2011 the combined total value of real estate used in these selected industries is approximately $1.2 trillion. During 2011, members of our management team underwrote on behalf of ourselves and ARC affiliated programs approximately $3.0 billion of potential net lease property acquisitions and closed on approximately $1.3 billion of those properties. Based on this sample size, we estimate that of the total real estate in the table below, approximately 20% – 30% are operated or guaranteed by investment grade companies, or operators that we would consider credit tenants, which represents a total target market for us of approximately $245 billion to $367 billion. Further, we estimate that, based on the net leased acquisition opportunities that our management team was exposed to in 2011, the typical initial lease duration for these types of properties is 15 to 25 years, with an average initial lease duration of 20 years, and that approximately 60% – 70% of these properties have a remaining lease duration that matches our target remaining lease duration of 10 to 25 years. Assuming the sample size of the net leased acquisition opportunities that were made available to our management team in 2011 is representative of the entire market, we believe that there are approximately $147 billion to $257 billion of net leased properties that have credit tenants and have remaining lease terms of 10 to 25 years that currently exist in the market. Not all of these properties will be available for purchase or suitable for us. In addition, we will evaluate acquisition opportunities in many other market segments in addition to those described below.

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Ten Largest Net Leased Property Market Segments
United States Net Lease Real Estate Market (2011)

         
Segment   Annual
Revenue
($ Million) (1)
  Number of
Stores (1)
  Average
Square
Feet per
Store (1)
  Estimated
Value Per
Square
Foot (2)
  Estimated
Real Estate
Value
($ Million) (3)
Banks   $ 700,000       98,200 (4 )      4,700 (5 )    $ 556     $ 256,620  
Warehouse Clubs and Superstores     360,000       4,000       150,000       236       141,600  
Convenience Stores     350,000       120,000       2,500       600       180,000  
Drugstores     220,000       20,000       12,000       349       83,760  
Automobile Parts Wholesale-Retail     200,000       35,000       7,000       284       69,580  
Fast Food and Quick Service Restaurants     155,000       200,000       3,000       602       361,200  
Home Improvement     150,000       23,000       9,000       64       13,248  
Discount Stores     130,000       5,000       100,000       99       49,500  
Gas Stations     115,000       22,000       2,500       542       29,810  
Dollar Stores     50,000       33,000       8,000       140       36,960  
Total                                       $ 1,222,278  

   
  Range ($) Million
Investment Grade/Credit Portion of Estimated Real Estate Value     20% or $244,456       30% or $366,683  
Long-term (10 years or more) Lease Portion of Estimated Real Estate Value     60% or $733,367       70% or $855,595  
Estimated Target Market (6)     12% or $146,673       21% or $256,678  

(1) Source: First Research Company Data (except as set forth in footnotes 4 and 5 below).
(2) Represents our estimate of value per square foot based on its historical experience in valuing these types of assets.
(3) Represents, with respect to each segment, our estimate of the product of (i) the number of stores times (ii) the average square feet per store times (iii) the estimated price per square foot.
(4) Source: Federal Deposit Insurance Corporation.
(5) Represents our estimate based on our historical experience in investing in these types of assets.
(6) Represents our estimate of the real estate value of properties meeting our investment criteria with respect to property and tenant type, tenant credit and remaining lease duration.

Our principal business objectives are to generate dependable monthly cash distributions from a consistent and predictable level of FFO per share and to grow cash available for distributions through accretive acquisitions and have embedded rental rate growth leases that provide for increasing cash rents over time. We believe that the acquisition of properties that are subject to remaining lease durations of between 10 and 25 years, on average, will give us the best opportunity to meet our objectives by achieving stable recurring income. We expect to achieve these objectives by acquiring additional net leased properties that are leased to credit tenants, with an emphasis on properties that are net leased to tenants that have investment grade credit ratings, as determined by major credit rating agencies, and provide for fixed rent escalations and/or percentage rent features that allow participation in the financial performance of the property. We have observed that the acquisition opportunities available in the net lease market are predominantly long-term leases.

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Our Properties

The following table presents an overview of our existing portfolio sorted by tenant based on information as of January 31, 2012 (dollar amounts in thousands):

             
Tenant   Number of
Properties
Occupied
by Tenant
  Square Feet   Square
Feet
as a % of
Total
Portfolio
  Average
Remaining
Lease
Term (1)
  Industry   Average
Annual
Rent (2)
  Average
Annual
Rent
as a % of
Total
Portfolio
FedEx       23       2,139,769       13.7 %        10.2       Freight     $ 28,936       16.7 % 
Walgreens     42       574,108       3.7 %      20.9       Pharmacy       17,332       10.0 % 
CVS     32       420,565       2.7 %      20.7       Pharmacy       11,454       6.6 % 
GSA     14       418,926       2.7 %      10.8       Government Services       7,940       4.6 % 
Dollar General     71       652,777       4.2 %      14.2       Discount Retail       5,997       3.5 % 
Bridgestone Firestone     23       341,500       2.2 %      12.3       Auto Services       5,421       3.1 % 
Express Scripts     2       416,141       2.7 %      7.4       Healthcare       4,623       2.7 % 
Payless Shoe Source     1       801,651       5.1 %      13.4       Specialty Retail       4,211       2.4 % 
PetSmart     1       1,000,375       6.4 %      10.5       Specialty Retail       3,672       2.1 % 
PNC Bank     50       272,599       1.8 %      12.0       Retail Banking       3,560       2.1 % 
IHOP     22       101,431       0.7 %      14.2       Restaurant       3,541       2.0 % 
Whirlpool     2       1,450,350       9.3 %      9.5       Manufacturing       3,342       1.9 % 
Reliant Healthcare Partners     1       65,141       0.4 %      18.8       Healthcare       3,322       1.9 % 
3M     1       650,760       4.2 %      9.3       Consumer Products       3,294       1.9 % 
Tractor Supply Co     12       232,227       1.1 %      13.1       Specialty Retail       3,221       1.9 % 
First Niagara Bank     15       177,774       1.1 %      11.0       Retail Banking       3,161       1.8 % 
Home Depot     2       573,565       3.7 %      17.1       Home Maintenance       2,813       1.6 % 
Royal Ahold     2       116,865       0.8 %      11.2       Supermarket       2,780       1.6 % 
Reckitt Benckiser     1       574,106       3.7 %      10.1       Consumer Products       2,668       1.5 % 
Rockland Trust     18       121,057       0.8 %      9.6       Retail Banking       2,530       1.5 % 
Texas Instruments     1       125,000       0.8 %      8.9       Technology       2,522       1.5 % 
Brown Shoe Co     1       351,723       2.3 %      18.1       Specialty Retail       2,358       1.4 % 
Kum & Go     16       75,318       0.5 %      16.1       Gas/Convenience       2,349       1.4 % 
Bojangles     13       47,865       0.3 %      11.4       Restaurant       2,193       1.3 % 
Aaron’s     18       214,739       1.4 %      11.2       Specialty Retail       2,184       1.3 % 
DaVita Dialysis     8       66,851       0.4 %      9.6       Healthcare       1,942       1.1 % 
Citigroup     1       64,036       0.4 %      10.8       Financial Services       1,910       1.1 % 
Wal-Mart     2       335,367       2.2 %      13.8       Discount Retail       1,898       1.1 % 
Renal Advantage Dialysis     9       74,457       0.5 %      7.2       Healthcare       1,834       1.1 % 
General Electric     1       484,348       3.1 %      11.5       Manufacturing       1,806       1.0 % 
Lowe’s     2       276,590       1.8 %      7.3       Home Maintenance       1,774       1.0 % 
Jack in the Box     11       27,228       0.2 %      11.9       Restaurant       1,673       1.0 % 
ConAgra Foods     1       65,000       0.4 %      18.3       Consumer Goods       1,648       1.0 % 
Sealy Mattress Company     1       257,000       1.7 %      13.6       Manufacturing       1,606       0.9 % 
Rite Aid     6       74,919       0.5 %      11.9       Pharmacy       1,447       0.8 % 
Wrangler     1       316,800       2.0 %      11.5       Manufacturing       1,417       0.8 % 
Kohl’s     2       152,658       1.0 %      9.0       Discount Retail       1,208       0.7 % 
Wawa     2       12,433       0.1 %      16.6       Gas/Convenience       1,205       0.7 % 
Fresenius     2       140,000       0.9 %      15.4       Healthcare       1,159       0.7 % 
Pep Boys     3       60,140       0.4 %      10.6       Auto Services       1,124       0.6 % 
Lockheed Martin     1       102,466       0.7 %      11.6       Aerospace       1,050       0.6 % 
Verizon     1       40,000       0.3 %      8.0       Telecom       1,042       0.6 % 
Auto Zone     5       35,696       0.2 %      9.9       Auto Retail       960       0.6 % 
Coats & Clark     1       401,512       2.6 %      14.5       Manufacturing       937       0.5 % 
Advance Auto     8       52,129       0.3 %      9.0       Auto Retail       932       0.5 % 
Jared Jewelers     4       25,691       0.2 %      11.7       Specialty Retail       888       0.5 % 
O’Reilly Auto Parts     5       41,814       0.3 %      16.1       Auto Retail       883       0.5 % 
Kroger     2       120,309       0.8 %      10.5       Supermarket       877       0.5 % 
Sam’s Club     1       141,583       0.9 %      8.8       Discount Retail       851       0.5 % 
St. Joseph’s Mercy     3       46,706       0.3 %      13.7       Healthcare       766       0.4 % 
Trader Joe’s     1       31,920       0.2 %      11.2       Supermarket       675       0.4 % 
Danfoss     1       99,823       0.6 %      12.2       Manufacturing       657       0.4 % 
Chase Bank     2       8,030       0.1 %      10.0       Retail Banking       604       0.3 % 
Fifth Third Bank     2       8,252       0.1 %      9.8       Retail Banking       520       0.3 % 
National Tire & Battery     3       33,920       0.2 %      25.3       Auto Services       483       0.3 % 
7-Eleven     2       6,014       0.0 %      16.2       Gas/Convenience       402       0.2 % 
Citizens Bank     2       14,307       0.1 %      13.3       Retail Banking       347       0.2 % 
BB&T     1       3,635       0.0 %      13.8       Retail Banking       298       0.2 % 
QuikTrip     1       4,555       0.0 %      8.9       Gas/Convenience       291       0.2 % 
Mrs Bairds     2       30,120       0.2 %      7.1       Consumer Goods       265       0.2 % 
Provident Bank     1       2,950       0.0 %      8.0       Retail Banking       237       0.1 % 
Total/Weighted Average     485       15,575,591       100.0%       13.5           $ 173,040       100.0%  

(1) Remaining lease term in years as of January 31, 2012.
(2) Average annual rent is rental income under our leases reflecting straight-line rent adjustments associated with contractual rent increases in the leases as required by GAAP, as further adjusted to reflect the effect of (i) tenant concessions and abatements such as free rent (none), (ii) in respect of our modified gross leased properties, the effect of operating expense reimbursement revenue less property operating expenses $(2.0 million), and (iii) with respect to our properties that are subject to ground leases, the effect of ground lease payments $(0.1 million).

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Significant Transactions

Advisor Internalization

Upon the listing of our common stock on NASDAQ, which we expect will occur on or about March 1, 2012, we will terminate our advisory agreement with our former advisor, subject to a 60 day notice period (subject to our right to extend this agreement for three consecutive one month periods) without the payment of any termination fee in connection with such termination. We refer to this transaction as our Internalization. In connection with our Internalization, certain employees of our former advisor or its affiliates will become our employees. As a result of these transactions, we will become a self-administered and self-advised REIT.

We also will enter into several related agreements in connection with our Internalization including:

a purchase and sale agreement, pursuant to which ARC will sell certain furniture, fixtures and equipment to us at original cost value in respect of a purchase price of $7.3 million;
a purchase and sale agreement, pursuant to which ARC will sell our property manager to a taxable REIT subsidiary, or TRS, formed by us for $10.00 and our property manager will agree to waive any fees payable by us under the property management agreement to which we are a party; and
Messrs. Kahane and Jones will enter into 3-year employment agreements with us and Mr. Kahane will resign his position as director from two REITs organized by ARC which REITs, we believe, may compete with us for acquisition opportunities.

Further, in connection with our Internalization, our Tender Offer and this offering, (i) we will terminate our Share Repurchase Program and Distribution Reinvestment Plan; and (ii) we will agree with our former advisor that our former advisor will receive only a prepayment of $3.6 million in respect of the 60 day notice period under our advisory agreement (constituting 1.00% per annum of our average unadjusted book value of our real estate assets) and not receive the following fees permitted to be paid to it under our charter: a disposition fee on the sale of a property; incentive fees (other than the subordinated incentive listing fee); acquisition fees; and termination fees.

Additionally, upon consummation of our Internalization, William M. Kahane will become our President and Chief Executive Officer, and Brian D. Jones will become our Chief Financial Officer and Treasurer. Simultaneously, Nicholas S. Schorsch will resign as our Chief Executive Officer but will remain as our Chairman of the Board, Brian S. Block will resign as our Executive Vice President and Chief Financial Officer, Peter M. Budko will resign as our Executive Vice President and Chief Investment Officer and Edward M. Weil, Jr. will resign as our Executive Vice President and Secretary. In addition, Leslie D. Michelson and Robert H. Burns, two of our three Independent Directors, will each resign from their respective positions on the Board of Directors of certain REITs organized by ARC, which we believe may compete with us for acquisition opportunities. Messrs. Michelson and Burns will be elected as directors of REITs, organized by ARC, which we believe will not compete with us for acquisition opportunities.

