UNITEDTable STATESof Contents

~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION~~

~~WASHINGTON,~~SECURITIES ~~D.C.~~AND ~~20549~~EXCHANGE COMMISSION

~~FORM~~WASHINGTON, ~~10Q~~D.C. 20549

xFORM ~~Quarterly~~10-Q ~~Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~For~~x ~~the~~Quarterly ~~quarterly~~Report ~~period~~Pursuant ~~ended~~to ~~June~~Section ~~30,~~13 ~~2004~~or 15(d) of the Securities Exchange Act of 1934

¨For ~~Transition Report Pursuant to Section 13 of 15(d) of~~ the ~~Securities~~quarterly ~~Exchange~~period ~~Act~~ended ofJune 30, ~~1934~~2006

~~For~~¨ ~~the~~Transition ~~transition~~Report ~~period from~~ Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

~~Commission~~For ~~file~~the ~~number~~transition ~~000-50727~~period from to

~~ARC~~Commission ~~CORPORATE~~file ~~REALTY~~number ~~TRUST,~~000-50727 ~~INC.~~

~~(Exact~~ARC ~~name~~CORPORATE ofREALTY ~~registrant~~TRUST, ~~as specified in its charter)~~ INC.

Maryland		22-3247622
(State of Organization)		(I.R.S. Employer Identification Number)
1401 Broad Street Clifton, New Jersey		07013
(Address of principal executive offices)		(Zip Code)

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (973) 249-1000


Maryland		22-3247622
(State of Organization)		(I.R.S. Employer Identification Number)

1401 Broad Street Clifton, New Jersey		07013
(Address of principal executive offices)		(Zip Code)

~~Indicate by check mark whether the~~ Registrant’s ~~(1)~~telephone ~~has~~number, ~~filed~~including ~~all~~area ~~reports~~code: ~~required to be filed by Section 13 or 15~~(d973) 249-1000 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant (1) has isfiled anall ~~accelerated~~reports ~~filer~~required ~~(as~~to ~~defined~~be infiled ~~Rule 12b-2~~by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)., ~~Yes~~and (2) has ¨been Nosubject to such filing requirements for the past 90 days. Yes x No ¨

AsIndicate ofby ~~August~~check 6,mark ~~2004,~~whether ~~there~~the ~~were~~Registrant ~~3,181,540~~is ~~Common~~an ~~Shares~~accelerated offiler ~~Beneficial~~(as ~~Interest~~defined ~~outstanding,~~in Rule ~~par~~12b-2 ~~value~~of ~~$0.001~~the ~~per~~Exchange ~~share~~Act). Yes ¨ No x

~~ARC~~Indicate ~~CORPORATE~~by ~~REALTY~~check ~~TRUST,~~mark ~~INC~~whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

~~Form~~As ~~10-Q~~of August 14, 2006, there were 3,181,540 Class A Common Shares of Beneficial Interest outstanding, par value $0.001 per share.

IndexTable of Contents

Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003	2
	Consolidated Statements of Income for the three and six months ended June 30,2004 and 2003 (unaudited)	3
	Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2004 (unaudited) and the year ended December 31, 2003	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 (unaudited)	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II: OTHER INFORMATION		24
Item 1.	Legal Proceedings	24
Item 2.	Changes in Securities, Use of Proceeds and Issuers Purchases of Equity Securities	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Submission of Matters to a Vote of Security Holders	24
Item 5.	Other Information	24
SIGNATURES		25

ARC CORPORATE REALTY TRUST, INC.

~~PART~~Form 1.10-Q ~~FINANCIAL INFORMATION~~

~~ITEM~~Index ~~1. FINANCIAL STATEMENTS~~

ARC CORPORATE REALTY TRUST, INC.


Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005		2
Consolidated Statements of Income (Loss) for the three months and six months ended June 30, 2006 and 2005 (unaudited)		3
Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2006 (unaudited)		4
Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited)		5
Notes to Consolidated Financial Statements (unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		28

Item 4. Controls and Procedures		28

PART II: OTHER INFORMATION

Item 1. Legal Proceedings		29

Item 1A. Risk Factors		29

Item 2. Changes in Securities, Use of Proceeds and Issuers Purchases of Equity Securities		29

Item 3. Defaults Upon Senior Securities		29

Item 4. Submission of Matters to a Vote of Security Holders		29

Item 5. Other Information		29

Item 6. Exhibits and Reports		29

SIGNATURES		30

ConsolidatedTable Balanceof Sheets Contents

AsPART of1. ~~June~~FINANCIAL ~~30,~~INFORMATION ~~2004 (Unaudited) and December 31, 2003~~

	2004			2003
Assets
Property:
Land	$	14,515,922		$	12,825,420
Building and improvements		45,068,320			38,994,972
		59,584,242			51,820,392
Less: accumulated depreciation		5,838,128			5,875,038
		53,746,114			45,945,354
Investment in unconsolidated subsidiaries and undivided interests		7,934,984			7,389,731
Total property and investments		61,681,098			53,335,085
Cash and cash equivalents, including restricted cash of $389,871 and $378,256 for 2004 and 2003, respectively		1,361,953			1,946,171
Deferred rent receivable		1,070,319			1,028,526
Rent receivable		113,172			246,716
Notes receivable-tenants		391,184			411,660
Notes receivable		895,000			795,000
Prepaid expenses and other assets, net		343,252			364,822
Deferred financing and other fees, net of accumulated amortization of $558,551 and $508,305 for 2004 and 2003, respectively		561,086			396,810
Deferred leasing costs, net of accumulated amortization of $109,271 and $102,189 for 2004 and 2003, respectively		103,196			110,278
Total assets	$	66,520,260		$	58,635,068
Liabilities and Shareholders’ Equity
Liabilities:
Mortgage notes payable	$	32,729,689		$	27,778,877
Lines of credit		2,637,215			1,750,000
Due to related parties		155,526			298,205
Acquired unfavorable leases, net		2,929,987			—
Unearned rental revenue		29,500			—
Accounts payable and accrued expenses		292,185			704,836
Total liabilities		38,774,102			30,531,918
Minority interest		34,536			34,857
Shareholders’ Equity:
Common shares: $.001 par value per share; authorized, 40,000,000 shares
Class A shares-5,000,000 authorized; 3,181,540 issued and outstanding		3,182			3,182
Class B shares-5,000,000 authorized; 166,397 issued and outstanding		166			166
Additional paid-in capital		32,125,913			32,131,223
Deferred compensation plans		74,816			—
Accumulated distributions in excess of net income		(4,492,455	)		(4,066,278	)
Total shareholders’ equity		27,711,622			28,068,293
Total liabilities and shareholders’ equity	$	66,520,260		$	58,635,068

ITEM 1. FINANCIAL STATEMENTS

~~The~~ ~~accompanying~~ARC ~~notes~~CORPORATE toREALTY ~~consolidated~~TRUST, ~~financial statements are an integral part of these statements~~INC.

2Consolidated Balance Sheets

~~ARC~~As ~~CORPORATE~~of ~~REALTY~~June 30, ~~TRUST~~2006 (Unaudited) and December 31, ~~INC.~~2005

Consolidated Statements of Income


	2006			2005
Assets
Property:
Land	$	8,449,392		$	12,412,227
Building and improvements		26,430,004			36,653,540

		34,879,396			49,065,767
Less: accumulated depreciation		5,627,678			7,151,201

		29,251,718			41,914,566

Investment in unconsolidated subsidiaries and undivided interests		6,958,266			7,693,231

Total property and investments		36,209,984			49,607,797

Assets held for sale		5,806,616			—

Cash and cash equivalents		4,986,659			711,853

Restricted cash		841,642			517,707

Deferred rent receivable		548,402			1,198,693

Rent receivable		175,819			195,088

Notes receivable-tenants		—			322,923

Prepaid expenses and other assets, net		234,982			270,002

Deferred financing and other fees, net of accumulated amortization of $584,751 and $729,927 for 2006 and 2005, respectively		167,527			271,389

Deferred leasing costs, net of accumulated amortization of $59,525 and $130,518 for 2006 and 2005, respectively		34,462			81,949

Total assets	$	49,006,093		$	53,177,401

Liabilities and Shareholders’ Equity

Liabilities:
Mortgage notes payable	$	13,757,666		$	26,395,027
Liabilities related to assets held for sale		4,082,834			—
Dividends payable-Class B		162,776			—
Due to related parties		90,123			45,061
Unearned rental revenue		31,250			31,250
Accounts payable and accrued expenses		392,423			580,567

Total liabilities		18,517,072			27,051,905

Minority interest		34,832			32,072

Shareholders’ Equity:
Common shares: $.001 par value per share; authorized, 40,000,000 shares
Class A shares-5,000,000 authorized; 3,181,540 issued and outstanding		3,182			3,182
Class B shares-5,000,000 authorized; 166,397 issued and outstanding		166			166
Additional paid-in capital		32,106,429			32,106,429
Deferred compensation plans		1,634,133			747,930
Accumulated distributions in excess of net income		(3,289,721	)		(6,764,283	)

Total shareholders’ equity		30,454,189			26,093,424

Total liabilities and shareholders’ equity	$	49,006,093		$	53,177,401

~~Unaudited~~The accompanying notes to consolidated financial statements are an integral part of these statements.

	Three Months Ended June 30					Six Months Ended June 30
	2004		2003			2004		2003
Revenues:
Rental revenues	$	1,632,270	$	1,185,220		$	2,987,165	$	2,902,640
Real estate tax reimbursements		68,116		62,298			84,238		102,964
Interest income		37,562		13,296			78,408		26,845
Miscellaneous income		—		38,770			—		38,770
Equity in income of unconsolidated subsidiaries and undivided interests		449,014		232,029			647,228		344,028
Total revenues		2,186,962		1,531,613			3,797,039		3,415,247
Expenses:
Interest expense		534,193		489,354			1,057,087		1,134,106
Depreciation and amortization		319,031		207,939			590,371		507,136
Management fees-affiliate		175,526		138,543			343,894		272,725
Real estate taxes		56,237		47,299			61,659		101,546
Property operating expenses		136,841		55,940			233,983		279,073
General and administrative expenses		59,055		36,070			119,267		69,842
Stock based compensation		74,816		—			74,816		—
Professional expenses		39,341		8,618			154,620		26,695
Loss on interest rate cap, net		29,440		30,775			35,045		66,620
Other expenses		11,300		—			17,170		—
State and local taxes		6,379		(2,354	)		11,179		2,513
Total expenses		1,442,159		1,012,184			2,699,091		2,460,256
Income from continuing operations before minority interests		744,803		519,429			1,097,948		954,991
Minority interests in earnings from subsidiaries		51,688		58,169			107,588		166,130
Income from continuing operations		693,115		461,260			990,360		788,861
Income from discontinued operations		27,051		58,859			31,795		115,272
Net income allocable to Class A and Class B common shareholders	$	720,166	$	520,119		$	1,022,155	$	904,133
Net income per share from continuing operations - basic	$	0.21	$	0.20		$	0.30	$	0.34
Net income per share from discontinued operations - basic		0.01		0.03			0.01		0.05
Net income per share - basic		0.22		0.23			0.31		0.39
Net income per share from continuing operations - diluted		0.18		0.20			0.26		0.34
Net income per share from discontinued operations - diluted		0.01		0.03			0.01		0.05
Net income per share - diluted		0.19		0.23			0.27		0.39
Weighted average shares outstanding-basic		3,349,000		2,295,000			3,349,000		2,289,000
Weighted average shares outstanding-diluted		3,850,000		2,295,000			3,850,000		2,289,000