Certain of our directors and officers had material financial interests in our Internalization. See “Certain Relationships and Related Transactions.”

In connection with our Internalization, our Board of Directors will approve an amendment and restatement of our operating partnership’s agreement of limited partnership that will become effective upon the closing of this offering. The purpose of this amendment is to conform our operating partnership’s agreement of limited partnership more closely with the agreements of limited partnership of other companies that qualify as REITs for U.S. federal income tax purposes and whose securities are publicly traded and listed. In addition, our Board of Directors will work with its legal advisors and with employment compensation consultants, who will survey and study the market compensation ranges of our competitors, to design compensation arrangements for our

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executive officers intended to help us to attract, retain and motivate highly qualified individuals and more directly align the interests of our management with those of our stockholders.

Tender Offer

On or shortly after we list our shares of common stock on NASDAQ, we expect to commence an offer to purchase between $200.0 and $250.0 million in value of our shares of common stock from our existing stockholders. In accordance with the terms of our Tender Offer, we will select the lowest price, not greater than $11.00 nor less than $10.50 per share, that will allow us to purchase $250.0 million in value of our shares of common stock, or a lower amount depending upon the number of shares of our common stock properly tendered and not withdrawn (based on the selection from three different tender price ranges within that range). We refer to this transaction as the Tender Offer. We expect that our Tender Offer, once commenced, will expire not less than 20 business days after it is commenced (unless we determine to extend the offer). In order to comply with certain SEC regulatory requirements, the Tender Offer will expire not less than five business days prior to the date we enter into the underwriting agreement with the underwriters with respect to this offering. For pro forma purposes, we have assumed that we will acquire pursuant to the Tender Offer $200.0 million of shares of our common stock at a price per share of $10.75, which we believe is the probable result of our Tender Offer. Consummation of the Tender Offer is subject to a number of customary conditions.

The full details of the Tender Offer, including complete instructions on how to tender shares, will be included in the offer to purchase, the letter of transmittal and related materials, which will become available to stockholders promptly following commencement of the Tender Offer. Stockholders should read carefully the offer to purchase, the letter of transmittal and other related materials when they are available because they will contain important information. Stockholders may obtain free copies, when available, of the offer to purchase and other related materials that will be filed by the company with the SEC at the SEC’s website at www.sec.gov. When available, stockholders also may obtain a copy of these documents, free of charge, from the company.

Share Repurchase Program and Distribution Reinvestment Plan

In contemplation of the listing of our common stock on NASDAQ and our Tender Offer, we will be giving notice to our stockholders that we will be terminating our Share Repurchase Program immediately. Through December 31, 2011, we approved the acquisition of 1.3 million shares of our common stock at a weighted average price of $9.81 per share pursuant to the Share Repurchase Program. No purchases of shares of our common stock have been approved pursuant to our Share Repurchase Program since December 31, 2011. Additionally, in contemplation of the listing of our common stock on NASDAQ and our Tender Offer, we will be giving notice to our stockholders that we will be terminating our Distribution Reinvestment Plan immediately.

Subject to applicable rules and regulations, we expect to adopt a revised Distribution Reinvestment Plan and a revised Share Repurchase Program following the completion of our Tender Offer and the listing of our common stock on NASDAQ.

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Our Corporate Structure

We were organized in August 2007 as a Maryland corporation and have continually qualified for taxation as a REIT commencing with our taxable year ended December 31, 2008. Following our Internalization, we will become a self-administered and self-advised REIT. We own our properties through our operating partnership and its subsidiaries. We are the sole general partner of our operating partnership and owned 99.99% of the outstanding OP units as of December 31, 2011.

The following chart reflects an overview of our corporate organization following completion of this offering, assuming no exercise of the over-allotment option:

[GRAPHIC MISSING]

(1) Includes approximately 99% representing shares of our common stock outstanding prior to this offering and held by unaffiliated stockholders.
(2) Includes minority interests held by unaffiliated third-parties in four Delaware Statutory Trusts.

Our REIT Status

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31, 2008. As a REIT, we generally are not subject to U.S. federal income tax on our net taxable income that we distribute currently (or are deemed to distribute) to our stockholders. To maintain our REIT qualification, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding net capital gain. If we fail to continue to qualify for taxation as a REIT in any year and do not qualify for certain statutory relief provisions, our income will be taxed at regular corporate rates, we will not be allowed a deduction for distributions to our stockholders in computing our taxable income and we may be precluded from qualifying for taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. Even though we currently qualify as a REIT, we still may be subject to state and local taxes on our

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income and property and will be subject to U.S. federal income tax (and perhaps U.S. federal excise tax), on our undistributed income.

Restrictions on Transfer

We and each of our executive officers and directors have agreed with the underwriters not to offer, sell or otherwise dispose of any common stock or any securities convertible into or exercisable or exchangeable for or repayable with common stock (including OP units) or any rights to acquire common stock for a period of 180 days after the date of this prospectus, without first obtaining the written consent of Ladenburg Thalmann & Co. Inc., or Ladenburg Thalmann, the representative of the underwriters. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly: offer, pledge, sell or contract to sell any common stock; sell any option or contract to purchase any common stock; purchase any option or contract to sell any common stock; grant any option, right or warrant for the sale of any common stock; lend or otherwise transfer or dispose of any common stock; file or cause to be filed any registration statement related to the common stock; or enter into any swap or other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any common stock whether any such swap, agreement or transaction is to be settled by the delivery of shares of our common stock or other securities, in cash or otherwise.

Restrictions on Share Ownership

Our charter contains a restriction on ownership of our common stock that prevents any person or entity from owning directly or indirectly more than 9.8% in value of the aggregate of our outstanding shares of stock and not more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock, subject to certain possible exceptions. These restrictions, as well as other share ownership and transfer restrictions contained in our charter, are designed, among other purposes, to enable us to comply with share accumulation and other restrictions imposed on REITs by the Code. For a more complete description of the common stock, including restrictions on the ownership of common stock, please see the “Description of Capital Stock” section of this prospectus.

Distribution Policy

U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of such REIT taxable income. Any of our REIT taxable income that is not distributed or deemed distributed will be subject to corporate tax at the company level.

In order to maintain our REIT qualification and to generally not be subject to U.S. federal income and excise tax, we have made and intend to continue to make regular monthly distributions of all or substantially all of our net taxable income to holders of our common stock. Any future distributions we make will be at the discretion of our Board of Directors and will depend upon, among other things, our actual results of operations. These results and our ability to pay distributions will be affected by various factors, including the income from our portfolio, our operating expenses and any other expenditures.

We cannot assure you that we will have sufficient cash available for future monthly distributions. See “Risk Factors — Risks Related to Our Business and Operations — We may be unable to pay or maintain distributions or increase distributions over time.”

To the extent that our cash available for distribution is less than our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gain), we may consider various funding sources to cover any such shortfall, including borrowing under our revolving credit facility, selling certain of our assets or using a portion of the net proceeds we receive in this offering or future offerings. Although we do not anticipate utilizing the consent

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distribution procedure, we have the right to do so and our distribution policy enables us to review the alternative funding sources available to us from time to time.

Distributions that you receive (not designated as capital gain dividends or, for taxable years beginning before January 1, 2013, qualified dividend income) will be taxed as ordinary income to the extent they are paid from our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). However, distributions that we designate as capital gain dividends generally will be taxable as long-term capital gain to our stockholders (subject to certain exceptions for corporate stockholders) to the extent that they do not exceed our actual net capital gain for the taxable year. Some portion of your distributions may not be subject to tax in the year in which they are received because depreciation expense reduces our earnings and profits, but does not reduce cash available for distribution. Any portion of your distribution that is in excess of our current and accumulated earnings and profits generally is considered a return of capital for U.S. federal income tax purposes and will reduce the adjusted tax basis of your investment, but not below zero, deferring such portion of your tax until your investment is sold or our company is liquidated, at which time you generally would be taxed at capital gain rates (subject to certain exceptions for corporate stockholders). To the extent such portion of your distribution exceeds the adjusted tax basis of your investment, such excess generally would be treated as capital gain. Please note that each stockholder’s tax considerations are different, therefore, you should consult with your tax advisor and financial planners prior to making an investment in our common stock. You also should review the section entitled “Material U.S. Federal Income Tax Considerations.”

Conflicts of Interest

Following the completion of our Internalization, there will be conflicts of interest with respect to certain of our officers and directors, on the one hand, and us and our stockholders, on the other. William M. Kahane, our President and Chief Executive Officer, and Nicholas S. Schorsch, our Chairman of the Board, each owns substantial equity interests in ARC and its affiliates, certain of which are companies that sponsor and/or advise other REITs and are entitled to receive fees and distributions in connection with such management, including asset management fees, acquisition fees, financing fees, disposition fees and incentive fees and distributions upon the sale or listing of such REITs. Additionally, Mr. Schorsch is the Chief Executive Officer and Chairman of the Board of eight other REITs, three of which invest in single tenant, free standing commercial real estate as we do. In addition, we expect Mr. Schorsch and ARC to form other REITs that will also invest in our target properties. As a result, Messrs. Schorsch and Kahane may have a conflict when it comes to allocating investment opportunities among the various entities in which they have a financial interest and which invest in properties that are substantially similar to our target properties.

Mr. Kahane also serves as a manager for ARC and certain of its affiliates and, following his resignation as a director from two ARC-sponsored REITs that compete with us for acquisition opportunities, he will remain a director of five other ARC-sponsored REITs, none of which has single tenant free standing commercial real estate as its principal target assets. See “Risk Factors — Risks Related to Conflicts of Interest.”

In connection with the listing of our common stock on NASDAQ, ARC or its affiliate will be entitled to a subordinated incentive listing fee equal to 15% of the amount, if any, by which (a) the market value of our outstanding common stock plus distributions paid by us prior to listing, exceeds (b) the sum of the total amount of capital raised from stockholders during our prior continuous offering and the amount of cash flow necessary to generate a 6% annual cumulative, non-compounded return to such stockholders. For this purpose, (i) the market value of our common stock will be calculated based on the average market value of the shares issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed or included for quotation and (ii) we have agreed with the Ohio Division of Securities that such fee will be paid by the issuance of a non-interest bearing, non-transferrable promissory note that would be subject to mandatory amortization payments from any sale proceeds (except for the interest imputed for tax purposes) (subject to the right of the holder to convert any unpaid portion of the note into shares of our common stock at the end of three years). In the event that the fee is

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earned, which will likely occur only to the extent the market value of our common stock for this purpose exceeds $9.81 per share, we will incur additional leverage in an amount equal to the amount of the fee. By way of example, if the market value of our common stock for this purpose is $      per share, such fee would equal approximately $45.1 million and such fee would increase by approximately $6.7 million in respect of each $0.25 increase in the value of each share of our common stock above such $      amount. If such subordinated incentive listing fee is earned, any cash generated from property sales will be required to amortize such note until it is paid in full, therefore potentially reducing distributions to our stockholders. Further, if ARC or its affiliate elects to convert at maturity any unpaid portion of the note into shares of our common stock, the number of our shares that will be issued upon such conversion will be valued for this purpose at the average market value of our shares over the 30 trading days, beginning 180 days after our shares are first listed. If such conversion occurs, our net income per share and FFO per share may be diluted as a result of such conversion. Messrs. Schorsch and Kahane, as holders of more than a majority of the equity interests in ARC, have material financial interests in the calculation, timing and form of payment of the subordinated incentive listing fee.

We have invested, and may in the future invest, in joint ventures or other programs sponsored by affiliates of Messrs. Schorsch and Kahane, including those pursuant to our joint ventures with ARC, or conduct other business activities with these affiliates. Messrs. Kahane and Schorsch will each abstain from voting as directors on any transactions we enter into with these affiliates. In addition, we may compete with ARC and its affiliates for investments. An affiliate of Messrs. Schorsch and Kahane, that is a limited partner in our operating partnership, has a deficit repayment obligation of up to $10.0 million that is payable upon liquidation of our operating partnership to the extent of a deficit in such limited partner’s capital account at such time.

Revolving Credit Facility

We have a $230.0 million revolving credit facility with RBS Citizens that matures on August 17, 2014. The facility bears interest at the rate of (i) LIBOR with respect to Eurodollar rate loans plus a margin 205 to 285 basis points, depending on our leverage ratio; and (ii) the greater of the federal funds rate plus 1.0% and the interest rate publicly announced by RBS Citizens as its “prime rate” or “base rate” at such time with respect to base rate loans plus a margin of 125 to 175 basis points depending on our leverage ratio. The facility contains various covenants, including financial covenants with respect to consolidated leverage, net worth, fixed charge coverage, variable debt ratio, recourse debt to total asset value and secured debt to total asset value. As of December 31, 2011, there was $10.0 million outstanding on this facility, which has been repaid as of January 31, 2012. On a pro forma basis, as of December 31, 2011, we anticipate we will have $89.8 million available under our $230.0 million revolving credit facility with RBS Citizens, assuming a price of $      per share in this offering and assuming our lenders increase their aggregate commitments to $230.0 million as we expect.

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The Offering

Common stock offered by us    
    6,600,000 shares (1)
Common stock to be outstanding after this offering    
    166,702,000 shares (2)(3)
Common stock and OP units to be outstanding after this offering    
    166,702,000 shares/units (2)
Use of proceeds    
    We intend to use the net proceeds from this offering to repay indebtedness under our revolving credit facility and for general working capital purposes.
Proposed NASDAQ symbol    
    “ARCT”

(1) Excludes up to 990,000 shares of our common stock that may be issued by us upon exercise of the underwriters’ over-allotment option.
(2) Includes (i) 178,179,281 shares of our common stock outstanding as of January 31, 2012, and (ii) 744,000 shares of restricted common stock held by certain of our officers and directors and other affiliates of ARC that will vest upon the listing of our common stock on NASDAQ.

Excludes the following:

up to 990,000 shares of our common stock that may be issued by us upon exercise of the underwriters’ overallotment option;
       shares of restricted common stock that will be issued to our Independent Directors concurrently with the offering;
       shares of our common stock reserved for future issuance under our incentive compensation plans; and
       long-term incentive plan, or LTIP, units in our operating partnership, or LTIP Units, reserved for future issuance under our incentive compensation plans.
(3) Reflects the impact of our anticipated repurchase of 18,604,651 shares of our common stock pursuant to our Tender Offer.

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Summary Selected Consolidated Financial and Pro Forma Data

The following table sets forth selected summary financial data relating to our historical results of operations for the years ended December 31, 2011, 2010, 2009, 2008 and as of and for the period from August 17, 2007 to December 31, 2007, and selected summary pro forma financial data as of and for the year ended December 31, 2011. The table also sets forth selected summary financial data relating to the historical balance sheets as of December 31, 2011, 2010, 2009 and 2008, and selected summary pro forma financial data relating to the balance sheet as of December 31, 2011.

The summary historical consolidated financial information presented below has been derived from our historical consolidated financial statements which were audited by Grant Thornton LLP, an independent registered public accounting firm.

The summary unaudited pro forma financial information as of December 31, 2011 and for the twelve months then ended has been prepared to reflect adjustments to the historical financial statements to illustrate the estimated effect of the following transactions as if they had occurred on January 1, 2011:

our acquisition in 2011 of 224 properties located in 20 markets were acquired using net proceeds from our prior continuous public offering, mortgage financing and existing cash balances;
this offering of 6.6 million shares of our common stock;
the consummation of our Internalization;
our buy back of 18.6 million shares of our common stock for an aggregate amount of $200.0 million in the Tender Offer;
the application of the net proceeds from this offering to repay indebtedness under our revolving credit facility;
our buy back in 2011 of 1.1 million shares of our common stock for an aggregate amount the of $10.5 million pursuant to our Share Repurchase Program; and
the vesting of 0.7 million restricted shares of common stock held by certain of our officers and directors and other affiliates of ARC that will vest upon the listing of our common stock on NASDAQ.

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Since the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements and pro forma condensed consolidated financial statements, including the related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and pro forma condensed consolidated financial statements, including the related notes, included elsewhere in this prospectus. Our summary unaudited pro forma information as of December 31, 2011 and for the twelve months then ended is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations. The amounts in the table are in thousands except for per-share information.

Balance Sheet Data (amounts in thousands)

           
  Pro Forma As of December 31, 2011   Historical as of December 31,
     2011   2010   2009   2008   2007
Total real estate investments, at cost   $ 2,126,171     $ 2,126,171     $ 882,593     $ 338,556     $ 164,770     $  
Total assets     2,130,575       2,130,575       914,054       339,277       164,942       938  
Short-term borrowings                       15,878       30,926        
Mortgage notes payable     673,978       673,978       372,755       183,811       112,742           
Mortgage discount and premium, net     679       679       1,163                    
Long-term notes payable                 12,790       13,000       1,090        
Revolving credit facilities     140,213       10,000                          
Total liabilities     860,584       730,371       411,390       228,721       163,183       738  
Total equity     1,269,991       1,400,204       502,664       110,556       1,759       200  

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Operating data (amounts in thousands except share and per share data)

           
  Pro Forma
Results For the
Year Ended December 31,
2011
  Historical Results For the Years Ended December 31,   Historical Results for the Period from August 17, 2007 (date of inception) to December 31, 2007
     2011   2010   2009   2008
Total revenue   $ 183,148     $ 129,120     $ 44,773     $ 14,964     $ 5,546     $  
Expenses  
Property operating     10,523       5,297                                      
Operating fees to affiliate           5,572       1,350       145       4        
Acquisition and transaction related costs     30,005       30,005       12,471       506              
General and administrative     8,761       4,168       1,444       507       380       1  
Depreciation and amortization     102,245       68,939       21,654       8,315       3,056        
Total operating expenses     151,534       113,981       36,919       9,473       3,440       1  
Operating income (loss)     31,614       15,139       7,854       5,491       2,106       (1 ) 
Other income (expenses)  
Interest expense     (38,977 )      (37,373 )      (18,109 )      (10,352 )      (4,774 )       
Equity in income of unconsolidated joint venture     96       96                          
Other income     766       766       765       51       3        
Gains (losses) on derivative instruments     (2,539 )      (2,539 )      (305 )      495       (1,618 )       
Gains on disposition of property     (44 )      (44 )      143                    
Total expenses     (40,698 )      (39,094 )      (17,506 )      (9,806 )      (6,389 )       
Net loss     (9,184 )      (23,955 )      (9,652 )      (4,315 )      (4,283 )      (1 ) 
Net income (loss) attributable to non-controlling interests     (1,121 )      (1,121 )      (181 )      49              
Net loss attributable to American Realty Capital Trust, Inc.   $ (10,205 )    $ (25,076 )    $ (9,833 )    $ (4,266 )    $ (4,283 )    $ (1 ) 
Other data  
Net loss per common share – basic and diluted   $ (0.06 )    $ (0.20 )    $ (0.31 )    $ (0.74 )    $ (6.02 )    $  
Distributions declared   $ 0.70     $ 0.70     $ 0.70     $ 0.67     $ 0.65     $  
Weighted-average number of common shares outstanding, basic and diluted     166,702,000       133,730,159       32,539,393       5,768,761       711,524        

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RISK FACTORS

Investment in our common stock involves a high degree of risks. You should carefully consider the following risk factors in addition to other information contained in this prospectus before purchasing the common stock we are offering. The following risks comprise all the material risks of which we are aware; however, these risks and uncertainties may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also adversely affect our business or financial performance. If any of the following risks occur, our business, financial condition, liquidity, results of operations or business prospects could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements.”

Risks Related to our Business and Operations

Our investments are concentrated in the commercial real estate sector, and our business could be adversely affected by an economic downturn in that sector.

Our investments in real estate assets are concentrated in the commercial real estate sector. This concentration may expose us to the risk of economic downturns in this sector to a greater extent than if our business activities included investments in other sectors of the real estate industry.

Our growth will partially depend upon our ability to successfully acquire future properties, and we may be unable to enter into and consummate property acquisitions on advantageous terms or our property acquisitions may not perform as we expect.

We acquire and intend to continue to acquire primarily freestanding, single tenant retail properties net leased primary to investment grade and other credit tenants. The acquisition of properties entails various risks, including the risks that our investments may not perform as we expect, that we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, we face significant competition for attractive investment opportunities from other well-capitalized real estate investors, including both publicly-traded REITs and private institutional investment funds, including ARC and its affiliates and other REITs and funds sponsored and/or advised by ARC or its affiliates, and these competitors may have greater financial resources than us and a greater ability to borrow funds to acquire properties. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be significantly elevated. In addition, we expect to finance future acquisitions through a combination of borrowings under our revolving credit facility, proceeds from equity and/or debt offerings by us or our operating partnership or its subsidiaries and proceeds from property contributions and divestitures which may not be available and which could adversely affect our cash flows. Any of the above risks could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock.

We may be unable to source off-market deal flow in the future.

A key component of our growth strategy is to continue to acquire additional commercial net leased real estate assets. Many of our acquisitions were acquired before they were widely marketed by real estate brokers, or “off-market.” Properties that are acquired off-market are typically more attractive to us as a purchaser because of the absence of a formal sales process, which could lead to higher prices. If we cannot obtain off-market deal flow in the future, our ability to locate and acquire additional properties at attractive prices could be adversely affected.

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We depend on key personnel, including William M. Kahane and Brian D. Jones, and the loss of services from key members of the management group or a limitation in their availability could adversely affect us.

Our success depends to a significant degree upon the continued contributions of certain key personnel including, but not limited to, William M. Kahane and Brian D. Jones, each of whom would be difficult to replace. While we have entered into employment contracts with Messrs. Kahane and Jones, they may nevertheless cease to provide services to us at any time. If any of our key personnel were to cease employment with us, our operating results could suffer. Our ability to retain our management group or to attract suitable replacements should any members of the management group leave is dependent on the competitive nature of the employment market. The loss of services from key members of the management group or a limitation in their availability could adversely impact our financial condition and cash flows. Further, such a loss could be negatively perceived in the capital markets. We have not obtained and do not expect to obtain “key person” life insurance on any of our key personnel.

We also believe that, as we expand, our future success depends, in large part, upon our ability to hire and retain highly skilled managerial, investment, financing, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel.

Our acquisition activities are largely dependent on external capital, and our operating results and financial condition could be adversely affected if we do not continue to have access to capital on favorable terms.

As a REIT, we must meet certain annual distribution requirements, which we expect generally to be satisfied by distributing substantially all of our net operating cash flow. Consequently, we are largely dependent on external capital to fund our acquisition activities. We have been accessing public equity capital through our prior continuous public offering, the proceeds of which we have used to acquire properties. Our ability to access capital in this manner, or at all, is dependent upon a number of factors, including general market conditions and competition from other real estate companies. To the extent that capital is not available to acquire our target properties, profits may not be realized or their realization may be delayed, which could result in an earnings stream that is less predictable than some of our competitors and result in us not meeting our projected earnings and distributable cash flow levels in a particular reporting period. Failure to meet our projected earnings and distributable cash flow levels in a particular reporting period could have an adverse effect on our financial condition and on the market price of our common stock.

We rely on two major tenants, FedEx and Walgreens, for approximately 27% of our average annual rent and therefore, are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.

Approximately 27% of our average annual rent is expected to be derived from two major tenants:

approximately 17% of our average annual rent is expected to be derived from FedEx; and
approximately 10% of our average annual rent is expected to be derived from Walgreens.

Therefore, the financial failure of a major tenant is likely to have a material adverse effect on our results of operations and our financial condition. In addition, the value of our investment is historically driven by the credit quality of the underlying tenant, and an adverse change in a major tenant’s financial condition or a decline in the credit rating of such tenant may result in a decline in the value of our investments and have a material adverse effect on our results from operations.

Actions of our joint venture partners could negatively impact our performance.

As of January 31, 2012, we owned approximately 1.8 million rentable square feet of our properties through several joint ventures, limited liability companies or partnerships with third parties. Our organizational documents do not limit the amount of available funds that we may

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invest in partnerships, limited liability companies or joint ventures, and we intend to continue to acquire properties through joint ventures, limited liability companies and partnerships with other persons or entities when warranted by the circumstances. Such partners may share certain approval rights over major decisions. Such investments may involve risks not otherwise present with other methods of investment in real estate, including, but not limited to:

that our co-member, co-venturer or partner in an investment might become bankrupt, which would mean that we and any other remaining general partners, members or co-venturers would generally remain liable for the partnership’s, limited liability company’s or joint venture’s liabilities;
that such co-member, co-venturer or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals;
that such co-member, co-venturer or partner take action contrary to our instructions or requests or contrary to our policies or objectives, including our current policy with respect to maintaining our qualification as a REIT;
that, if our partners fail to fund their share of any required capital contributions, we may be required to contribute such capital;
that joint venture, limited liability company and partnership agreements often restrict the transfer of a co-venturer’s, member’s or partner’s interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;
that our relationships with our partners, co-members or co-venturers are contractual in nature and may be terminated or dissolved under the terms of the agreements and, in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at an above-market price to continue ownership;
that disputes between us and our partners, co-members or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable partnership, limited liability company or joint venture to additional risk; and
that we may in certain circumstances be liable for the actions of our partners, co-members or co-venturers.

We generally seek to maintain sufficient control of the related partnerships, limited liability companies and joint ventures to permit us to achieve our business objectives; however, we may not be able to do so, and the occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flows and ability to pay distributions on, and the market price of, our common stock.

If we invest in a limited partnership as a general partner we could be responsible for all liabilities of such partnership.

In some joint ventures or other investments we may make, if the entity in which we invest is a limited partnership, we may acquire all or a portion of our interest in such partnership as a general partner. As a general partner, we could be liable for all the liabilities of such partnership. Additionally, we may be required to take our interests in other investments as a non-managing general partner. Consequently, we would be potentially liable for all such liabilities without having the same rights of management or control over the operation of the partnership as the managing general partner or partners may have. Therefore, we may be held responsible for all of the liabilities of an entity in which we do not have full management rights or control, and our liability may far exceed the amount or value of the investment we initially made or then had in the partnership.

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Our net income per share and FFO per share in the near term may decrease as a result of our Internalization.