The accompanyingTable notes to consolidated financial statements are an integral part of these statements. Contents

3 ARC CORPORATE REALTY TRUST, INC.

~~ARC~~Consolidated ~~CORPORATE~~Statements ~~REALTY~~of ~~TRUST,~~Income ~~INC.~~

~~Consolidated~~(Unaudited) ~~Statements of Shareholders’ Equity~~

For the Six Months Ended June 30, 2004 (unaudited) and the Year Ended December 31, 2003

Three Months Ended June 30

Six Months Ended June 30

2006

2005

2006

2005

Revenues:

Rental revenues

962,381

1,125,175

1,924,679

2,080,581

Real estate tax reimbursements

118,208

133,446

233,958

283,131

Interest income

46,152

521

48,860

21,551

Total revenues

1,126,741

1,259,142

2,207,497

2,385,263

Expenses:

Interest expense

378,046

320,834

647,374

638,549

Depreciation and amortization

187,215

196,279

382,441

392,557

Asset management fees-affiliate

163,971

174,619

329,756

349,238

Real estate taxes

115,856

143,004

231,606

283,742

Property operating expenses

36,645

35,702

72,702

80,982

General and administrative expenses

26,165

18,910

64,392

68,716

Stock based compensation

188,554

112,190

886,203

224,379

Professional expenses

191,172

148,509

290,214

257,730

(Gain) loss on interest rate cap, net

(5,505

)

8,773

(8,570

)

6,151

State and local taxes

2,470

2,506

5,319

10,523

Total expenses

1,284,589

1,161,326

2,901,437

2,312,567

Minority interests in earnings from subsidiaries

16,826

15,319

31,394

29,306

Equity in income of unconsolidated subsidiaries and undivided interests

258,047

243,866

522,038

548,507

Gain on sale of investment in unconsolidated subsidiary

1,546,204

—

1,546,204

400,000

Income from continuing operations

1,629,577

326,363

1,342,908

991,897

Income from discontinued operations

2,947,063

189,854

3,058,007

118,831

Net income allocable to Class A and Class B common shareholders

4,576,640

516,217

4,400,915

1,110,728

Basic:

Net income per share from continuing operations

0.49

0.10

0.40

0.30

Net income per share from discontinued operations

0.88

0.05

0.91

0.03

Net income per share

1.37

0.15

1.31

0.33

Diluted:

Net income per share from continuing operations

0.40

0.08

0.33

0.24

Net income per share from discontinued operations

0.73

0.05

0.76

0.03

Net income per share

1.13

0.13

1.09

0.27

Weighted average shares outstanding-basic

3,348,000

Weighted average shares outstanding-diluted

4,042,000

	Class ACommonShares			Class BCommonShares		AdditionalPaid-inCapital			DeferredCompensationPlans		AccumulatedDistributionsin Excess ofNet Income			TotalShareholders’Equity
Balance, December 31, 2002	$	2,164		$	—	$	19,377,113		$	—	$	(3,913,843	)	$	15,465,434
Sale of common stock		1,019			166		14,064,020			—		—			14,065,205
Offering costs		—			—		(1,300,911	)		—		—			(1,300,911	)
Retirements		(1	)		—		(8,999	)		—		—			(9,000	)
Net income		—			—		—			—		1,687,182			1,687,182
Dividends paid		—			—		—			—		(1,839,617	)		(1,839,617	)
Balance, December 31, 2003		3,182			166		32,131,223			—		(4,066,278	)		28,068,293
Offering costs		—			—		(5,310	)		—		—			(5,310	)
Amortization of stock based compensation		—			—		—			74,816		—			74,816
Net income		—			—		—			—		1,022,155			1,022,155
Dividends paid		—			—		—			—		(1,448,332	)		(1,448,332	)
Balance, June 30, 2004	$	3,182		$	166	$	32,125,913		$	74,816	$	(4,492,455	)	$	27,711,622

The accompanying notes to consolidated financial statements are an integral part of these statements.

~~The accompanying~~3 ~~notes to consolidated financial statements are an integral part of these statements.~~

4Table of Contents

ARC CORPORATE REALTY TRUST, INC.

Consolidated Statements of ~~Cash~~Shareholders' ~~Flows~~Equity

For the Six Months Ended June 30, ~~2004~~2006 ~~and~~(unaudited) ~~2003~~

Unaudited

Class A
Common
Shares

Class B
Common
Shares

Additional
Paid-in
Capital

Deferred
Compensation
Plans

Accumulated
Distributions
in Excess of
Net Income

Total
Shareholders'
Equity

Balance, December 31, 2005

3,182

166

32,106,429

747,930

(6,764,283

)

26,093,424

Increase in deferred compensation, net

—

886,203

—

886,203

Net income

—

4,400,915

Dividends

—

(926,353

)

(926,353

)

Balance, June 30, 2006

3,182

166

32,106,429

1,634,133

(3,289,721

)

30,454,189

	2004			2003
Cash Flows from Operating Activities:
Net income		1,022,155			904,133
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		596,359			536,404
Amortization of stock based compensation		74,816			—
Amortization of acquired unfavorable lease		(66,808	)		—
Minority interest in earnings of subsidiaries		107,588			166,130
Impairment charge on disposed property		52,521			—
Write off of TMD minority interest		17,170			—
Loss on interest rate cap, net		35,045			66,620
Equity in income of unconsolidated subsidiaries and undivided interests		(647,228	)		(344,028	)
(Increase) decrease in assets:
Rent receivable		133,544			168,809
Deferred rent receivable		(41,793	)		(19,315	)
Prepaid and other assets		33,937			(11,756	)
Increase (decrease) in liabilities:
Due to related parties, net		66,995			(93,004	)
Accounts payable and accrued expenses		(412,651	)		(306,173	)
Unearned rent		29,500			(42,836	)
Net cash provided by operating activities		1,001,150			1,024,984
Cash Flows from Investing Activities:
Payment for tenant improvements		(146,971	)		—
Due to related parties, net		(209,674	)		—
Net proceeds from sale of property		2,310,027			—
Acquisition of properties		(7,527,285	)		(266,979	)
Investment in unconsolidated subsidiaries and undivided interests		(753,655	)		(2,858,353	)
Distributions from unconsolidated subsidiaries and undivided interests		855,631			405,035
Increase in notes receivable		(100,000	)		—
Principal payments on notes receivable-tenants		20,476			18,443
Deconsolidation of Rochelle Park cash		—			(90,159	)
Net cash used in investing activities		(5,551,451	)		(2,792,013	)
Cash Flows from Financing Activities:
Mortgage note principal amortization		(349,188	)		(297,220	)
Borrowings under mortgage note payable		5,300,000			—
Lines of credit, net		887,215			(1,175,000	)
Due from escrow agent		—			1,307,470
Deferred financing and other costs		(236,722	)		(6,000	)
Refund of financing fees		—			49,695
Proceeds from Rochelle Park mortgage refinance		—			2,093,183
Purchase of interest rate cap		(56,500	)		(68,950	)
Distributions to minority interest owners		(125,080	)		(198,175	)
Sale of Common stock-Class A		—			60,000
Sale of Common stock-Class B		—			1,097,999
Stock retirements		—			(9,000	)
Offering costs paid		(5,310	)		(141,835	)
Dividends paid		(1,448,332	)		(865,639	)
Net cash provided by financing activities		3,966,083			1,846,528
Net (Decrease) Increase in Cash and Cash Equivalents		(584,218	)		79,499
Cash and Cash Equivalents, Beginning of Period		1,946,171			656,826
Cash and Cash Equivalents, End of Period	$	1,361,953		$	736,325
Supplement Disclosure of Cash Flow Information:
Cash payments for interest	$	1,048,625		$	1,183,929
Non-Cash Financing Activity
Conversion of note payable to Class B common stock	$	—		$	500,000
Conversion of placement deposit to Class B common stock	$	—		$	63,557

The accompanying notes to consolidated financial statements are an integral part of these statements.

~~The accompanying~~4 ~~notes to consolidated financial statements are an integral part of these statements.~~

5Table of Contents

ARC CORPORATE REALTY TRUST, INC.

~~NOTES~~Consolidated TOStatements ~~CONSOLIDATED~~of ~~FINANCIAL~~Cash ~~STATEMENTS~~Flows

1.For ~~GENERAL~~the Six Months Ended June 30, 2006 and 2005

~~ARC Corporate Realty Trust, Inc. and subsidiaries~~ (~~“ACRT”~~Unaudited) ~~is a corporation which was formed under the laws of the State of Maryland on June 25,~~ 1993. ACRT operates in a manner intended to enable it to qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code (the “Code”). ACRT was formed to purchase geographically diverse credit lease properties which are general purpose retail, office and industrial properties each 100% leased to one or more creditworthy tenants under a long term lease that generally requires tenants to pay most or all of the operating costs of the property including real estate taxes and insurance.

Through June 30, 2004, ACRT raised $33,678,336 of gross proceeds (net of stock retirements) representing 3,181,540 Class A shares from 674 investors which, net of offering costs, has yielded $30,564,590 to ACRT. In addition, ACRT has raised $1,781,900 of gross proceeds representing 166,397 Class B shares from one investor which, net of offering costs, has yielded $1,564,671 to ACRT.


	2006			2005
Cash Flows from Operating Activities:
Net income		4,400,915			1,110,728
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		475,166			562,113
Stock based compensation		886,203			224,379
Write off of financing costs		20,952			—
Amortization of acquired unfavorable lease		—			(114,527	)
Minority interest in earnings of subsidiaries		3,435,329			115,266
Impairment charge		—			324,000
Gain on sale of investment in unconsolidated subsidiary		(1,546,204	)		(400,000	)
Gain on sale of property		(6,137,479	)		—
Write off of TMD minority interest		—			10,487
(Gain) loss on interest rate cap		(8,570	)		18,412
Equity in income of unconsolidated subsidiaries and undivided interests		(522,038	)		(548,507	)
(Increase) decrease in assets:
Restricted cash		(323,935	)		(62,353	)
Rent receivable		19,269			(33,380	)
Deferred rent receivable		410,176			(206,045	)
Prepaid and other assets, net		30,051			(60,969	)
Increase (decrease) in liabilities:
Due to related parties, net		45,062			—
Accounts payable and accrued expenses		(163,643	)		86,898
Unearned rent		—			86,329

Net cash provided by operating activities		1,021,254			1,112,831

Cash Flows from Investing Activities:
Proceeds from sale of investment in unconsolidated subsidiary		2,351,980			400,000
Net proceeds from sale of property and notes receivable		13,237,255			—
Distributions from unconsolidated subsidiaries and undivided interests		451,225			675,811
Decrease in notes receivable		—			800,000
Decrease in notes receivable-tenants		20,940			22,733

Net cash provided by investing activities		16,061,400			1,898,544

Cash Flows from Financing Activities:
Mortgage notes payable		(362,760	)		(385,919	)
Payoff of principal on mortgage note payable		(9,816,267	)		—
Borrowings under mortgage note payable		1,600,000			—
Lines of credit, net		—			(800,000	)
Deferred financing and other fees		(32,677	)		—
Distributions to minority interest owners		(3,432,567	)		(125,080	)
Dividends paid		(763,577	)		(1,808,000	)

Net cash used in by financing activities		(12,807,848	)		(3,118,999	)

Net increase (decrease) in Cash and Cash Equivalents		4,274,806			(107,624	)
Cash and Cash Equivalents, Beginning of Period		711,853			436,264

Cash and Cash Equivalents, End of Period	$	4,986,659		$	328,640

Supplement Disclosure of Cash Flow Information:
Cash payments for interest	$	1,037,720		$	1,150,797