While we no longer bear the external costs of the various fees and expenses previously paid to our former advisor as a result of becoming self-advised, net income per share and FFO per share in the near term may decrease as a result of our Internalization due to increased expenses related to being self-advised, including expenses for compensation and benefits of our officers and other employees, which previously were paid by our former advisor, and the continuation of asset based compensation (all of which will be prepaid upon consummation of this offering) to our former advisor at the same rate it was paid prior to our Internalization through at least 60 days after the listing of our common stock on NASDAQ, which we anticipate will occur on or about March 1, 2012. If our Internalization had not been consummated, the amount of the fees payable to our former advisor and its affiliates would have depended on a number of factors, including the amount of additional equity, if any, that we were able to raise, our acquisition activity, disposition activity and total real estate under management. Therefore, the exact amount of future fees that we would have paid to our former advisor and its affiliates cannot reasonably be estimated. If the expenses we assume as a result of our Internalization are higher than we anticipate, our net income per share and FFO per share may be lower as a result of our Internalization than it otherwise would have been, potentially causing our net income per share and FFO per share to decrease.

We may become increasingly leveraged to the extent ARC or its affiliate earns a subordinated incentive listing fee in connection with the listing of our common stock on NASDAQ.

In connection with the listing of our common stock on NASDAQ, ARC or its affiliate will be entitled to a subordinated incentive listing fee equal to 15% of the amount, if any, by which (a) the market value of our outstanding common stock plus distributions paid by us prior to listing, exceeds (b) the sum of the total amount of capital raised from stockholders during our prior continuous offering and the amount of cash flow necessary to generate a 6% annual cumulative, non-compounded return to such stockholders. For this purpose, (i) the market value of our common stock will be calculated based on the average market value of the shares issued and outstanding at listing over the 30 trading days beginning 180 days after the shares of our common stock are first listed or included for quotation and (ii) we have agreed with the Ohio Division of Securities that such fee will be paid by the issuance of a non-interest bearing (except to the extent interest is imputed for tax purposes), non-transferrable promissory note that would be subject to mandatory amortization payments from any sale proceeds (subject to the right of the holder to convert any unpaid portion of the note into shares of our common stock at the end of three years). In the event that the fee is earned, which will likely occur only to the extent the market value of our common stock for this purpose exceeds $9.81 per share, we will incur additional leverage in an amount equal to the amount of the fee. By way of example, if the market value of our common stock for this purpose is $      per share, such fee would equal $45.1 million and such fee would increase by approximately $6.7 million in respect of each $0.25 increase in the value of each share of our common stock above such $      threshold. If such subordinated incentive listing fee is earned, any cash generated from property sales will be required to amortize such note until it is paid in full, therefore potentially reducing distributions to our stockholders. In addition, this note, if issued, will impact our leverage ratio and our revolving credit facility which would negatively impact our borrowing capacity under such facility. Further, if ARC or its affiliate elects to convert at maturity any unpaid portion of the note into shares of our common stock, the number of our shares that will be issued upon such conversion will be valued for this purpose at the average market value of our shares over the 30 trading days beginning 180 days after our shares are first listed. If such conversion occurs, our net income per share and FFO per share may decrease as a result of such conversion.

We may be exposed to risks to which we have not historically been exposed.

Our Internalization will expose us to risks to which we have not historically been exposed. Excluding the effect of the eliminated asset management and other fees previously paid to our former advisor and its affiliates, our direct overhead, on a consolidated basis, will increase as a

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result of becoming self-advised. If we fail to raise and/or invest additional capital, or if the performance of our properties declines, we may not be able to cover this new overhead. Prior to our Internalization, the responsibility for such overhead was borne by our former advisor.

Prior to our Internalization, we did not have separate facilities, communications and information systems nor directly employ any employees. As a result of our Internalization, we now lease office space, have our own communications and information systems and directly employ approximately ten persons who were associated with our former advisor or its affiliates. Our business is highly dependent on communications and information systems. Any failure or interruption of our systems could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders. Additionally, as a direct employer, we will be subject to those potential liabilities that are commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances, and we will bear the costs of the establishment and maintenance of such plans.

We have support from our former advisor under our advisory agreement for a limited period of time.

Our advisory agreement with our former advisor, which requires our former advisor to provide certain services to us, including asset management, advisory services, accounting, property management, investor relations, legal, operations and other essential services, has been terminated and will expire 60 days following the listing of our common stock on NASDAQ, which we anticipate will occur on or about March 1, 2012 (subject to our right to extend this agreement for three consecutive one-month periods). To the extent our employees and our infrastructure are inadequate to effectively provide any such services to us after the expiration of the advisory agreement, our operations and the market price of our common stock would be adversely affected.

We may be unable to pay or maintain distributions or increase distributions over time.

As a growing company, to date we have funded our monthly distributions to investors with available cash flows and, to a lesser extent, with proceeds from the issuance of common stock. There are many factors that can affect the availability and timing of cash distributions to stockholders. Distributions will be based principally on cash available from our operations, but we may be required to borrow funds, utilize proceeds from this offering or sell assets to fund these distributions. The amount of cash available for distributions is affected by many factors, such as our ability to buy properties, rental income from these properties and our operating expense levels, compliance with applicable debt covenants, as well as many other variables. In addition, our Board of Directors, in its discretion, may retain any portion of such cash for working capital. Actual cash available for distributions may vary substantially from estimates. Additionally, our ability to make distributions may be limited by our revolving credit facility, pursuant to which our distributions may not exceed the greater of (i) 95% of our FFO and (ii) the amount of distributions required to be paid by us to qualify as a REIT. We cannot assure you that we will be able to pay or maintain our historic level of distributions or that distributions will increase over time. We cannot give any assurance that rents from the properties we acquire will increase or that future acquisitions of real properties or other investments will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our Board of Directors in establishing the distribution rate to stockholders. We may not have sufficient cash from operations to make a distribution required to qualify for or maintain our REIT status or to avoid corporate taxes by distributing 100% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding net capital gain. We may pay distributions from unlimited amounts of any source, including borrowing funds, using proceeds from this offering, issuing additional securities or selling assets. We have not established any limit on the amount of proceeds from this offering that may be used to fund distributions, except in accordance with our organizational documents and Maryland law. Distributions from the proceeds of this offering or

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from borrowings also could reduce the amount of capital we ultimately invest in properties and other permitted investments. This, in turn, could adversely impact our operations and the market price of our common stock.

We have owned our properties for a limited time.

As of January 31, 2012, we owned or controlled 485 operating properties in our portfolio comprising 15.6 million rentable square feet. All the properties have been under our management for less than four years, and we have owned 211 of the properties for less than one year. The properties may have characteristics or deficiencies unknown to us that could affect their valuation or revenue potential. We cannot assure you that the operating performance of the properties will not decline under our management.

Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.

The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.

RISKS RELATED TO CONFLICTS OF INTEREST

We may compete with our affiliates for properties.

Although we will become self-advised in connection with our Internalization, we will still be subject to certain conflicts of interest. Certain of our affiliates, including ARC and its affiliates and other REITs and funds sponsored and/or advised by ARC or its affiliates, could seek to acquire properties that could satisfy our acquisition criteria. As such, we may encounter situations where we would be bidding against an affiliate or teaming with an affiliate for a joint bid.

Our Chief Executive Officer will have competing demands on his time and attention.

William M. Kahane, our President and Chief Executive Officer, owns, directly or indirectly, substantial equity interests in ARC, the parent company of the sponsor and/or external advisor for each other REIT and fund sponsored and/or advised by ARC or its affiliates, and has similar ownership of, and serves as a manager for, other affiliates of ARC.

Our Chief Executive Officer and our Chairman of the Board have conflicts of interest resulting from their relationships with ARC.

William M. Kahane, our President and Chief Executive Officer, and Nicholas S. Schorsch, our Chairman of the Board, each own, directly or indirectly, substantial equity interests in ARC and its affiliates, certain of which are companies that sponsor and/or advise other REITs and are entitled to receive fees and distributions in connection with such management, including asset management fees, acquisition fees, financing fees, disposition fees and incentive fees and distributions upon the sale or listing of such REITs. Additionally, Mr. Schorsch is the Chief Executive Officer and Chairman of the Board of eight other REITs, three of which invest in single tenant, freestanding commercial real estate, as we do. In addition, we expect Mr. Schorsch and ARC to form other REITs that will also invest in our target properties. Any of these relationships could result in various conflicts of interest and decisions that are not in the best interests of our stockholders. See “Certain Relationships and Related Transactions.”

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We may invest in, or co-invest with, our affiliates.

We may invest in, or co-invest with, joint ventures or other programs sponsored by affiliates of two of our directors, Messrs. Kahane and Schorsch, including those pursuant to our joint ventures with other REITs sponsored by ARC. A majority of our disinterested directors, including a majority of our disinterested Independent Directors, must approve any such transaction and Messrs. Kahane and Schorsch will each abstain from voting as directors on any transactions we enter into with their affiliates. Management’s recommendation to our Independent Directors may be affected by its relationship with one or more of the co-venturers and may be more beneficial to the other programs than to us. In addition, we may not seek to enforce the agreements relating to such transactions as vigorously as we otherwise might because of our desire to maintain our relationships with these directors.

Our UPREIT structure may result in potential conflicts of interest.

We may issue additional OP units in the future in connection with the acquisition of additional properties. Persons holding OP units have the right to vote on certain amendments to the limited partnership agreement of our operating partnership, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. Furthermore, circumstances may arise in the future when the interest of limited partners in our operating partnership may conflict with the interests of our stockholders. For example, the timing and terms of dispositions of properties held by our operating partnership may result in tax consequences to certain limited partners and not to our stockholders. In addition, an affiliate of Messrs. Schorsch and Kahane, that is a limited partner in our operating partnership, has a deficit repayment obligation of up to $10.0 million that is payable upon liquidation of our operating partnership to the extent of a deficit in such limited partner’s capital account at such time. The existence of this repayment obligation could create a disincentive for Messrs. Schorsch and Kahane to enter into transactions that would result in a liquidation of our operating partnership.

We may have increased exposure to liabilities from litigation as a result of our operating partnership’s participation in Section 1031 Exchange Programs.

An affiliate of ARC has developed Section 1031 Exchange Programs, which seek to facilitate real estate acquisitions for persons, or 1031 Participants, who seek to reinvest proceeds from a real estate sale and qualify that reinvestment for like-kind exchange treatment under Code Section 1031. A Section 1031 Exchange Program may involve a private placement of co-tenancy interests in real estate. As of December 31, 2011, our operating partnership has engaged in six Section 1031 Exchange Programs, two of which are co-tenancy interests in real estate, raising aggregate proceeds of $15.2 million. There are significant tax and securities disclosure risks associated with these private placement offerings of co-tenancy interests to 1031 Participants. For example, in the event that the Internal Revenue Service, or the IRS, conducts an audit of the purchasers of co-tenancy interests and successfully challenges the qualification of the transaction as a like-kind exchange, purchasers of co-tenancy interests may file a lawsuit against the entity offering the co-tenancy interests and its sponsors. Any amounts we are required to expend for any such litigation claims may reduce the amount of funds available for distribution to you. In addition, disclosure of any such litigation may limit our future ability to raise additional capital through the sale of stock or borrowings and the market price of our common stock.

Ownership of co-tenancy interests involves risks not otherwise present with an investment in real estate, including, without limitation, the following:

the risk that a co-tenant may at any time have economic or business interests or goals that are inconsistent with our business interests or goals;
the risk that a co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or

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the possibility that a co-tenant might become insolvent or bankrupt, which may be an event of default under mortgage loan financing documents, or allow the bankruptcy court to reject the tenants-in-common agreement or management agreement entered into by the co-tenants owning interests in the property.

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce what we could expect to receive from such property. In the event that our interests become adverse to those of the other co-tenants, we may not have the contractual right to purchase the co-tenancy interests from the other co-tenants. Even if we are given the opportunity to purchase such co-tenancy interests in the future, we cannot guarantee that we will have sufficient funds available at the time to purchase co-tenancy interests from the 1031 Participants. We might want to sell our co-tenancy interests in a given property at a time when the other cotenants in such property do not desire to sell their interests. Therefore, we may not be able to sell our interest in a property at the time we would like to sell. In addition, we anticipate that it will be much more difficult to find a willing buyer for our co-tenancy interests in a property than it would be to find a buyer for a property we owned entirely.

GENERAL REAL ESTATE RISKS

Our operating performance and value are subject to risks associated with our real estate assets and with the real estate industry.

Our real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our control. Certain events may decrease cash available for distributions, as well as the value of our properties. These events include, but are not limited to:

adverse changes in international, national or local economic and demographic conditions such as the recent global economic downturn;
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or tenant-favorable renewal options;
adverse changes in financial conditions of buyers, sellers and tenants of properties;
inability to collect rent from tenants;
competition from other real estate investors with significant capital, including other real estate operating companies, REITs and institutional investment funds;
reductions in the level of demand for commercial space generally, and freestanding net leased properties specifically, and changes in the relative popularity of our properties;
increases in the supply of freestanding single tenant properties;
fluctuations in interest rates, which could adversely affect our ability, or the ability of buyers and tenants of our properties, to obtain financing on favorable terms or at all;
increases in expenses, including, but not limited to, insurance costs, labor costs, energy prices, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies, all of which have an adverse impact on the rent a tenant may be willing to pay us in order to lease one or more of our properties; and
changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990.

In addition, periods of economic slowdown or recession, such as the recent global economic downturn, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties to meet our financial

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expectations, our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay distributions to our stockholders could be materially and adversely affected. We cannot assure you that we will achieve our return objectives.

A potential change in U.S. accounting standards regarding operating leases may make the leasing of our properties less attractive to our potential tenants, which could reduce overall demand for our leasing services.

Under current authoritative accounting guidance for leases, a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant, and the obligation does not appear on the tenant’s balance sheet; rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can appear to enhance a tenant’s balance sheet in comparison to direct ownership. The Financial Accounting Standards Board, or the FASB, and the International Accounting Standards Board, or the IASB, conducted a joint project to re-evaluate lease accounting. In August 2010, the FASB and the IASB jointly released exposure drafts of a proposed accounting model that would significantly change lease accounting. The final standards have yet to be released. Changes to the accounting guidance could affect both our accounting for leases as well as that of our current and potential tenants. These changes may affect how our real estate leasing business is conducted. For example, if the accounting standards regarding the financial statement classification of operating leases are revised, then companies may be less willing to enter into leases with us in general or desire to enter into leases with us with shorter terms because the apparent benefits to their balance sheets could be reduced or eliminated. This in turn could cause a delay in making our investments and make it more difficult for us to enter into leases on terms we find favorable.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all, which could have a material adverse effect on our financial condition, results of operations, cash flow, cash available for distributions to our stockholders, per share trading price of our common stock and our ability to satisfy our debt service obligations.

Because we compete with a number of real estate operators in connection with the leasing of our properties, the possibility exists that one or more of our tenants will extend or renew its lease with us when the lease term expires on terms that are less favorable to us than the terms of the then-expiring lease, or that such tenant or tenants will not renew at all. Because we depend, in large part, on rental payments from our tenants, if one or more tenants renews its lease on terms less favorable to us, does not renew its lease or we do not re-lease a significant portion of the space made available, our financial condition, results of operations, cash flow, cash available for distributions to our stockholders, per share trading price of our common stock and ability to satisfy our debt service obligations could be materially adversely affected.

We are dependent on single tenant leases for our revenue and, accordingly, lease terminations or tenant defaults could have a material adverse effect on our results of operations.

We focus, and expect to continue to focus, our investment activities on ownership of freestanding, single tenant commercial properties that are net leased to a single tenant. Therefore, the financial failure of, or other default in payment by, a single tenant under its lease is likely to cause a significant reduction in our operating cash flows from that property and a significant reduction in the value of the property, and could cause a significant reduction in our revenues. If a lease is terminated or defaulted on, we may experience difficulty or significant delay in re-leasing such property, or we may be unable to find a new tenant to re-lease the vacated space, which could result in us incurring a loss. The current weak economic conditions and the remnants of the credit

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crisis may put financial pressure on and increase the likelihood of the financial failure of, or other default in payment by, one or more of the tenants to whom we have exposure.

Our net leases may require us to pay property related expenses that are not the obligations of our tenants.

Under the terms of all of our net leases, in addition to satisfying their rent obligations, our tenants are responsible for the payment of real estate taxes, insurance and ordinary maintenance and repairs. However, under the provisions of certain leases with our tenants, we may be required to pay some expenses, such as the costs of environmental liabilities, roof and structural repairs, insurance, certain non-structural repairs and maintenance. If our properties incur significant expenses that must be paid by us under the terms of our leases, our business, financial condition and results of operations will be adversely affected and the amount of cash available to meet expenses and to make distributions to holders of our common stock may be reduced.

A property that incurs a vacancy could be difficult to sell or re-lease.

A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. In addition, certain of the properties we acquire may have some level of vacancy at the time of closing. Certain of our properties may be specifically suited to the particular needs of a tenant. We may have difficulty obtaining a new tenant for any vacant space we have in our properties. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash available to be distributed to stockholders. In addition, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

We may not have funding for future tenant improvements.

When a tenant at one of our properties does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, in order to attract one or more new tenants, we will be required to expend funds to construct new tenant improvements in the vacated space. We cannot assure you that we will have adequate sources of funding available to us for such purposes in the future.

The fact that real estate investments are not as liquid as other types of assets may reduce economic returns to investors.

Real estate investments are not as liquid as other types of investments, and this lack of liquidity may limit our ability to react promptly to changes in economic or other conditions. In addition, significant expenditures associated with real estate investments, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investments. In addition, we intend to comply with the safe harbor rules relating to the number of properties that can be disposed of in a year, the tax bases and the costs of improvements made to these properties, and meet other tests which enable a REIT to avoid punitive taxation on the sale of assets. Thus, our ability at any time to sell assets may be restricted. This lack of liquidity may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect our financial condition, results of operations, cash flows and our ability to pay distributions on, and the market price of, our common stock.

Our investments in properties backed by below investment grade credits will have a greater risk of default.

As of January 31, 2012, 19.4% of our tenants (based on average annual rent from our properties) do not have an investment grade credit rating. We also may invest in other properties in the future where the underlying tenant’s credit rating is below investment grade. These investments will have a greater risk of default and bankruptcy than investments in properties leased exclusively to investment grade tenants.

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Our investments in properties where the underlying tenant does not have a publicly available credit rating will expose us to certain risks.

As of January 31, 2012, 9.0% of our tenants (based on average annual rent from our properties) do not have a publicly available credit rating. Additionally, if in the future we invest in additional properties where the underlying tenant does not have a publicly available credit rating, we will rely on our own estimates of the tenant’s credit rating and usually subsequently obtain a private rating from a reputable credit rating agency to allow us to finance the property as we had planned. If our lender or a credit rating agency disagrees with our ratings estimates, or our ratings estimates are inaccurate, we may not be able to obtain our desired level of leverage and/or our financing costs may exceed those that we projected. This outcome could have an adverse impact on our returns on that asset and hence our operating results.

We would face potential adverse effects from tenant defaults, bankruptcies or insolvencies.

The bankruptcy of our tenants may adversely affect the income generated by our properties. If our tenant files for bankruptcy, we generally cannot evict the tenant solely because of such bankruptcy. In addition, a bankruptcy court could authorize a bankrupt tenant to reject and terminate its lease with us. In such a case, our claim against the tenant for unpaid and future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and it is unlikely that a bankrupt tenant would pay in full amounts it owes us under the lease. Any shortfall resulting from the bankruptcy of one or more of our tenants could adversely affect our cash flow and results of operations.

Our properties may be subject to impairment charges.

We periodically evaluate our real estate investments for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal structure. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Since our investment focus is on properties net leased to a single tenant, the financial failure of, or other default in payment by, a single tenant under its lease may result in a significant impairment loss. If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the property, which could have a material adverse effect on our results of operations and FFO in the period in which the impairment charge is recorded.

We have greater exposure to operating costs when we invest in properties leased to the United States Government.

We invest in properties leased to the United States Government. Any leases with the United States Government generally will be typical GSA type leases. These leases do not provide that the United States Government is wholly responsible for operating costs of the property, but include an operating cost component within the rent we receive that increases annually by an agreed upon percentage based upon the CPI. Thus, we will have greater exposure to operating costs on our properties leased to the United States Government, if any, because if the operating costs of the property increase faster than the CPI, we will bear those excess costs.

Adverse global market and economic conditions may adversely affect us and could cause us to recognize impairment charges or otherwise harm our performance.

Recent market and economic conditions have been challenging, with tighter credit conditions in 2008 through 2012. Continued concerns about the availability and cost of credit, the U.S. mortgage market, inflation, unemployment levels, geopolitical issues and declining equity and real estate markets have contributed to increased market volatility and diminished expectations for the U.S. economy. The commercial real estate sector in particular has been adversely affected by these market and economic conditions. These conditions may result in our tenants requesting rent reductions, declining to extend or renew leases upon expiration or renewing at lower rates. These

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conditions may force tenants, in some cases, to declare bankruptcy or vacate leased premises. We may be unable to re-lease vacated space at attractive rents or at all. We are unable to predict whether, or to what extent or for how long, these adverse market and economic conditions will persist. The continuation or intensification of these conditions may impede our ability to generate sufficient operating cash flow to pay expenses, maintain properties, pay distributions and repay debt.

Difficult conditions in the commercial real estate markets may cause us to experience market losses related to our properties, and these conditions may not improve in the near future.

Our results of operations are materially affected by conditions in the real estate markets, the financial markets and the economy generally and may cause commercial real estate values, including the values of our properties, and market rental rates, including rental rates that we are able to charge upon a vacancy of a property, to decline significantly. Current economic and credit market conditions have contributed to increased volatility and diminished expectations for real estate markets, as well as adversely impacted inflation, energy costs, geopolitical issues and the availability and cost of credit, and will continue to do so going forward. The further deterioration of the real estate market may cause us to record losses on our assets, reduce the proceeds we receive upon sale or refinance of our assets or adversely impact our ability to lease our properties upon any lease expiration or following a tenant default. Declines in the market values of our properties may adversely affect our results of operations and credit availability, which may reduce earnings and, in turn, cash available for distributions to our stockholders. Current economic and credit market conditions may also cause one or more of the tenants to whom we have exposure to fail or default in their payment obligations, which could cause us to record material losses or a material reduction in our cash flows.

Terrorism and other factors affecting demand for our properties could harm our operating results.

The strength and profitability of our business depends on demand for and the value of our properties. Future terrorist attacks in the United States, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of terrorism or war could have a negative impact on our operations. Such terrorist attacks could have an adverse impact on our business even if they are not directed at our properties. In addition, the terrorist attacks of September 11, 2001 have substantially affected the availability and price of insurance coverage for certain types of damages or occurrences, and our insurance policies for terrorism include large deductibles and co-payments. The lack of sufficient insurance for these types of acts could expose us to significant losses and could have a negative impact on our operations.

Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and cash flows, and there can be no assurance as to future costs and the scope of coverage that may be available under insurance policies.

We carry comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in our portfolio under a blanket insurance policy with policy specifications, limits and deductibles customarily carried for similar properties. In addition, we carry professional liability and directors’ and officers’ insurance. We have selected policy specifications and insured limits that we believe are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for certain losses, including, but not limited to, losses caused by riots or war. Certain types of losses may be either uninsurable or not economically insurable, such as losses due to earthquakes, riots or acts of war. Should an uninsured loss occur, we could lose both our investment in and anticipated profits and cash flow from a property. If any such loss is insured, we may be required to pay a significant deductible on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss, or the amount of the loss may exceed our coverage for the loss. In addition, future lenders may require such insurance, and our failure to obtain such insurance

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could constitute a default under our loan agreements. In addition, we may reduce or discontinue terrorism, earthquake, flood or other insurance on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage discounted for the risk of loss. Our title insurance policies may not insure for the current aggregate market value of our portfolio, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases. As a result, our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay distributions to our stockholders may be materially and adversely affected.

If we or one or more of our tenants experiences a loss that is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

If any of our insurance carriers become insolvent, we could be adversely affected.

We carry several different lines of insurance, placed with several large insurance carriers. If any one of these large insurance carriers were to become insolvent, we would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or otherwise favorable terms. Replacing insurance coverage at unfavorable rates and the potential of uncollectible claims due to carrier insolvency could adversely affect our results of operations and cash flows.

Contingent or unknown liabilities could adversely affect our financial condition.

We have acquired, and may in the future acquire, properties, or may have previously owned properties, subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of any of these entities or properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows. Unknown liabilities with respect to entities or properties acquired might include:

liabilities for clean-up or remediation of adverse environmental conditions;
accrued but unpaid liabilities incurred in the ordinary course of business;
tax liabilities; and
claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of the properties.

Because we own real property, we are subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

Environmental laws regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various provisions of these laws, an owner or operator of real estate, such as us, is or may be liable for costs related to soil or groundwater contamination on, in, or migrating to or from its property. In addition, persons who arrange for the disposal or treatment of hazardous or toxic substances may be liable for the costs of cleaning up contamination at the disposal site. Such laws often impose liability regardless of whether the person knew of, or was responsible for, the presence of the hazardous or toxic substances that caused the contamination. The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or lease our property or to borrow using such property as collateral. In addition, persons exposed to hazardous or toxic substances may sue us for personal injury damages. For example, certain laws impose liability for release of or exposure to asbestos-containing materials and contamination from past operations or

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from off-site sources. As a result, in connection with our current or former ownership, operation, management and development of real properties, we may be potentially liable for investigation and cleanup costs, penalties, and damages under environmental laws.

Although all of our properties were, at the time we acquired them, subjected to preliminary environmental assessments, known as Phase I assessments, by independent environmental consultants that identify certain liabilities, Phase I assessments are limited in scope, and may not include or identify all potential environmental liabilities or risks associated with the property. Further, any environmental liabilities that arose since the date the studies were done would not be identified in the assessments. Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the liabilities disclosed in the Phase I assessments.

We cannot assure you that these or other environmental studies identified all potential environmental liabilities, or that we will not incur material environmental liabilities in the future. If we do incur material environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any affected properties.