Non Cash Financing Activities:
Dividends payable-Class B	$	162,776		$	—

2.The ~~SUMMARY~~accompanying OFnotes ~~SIGNIFICANT~~to ~~ACCOUNTING~~consolidated ~~POLICIES~~financial statements are an integral part of these statements.

a. Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of ACRT, its wholly-owned subsidiaries and those majority-owned subsidiaries in which ACRT can exercise control. Investments in non-controlled entities, which include Triangle Plaza II, LLC (Note 4), Fort Washington Fitness, L.P. (Note 5), Levittown ARC, LP (Note 6), Willow Grove ACRT, LLC (Note 9) and ARC International Fund II, LP (Note 10) are accounted for under the equity method of accounting. Additionally, ACRT’s undivided interests in the Rochelle Park property (Note 7) and the Paramus property (Note 8) are accounted for under the equity method, as ACRT maintains joint control over the properties. Under the equity method, ACRT’s investment increases as a result of contributions and its allocable share of net income and decreases as a result of distributions and its allocable share of net loss. All significant intercompany balances and transactions have been eliminated in consolidation and in the use of the equity method of accounting.

b.Table Interim Financial Statements (unaudited) – The unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the financial condition and results of operations for the interim periods. For a more complete understanding of ACRT’s operations and financial position, reference is made to the financial statements (including notes thereto) previously filed with the Securities and Exchange Commission with ACRT’s Registration Statement on Form 10/A for the year ended December 31, 2003.Contents

c. ARC ~~Use~~CORPORATE ofREALTY ~~Estimates~~TRUST, -INC The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

d.AND ~~Properties~~SUBSIDIARIES - Properties are carried at cost which includes the purchase price, acquisition fees, and any other costs incurred in acquiring the properties. Buildings are depreciated on a straight-line basis over their estimated useful lives, which are 40 years. Maintenance and repairs are charged to expense as incurred. Replacements and betterments, which significantly extend the useful lives of a property, are capitalized. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” ACRT is amortizing certain intangible costs associated with property acquisitions over the lives of the leases underlying the properties (see Note 2e).

e.NOTES ~~Purchase~~TO ~~Accounting~~CONSOLIDATED ~~for~~FINANCIAL ~~the~~STATEMENTS Acquisition of Real Estate – In accordance with SFAS No. 141, commencing with properties acquired after June 30, 2002, the fair value of real estate acquired is allocated to the acquired tangible assets, consisting of land and building and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

~~The~~JUNE ~~fair value of the tangible assets of an acquired property (which includes land and building) is determined by valuing the property as if it were vacant~~30, ~~and~~2006 ~~the~~AND ~~“as-if vacant” value is then allocated to~~2005 land and building based on management’s determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenues during expected lease up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.

6(UNAUDITED)

~~ARC CORPORATE REALTY TRUST, INC~~1. GENERAL

~~NOTES~~ARC TOCorporate ~~CONSOLIDATED~~Realty ~~FINANCIAL~~Trust, ~~STATEMENTS~~Inc. and subsidiaries (“ACRT”) is a corporation which was formed under the laws of the State of Maryland on June 25, 1993. ACRT operates in a manner intended to enable it to qualify as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code (the “Code”). ACRT is managed by its advisor, ARC Capital Advisors L.P. (“Advisor”), which performs services for ACRT pursuant to the terms of an advisory agreement (the “Advisory Agreement”) (Note 12). ACRT was formed to purchase geographically diverse credit lease properties which are general purpose retail, office and industrial properties each 100% leased to one or more creditworthy tenants under a long term lease that generally requires tenants to pay most or all of the operating costs of the property including real estate taxes and insurance.

InThrough ~~allocating~~June 30, ~~the~~2006, ~~fair~~ACRT ~~value~~raised $33,678,336 of ~~the~~gross ~~identified~~proceeds ~~intangible~~(net ~~assets~~of ~~and~~stock ~~liabilities~~retirements) representing 3,181,540 Class A shares from 674 investors which, net of anoffering ~~acquired property~~costs, ~~above-market~~has ~~and~~yielded ~~below-market~~$30,545,106 ~~in-place~~to ~~lease~~ACRT. ~~values~~In ~~are~~addition, ~~recorded~~ACRT has ~~based~~raised on$1,781,735 ~~the~~of ~~difference~~gross ~~between~~proceeds ~~the~~representing ~~current~~166,397 ~~in-place~~Class ~~lease~~B ~~rent~~shares ~~and~~from ~~management’s~~one ~~estimate~~investor, which net of ~~current~~offering ~~market~~costs, ~~rent~~has yielded $1,564,671 to ACRT.

~~The~~On ~~aggregate~~December 20, ~~value~~2004, ofACRT ~~other~~entered ~~acquired~~into ~~intangible~~a ~~assets,~~Contract ~~consisting~~ of ~~in-place~~ ~~leases~~Purchase and ~~tenant~~Sale ~~relationships~~(the “Agreement”), ~~is measured~~ by ~~the~~and ~~excess~~among ofACRT, ~~(i)~~certain ~~the~~affiliates ~~purchase~~of ~~price~~ACRT ~~paid~~and ~~for~~HPI/NL aInvestors ~~property~~LLC ~~over~~ (~~ii)~~ the ~~estimated fair value of the property as if vacant, determined as set forth above~~“Purchaser”). ~~This aggregate value is allocated~~The ~~between~~Agreement ~~in-place~~provides ~~lease~~for ~~values~~the ~~and~~sale ~~tenant~~to ~~relationships~~the ~~based~~Purchaser ~~on management’s evaluation~~ of ~~the~~14 ~~specific characteristics~~ of ~~each tenant~~ACRT’s ~~lease.~~21 ~~The~~properties ~~value of in-place leases~~ and ~~customer~~a ~~relationships~~limited ~~are~~partnership ~~amortized~~interest toin ~~expense~~an ~~over~~entity ~~the remaining~~that ~~non-cancelable~~owns ~~periods~~a ~~of the respective leases~~property.

f.On ~~Impairment~~June 30, -2005, ~~ACRT continually assesses~~ the ~~recoverability~~Agreement ofbecame ~~its~~subject ~~properties~~to ~~by determining whether the costs can be recovered through projected undiscounted cash flows~~termination. ~~The~~On ~~amount of impairment~~November 30, ~~if any~~2005, isACRT ~~measured~~entered byinto ~~comparing~~a ~~the~~Termination ~~carrying~~and ~~amounts~~Release toAgreement with the ~~fair values of such properties~~Purchaser. The ~~evaluation~~Termination ~~includes~~and ~~reviewing~~Release ~~anticipated~~Agreement ~~cash~~called ~~flows~~for the payment of ~~the properties~~$150,000 ~~based~~to onACRT ~~current~~from ~~leases~~the indeposit ~~place,~~escrow ~~coupled~~and ~~with~~ an ~~estimate~~additional ofpayment ~~proceeds~~ to beACRTof ~~realized~~$37,450 ~~upon~~as ~~sale.~~reimbursement ~~However,~~of ~~estimating~~survey ~~future~~and ~~sales~~other ~~proceeds~~costs isrelated ~~highly~~to ~~subjective~~the ~~and~~Agreement. ~~such~~In ~~estimates~~exchange ~~could~~ACRT ~~differ~~released ~~materially~~the Purchaser from ~~actual~~any ~~results~~further obligations under the Agreement.

~~SFAS~~In ~~No.~~addition ~~144~~to ~~“Accounting for~~ the ~~Impairment~~above, orduring ~~Disposal~~2005, ofACRT, ~~Long Lived~~pursuant ~~Assets”~~to ~~updates~~various ~~and~~rights ~~clarifies~~of ~~the~~first ~~accounting~~refusal and ~~reporting~~purchase ~~for~~options, ~~the~~entered ~~impairment~~into various ofcontracts ~~assets~~to ~~held~~sell ininvestments ~~use~~not ~~and~~included toin bethe ~~disposed~~above ofAgreement, as amended. The ~~Statement,~~purchasers ~~among~~of ~~other~~these ~~things,~~investments ~~requires~~include ~~ACRT~~joint toventure ~~classify~~partners, ~~the~~minority ~~operations~~interest ofholders, ~~properties~~tenants toin becommon ~~disposed~~and affiliates of ~~as discontinued~~the ~~operations~~Advisor. The investments included in these various contracts are:

~~During~~New ~~the six months ended June 30~~York, ~~2004,~~ ~~ACRT~~NY ~~sold~~(partnership ~~one~~interest) ~~property~~(see ~~located~~Note in20) Memphis, Tennessee, previously designated as to be disposed and for which an impairment charge of $52,521 had been recorded, for aggregate net proceeds of $2,310,027 which resulted in no gain or loss on the sale for financial reporting purposes. As of June 30, 2004, ACRT had no other properties designated as to be disposed.

~~The~~Fort ~~following~~Washington, ~~presents~~PA ~~the~~(partnership ~~operating~~interest) ~~results for the property sold for the applicable periods:~~

	Three Months EndedJune 30,				Six Months EndedJune 30,
	2004		2003		2004		2003
Revenues	$	29,017	$	71,998	$	92,804	$	143,995
Net Income		27,051		58,859		31,795		115,272

Paramus, NJ (partnership interest)

g.ACRT ~~Cash~~anticipates ~~and~~that ~~Cash~~the ~~Equivalents~~sale -of ~~Cash~~these ~~and~~investments ~~cash~~will ~~equivalents~~close ~~consist~~in of2006. Based ~~highly~~on ~~liquid~~the ~~investments~~current ~~with~~sales anprices, ~~original~~ACRT ~~maturity~~anticipates ofthat ~~three~~all ~~months~~investments orwill ~~less.~~be ~~Restricted~~sold ~~cash~~for ~~represents~~amounts ~~cash~~in ~~maintained~~excess ~~for~~of ~~real~~their ~~estate~~carrying ~~taxes~~amounts and, ~~insurance~~therefore, ~~and~~will ~~capital~~result ~~expenditures~~in a gain for financial reporting purposes.