Costs of complying with governmental laws and regulations may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Tenants’ ability to operate and to generate income to pay their lease obligations may be affected by permitting and compliance obligations arising under such laws and regulations. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. Leasing properties to tenants that engage in commercial activities will cause us to be subject to the risk of liabilities under environmental laws and regulations. In addition, the presence of hazardous or toxic substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.

Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines or damages we must pay will reduce our ability to pay distributions and may reduce the value of your investment.

In addition, changes in these laws and governmental regulations, or their interpretation by agencies or the courts, could occur.

Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.

Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then our cash flows and the amounts available for distributions to our stockholders may be adversely affected. Additionally, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flows and results of operations.

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We own several of our properties subject to ground leases that expose us to the loss of such properties upon breach or termination of the ground leases and may limit our ability to sell these properties.

We own several of our properties through leasehold interests in the land underlying the buildings and we may acquire additional buildings in the future that are subject to similar ground leases. As lessee under a ground lease, we are exposed to the possibility of losing the property upon termination, or an earlier breach by us, of the ground lease, which may have a material adverse effect on our business, financial condition and results of operations, our ability to pay distributions to our stockholders and the trading price of our common stock.

Our ground leases contain certain provisions that may limit our ability to sell certain of our properties. In order to assign or transfer our rights and obligations under certain of our ground leases, we generally must obtain the consent of the landlord which, in turn, could adversely impact the price realized from any such sale.

We may be unable to sell a property if or when we decide to do so, including as a result of uncertain market conditions, which could adversely affect the return on your investment.

We expect to hold the various real properties in which we invest until such time as we decide that a sale or other disposition is appropriate given our investment objectives. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. We cannot predict the various market conditions affecting real estate investments which will exist at any particular time in the future. Due to the uncertainty of market conditions which may affect the future disposition of our properties, we cannot assure you that we will be able to sell our properties at a profit in the future. Accordingly, the extent to which you will receive cash distributions and realize potential appreciation on our real estate investments will be dependent upon fluctuating market conditions.

Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.

In acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These provisions would restrict our ability to sell a property.

If we sell properties and provide financing to purchasers, defaults by the purchasers would adversely affect our cash flows.

If we decide to sell any of our properties, we presently intend to use our best efforts to sell them for cash. However, in some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk that the purchaser may default, which could negatively impact our cash distributions to stockholders and result in litigation and related expenses. Even in the absence of a purchaser default, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed of.

We may acquire properties with “lock-out” provisions which may affect our ability to dispose of the properties or acquire properties that require us to maintain a certain minimum level of mortgage indebtedness, encumbering our properties, which may affect our ability to pay off such indebtedness and thereby limit the flexibility of our debt options.

We may acquire properties through contracts that could restrict our ability to dispose of the property for a period of time. These “lock-out” provisions could affect our ability to turn our investments into cash and could affect cash available for distributions to you. Lock-out provisions

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could also impair our ability to take actions during the lock-out period that would otherwise be in the best interest of our stockholders and, therefore, may have an adverse impact on the value of our common stock relative to the value that would result if the lock-out provisions did not exist. In addition, we may acquire properties through contracts that require us to maintain a certain level of mortgage indebtedness encumbering our properties for a period of time. These debt maintenance provisions would adversely affect our financing flexibility by restricting our ability to refinance such mortgage indebtedness on favorable terms or by prohibiting our inclusion of these properties in the borrowing base of our revolving credit facility.

RISKS RELATED TO OUR DEBT FINANCINGS

We will have substantial amounts of indebtedness outstanding following this offering, which may affect our ability to make distributions, may expose us to interest rate fluctuation risk and may expose us to the risk of default under our debt obligations.

As of December 31, 2011, on a pro forma basis, our aggregate outstanding indebtedness would have been approximately $814.2 million. We may incur significant additional debt for various purposes including, without limitation, the funding of future acquisitions, the payment of distributions, capital improvements and leasing commissions in connection with the repositioning of a property.

Payments of principal and interest on borrowings may leave us with insufficient cash resources to make the distributions currently contemplated or necessary to maintain our REIT qualification and avoid corporate taxes because we did not distribute 100% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for distributions paid and excluding net capital gain. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including the following:

our cash flow may be insufficient to meet our required principal and interest payments;
we may be unable to borrow additional funds as needed or on satisfactory terms, which could, among other things, adversely affect our ability to capitalize upon emerging acquisition opportunities or meet needs to fund capital improvements and leasing commissions;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;
we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations;
certain of the property subsidiaries’ loan documents may include restrictions on such subsidiary’s ability to make distributions to us;
we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under our hedge agreements, these agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements, we would be exposed to then-existing market rates of interest and future interest rate volatility;
we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases; and
our default under any of our indebtedness with cross-default provisions could result in a default on other indebtedness.

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If any one of these events were to occur, our business, financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to make distributions to our stockholders could be materially and adversely affected. In addition, any foreclosure on our properties could create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the REIT distribution requirements imposed by the Code.

Our operating results and financial condition could be adversely affected if we are unable to make required payments on our debt.

Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur. We are subject to risks normally associated with debt financing, including the risk that our cash flows will be insufficient to meet required payments of principal and interest. There can be no assurance that we will be able to refinance any maturing indebtedness, that such refinancing would be on terms as favorable as the terms of the maturing indebtedness or that we will be able to otherwise obtain funds by selling assets or raising equity to make required payments on maturing indebtedness.

In particular, loans obtained to fund property acquisitions will generally be secured by mortgages or deeds in trust on such properties. If we are unable to make our debt service payments as required, a lender could foreclose on the property or properties securing its debt. This could cause us to lose part or all of our investment, which in turn could cause the value of our common stock and distributions payable to stockholders to be reduced. Certain of our existing and future indebtedness is and may be cross-collateralized and, consequently, a default on this indebtedness could cause us to lose part or all of our investment in multiple properties.

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

As of December 31, 2011, on a pro forma basis, our aggregate outstanding indebtedness would have been approximately $814.2 million, and we expect that we will incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions. Certain of our debt issuances bear interest at variable rates and, as of December 31, 2011, on a pro forma basis, we had $140.2 million of outstanding debt that is not fixed rate debt or fixed through the use of hedging instruments related to our revolving credit facility. If we incur variable rate debt, increases in interest rates raise our interest costs, which reduces our cash flows and our ability to pay distributions to you. If we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition would be adversely affected, and we may lose the property securing such indebtedness. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition.

The terms of our revolving credit facility and other indebtedness require, and the terms of loan documents entered into in the future likely will require, us to comply with a number of customary financial and other covenants, such as covenants with respect to consolidated leverage, net worth and unencumbered assets. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. As of December 31, 2011, we had $435.8 million of other non-recourse, secured loans which are cross-collateralized by multiple properties. If we default on any of these loans we may then be required to repay such indebtedness, together with applicable prepayment charges, to avoid foreclosure on all cross-collateralized properties within the applicable pool. In addition, our revolving credit facility contains certain cross-default provisions which are triggered in the event that our other material

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indebtedness is in default. These cross-default provisions may require us to repay or restructure the revolving credit facility in addition to any mortgage or other debt that is in default. If our properties were foreclosed upon, or if we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our distributable cash flows and our financial condition would be adversely affected.

Unless both Messrs. Schorsch and Kahane remain as members of our Board of Directors, we will be in default under our revolving credit facility.

Our revolving credit facility provides that we would be in default upon a change of control. A change of control is defined as, among other things, Messrs. Schorsch and Kahane ceasing to be members of our Board of Directors, without regard to such cessation resulting from death, disability, retirement or termination from their positions for cause of either Mr. Schorsch or Mr. Kahane. If such an event were to occur, we would be required to repay the indebtedness under the revolving credit facility to avoid foreclosure on the equity interests of our property subsidiaries which secure this facility. If the equity interests of any of our property subsidiaries are foreclosed upon, the amount of our distributable cash flows and our financial condition would be materially and adversely affected. Additionally, the presence of this provision in the credit agreement for our revolving credit facility may delay, defer or prevent a change of control transaction that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Our financing arrangements involving balloon payment obligations may adversely affect our ability to make distributions.

Some of our financing arrangements require us to make a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the existing financing on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT.

High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can pay.

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due or of being unable to refinance such debt on favorable terms. If interest rates are higher when we refinance such debt, our income could be reduced. We may be unable to refinance such debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us or could result in the foreclosure of such properties. If any of these events occur, our cash flows would be reduced. This, in turn, would reduce cash available for distributions to you and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.

Our hedging strategies may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment.

We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. These

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instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests. In addition, the nature and timing of hedging transactions may influence the effectiveness of our hedging strategies. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. Moreover, hedging strategies involve transaction and other costs. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses that may reduce the overall return on your investment.

RISKS RELATED TO OUR CORPORATE STRUCTURE

Our charter and Maryland law contain provisions that may delay, defer or prevent a change of control transaction.

Our charter contains a 9.8% ownership limit.

Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and to limit any person to actual or constructive ownership of no more than 9.8% in value of the aggregate of our outstanding shares of stock and not more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our Board of Directors, in its sole discretion, may (prospectively or retroactively) exempt, subject to the satisfaction of certain conditions, any person from the ownership limit. However, our Board of Directors may not grant an exemption from the ownership limit to any person whose ownership, direct or indirect, in excess of 9.8% in value of the aggregate of our outstanding shares of stock or more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock would jeopardize our status as a REIT. These restrictions on transferability and ownership will not apply if our Board of Directors determines that it is no longer in our best interests to continue to qualify, as a REIT or that compliance is no longer required for REIT qualification. The ownership limit may delay or impede a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

We could authorize and issue additional stock without stockholder approval.

Our Board of Directors could, without stockholder approval, issue authorized but unissued shares of our common stock or preferred stock and amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. In addition, our Board of Directors could, without stockholder approval, classify or reclassify any unissued shares of our common stock or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares. Our Board of Directors could establish a series of stock that could, depending on the terms of such series, delay, defer or prevent a transaction or change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Majority stockholder vote may discourage changes of control.

If declared advisable by our Board of Directors, our stockholders may take some actions, including approving amendments to our charter, by a vote of a majority of the shares outstanding and entitled to vote. If approved by the holders of a majority of shares, all actions taken would be binding on all of our stockholders. Some of these provisions may discourage or make it more difficult for another party to acquire control of us or to effect a change in our operations.

Provisions of Maryland law may limit the ability of a third party to acquire control of our company.

Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under certain circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then prevailing market price of such shares, including:

“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any

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person who beneficially owns 10% or more of the voting power of our outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder and thereafter would require the recommendation of our Board of Directors and impose special appraisal rights and supermajority voting requirements on these combinations; and
“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

As permitted by the Maryland General Corporation Law, or MGCL, our Board of Directors has by resolution exempted business combinations between us and any person, provided that such business combination is first approved by our Board of Directors (including a majority of directors who are not affiliates or associates of such person). Consequently, the five-year prohibition and the super-majority vote requirements will not apply to such business combinations. As a result, any person described above may be able to enter into business combinations with us that may not be in the best interest of our stockholders without compliance by us with the super-majority vote requirements and other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time by our Board of Directors. If this resolution is repealed, or our Board of Directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Pursuant to a provision in our bylaws, we have opted out of the control share provisions of the MGCL. However, we may, by amendment to our bylaws, opt in to the control shares provisions of the MGCL in the future.

Additionally, Title 8, Subtitle 3 of the MGCL permits our Board of Directors, without stockholder approval and regardless of what is currently provided in our charter or our bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not currently have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a change in control of our company under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-current market price.

Our charter, our bylaws, the limited partnership agreement of our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Our Board of Directors can take many actions without stockholder approval.

Our Board of Directors has overall authority to oversee our operations and determine our major corporate policies. This authority includes significant flexibility. For example, our Board of Directors can do the following:

within the limits provided in our charter, prevent the ownership, transfer and/or accumulation of shares in order to protect our status as a REIT or for any other reason deemed to be in our best interests;
issue additional shares without obtaining stockholder approval, which could dilute the ownership of our then-current stockholders;

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amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series, without obtaining stockholder approval;
classify or reclassify any unissued shares of our common stock or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares, without obtaining stockholder approval;
employ and compensate affiliates;
direct our resources toward investments that do not ultimately appreciate over time;
change creditworthiness standards with respect to third-party tenants; and
determine that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.

Any of these actions could increase our operating expenses, impact our ability to pay distributions or reduce the value of our assets without giving you, as a stockholder, the right to vote.

We may change our investment and financing strategies and enter into new lines of business without stockholder consent, which may result in riskier investments than our current investments.

We may change our investment and financing strategies and enter into new lines of business at any time without the consent of our stockholders, which could result in our making investments and engaging in business activities that are different from, and possibly riskier than, the investments and businesses described in this prospectus. A change in our investment strategy or our entry into new lines of business may increase our exposure to interest rate and other risks of real estate market fluctuations.

Our rights and the rights of our stockholders to recover claims against our officers and directors are limited, which could reduce your and our recovery against them if they cause us to incur losses.

Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, subject to certain limitations set forth therein or under Maryland law, our charter provides that no director or officer will be liable to us or our stockholders for monetary damages and requires us to indemnify our directors and officers and permits us to indemnify our employees and agents. However, our charter provides that we may not indemnify a director for any loss or liability suffered by any of them or hold harmless such indemnitee for any loss or liability suffered by us unless: (1) the indemnitee determined, in good faith, that the course of conduct that caused the loss or liability was in our best interests, (2) the indemnitee was acting on behalf of or performing services for us, (3) the liability or loss was not the result of (A) negligence or misconduct, in the case of a director (other than an Independent Director), the advisor or an affiliate of the advisor, or (B) gross negligence or willful misconduct, in the case of an Independent Director, and (4) the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from our stockholders. Although our charter does not allow us to indemnify or hold harmless an indemnitee to a greater extent than permitted under Maryland law, we and our stockholders may have more limited rights against our directors, officers, employees and agents than might otherwise exist under common law, which could reduce your and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents which would decrease the cash otherwise available for distributions to you.

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We are a holding company with no direct operations. As a result, we will rely on funds received from our operating partnership to pay liabilities and dividends, our stockholders’ claims will be structurally subordinated to all liabilities of our operating partnership and our stockholders will not have any voting rights with respect to our operating partnership’s activities, including the issuance of additional OP units.

We are a holding company and will conduct all of our operations through our operating partnership. We do not have, apart from our ownership of our operating partnership, any independent operations. As a result, we will rely on distributions from our operating partnership to pay any dividends we might declare on shares of our common stock. We will also rely on distributions from our operating partnership to meet any of our obligations, including tax liability on taxable income allocated to us from our operating partnership (which might make distributions to the company not equal to the tax on such allocated taxable income).

In addition, because we are a holding company, stockholders’ claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our operating partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, claims of our stockholders will be satisfied only after all of our and our operating partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

After giving effect to this offering, we will own 99.99% of the OP units in our operating partnership. However, our operating partnership may issue additional OP units in the future. Such issuances could reduce our ownership percentage in our operating partnership. Because our common stockholders will not directly own any OP units, they will not have any voting rights with respect to any such issuances or other partnership level activities of our operating partnership.

RISKS RELATED TO THIS OFFERING

The existence of a large number of outstanding shares and stockholders prior to our listing on NASDAQ could negatively affect our stock price.

As of January 31, 2012, we had 178.2 million shares of common stock issued and outstanding. All of these shares are freely tradable, although our affiliates are subject to certain volume limitations on trading under the federal securities laws. Neither we nor any third party have any control over the timing or volume of these sales. Prior to the listing of our common stock on NASDAQ, which we expect to occur on or about March 1, 2012, our shares of common stock were not listed on any national exchange, and the ability of stockholders to liquidate their investments was limited. Subsequent to our listing on NASDAQ, a large volume of sales of these shares could decrease the prevailing market prices of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future. Even if a substantial number of sales are not affected, the mere perception of the possibility of these sales could depress the market price of our common stock and have a negative effect on our ability to raise capital in the future. In addition, anticipated downward pressure on our common stock price due to actual or anticipated sales of common stock from this market overhang could cause some institutions or individuals to engage in short sales of our common stock, which may itself cause the price of our stock to decline.

There is currently no public market for our common stock, and a market for our common stock may never develop, which could result in purchasers in this offering being unable to monetize their investment.

Prior to the listing of our common stock on NASDAQ, which we expect to occur on or about March 1, 2012, there has been no public market for our common stock. The public offering price for our common stock has been determined by negotiations between the underwriters and us. We cannot assure you that the listing will successfully be completed. We cannot assure you that the public offering price will correspond to the price at which our common stock will trade in the public market subsequent to this offering or that the price of our common stock available in the public market will reflect our actual financial performance.

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We have applied to list our common stock on NASDAQ under the symbol “ARCT.” Listing on NASDAQ does not ensure that an actual market will develop for our common stock. Accordingly, no assurance can be given as to:

the likelihood that an active market for the stock will develop;
the liquidity of any such market;
the ability of our stockholders to sell their common stock; or
the price that our stockholders may obtain for their common stock.

Even if an active trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations after this offering. Some of the factors that could negatively affect our stock price include:

actual or anticipated variations in our quarterly operating results;
changes in our earnings estimates or publication of research reports about us or the real estate industry;
increases in market interest rates, which may lead purchasers of our stock to demand a higher yield;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we incur in the future;
additions or departures of key personnel;
actions by institutional stockholders;
speculation in the press or investment community; and
general market and economic conditions.

Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may adversely affect the market price of our common stock.

In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock or both. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock and diluting their proportionate ownership.

The number of shares of our common stock available for future sale could adversely affect the market price of our common stock, and future sales by us of shares of our common stock or issuances by our operating partnership of OP units may be dilutive to existing stockholders.

Sales of substantial amounts of shares of our common stock in the public market, or upon exchange of OP units or exercise of any equity awards, or the perception that such sales might occur could adversely affect the market price of the shares of our common stock. The exchange of OP units for common stock, the vesting of any equity-based awards granted to certain directors, executive officers and other employees or us, the issuance of our common stock or OP units in connection with property, portfolio or business acquisitions and other issuances of our common

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stock or OP units could have an adverse effect on the market price of the shares of our common stock. The existence of restricted shares, as well as OP units that may be issued in the future, equity awards, and shares of our common stock reserved for issuance under our incentive plan or upon exchange of any such OP units and any related resales may adversely affect the market price of our common stock and the terms upon which we may be able to obtain additional capital through the sale of equity securities. In addition, future sales by us of shares of our common stock may be dilutive to existing stockholders.

The market price of our common stock could be adversely affected by our level of cash distributions.

The market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales or refinancings, as well as the real estate market value of the underlying assets, may cause our common stock to trade at prices that differ from our net asset value per share. If we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future earnings and distributions likely would adversely affect the market price of our common stock.

If securities analysts do not publish research or reports about our business or if they downgrade our common stock or our sector, the price of our common stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our stock or our industry, or the stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our company, we could lose attention in the market, which in turn could cause the price of our common stock to decline.

Purchasers in this offering will experience immediate dilution in the net tangible book value of their investment.

Purchasers of our common stock in this offering will experience an immediate dilution in the net tangible book value of the common stock purchased in this offering because the price per share of common stock in this offering is substantially higher than the net tangible book value of each share of common stock outstanding immediately after this offering. Our net tangible book value on a pro forma basis assuming the completion of this offering and the Tender Offer, as of December 31, 2011, was approximately $1.0 billion, or $6.17 per share of common stock. Based on the assumed public offering price of $      per share in this offering, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $5.33 per share in the net tangible book value of the common stock.

U.S. FEDERAL INCOME TAX RISKS

Our failure to remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax, and would adversely affect our operations and the market price of our common stock.

We have elected to be taxed as a REIT beginning with the tax year ending December 31, 2008 and intend to operate in a manner that would allow us to continue to qualify as a REIT. However, we may terminate our REIT qualification if our Board of Directors determines that not qualifying as a REIT is in our best interests, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We currently intend to structure our activities in a manner designed to satisfy all requirements for qualification as a REIT. However, the REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws

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governing qualification as a REIT is limited. Furthermore, any opinion of our counsel, including tax counsel, as to our eligibility to qualify or remain qualified as a REIT is not binding on the IRS and is not a guarantee that we will qualify, or continue to qualify, as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can qualify or remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization would jeopardize our ability to satisfy all the requirements for qualification as a REIT. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.

If we fail to continue to qualify as a REIT for any taxable year and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

Even if we qualify as a REIT, in certain circumstances, we may incur tax liabilities that would reduce our cash available for distribution to you.

Even if we qualify and maintain our status as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will be subject to corporate tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including franchise, payroll and transfer taxes, either directly or at the level of our operating partnership or at the level of the other companies through which we indirectly own our assets, such as TRSs, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to you.

To qualify as a REIT we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce your overall return.

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be

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spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. It is possible that we might not always be able to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or indirectly through any subsidiary entity, including our operating partnership that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (a) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS would incur corporate rate income taxes with respect to any income or gain recognized by it), (b) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or indirectly through any subsidiary, will be treated as a prohibited transaction or (c) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. Despite our present intention, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding any TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

Our TRS and any future TRSs we form are subject to corporate-level taxes and our dealings with our TRS and any TRSs we form may be subject to 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% of the gross value of a REIT’s assets may consist of stock or securities of one or more TRS. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. Accordingly, we may use TRSs generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or conduct activities that we cannot conduct directly as a REIT. For example, our existing TRS owns our property manager. A TRS will be subject to applicable U.S. federal, state, local and foreign income tax on its taxable income. In addition, the rules, which are applicable to us as a REIT, also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.

We intend to maintain the status of our operating partnership as a partnership or a disregarded entity for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of our operating partnership as a partnership or disregarded entity for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our operating partnership could make to us. This also would also result in our failing to

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qualify as a REIT, and becoming subject to a corporate level tax on our income. This substantially would reduce our cash available to pay distributions and the yield on your investment. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

We may choose to make distributions in our own stock, in which case you may be required to pay U.S. federal income taxes in excess of the cash dividends you receive.

In connection with our qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions that are payable in cash and/or shares of our common stock (which could account for up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay income taxes with respect to such distributions in excess of the cash portion of the distribution received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.

Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.

The taxation of distributions to our stockholders can be complex; however, distributions that we make to our stockholders generally will be taxable as ordinary income.

Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends, or, for tax years beginning before January 1, 2013, qualified dividend income) generally will be taxable as ordinary income. However, a portion of our distributions may (1) be designated by us as capital gain dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us, for taxable years beginning before January 1, 2013, as qualified dividend income generally to the extent they are attributable to dividends we receive from our TRSs, or (3) constitute a return of capital generally to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of a stockholder’s investment in our common stock.

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Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates has been reduced to 15% for tax years beginning before January 1, 2013. Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. Tax rates could be changed in future legislation.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the IRS’s position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment plan inadvertently causing a greater than 5% discount on the price of such stock purchased). While we believe that our operations have been structured in such a manner that we will not be treated as inadvertently paying preferential dividends, there is no de minimis exception with respect to preferential dividends. Therefore, if the IRS were to take the position that we inadvertently paid a preferential dividend, we may be deemed either to (a) have distributed less than 100% of our REIT taxable income and be subject to tax on the undistributed portion, or (b) have distributed less than 90% of our REIT taxable income and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS.

Complying with REIT requirements may force us to forgo and/or liquidate otherwise attractive investment opportunities.

To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage

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loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total securities can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

The ability of our Board of Directors to revoke our REIT qualification without stockholder approval may subject us to U.S. federal income tax and reduce distributions to our stockholders.

Our charter provides that our Board of Directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. We have elected to be treated as a REIT commencing with our taxable year ended December 31, 2008; however, we may terminate our REIT election if we determine that qualifying as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders and on the market price of our common stock.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the market price of our common stock.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. You also should note that our counsel’s tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our Board of Directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our Board of Directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

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The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.

In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year after, other than the first year for which a REIT election is made. To help insure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our Board of Directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 9.8% in value of the aggregate of our outstanding shares of stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our Board of Directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our Board of Directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to continue to so qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.

Non-U.S. stockholders will be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon the disposition of our shares.

Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, capital gain distributions attributable to sales or exchanges of “U.S. real property interests,” or USRPIs, generally will be taxed to a non-U.S. stockholder as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (a) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United States; and (b) the non-U.S. stockholder does not own more than 5% of the class of our stock at any time during the one year period ending on the date the distribution is received. We anticipate that our shares will be “regularly traded” on an established securities market for the foreseeable future, although, no assurance can be given that this will be the case.

Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are a “domestically-controlled qualified investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less than 50% in value of such

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REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe, but cannot assure you, that we will be a domestically-controlled qualified investment entity.

Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our common stock, gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) our common stock is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively, 5% or less of our common stock at any time during the five-year period ending on the date of the sale. We encourage you to consult your tax advisor to determine the tax consequences applicable to you if you are a non-U.S. stockholder.

Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.

If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our common stock, or (c) a holder of common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, common stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Statements regarding the following subjects may be impacted by a number of risks and uncertainties which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements:

our use of the proceeds of this offering;
our business and investment strategy;
our ability to renew leases as they expire;
the performance and economic condition of our tenants;
our ability to make additional investments in a timely manner or on acceptable terms;
current credit market conditions and our ability to obtain long-term financing for our property investments in a timely manner and on terms that are consistent with what we project when we invest in the property;
the effect of general market, real estate market, economic and political conditions, including the recent economic slowdown and dislocation in the global credit markets;
our ability to make scheduled payments on our debt obligations;
our ability to generate sufficient cash flows to make dividends to our stockholders;
the degree and nature of our competition;
the availability of qualified personnel;
our ability to maintain our qualification as a REIT;
we may not derive the expected benefits from the Internalization or may not derive them in the expected amount of time;
changes in economic circumstances, business conditions and our stock price may make the Tender Offer and this offering no longer advisable under the terms described herein, or not at all; and
other subjects referenced in this prospectus, including those set forth under the caption “Risk Factors.”

The forward-looking statements contained in this prospectus reflect our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common stock.