~~Cash~~On ~~and~~January 25, ~~cash~~2005, ~~equivalent~~the ~~balances~~tenant ~~may~~in ~~exceed~~the ~~insurable~~Rochelle ~~limits.~~Park, ~~ACRT~~NJ ~~believes~~property, itwho ~~mitigates~~had ~~risk~~filed bysuit ~~investing~~against inACRT, orsigned ~~through~~a ~~major~~stipulation ~~financial~~of ~~institutions.~~settlement agreeing to dismiss the suit against ACRT. As part of the settlement, the tenant entered into a contract to purchase

~~h. Rent Receivable –~~ ACRT’s ~~continuously~~51% ~~monitors~~tenant ~~collections~~in ~~from~~common interest ~~its tenants~~ and ~~makes~~the aremaining ~~provision~~49% ~~for~~tenant ~~estimated~~in ~~losses~~common ~~based~~interest ~~upon~~not ~~historical~~owned ~~experience~~by ~~and~~ACRT ~~any~~for ~~specific~~$19,500,000. ~~tenant~~This ~~collection~~contract ~~issues~~was ~~that~~subsequently ~~ACRT has identified~~terminated.

i.ACRT ~~Amortization-~~is ~~Deferred~~again ~~financing~~in ~~costs~~negotiations ~~are~~with ~~amortized using~~ the ~~straight-line~~tenant ~~method~~on ~~over~~purchasing the ~~life of the related mortgage or line of credit~~property. ~~Deferred~~However, ~~leasing~~at ~~costs~~this ~~are~~time ~~amortized~~ACRT ~~using~~and the ~~straight-line~~tenant ~~method~~have ~~over~~not ~~the~~been ~~life~~able ~~of the related lease. Capitalized costs related~~ to ~~ACRT’s~~agree ~~equity~~on ~~investments~~a ~~are~~purchase ~~amortized~~price ~~over~~and the ~~estimated~~tenant, ~~useful~~a ~~life~~quasi ofgovernment ~~the~~entity, ~~underlying~~has ~~real~~threatened ~~estate~~to ~~assets~~condemn.

j.On ~~Income~~August 10, ~~Taxes~~2005, - ACRT ~~operates~~sold ~~in a manner intended to enable it to qualify as a REIT under Sections 856-860 of~~ the ~~Code. Under these sections~~Philadelphia, aPennsylvania ~~real~~property ~~estate~~leased ~~investment trust which distributes at least 90% of its real estate investment trust taxable income~~ to ~~its~~Barnes ~~shareholders each year~~ and ~~which~~Noble ~~meets~~(see ~~certain~~Note ~~other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders~~3). ~~ACRT pays state taxes, which are not significant, as applicable.~~

kOn February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the “Plan”). ~~Revenue~~The ~~Recognition~~Plan -is subject ~~Rental~~to ~~revenue~~the ~~from~~approval ~~tenant~~of ~~operating~~ACRT’s ~~leases~~common ~~which~~stockholders, ~~provide~~by ~~for~~two-thirds ~~scheduled~~vote. ~~rental~~ACRT ~~increases~~intends ~~are~~to ~~recognized~~sell its real estate properties on aan ~~straight-line~~orderly basis, ~~over~~to ~~the~~pay ~~term~~or ofprovide ~~the~~for ~~respective~~its ~~leases~~liabilities and to distribute its remaining cash to its shareholders.

~~Gains~~On onMay 23, ~~sales~~2006, ofACRT ~~real estate~~sold ~~are~~its ~~recognized~~partnership ~~pursuant~~interest toin ~~the~~Fort ~~provisions~~Washington ofFitness ~~SFAS No. 66~~LP, ~~“Accounting~~which ~~for~~owns ~~Sales of Real Estate.” The specific timing of~~ the ~~sale~~property ~~is measured against various criteria~~ in ~~SFAS~~Fort ~~No.~~Washington, Pennsylvania 66leased ~~related~~ to ~~the~~LA ~~terms~~Fitness, ofto ~~the~~it’s ~~transactions~~joint ~~and any~~venture ~~continuing~~partner ~~involvement~~for in$2,500,000 ~~the~~and ~~form~~recognized ofa ~~management~~gain orfor financial ~~assistance~~reporting ~~associated~~purposes ~~with~~of ~~the properties~~$1,546,204. ~~If the sales~~

ARCTable CORPORATEof REALTY TRUST, INC. Contents

~~NOTES~~ARC TOCORPORATE ~~CONSOLIDATED~~REALTY ~~FINANCIAL~~TRUST, ~~STATEMENTS~~INC

~~criteria~~AND ~~are~~SUBSIDIARIES ~~not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met.~~

l.NOTES ~~Derivative~~TO ~~Instruments~~CONSOLIDATED ~~and~~FINANCIAL ~~Hedging~~STATEMENTS Activities - ACRT adopted the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, in 2001. The Statement generally requires that all derivative instruments be reflected in the consolidated financial statements at their estimated fair value. Changes in the fair value of non-hedging instruments are reported in current period earnings.

m.JUNE Earnings Per Share – Basic net income per share is computed by dividing net income allocable to Class A and B common shareholders by the weighted average number of shares outstanding during the period. Diluted net income per share amounts are similarly computed but include the effect30, ~~when~~2006 ~~dilutive,~~AND of2005 ~~in the money common share options.~~

~~The~~(UNAUDITED) ~~following is a reconciliation of the denominator of the basic and diluted weighted average number of common shares outstanding.~~

	Three Months endedJune 30, (In thousands)		Six Months EndedJune 30, (In thousands)
	2004	2003	2004	2003
Total weighted average Class A common shares	3,182	2,164	3,182	2,164
Total weighted average Class B common shares	166	131	166	125
Weighted average number of common shares used in calculation of basic earning per share	3,348	2,295	3,348	2,289
Shares issuable upon exercise of stock options (15% of outstanding common shares)	502	—	502	—
Weighed average number of common shares used in calculation of diluted earnings per share	3,850	2,295	3,850	2,289

On June 15, 2006, the property located in Overland Park, Kansas, leased to Borders Books and Bed, Bath and Beyond, was sold for $13,600,000 to an unrelated third party, which resulted in a gain for financial reporting purposes of $6,137,479.

n2. ~~Recent~~SUMMARY ~~Accounting~~OF ~~Pronouncements~~SIGNIFICANT –ACCOUNTING On December 24, 2003, the Financial Accounting Standards Board (“FASB”) issued FASB interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and, accordingly, should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, which was issued in January 2003. An enterprise’s obligation to absorb a majority of the economic risks of a variable interest entity (“VIE”), measured as its expected losses, or, if no party has an obligation to absorb a majority of the VIE’s economic risks to receive a majority of the VIE’s economic rewards, measured as its expected residual returns, requires the entity to consolidate the VIE. The enterprise that consolidates the VIE is termed the primary beneficiary in FIN 46R.POLICIES

~~ACRT~~a. ~~adopted~~Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the ~~requirements~~United States of ~~FIN~~America ~~46R~~(“GAAP”) ~~related~~and toinclude ~~certain~~the accounts of ACRT, its ~~investments~~wholly-owned assubsidiaries ofand ~~March~~those 31majority-owned subsidiaries in which ACRT can exercise control. Investments in non- controlled entities, ~~2004~~which include Triangle Plaza II, LLC (Note 4), Fort Washington Fitness, L.P. ~~The~~(Note ~~adoption~~5), Levittown ARC, LP (Note 6), Willow Grove ACRT, LLC (Note 9) and ARC International Fund II, LP (Note 10) are accounted for under the equity method of ~~FIN~~accounting. ~~46R~~Additionally, ~~did~~ACRT’s ~~not~~undivided ~~have~~interests ain ~~material impact~~the onRochelle Park property (Note 7) and the Paramus property (Note 8) are accounted for under the equity method, as ACRT maintains joint control over the properties. Under the equity method, ACRT’s ~~consolidated~~investment ~~financial~~increases ~~position~~as ora ~~results~~result of ~~operations~~contributions and its allocable share of net income and decreases as a result of distributions and its allocable share of net loss. All significant intercompany balances and transactions have been eliminated in consolidation and in the use of the equity method of accounting.

~~FASB Statement No~~b. ~~150,~~Interim ~~Accounting for Certain~~ Financial ~~Instruments~~Statements ~~with~~(unaudited) ~~Characteristics~~– ofThe ~~Both~~unaudited ~~Liabilities~~financial ~~and~~statements ~~Equity~~reflect ~~(“SFAS~~all ~~150”)~~adjustments, ~~was~~which ~~issued~~are, in ~~May 2003. SFAS 150 establishes standards for~~ the ~~classification~~ ~~and~~opinion ~~measurement~~ of ~~certain~~management, ~~financial~~necessary ~~instruments~~to ~~with~~present ~~characteristics~~fairly ofthe ~~both~~financial ~~liabilities~~condition and ~~equity.~~results ~~SFAS~~of ~~150~~operations ~~also includes required disclosures~~ for ~~financial~~the ~~instruments~~interim ~~within its scope~~periods. For ~~ACRT,~~a ~~SFAS~~more ~~150~~complete ~~was~~understanding ~~effective~~of ~~for instruments~~ACRT’s ~~entered~~operations ~~into or modified after May 31, 2003,~~ and ~~otherwise~~financial ~~will be effective as of January 1~~position, ~~2004,~~reference ~~except~~is ~~for~~made ~~mandatorily~~to ~~redeemable~~the financial ~~instruments.~~statements ~~For~~(including ~~certain~~notes ~~mandatorily~~thereto) ~~redeemable~~previously ~~financial~~filed ~~instruments,~~with ~~SFAS~~the ~~150~~Securities ~~will~~and ~~be effective~~Exchange ~~for~~Commission with ACRT’s onForm ~~January~~10-K ~~1, 2005. The effective date has been deferred indefinitely~~ for ~~certain~~the ~~other~~year ~~types~~ended ofDecember ~~mandatorily~~31, ~~redeemable financial instruments~~2005. ~~ACRT currently does not have any financial instruments that are within the scope of SFAS 150.~~

~~In December 2002, FASB Statement No~~c. ~~148, Accounting~~Use ~~for~~of ~~Stock~~Estimates -~~Based~~ ~~Compensation~~The —preparation ~~Transition~~of ~~and~~consolidated ~~Disclosure,~~financial anstatements ~~amendment~~in ofconformity ~~FASB~~with ~~Statement~~GAAP ~~No.~~requires ~~123~~management ~~(“SFAS~~to ~~148”),~~make ~~was~~estimates ~~issued.~~and ~~SFAS~~assumptions ~~148~~that ~~amends~~affect ~~FASB~~the ~~Statement~~reported ~~No.~~amounts ~~123,~~of ~~Accounting~~assets ~~for~~and ~~Stock-Based~~liabilities ~~Compensation,~~and todisclosure ~~provide alternative methods~~ of ~~transition~~contingent ~~for~~assets aand ~~voluntary~~liabilities ~~change~~at to the ~~fair~~date ~~value method~~ of ~~accounting~~the ~~for~~consolidated ~~stock-based~~financial ~~employee~~statements ~~compensation.~~and ~~In addition, SFAS 148 amends~~ the ~~disclosure~~reported ~~requirements~~amounts of ~~SFAS~~revenues ~~123~~and toexpenses ~~require~~during ~~prominent~~the ~~disclosures~~reporting ~~in both annual and interim financial statements~~period. ~~Disclosures~~Actual ~~required~~results bycould ~~this~~differ ~~standard~~from ~~are~~those ~~included in the notes to these consolidated financial statements~~estimates.

8d. Properties - Properties are carried at cost which includes the purchase price, acquisition fees, and any other costs incurred in acquiring the properties. Buildings are depreciated on a straight-line basis over their estimated useful lives, which are 40 years. Maintenance and repairs are charged to expense as incurred. Replacements and betterments, which significantly extend the useful lives of a property, are capitalized. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” ACRT is amortizing certain intangible costs associated with property acquisitions over the lives of the leases underlying the properties (see Note 2e).

~~ARC~~e. ~~CORPORATE~~Purchase ~~REALTY~~Accounting ~~TRUST~~for the Acquisition of Real Estate – In accordance with SFAS No. 141, ~~INC~~commencing with properties acquired after June 30, 2002, the fair value of real estate acquired is allocated to the acquired tangible assets, consisting of land and building and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on of the tangible assets of an acquired property (which includes land and building) is determined by valuing the property as if it were vacant, and the “as-if vacant” value is then allocated to land and building based on management’s determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenues during expected lease up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.

~~NOTES~~In TOallocating ~~CONSOLIDATED~~the ~~FINANCIAL~~fair ~~STATEMENTS~~value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the difference between the current in-place lease rent and management’s estimate of current market rent.

o.The ~~Stock-based~~aggregate ~~Compensation~~value –of Onother ~~May~~acquired 21intangible assets, ~~2004~~consisting of in-place leases and tenant relationships, ~~ACRT~~is ~~shareholders~~measured ~~approved~~by ~~revisions~~the toexcess ~~ACRT’s~~of ~~1997~~(i) the ~~Stock~~purchase ~~Option~~price ~~Plan~~paid ~~which~~for ~~extended~~a property over (ii) the ~~life~~estimated fair value of ~~ACRT’s~~the property ~~stock~~as ~~options~~if ~~from~~vacant, ~~ten~~determined toas ~~fifteen~~set ~~years~~forth ~~and~~above. ~~removed~~This ~~all~~aggregate ~~restrictions~~value onis ~~their~~allocated ~~exercise~~between onin-place ~~April~~lease 1,values ~~2008~~and ortenant ~~upon~~relationships based on management’s evaluation of the ~~occurrence~~specific characteristics of ~~certain~~each ~~earlier~~tenant’s ~~events~~lease. ~~However,~~The value ~~the~~of ~~total~~in-place ~~number~~leases ofand ~~options~~customer ~~exercised~~relationships ~~cannot~~are ~~exceed~~amortized ~~fifteen~~to ~~percent~~expense ofover the ~~outstanding~~remaining ~~shares~~non-cancelable atperiods of the ~~exercise~~respective ~~date~~leases.

~~Accordingly,~~7 ACRT will recognize compensation expense ratably over the vesting period for variable stock awards previously granted under the plan. For the six months ended June 30, 2004 and 2003, ACRT recognized stock based compensation expense totaling $74,816 and $0, respectively.

Compensation expenseTable was calculated using a market price of $12.00 based on ACRT’s last stock offering which expired on December 31, 2003, and the option price of $8.50 per option. Contents

p.ARC ~~Fair~~CORPORATE ~~Value~~REALTY ofTRUST, ~~Financial~~INC ~~Instruments~~

~~Cash~~AND ~~Equivalents,~~SUBSIDIARIES ~~Notes Receivable, Rent Receivable and Accounts Payable and Accrued Expenses~~

~~ACRT~~NOTES ~~estimates~~TO ~~that~~CONSOLIDATED ~~the~~FINANCIAL ~~fair~~STATEMENTS ~~value approximates carrying value due to the relatively short maturities of the instruments.~~

~~Mortgage Notes~~JUNE ~~Payable~~30, ~~and~~2006 ~~Lines~~AND of2005 ~~Credit~~

~~ACRT~~(UNAUDITED) determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this analysis, ACRT has determined that the fair value of these instruments approximates their carrying values.

qf. ~~Industry~~Impairment ~~Segments~~- – ACRT ~~operates~~continually inassesses ~~one~~the ~~industry~~recoverability ~~segment~~of its properties by determining whether the costs can be recovered through projected undiscounted cash flows. The amount of impairment, ~~investments~~if inany, ~~credit~~is ~~lease~~measured by comparing the carrying amounts to the fair values of such properties. The evaluation includes reviewing anticipated cash flows of the properties, based on current leases in place, coupled with an estimate of proceeds to be realized upon sale. However, estimating future sales proceeds is highly subjective and such estimates could differ materially from actual results.

3SFAS No. 144 ~~PROPERTIES~~“Accounting ~~AND~~for ~~PROPERTY~~the ~~INVESTMENTS~~Impairment or Disposal of Long Lived Assets” updates and clarifies the accounting and reporting for the impairment of assets held in use and to be disposed of. The Statement, among other things, requires ACRT to classify the operations of properties to be disposed of as discontinued operations.

~~The~~In ~~following~~2005, ~~acquisitions~~the property located in Philadelphia, ~~investments~~Pennsylvania, leased to Barnes and ~~disposals~~Noble, ~~were~~was ~~consummated~~designated ~~during~~as ~~2004:~~to be disposed and an impairment charge of $287,259 was recorded, which included a disposition fee of $116,016. This property was sold on August 10, 2005 for aggregate net proceeds of $7,362,720, which resulted in no gain or loss for financial reporting purposes.

OnIn ~~March 4~~2006, ~~2004,~~the ~~ACRT~~properties ~~paid~~located $7in Charlotte,~~067,000~~ ~~plus~~North ~~acquisition~~Carolina ~~fees~~leased ~~and other expenses~~ to ~~purchase~~CaroMont aMedical ~~22,743~~Group ~~square~~Inc. ~~foot~~were ~~retail condominium~~designated into abe ~~building~~disposed. ~~located~~Based on ~~Rittenhouse~~the ~~Square~~current sales ~~between 18th and 17th Street in Philadelphia~~prices, ~~Pennsylvania~~ACRT ~~leased~~anticipates tothat ~~Barnes~~the &properties ~~Noble,~~will ~~Inc.~~be Ansold ~~option~~ to ~~purchase the property from the third party owner was originally held by~~ an affiliate of the ~~Chairman~~Advisor ~~and~~for ~~President~~amounts ofin ~~ACRT.~~excess ~~The~~of ~~purchase~~their ~~price~~carrying ~~included~~amounts $1and,~~000~~ therefore,~~000,~~ ~~which~~will ~~was~~result ~~paid~~in toa ~~that~~gain ~~affiliate~~for byfinancial ~~ACRT~~reporting inpurposes. ~~connection~~At ~~with~~June 30, ~~the~~2006, ~~assignment~~aggregate assets ofheld ~~the~~for ~~option~~sale to(primarily ~~ACRT.~~property) ~~ACRT~~was ~~recorded an initial~~ $25,~~996~~806,~~994~~616 ~~acquired unfavorable~~and ~~lease~~related ~~liability~~liabilities on(primarily ~~this~~mortgage ~~property~~notes inpayable) ~~connection~~was ~~with the acquisition~~$4,082,834.

On ~~March 31~~ June 15, ~~2004~~2006, ~~ACRT~~the ~~acquired~~property anlocated ~~11.2%~~in ~~limited~~Overland ~~partnership~~Park, ~~interest~~Kansas, inleased ~~ARC~~to ~~International~~Borders ~~Fund~~Books IIand Bed, ~~LP.~~Bath Anand ~~affiliate~~Beyond, ofwas ~~the~~sold ~~Chairman~~for ~~and~~$13,600,000 ~~President~~to ofan ~~ACRT~~unrelated isthird ~~the~~party, ~~general~~which ~~partner~~resulted ofin ~~ARC~~a ~~International~~gain ~~(Note~~for ~~10)~~financial reporting purposes.

OnThe ~~April~~following ~~30,~~presents ~~2004,~~the ~~ACRT~~operating ~~sold~~results for the ~~Memphis,~~properties ~~Tennessee property~~to ~~leased~~be todisposed ~~Federal~~of ~~Express~~in ~~for~~2006 ~~$2,325,000~~and ~~resulting~~2005 infor ~~net~~the ~~proceeds~~three toand ~~ACRT~~six ofmonths ~~approximately~~ended $2June 30,~~310,000~~ ~~after costs~~ 2006 and ~~expenses.~~ 2005:

The following pro forma operating information for the six months ended June 30, 2004 and 2003 has been prepared as if all ACRT acquisitions and dispositions in 2004 and 2003 had been consummated as of January 1, 2003. The information does not purport to be indicative of what the operating results of ACRT would have been had the acquisitions and dispositions been consummated on January 1, 2003. Proforma results are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Revenues	$	495,948		$	768,399		$	1,007,853		$	1,524,543
Expenses		(330,978	)		(530,281	)		(683,390	)		(1,319,752	)
Gain on Sale of property		6,137,479			—			6,137,479			—
Minority Interest		(3,355,386	)		(48,264	)		(3,403,935	)		(85,960	)

Net Income	$	2,947,063		$	189,854		$	3,058,007		$	118,831

	Six Months EndedJune 30,
	(000’s except per share amounts)
	2004		2003
Revenues	$	4,060	$	4,422
Net Income		1,085		1,246
Net Income per share – basic		.32		.54
- diluted		.28		.54

Properties Held for Sale – ACRT accounts for properties held for sale in accordance with SFAS No. 144. SFAS No. 144 requires that the assets and liabilities of properties that meet various criteria in SFAS No. 144 be presented separately in the balance sheet with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in the statements of income.

9h. Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less.

~~ARC~~Cash ~~CORPORATE~~and ~~REALTY~~cash ~~TRUST,~~equivalent ~~INC~~balances may exceed insurable limits. ACRT believes it mitigates risk by investing in or through major financial institutions.

~~NOTES~~i. TORestricted ~~CONSOLIDATED~~Cash ~~FINANCIAL~~- ~~STATEMENTS~~Restricted cash represents cash maintained for real estate taxes, insurance, capital expenditures and various attorney escrows from the sale of the Overland Park, Kansas property.

4j. ~~INVESTMENT~~Rent INReceivable ~~TRIANGLE~~– ~~PLAZA~~ACRT IIcontinuously monitors collections from its tenants and makes a provision for estimated losses based upon historical experience and any specific tenant collection issues that ACRT has identified.

Onk. ~~June~~Amortization 9,- ~~1998,~~Deferred ~~ACRT,~~financing ~~through~~costs aare ~~wholly~~amortized ~~owned~~using ~~subsidiary,~~the ~~acquired~~straight-line amethod ~~40%~~over ~~interest~~the inlife ~~Triangle~~of ~~Plaza~~the ~~II,~~related ~~LLC~~mortgage ~~(“Triangle”),~~or ~~for~~line ~~an initial equity investment~~ of ~~$4,473,900 at completion~~credit. ~~Triangle~~Deferred ~~owns~~leasing acosts ~~139,294-square-foot~~are ~~retail~~amortized ~~complex~~using inthe ~~College~~straight-line ~~Point~~method ~~(Queens),~~over ~~New~~the ~~York~~life ~~City~~of ~~which~~the ~~was~~related ~~completed in July 1999~~lease. ~~The~~Capitalized ~~complex~~costs isrelated ~~leased~~ to ~~Toys~~ACRT’s Requity ~~Us—Delaware~~investments ~~Inc.~~are ~~(for~~amortized ~~use~~over asthe aestimated ~~Toys~~useful Rlife ~~Us and Kids R Us facility) and National Amusements, Inc. In March~~ of ~~2000, Triangle purchased~~ the ~~land~~underlying ~~under~~real ~~the~~estate ~~property for approximately $10,200,000~~assets. ~~The land was previously subject to a ground lease.~~

~~ACRT’s~~8 investment in Triangle Plaza II includes costs capitalized by ACRT in the amount of $901,829. This amount, which includes the acquisition fee of $572,520 paid to an affiliate of ACRT and capitalized interest totaling $308,830, is not reflected in the underlying equity of Triangle and is being amortized over the estimated useful life of the underlying asset, which is 39 years. Amortization expense in the amount of $11,562 has been recorded in 2004 and 2003 and charged against ACRT’s equity in income of unconsolidated subsidiaries and undivided interests, which appears on the accompanying consolidated statements of income. ACRT earns a 12% preferred return on its investment in Triangle in the form of distributions and, after a similar preferred return to the other member, receives 40% of distributable cash flow attributable to base rent and recoveries and 20% of all percentage rents. ACRT received distributions of $241,170 and $222,992 from cash flows attributable to base rent and recoveries for the six months ended June 30, 2004 and 2003, respectively. ACRT also received $83,647 and $99,464 in percentage rent distributions for the six months ended June 30, 2004 and 2003, respectively.