For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see “Risk Factors.” We disclaim any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $69,787,000 (or approximately $83,750,000 if the underwriters’ over-allotment option is exercised in full), after deducting underwriting discounts and commissions, and estimated expenses of the offering, assuming a public offering price of $      per share. We will contribute the net proceeds of this offering to our operating partnership in exchange for OP units, and following such contribution will own 99.99% of the OP units (or 99.99% of the OP units if the underwriters’ over-allotment option is exercised in full). The operating partnership intends to use such net proceeds to repay indebtedness under our revolving credit facility and for general working capital purposes. Our facility bears interest at the rate of (i) LIBOR with respect to Eurodollar rate loans plus a margin 205 to 285 basis points, depending on our leverage ratio; and (ii) the greater of the federal funds rate plus 1.0% and the interest rate publicly announced by RBS Citizens as its “prime rate” or “base rate” at such time with respect to base rate loans plus a margin of 125 to 175 basis points depending on our leverage ratio.

Pending the use of the net proceeds, we intend to invest the net proceeds in interest-bearing, short-term investment-grade securities, money-market accounts or other investments which are consistent with our intention to maintain our qualification as a REIT.

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DISTRIBUTION POLICY

We intend to continue to maintain our qualification to be taxed as a REIT. U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding net capital gain. U.S. federal income tax law requires REITs to pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income.

In order to maintain our REIT qualification and to generally not be subject to U.S. federal income and excise tax, we have made and intend to continue to make regular monthly distributions of all or substantially all of our net income to holders of our common stock out of assets legally available therefor. Any future distributions we make will be at the discretion of our Board of Directors and will depend upon our earnings and financial condition, maintenance of REIT qualification, applicable provisions of the MGCL and such other factors as our Board of Directors deems relevant. For more information regarding risk factors that could materially adversely affect our earnings and financial condition, please see “Risk Factors” beginning on page 23.

The following table sets forth the distributions that have been authorized to date by our Board of Directors and paid and/or declared to date by us.

   
Month   Amount Declared
per Share/Unit
  Date Paid
2008
                 
May   $ 0.0534       5/21/2008  
June   $ 0.0552       6/23/2008  
July   $ 0.0534       7/21/2008  
August   $ 0.0552       8/21/2008  
September   $ 0.0552       9/3/2008  
October   $ 0.0534       10/1/2008  
November   $ 0.0552       11/3/2008  
December   $ 0.0534       12/1/2008  
2009
                 
January   $ 0.0552       1/2/2009  
February   $ 0.0569       2/2/2009  
March   $ 0.0514       3/2/2009  
April   $ 0.0569       4/1/2009  
May   $ 0.0551       5/1/2009  
June   $ 0.0569       6/1/2009  
July   $ 0.0551       7/1/2009  
August   $ 0.0569       8/3/2009  
September   $ 0.0569       9/1/2009  
October   $ 0.0551       10/1/2009  
November   $ 0.0569       11/2/2009  
December   $ 0.0551       12/1/2009  
2010
                 
January   $ 0.0569       1/4/2010  
January (Special Distribution)   $ 0.0500       1/19/2010  
February   $ 0.0569       2/1/2010  
March   $ 0.0514       3/1/2010  
April   $ 0.0569       4/1/2010  

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Month   Amount Declared
per Share/Unit
  Date Paid
May   $ 0.0575       5/3/2010  
June   $ 0.0595       6/1/2010  
July   $ 0.0575       7/1/2010  
August   $ 0.0595       8/2/2010  
September   $ 0.0595       9/1/2010  
October   $ 0.0575       10/1/2010  
November   $ 0.0595       11/1/2010  
December   $ 0.0575       12/1/2010  
2011
                 
January   $ 0.0595       1/3/2011  
February   $ 0.0595       2/1/2011  
March   $ 0.0537       3/1/2011  
April   $ 0.0595       4/1/2011  
May   $ 0.0575       5/2/2011  
June   $ 0.0595       6/1/2011  
July   $ 0.0575       7/1/2011  
August   $ 0.0595       8/1/2011  
September   $ 0.0595       9/1/2011  
October   $ 0.0575       10/3/2011  
November   $ 0.0595       11/1/2011  
December   $ 0.0575       12/1/2011  
2012
                 
January   $ 0.0595       1/3/2012  
February   $ 0.0593       2/1/2012  

Historically, we calculated our monthly distribution based upon daily record and distribution declaration dates so that our stockholders would be entitled to be paid distributions beginning with the month in which their shares were purchased. As a result, amounts of the monthly distributions shown in the table above vary from month to month based on the number of days in the month. We expect our monthly distribution in respect of February 2012 to be paid on March 5, 2012 to stockholders of record on February 29, 2012. Beginning with the month of our Internalization (which we contemplate will be March 2012), we will begin paying distributions on the 15th day of each month to stockholders of record at the close of business on the 8th day of such month. We expect that the distribution paid in the month of our Internalization will be a prorated distribution reflecting the partial period. Regular monthly distributions will continue following the month of our Internalization. Beginning with the month following our Internalization, we intend to calculate and declare our future dividends on a monthly basis.

We cannot assure you that we will have sufficient cash available for future monthly distributions at this level, or at all. See “Risk Factors — Risks Related to Our Business and Operations — We may be unable to pay or maintain distributions or increase distributions over time.”

To the extent that our cash available for distribution is less than our REIT taxable income (determined without regard to the deduction for dividends paid and excluding net capital gain), we may consider various funding sources to cover any such shortfall, including borrowing under our credit facility, selling certain of our assets or using a portion of the net proceeds we receive in this offering or future offerings. Our distribution policy enables us to review the alternative funding sources available to us from time to time.

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Distributions that you receive (not designated as capital gain dividends or, for taxable years beginning before January 1, 2013, qualified dividend income) will be taxed as ordinary income to the extent they are paid from our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). However, distributions that we designate as capital gain dividends generally will be taxable as long-term capital gain to our stockholders (subject to certain exceptions for corporate stockholders) to the extent that they do not exceed our actual net capital gain for the taxable year. Some portion of your distributions may not be subject to tax in the year in which they are received because depreciation expense reduces our earnings and profits, but does not reduce cash available for distribution. Any portion of your distribution that is in excess of our current and accumulated earnings and profits generally is considered a return of capital for U.S. federal income tax purposes and will reduce the adjusted tax basis of your investment, but not below zero, deferring such portion of your tax until your investment is sold or our company is liquidated, at which time you generally would be taxed at capital gain rates (subject to certain exceptions for corporate stockholders). To the extent such portion of your distribution exceeds the adjusted tax basis of your investment, such excess generally would be treated as capital gain. Please note that each stockholder’s tax considerations are different, therefore, you should consult with your tax advisor and financial planners prior to making an investment in our common stock. You also should review the section entitled “Material U.S. Federal Income Tax Considerations.”

We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain.

Prior to this offering, there has been no established public trading market for our common stock. As of January 31, 2012, there were approximately 40,000 stockholders of record.

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CAPITALIZATION

The following table sets forth (1) our historical capitalization at December 31, 2011 and (2) our pro forma capitalization which gives effect to: (i) our acquisition, from January 1, 2012 through January 31, 2012 of three properties for a total cost of approximately $10.6 million; (ii) our Internalization; (iii) our buy back of 18,604,651 shares of our common stock for an aggregate amount of $200.0 million in the Tender Offer; and (iv) the sale of shares of our common stock in this offering at an assumed price per share of $     , after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the use of proceeds thereof. You should read this table together with “Use of Proceeds,” “Selected Consolidated Financial and Pro Forma Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated historical and pro forma financial statements and notes thereto included elsewhere in this prospectus.

   
  As of December 31, 2011
     Historical   Pro Forma
     (in thousands, except share
and per share information)
Revolving credit facility   $ 10,000     $ 140,213  
Mortgage notes     673,978       673,978  
Noncontrolling interests     21,733       21,733  
Stockholders’ equity:                  
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none outstanding, historical and pro forma            
Common stock, $0.01 par value per share, 240,000,000 shares authorized, 177,963,413 shares issued and outstanding, historical, and 166,702,000 shares issued and outstanding, pro forma (1)     1,780       1,660 (2 ) 
Additional paid-in capital     1,548,009       1,417,916  
Accumulated other comprehensive income (loss)     (5,053 )      (5,053 ) 
Accumulated deficit     (166,265 )      (166,265 ) 
Total Stockholders’ Equity     1,378,471       1,248,258  
Total Capitalization   $ 2,084,182     $ 2,084,182  

(1) Excludes the following:
•   505,442 shares of our common stock issued pursuant to our Distribution Reinvestment Plan on January 3, 2012;
•   up to 990,000 shares of our common stock that may be issued by us upon exercise of the underwriters’ overallotment option;
•              shares of restricted common stock that will be issued to our Independent Directors concurrently with the offering;
•              shares of our common stock reserved for future issuance under our incentive compensation plans; and
•            LTIP Units reserved for future issuance under our incentive compensation plans.
(2) The pro forma shares of our common stock outstanding includes 744,000 shares of restricted stock held by certain of our officers and directors and other affiliates of ARC that will vest upon the listing of our common stock on NASDAQ.

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DILUTION

Purchasers of our common stock offered by this prospectus will experience dilution to the extent of the difference between the public offering price per share and the tangible net book value per share. On a pro forma basis at December 31, 2011, after giving effect to the receipt by us of the net proceeds from this offering, the deduction of the underwriting discounts and commissions, estimated offering expenses payable by us, and the effect of our Tender Offer, our pro forma tangible net book value would be $1.0 billion or $6.17 per share of common stock. This would represent a decrease in pro forma tangible net book value attributable to the sale of shares of common stock to new investors of $0.34 per share and an immediate dilution in pro forma tangible net book value of $5.33 per share from the assumed public offering price of $      per share and an assumed Tender Offer at $10.75 per share. The following table1 illustrates this per share dilution:

 
Assumed public offering price per share   $        
Pro forma tangible net book value per share as of December 31, 2011     6.51  
Decrease in pro forma tangible net book value per share attributable to the offering     (0.96 ) 
Increase in pro forma tangible net book value per share attributable to
the Tender Offer
    0.62  
Pro forma tangible net book value per share after this offering     6.17  
Dilution in pro forma tangible net book value per share to new investors (2)   $ 5.33  

(1) Includes (i) 177,963,413 shares of our common stock outstanding as of December 31, 2011, and (ii) 744,000 shares of restricted common stock held by certain of our officers and directors and other affiliates of ARC that will vest upon the listing of our common stock on NASDAQ.
Excludes the following:
•   up to 990,000 shares of our common stock that may be issued by us upon exercise of the underwriters’ overallotment option;
•            shares of restricted common stock that will be issued to our Independent Directors concurrently with the offering;
•            shares of our common stock reserved for future issuance under our incentive compensation plans; and
•            LTIP Units reserved for future issuance under our incentive compensation plans.
(2) Assuming the underwriters’ over-allotment option is exercised in full, new investors would have experienced accretion of $0.03 per share attributable to such additional shares. To the extent that the restricted shares or the stock options referenced above vest or are exercised, respectively, there will be further dilution to new investors.

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SELECTED CONSOLIDATED FINANCIAL AND PRO FORMA DATA

The following table sets forth selected summary financial data relating to our historical results of operations for the years ended December 31, 2011, 2010, 2009, 2008 and as of and for the period from August 17, 2007 to December 31, 2007, and selected summary pro forma financial data as of and for the year ended December 31, 2011. The table also sets forth selected summary financial data relating to the historical balance sheets as of December 31, 2011, 2010, 2009 and 2008, and selected summary pro forma financial data relating to the balance sheet as of December 31, 2011.

The summary historical consolidated financial information presented below has been derived from our historical consolidated financial statements which were audited by Grant Thornton LLP, an independent registered public accounting firm.

The summary unaudited pro forma financial information as of December 31, 2011 and for the twelve months then ended has been prepared to reflect adjustments to the historical financial statements to illustrate the estimated effect of the following transactions as if they had occurred on January 1, 2011:

our acquisition in 2011 of 224 properties located in 20 markets were acquired using net proceeds from our prior continuous public offering, mortgage financing and existing cash balances;
this offering of 6.6 million shares of our common stock;
the consummation of our Internalization;
our buy back of 18.6 million shares of our common stock for an aggregate amount of $200.0 million in the Tender Offer;
the application of the net proceeds from this offering to repay indebtedness under our revolving credit facility;
our buy back in 2011 of 1.1 million shares of our common stock for an aggregate amount of $10.5 million pursuant to our Share Repurchase Program; and
the vesting of 0.7 million restricted shares of common stock held by certain of our officers and directors and other affiliates of ARC that will vest upon the listing of our common stock on NASDAQ.

Since the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements and pro forma condensed consolidated financial statements, including the related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and pro forma condensed consolidated financial statements, including the related notes, included elsewhere in this prospectus. Our summary unaudited pro forma information as of December 31, 2011 and for the twelve months then ensued is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations. The amounts in the table are in thousands except for per-share information.

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Balance Sheet Data (amounts in thousands)

           
  Pro Forma As of December 31, 2011   Historical as of December 31,
     2011   2010   2009   2008   2007
Total real estate investments, at cost   $ 2,126,171     $ 2,126,171     $ 882,593     $ 338,556     $ 164,770     $  
Total assets     2,130,575       2,130,575       914,054       339,277       164,942       938  
Short-term borrowings                       15,878       30,926        
Mortgage notes payable     673,978       673,978       372,755       183,811       112,742           
Mortgage discount and premium, net     679       679       1,163                    
Long-term notes payable                 12,790       13,000       1,090        
Revolving credit facilities     140,213       10,000                          
Total liabilities     860,584       730,3