InTable September 2000, Triangle refinanced the property. The refinancing produced excess distributable capital proceeds of $1,433,409, of which $1,427,156 was distributed to ACRT in 2000, thereby reducing ACRT’s contributed capital to $3,046,744. Contents

~~The~~ARC ~~following~~CORPORATE isREALTY ~~the summary balance sheet information of Triangle Plaza II~~TRUST, ~~LLC~~INC ~~as of June 30, 2004 and December 31, 2003:~~

	June 30, 2004		December 31,2003
Total Assets	$	29,919,556	$	30,370,348
Total Liabilities		26,467,998		26,287,340

AND SUBSIDIARIES

~~The~~NOTES ~~following~~TO isCONSOLIDATED ~~the summary~~FINANCIAL ~~income~~STATEMENTS ~~statement information of Triangle Plaza II, LLC for the three and six months ended June 30, 2004 and 2003:~~

	Three Months Ended June 30,			Six Months Ended June 30,
	2004		2003	2004		2003
Rental Revenue	$	1,109,721	1,193,410	$	2,344,227	2,239,391
Interest and Other income		225	1,395		595	2,934
Operating Expenses		161,120	240,548		576,522	460,371
Interest Expense		477,161	482,819		956,635	961,666
Depreciation and Amortization		177,723	177,723		355,446	355,446
Net Income		293,942	293,715		456,219	464,842

JUNE 30, 2006 AND 2005

5.(UNAUDITED) ~~INVESTMENT IN FORT WASHINGTON~~

Onl. ~~December~~Income ~~24,~~Taxes ~~2002,~~- ACRT ~~through~~operates ain ~~wholly owned subsidiary, acquired~~ a ~~50%~~manner ~~limited~~intended ~~partnership~~to ~~interest~~enable init ~~Fort~~to ~~Washington~~qualify ~~Fitness,~~as LPa ~~(“Fort Washington”)~~REIT ~~for~~under ~~$1,000,000~~Sections ~~cash~~856-860 ~~plus the assumption~~ of ~~its pro rata share of~~ the ~~debt and acquisition fees~~Code. ~~ACRT~~Under ~~does~~these ~~not~~sections, ~~have~~a ~~any~~real ~~additional~~estate ~~funding~~investment ~~obligations~~trust towhich ~~Fort~~distributes ~~Washington.~~at ~~Fort~~least ~~Washington~~90% ~~owns~~of aits ~~property~~real ~~located~~estate ininvestment ~~Fort~~trust ~~Washington, Pennsylvania,~~taxable ~~which~~income ~~consists~~to ofits ashareholders ~~41,000-square-foot~~each LAyear ~~Fitness~~and ~~Center~~which ~~(built~~meets bycertain LAother ~~Fitness,~~conditions ~~the~~will ~~tenant).~~not ~~The~~be ~~property~~taxed ~~was~~on ~~completed~~that inportion ~~November~~of ~~2003~~its ~~and~~taxable ~~the~~income LAwhich ~~Fitness~~is ~~lease~~distributed ~~has~~to aits ~~rent~~shareholders. ~~commencement~~ACRT ~~date~~pays ofstate ~~January 2~~taxes, ~~2004.~~which ~~Due~~are tonot ~~the rent commencement date~~significant, noas ~~income was recorded in 2003~~applicable.

~~ACRT’s~~m. ~~investment~~Revenue inRecognition ~~Fort~~- ~~Washington~~Rental ~~includes~~revenue anfrom ~~acquisition~~tenant ~~fee~~operating ofleases ~~$105,000 paid to an affiliate of ACRT,~~ which isprovide ~~not~~for ~~reflected~~scheduled inrental ~~the~~increases ~~underlying~~are ~~equity~~recognized ofon ~~Fort~~a ~~Washington.~~straight-line ~~This~~basis ~~amount is being amortized~~ over the ~~estimated~~term ~~useful life~~ of the ~~underlying~~respective ~~asset~~leases.

~~ACRT~~Gains ~~will~~on ~~earn~~sales aof ~~12%~~real ~~preferred return~~estate onare ~~its~~recognized ~~investment~~pursuant into ~~Fort~~the ~~Washington~~provisions ~~from~~of ~~the~~SFAS ~~date~~No. 66, “Accounting for Sales of ~~investment~~Real inEstate.” ~~the~~The ~~form~~specific timing of ~~distributions~~the ~~and,~~sale ~~after~~is ameasured ~~similar~~against ~~preferred~~various ~~return~~criteria toin ~~the~~SFAS ~~other~~No. 66 ~~partners,~~related ~~will~~to ~~receive~~the ~~50%~~terms of the ~~remaining~~transactions ~~distributable~~and ~~cash~~any ~~flow.~~continuing ~~There~~involvement ~~were~~in nothe ~~distributions~~form of management or ~~made~~financial onassistance ~~this~~associated ~~investment~~with inthe ~~2003~~properties. AsIf ofthe ~~June~~sales 30criteria are not met, ~~2004~~the gain is deferred and the finance, ~~ACRT~~installment ~~received~~or ~~distributions~~cost ofrecovery ~~$217~~method,~~053~~ as appropriate, is applied until the sales criteria are met.

10n. Derivative Instruments and Hedging Activities - ACRT follows the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. The Statement generally requires that all derivative instruments be reflected in the consolidated financial statements at their estimated fair value. Changes in the fair value of non-hedging instruments are reported in current period earnings.

~~ARC~~o. ~~CORPORATE~~Earnings ~~REALTY~~Per ~~TRUST,~~Share ~~INC~~– Basic net income per share is computed by dividing net income allocable to Class A and B common shareholders by the weighted average number of shares outstanding during the period. Diluted net income per share amounts are similarly computed but include the effect, when dilutive, of in the money common share options.

~~NOTES~~The TOfollowing ~~CONSOLIDATED~~is ~~FINANCIAL~~a ~~STATEMENTS~~reconciliation of the denominator of the basic and diluted weighted average number of common shares outstanding.

The following is the summary balance sheet information of Fort Washington as of June 30, 2004 and as of December 31, 2003 :


	Three months Ended June 30, (In thousands)		Six months ended June 30, (In thousands)
	2006	2005	2006	2005
Total weighted average Class A common shares	3,182	3,182	3,182	3,182

Total weighted average Class B common shares	166	166	166	166

Weighted average number of common shares used in calculation of basic earnings per share	3,348	3,348	3,348	3,348

Shares issuable on excersise of warrants	104	104	104	104
Shares issuable upon exercise of stock options (15% of outstanding common shares)	590	590	590	590

Weighted average number of common shares used in calculation of diluted earnings per share	4,042	4,042	4,042	4,042

	June 30,2004		December 31,2003
Total Assets	$	6,158,511	$	5,860,980
Total Liabilities		5,024,841		4,582,634

Recent Accounting Pronouncements – In December 2004, the FASB issued Statement No. 123 (revised 2004), Accounting for Stock-Based Compensation (“SFAS 123R”) which supersedes Accounting Principals Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entities equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share based payments transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period in which an employee is required to provide services in exchange for the award. SFAS 123R is effective for fiscal years beginning after January 1, 2006, based on new rules issued by the Securities and Exchange Commission. The adoption of this pronouncement did not have any material impact on ACRT’s consolidated financial statements.

~~The~~9 following is the summary income statement information of Fort Washington for the three and six months ended June 30, 2004. Due to the rent commencement date of January 2, 2004, there was no income statement activity for 2003.

	Three Months Ended June 30, 2004		Six Months EndedJune 30, 2004
Rental Revenue	$	188,565	$	371,971
Interest and Other income		6		45
Operating Expenses		6,771		16,557
Interest Expense		72,674		142,693
Depreciation and Amortization		29,204		54,030
Net Income		79,922		158,736

6.ARC ~~INVESTMENT~~CORPORATE INREALTY ~~LEVITTOWN~~TRUST, INC

OnAND ~~March~~SUBSIDIARIES 7, 2003, ACRT acquired a 20% limited partnership interest in Levittown ARC, LP (“Levittown”) for $200,000 plus the assumption of its pro rata share of the debt and acquisition fees. ACRT does not have any additional funding obligations to Levittown. Levittown owns a property located in Levittown, Pennsylvania which is currently leased to Giant Food, Inc.

~~ACRT’s~~NOTES ~~investment~~TO inCONSOLIDATED ~~Levittown~~FINANCIAL ~~includes~~STATEMENTS an acquisition fee of $17,408 paid to an affiliate of ACRT, which is not reflected in the underlying equity of Levittown. This amount is being amortized over the estimated useful life of the underlying asset, which is 39 years.

~~ACRT~~JUNE will earn a 9% preferred return on its investment in Levittown in the form of distributions and, after a similar preferred return to the other limited partners, all distributions in excess of 9% are allocated 50% to the limited partners and 50% to Levittown ARC Residual Partners, of which ACRT owns 63%. ACRT has received $9,000 and $0 in distributions for the six months ended June 30, ~~2004~~2006 ~~and~~AND ~~2003,~~2005 ~~respectively.~~

~~The~~(UNAUDITED) ~~following is the summary balance sheet information of Levittown ARC, LP as of June 30, 2004 and December 31, 2003:~~

	June 30,2004		December 31,2003
Total Assets	$	3,421,663	$	3,485,538
Total Liabilities		2,575,158		2,573,413

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations-an Interpretation of SFAS Statement No. 143” (FIN 47). FIN 47 clarifies the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived asset when the timing and/or method of settlement are conditional on a future event. FIN 47 is effective for fiscal years ending after December 15, 2005. ACRT adopted FIN 47 on December 31, 2005. The adoption did not have any impact on ACRT’s consolidated financial statements.

~~The~~In ~~following~~May is2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which ~~summary~~replaces ~~income~~Accounting ~~statement~~Principles ~~information~~Board Opinions No. 20 “Accounting Changes” and SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements –An Amendment of ~~Levittown~~APB ~~ARC,~~Opinion LPNo. 28.” SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the ~~three~~required method for reporting a change in accounting principle and ~~six~~the ~~months~~reporting ~~ended~~of ~~June~~a correction ~~30,~~of ~~2004~~an error. SFAS No. 154 is effective for accounting changes and ~~2003:~~corrections of errors made in fiscal years beginning after December 15, 2005.

	Three Months EndedJune 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Rental Revenue	$	83,007		$	83,007		$	166,014		$	104,428
Operating Expenses		4,826			4,693			11,061			5,916
Interest Expense		46,202			46,799			108,388			65,648
Depreciation and Amortization		34,155			34,155			68,310			40,114
Net Loss		(2,176	)		(2,640	)		(21,745	)		(7,250	)

In June 2005, the FASB ratified the Emerging Issues Task Force’s (EITF) consensus on EITF 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights. EITF 04-05 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It was effective after June 29, 2005, for all newly formed limited partnerships and for any pre-existing partnerships that modify their partnership agreements after that date. General partners of all other limited partnerships will apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The adoption of EITF 04-05 did not have any impact on ACRT’s consolidated financial position or results of operations.

7In 2005, the EITF released Issue No. 05-6, ~~INVESTMENT~~Determining INthe ~~ROCHELLE~~Amortization ~~PARK~~Period ~~PROPERTY~~for Leasehold Improvements (“EITF 05-6”), which clarifies the period over which leasehold improvements should be amortized. EITF 05-6 requires all leasehold improvements to be amortized over the shorter of the useful life of the assets, or the applicable lease term, as defined. The applicable lease term is determined on the date the leasehold improvements are acquired and includes renewal periods for

Onwhich ~~April~~exercise 1,is ~~2003,~~reasonably assured. ~~ACRT~~EITF ~~converted~~05-6 ~~its~~was ~~51%~~effective ~~limited~~for ~~partnership~~leasehold ~~interest~~improvements inacquired ~~Rochelle Park Investors, LP into a 51% undivided interest~~ in ~~the~~reporting ~~property~~periods ~~held~~beginning ~~by Rochelle~~after ~~ACRT 1~~June 29, ~~LLC~~2005. ~~and~~The ~~Rochelle~~impact ~~ACRT~~of 2,the ~~LLC,~~adoption ~~both wholly owned subsidiaries~~ of ~~ACRT.~~EITF ~~This~~05-6 ~~conversion~~did ~~resulted~~not inhave ~~the~~a ~~deconsolidation~~material ofimpact ~~Rochelle~~on ~~Park~~ACRT’s ~~Investors LP in the~~ consolidated financial ~~statements~~position or results of ~~ACRT~~operations.

11In June 2006, FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB No. 109”. FIN 48 provides guidance on recognition and measurement of uncertainties in income taxes and is applicable for fiscal years beginning after December 15, 2006. The adoption is not expected to have a material impact on ACRT’s consolidated financial statements.

~~ARC~~q. ~~CORPORATE~~Stock-based ~~REALTY~~Compensation ~~TRUST~~– On May 21, ~~INC~~2004, ACRT shareholders approved revisions to ACRT’s 1997 Stock Option Plan which extended the life of ACRT’s stock options from ten to fifteen years and removed all restrictions on their exercise on April 1, 2008 or upon the occurrence of certain earlier events. However, the total number of options exercised cannot exceed fifteen percent of the outstanding shares at the exercise date.

~~NOTES~~Accordingly, TOACRT ~~CONSOLIDATED~~will ~~FINANCIAL~~recognize ~~STATEMENTS~~compensation expense ratably over the vesting period for variable stock awards previously granted under the plan.

~~This~~Compensation ~~transaction~~expense ~~represents~~was calculated thru December 31, 2005 using a ~~non-cash~~market ~~transaction~~price ~~for~~of $12.00 based on ACRT’s last stock offering which expired on December 31, 2003, and the ~~purposes~~option price of $8.50 per option. The compensation expense calculation was adjusted in the ~~consolidated~~first ~~statements~~quarter of 2006 to reflect ~~cash~~the ~~flows~~current projected liquidation values on the shares of $13.50 a share. For the six months ended June 30, 2006 and 2005, ACRT’s ~~undivided~~recognized ~~interest~~stock isbased ~~reflected~~compensation onexpense ~~the~~totaling ~~consolidated~~$886,203 ~~financial~~and ~~statements~~$224,379, ~~under~~respectively. For the ~~equity~~three ~~method~~months ofended June 30, ~~accounting~~2006 and 2005, ACRT recognized stock based compensation expense totaling $188,554 and $112,190 respectively.

~~On April 1, 2003, the property was refinanced~~r. ~~The~~Fair ~~refinancing~~Value ~~produced excess distributable capital proceeds~~ of ~~approximately~~Financial ~~$2,200,000, which were distributed to ACRT. ACRT has received $172,500 and $76,079 for the six months ended June 30, 2004 and 2003, respectively.~~ Instruments

~~The~~Cash ~~following~~Equivalents, isNotes ~~the~~Receivable, ~~combined~~Rent ~~summary~~Receivable ~~balance sheet information of Rochelle ACRT 1~~ and ~~2’s~~Accounts ~~51%~~Payable ~~undivided interests as of June 30, 2004~~ and ~~December 31,~~Accrued ~~2003:~~Expenses

	June 30,2004		December 31,2003
Total Assets	$	5,424,107	$	5,350,644
Total Liabilities		5,738,770		5,824,183

ACRT estimates that the fair value approximates carrying value due to the relatively short maturities of the instruments.

~~The~~10 ~~following is the combined summary income statement information of Rochelle ACRT 1 and 2’s 51% undivided interests for the three and six months ended June 30, 2004 and 2003:~~

	Three Months EndedJune 30,			Six Months Ended June 30,
	2004		2003	2004		2003
Rental Revenue	$	280,134	277,980	$	564,225	$	277,980
Gain on Interest Rate Cap		116,760	—		30,929		—
Operating Expenses		98,244	84,166		195,884		84,166
Interest Expense		47,811	62,578		104,305		62,578
Depreciation and Amortization		40,080	67,843		80,161		67,843
Net Income		210,759	63,393		214,804		63,393

8.ARC ~~INVESTMENT~~CORPORATE INREALTY ~~PARAMUS~~TRUST, ~~PROPERTY~~INC

OnAND ~~May~~SUBSIDIARIES 21, 2003, ACRT acquired, through Paramus ACRT, LLC (a wholly owned subsidiary), a 40% undivided interest in a 154,768 square foot retail and warehouse property located in Paramus, New Jersey for $2,400,000 cash plus the assumption of its pro rata share of the debt and acquisition fees. The property is leased to Baby’s R Us, Levitz Furniture and Wade Odell Wade Padded Van Services. ACRT has received $101,286 and $0 in distributions for the six months ended June 30, 2004 and 2003, respectively.

~~The~~NOTES ~~following~~TO isCONSOLIDATED ~~the~~FINANCIAL ~~summary~~STATEMENTS ~~balance sheet information of the Paramus ACRT’s 40% undivided interest as of June 30, 2004 and December 31, 2003:~~

	June 30,2004		December 31,2003
Total Assets	$	8,319,540	$	8,358,327
Total Liabilities		5,856,241		5,884,331

JUNE 30, 2006 AND 2005

~~The~~(UNAUDITED) ~~following is the summary income statement information of the Paramus ACRT’s 40% undivided interest for the three and six months ended June 30, 2004 and 2003:~~

	Three Months EndedJune 30,			Six Months Ended June 30,
	2004		2003	2004		2003
Rental Revenue	$	230,977	110,872	$	465,709	$	110,872
Operating Expenses		30,381	26,177		57,795		26,177
Interest Expense		110,599	47,812		221,472		47,812
Depreciation and Amortization		45,102	13,562		90,204		13,562
Net Income		44,895	23,321		96,238		23,321

Mortgage Notes Payable and Lines of Credit

12ACRT determines the fair value of these instruments based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this analysis, ACRT has determined that the fair value of the variable rate instruments approximates their carrying values and the fixed rate instruments are $7.4 and $14.4 million at June 30 2006 and December 31, 2005, respectively.

~~ARC~~s. ~~CORPORATE~~Industry ~~REALTY~~Segments ~~TRUST~~– ACRT operates in one industry segment, ~~INC.~~investments in credit lease properties.

~~NOTES~~t. TOEnvironmental ~~CONSOLIDATED~~Matters ~~FINANCIAL~~- ~~STATEMENTS~~Based upon management’s ongoing review of its properties, management is not aware of any environmental conditions with respect to any of ACRT’s properties, which would be reasonably likely to have a material adverse effect on ACRT. There can be no assurance, however, that the discovery of environmental conditions which were previously unknown, changes in law, the conduct of tenants or activities relating to properties in the vicinity of ACRT’s properties, will not expose ACRT to material liability in the future. Changes in law increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of ACRT’s tenants, which would adversely affect ACRT’s consolidated financial condition and results of operations.

9u. ~~INVESTMENT~~Reclassifications IN- ~~WILLOW~~Certain ~~GROVE~~reclassifications were made to prior period amounts to conform with the current period presentation.

~~On October~~ 3~~, 2003, ACRT, through Willow Grove ACRT, LLC (“Willow Grove ACRT”), a wholly owned subsidiary of ACRT, entered into an operating agreement with Willow Grove, LLC~~. ~~Willow~~PROPERTIES ~~Grove~~AND ~~ACRT~~PROPERTY has a 25% member interest in Willow Grove, LLC. Additionally, Willow Grove ACRT will fund up to a maximum of $550,000 in the form of a loan (the “Willow Grove Loan”), to Willow Grove, LLC at an interest rate of 12% per annum payable monthly. The Willow Grove Loan matures on April 1, 2006. The purpose of the Willow Grove Loan is to fund pre-construction costs in connection with the development of 12 acres of land located in Willow Grove, Pennsylvania. The Willow Grove Loan is secured by a second mortgage on 42 acres of land held by an affiliate of the managing member of Willow Grove, LLC. Willow Grove ACRT is not required to make any capital contributions beyond the maximum amount of the Willow Grove Loan. INVESTMENTS

AtThe ~~any time prior to the~~following ~~commencement of construction but in no event later than 30 months from the date of execution of the operating agreement~~acquisitions, ~~the~~investments managing member will have the option to purchase Willow Grove ACRT’s ownership interest for an amount equal to (a) the greater of $250,000 or the highest outstanding loan balance not to exceed $550,000 plus (b) payment of any outstanding loans, plus accrued interest, made by Willow Grove ACRT. Additionally, Willow Grove ACRT has the option to sell its 25% ownership interest to the managing member at the earlier of 30 months from the date of the execution of the operating agreement or the completion of the project and ~~receipt~~disposals ofwere aconsummated ~~certificate~~during of2006 ~~occupancy for an amount equal to (a) the greater of $250,000 or the highest outstanding loan balance not to exceed $550,000~~ and ~~(b)~~2005: ~~repayment of any loan, plus accrued interest, made by Willow Grove ACRT.~~

AsOn January 3, 2005, an affiliate of ~~June~~the 30Advisor exercised its right to purchase ACRT’s property located in Philadelphia, ~~2004~~PA ~~Willow~~for ~~Grove~~approximately $7.7 million. ACRT has ~~made~~recorded ~~loans~~an ~~totaling~~impairment charge of $~~250~~287,~~000~~259 ~~under~~in ~~this~~connection ~~agreement.~~with ~~This~~the ~~amount~~transaction isin ~~included~~2005. inOn ~~notes~~August 10, ~~receivable~~2005, onACRT sold the ~~accompanying~~Philadelphia, ~~consolidated~~Pennsylvania ~~balance~~property ~~sheets.~~leased ~~All~~to ~~interest~~Barnes ~~payments~~and ~~are~~Noble ~~current~~for ~~and~~$7,734,375 ~~Willow~~resulting ~~Grove~~in ~~ACRT~~net ~~has~~proceeds ~~received~~to ~~interest~~ACRT ~~payments~~ of $117,~~214~~362,720 ~~for~~after ~~the~~costs ~~six~~and ~~months~~expenses, ~~ended~~which ~~June~~resulted ~~30,~~in ~~2004~~no gain or loss for financial reporting purposes.

~~10.~~On ~~INVESTMENT~~February 15, IN2005, ~~ARC~~the ~~INTERNATIONAL~~Willow ~~FUND~~Grove IIoutstanding loan balance of $800,000 Lwas Prepaid plus all outstanding and accrued interest, and as a result, ACRT’s investment in Willow Grove was zero. Additionally, ACRT sold its member interest in Willow Grove to the other Willow Grove member and an affiliate of the Advisor for net proceeds and a gain of $400,000.

On ~~March 31~~May 23, ~~2004~~2006, ACRT ~~acquired~~sold anits ~~11.2% limited~~ partnership interest in ~~ARC~~Fort ~~International~~Washington ~~Fund~~Fitness ~~II,~~ LP ~~(“ARC International”) for $691~~,~~000~~ ~~plus the~~which ~~assumption~~owns ~~of its prorata share of~~ the ~~debt~~property ~~and~~in ~~acquisition~~Fort ~~fees.~~Washington, ~~ACRT~~Pennsylvania ~~does~~leased ~~not~~to LA ~~have~~Fitness, ~~any additional funding obligations~~ to ~~ARC~~it’s ~~International.~~joint ~~ARC~~venture ~~International~~partner ~~owns~~for ~~a property located in Woodcliff Lake~~$2,500,000 ~~New~~and ~~Jersey~~recognized ~~which~~a isgain ~~leased~~for tofinancial ~~Great Atlantic~~reporting ~~and~~purposes ~~Pacific~~of ~~Tea Co~~$1,546,204.

~~ACRT’s~~On June 15, ~~investment~~2006, inthe ~~ARC International~~property ~~includes~~located anin ~~acquisiton~~Overland ~~fee~~Park, ~~of $62~~Kansas,~~655~~ ~~paid~~leased to anBorders ~~affiliate~~Books ofand ~~ACRT~~Bed, ~~which~~Bath isand ~~not~~Beyond, ~~reflected~~was insold ~~the~~for ~~underlying~~$13,600,000 ~~equity~~to ofan ~~ARC~~unrelated ~~International.~~third ~~This~~party, ~~amount~~which isresulted ~~being~~in ~~amortized~~a ~~over~~gain ~~the~~for ~~estimated~~financial ~~useful~~reporting ~~life~~purposes of ~~the underlying asset~~$6, ~~which is 39 years~~137,479.

~~ACRT will earn a 9~~4.0% ~~return~~INVESTMENT onIN ~~its~~TRIANGLE ~~investment~~PLAZA ~~in ARC International in the form of distributions. ACRT has received $30,975 in distributions for the six months ended June 30, 2004.~~ II

~~The~~On ~~following~~June 9, 1998, isACRT, ~~the~~through ~~summary~~a ~~balance~~wholly ~~sheet~~owned ~~information~~subsidiary, ofacquired ~~ARC~~a ~~International~~40% asinterest in Triangle Plaza II, LLC (“Triangle”), for an initial equity investment of ~~June~~$4,473,900 30at completion. Triangle owns a 139,294-square-foot ~~2004:~~retail complex in College Point

	June 30, 2004
Total Assets	$	18,070,186
Total Liabilities		12,474,619

(Queens), New York City which was completed in July 1999. The complex is leased to Toys R Us—Delaware Inc. (for use as a Toys R Us and Kids R Us facility) and National Amusements, Inc. In March of 2000, Triangle purchased the land under the property for approximately $10,200,000. The land was previously subject to a ground lease.

~~The~~ACRT’s ~~following~~investment isin Triangle includes costs capitalized by ACRT in the amount of $901,829. This amount, which includes the acquisition fee of ~~summary~~$572,520, ~~income~~which ~~statement~~was ~~information~~paid to the Advisor per the Advisory Agreement, and capitalized interest totaling $308,830, is not reflected in the underlying equity of ~~ARC~~Triangle ~~International~~and ~~for~~is being amortized over the ~~three~~estimated useful life of the underlying asset, which is 39 years. Amortization expense in the amount of $5,781 has been recorded in each of 2006 and ~~six~~2005 ~~months~~and ~~ended~~charged ~~June~~against 30ACRT’s equity in income of unconsolidated subsidiaries and undivided interests, ~~2004:~~which appears on the accompanying consolidated statements of income. ACRT earns a 12% preferred return on its investment in Triangle in the form

	Three Months Ended June 30, 2004		Six Months EndedJune 30, 2004
Rental Revenue	$	448,534	$	448,534
Operating Expenses		218,622		218,622
Interest Expense		23,705		23,705
Depreciation and Amortization		78,686		78,686
Net Income		127,521		127,521

13Table of Contents

ARC CORPORATE REALTY TRUST, INC.

~~NOTES~~AND TOSUBSIDIARIES ~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~11.~~NOTES ~~INTEGRAL~~TO ~~NOTE~~CONSOLIDATED ~~RECEIVABLE~~FINANCIAL STATEMENTS

OnJUNE ~~December 31~~30, 2003, Montgomeryville 309 Associates, LP (“Montgomeryville 309”), a wholly owned subsidiary of ACRT, in connection with its purchase of the property located in Montgomeryville, Pennsylvania entered into a note agreement with Integral Development Associates (“Integral”), the seller of the property. Under the terms of the note agreement, Montgomeryville 309 loaned Integral $645,000 at an interest rate of 12% per annum, which is secured by certain other property owned by Integral. The loan matures on January 1, 2006 ~~and~~AND ~~interest~~2005 is payable monthly starting July 1, 2004 (which shall include all accrued but unpaid interest through June 30, 2004). For the six months ended June 30, 2004, $38,382 in interest has been accrued under this note. The note receivable at June 30, 2004 and December 31, 2003 was $645,000 and is included in notes receivable on the accompanying consolidated balance sheets.

~~12.~~(UNAUDITED) ~~RELATED PARTY TRANSACTIONS~~

~~ACRT~~of isdistributions ~~managed by its advisor~~and, ~~ARC~~after ~~Capital~~a ~~Advisors~~similar ~~L.P.~~preferred ~~(“Advisor”),~~return ~~which~~to ~~performs~~the ~~services~~other ~~for~~member, ~~ACRT~~receives ~~pursuant~~40% ~~to the terms~~ of andistributable ~~advisory~~cash ~~agreement~~flow ~~(the~~attributable ~~“Advisory~~to ~~Agreement”).~~base ~~Such~~rent ~~services include serving as ACRT’s investment~~ and ~~financial~~recoveries ~~advisor~~ and ~~providing~~20% ~~consultation,~~of ~~analysis~~all ~~and~~percentage ~~supervision~~rents. of ACRT’s ~~activities~~received indistributions ~~acquiring, financing, managing and disposing~~ of ~~properties.~~$0 ~~The Advisor also performs~~ and ~~supervises~~$146,986 ~~the~~from ~~various~~cash ~~administrative~~flows ~~duties~~attributable ofto ~~ACRT~~base ~~such~~rent asand ~~maintaining~~recoveries for the ~~books~~six ~~and~~months ~~records.~~ended ~~The~~June 30, ~~Chairman~~2006 and ~~President of ACRT is an affiliate of the Advisor~~2005, respectively.

~~For~~In September 2000, Triangle refinanced the ~~six~~property. ~~months~~The ~~ended~~refinancing ~~June~~produced 30excess distributable capital proceeds of $1,433,409, ~~2004~~of ~~and~~which ~~2003~~$1,427,156 was distributed to ACRT ~~incurred~~in ~~the~~2000, ~~following fees~~thereby ~~and~~reducing ~~reimbursements~~ACRT’s ~~payable~~contributed capital to ~~the~~$3,046,744. ~~Advisor:~~

~~Acquisition~~In ~~Fee - On~~ March 2005, 4ACRT ~~and~~brought ~~March~~suit ~~31,~~against ~~2004,~~its ~~ACRT~~joint ~~incurred~~venture ~~acquisition~~partner ~~fees~~regarding in the ~~amounts~~exercise of ~~$212,000~~a ~~and~~right ~~$62,655~~of infirst ~~connection~~refusal ~~with~~on the purchase of ~~the Philadelphia, Pennsylvania property and the investment in ARC International, respectively. On March 7, and May 21 2003,~~ ACRT’s ~~incurred~~interest ~~an acquisition fee of $17,408 and $249,571~~ in ~~connection with~~ the ~~investment~~property in(see ~~Levittown~~Note ~~and Paramus, respectively~~20). ~~Acquisition fees are equal to 3% of the purchase price of the property.~~

~~Financing~~ACRT’s ~~Fee~~investment -in OnTriangle ~~March~~as 4,of ~~and~~ June 18 30, ~~2004~~2006 ~~ACRT~~and ~~incurred~~December 31, ~~financing~~2005 ~~fees~~is of $263,~~500~~920,501 and $273,~~500 in connection with the purchase of the Philadelphia~~683, ~~Pennsylvania property and the placement of a line of credit on the Montgomeryville property~~237, respectively. ~~The financing fee is generally equal to .5% of the principal amount financed.~~

~~Asset~~ACRT’s ~~Management~~Equity ~~Fees~~in -Earnings ~~Asset~~for ~~management~~the ~~fees~~three ofmonths ~~$343,894~~ and ~~$272,725 for the~~ six months ended June 30, ~~2004~~2006 and ~~2003~~2005 ~~respectively, were incurred and are payable to the advisor of ACRT. The annual asset management fee~~ is ~~equal~~ ~~to 1% of the first~~ $36118,~~049~~790,~~000~~ ~~of ACRT’s average invested assets (the base amount~~$106, ~~as defined in the Advisory Agreement). One half of this fee~~288, ~~the subordinated asset management fee~~$237,264, isand ~~withheld by ACRT until the shareholders have been paid the Preferred Return (as defined in the Advisory Agreement). For assets in excess of the first~~ $36225,~~049~~051,~~000,~~ respectively. ~~the~~ACRT ~~asset~~estimated ~~management~~its ~~fee~~share ~~is equal to 0.5%~~ of ~~the ACRT~~Triangle’s ~~average~~equity ~~invested~~in ~~assets.~~earnings ~~Pursuant~~for to the ~~Advisory~~three ~~Agreement,~~months ~~beginning~~and ~~in 1999,~~six ~~average~~months ~~invested~~ended ~~assets~~June 30, ~~were~~2006 ~~subject~~based toupon ~~periodic~~the ~~valuation~~equity ~~performed~~in byearnings afor ~~third~~the ~~party~~period ~~(as~~ended ~~defined~~September 30, ~~in the Advisory Agreement)~~2005.

~~Unpaid~~5. ~~asset~~INVESTMENT ~~management~~IN ~~fees~~FORT ~~included in due to related parties on the consolidated balance sheets were $155,526 and $88,531 at June 30, 2004 and December 31, 2003, respectively.~~ WASHINGTON

~~Disposition~~On ~~Fee~~December 24, 2002, -ACRT ~~There were~~through noa ~~disposition~~wholly ~~fees~~owned ~~incurred~~subsidiary, acquired a 50% limited partnership interest in Fort Washington Fitness, LP (“Fort Washington”) for $1,000,000 plus the ~~six~~assumption ~~months~~of ~~ended~~its ~~June~~pro ~~31,~~rata ~~2004~~share of the debt and ~~2003~~acquisition fees. ~~The~~ACRT does ~~disposition~~not ~~fee~~have isany ~~generally~~additional ~~equal~~funding obligations to 3%Fort ofWashington. ~~the~~Fort ~~contract~~Washington ~~sales~~owns ~~price.~~a property located in

~~Stock~~Fort ~~Ownership~~Washington, Pennsylvania, -which Asconsists of ~~June~~a 3041,000-square-foot ~~2004,~~LA ~~principals~~Fitness ofCenter ~~the~~(built ~~Advisor~~by ~~owned~~LA 44Fitness,~~760~~ ~~shares~~the oftenant). ~~Class~~The Aproperty ~~Common~~was ~~Stock,~~completed ~~which~~in ~~represents~~November ~~approximately 1.4%~~2003 ofand the ~~outstanding~~LA ~~shares~~Fitness oflease ~~Class~~has Aa ~~Common~~rent ~~Stock~~commencement ofdate ~~ACRT. The total amounts purchased, net~~ of ~~commissions~~January 2, ~~were $414,030~~2004.

~~Miscellaneous~~ACRT’s -investment ~~ACRT~~in ~~agreed~~Fort toWashington ~~reimburse~~includes the ~~Advisor~~acquisition fee of $1105,~~250~~000 ~~per~~paid ~~month~~to ~~for~~the ~~various~~Advisor ~~legal~~per ~~functions~~the ~~connected~~Advisory ~~with~~Agreement, ~~stock~~which ~~transfers~~is ~~and~~not ~~filings~~reflected ofin ~~ACRT. These reimbursements totaled $7,500 for~~ the ~~six~~underlying ~~months~~equity ~~ended~~of ~~June~~Fort ~~30,~~Washington. ~~2004~~This ~~and~~amount ~~2003,~~is ~~and~~being ~~are~~amortized ~~included~~over ~~in professional expenses on~~ the ~~accompanying~~estimated ~~consolidated~~useful ~~statements~~life of ~~income~~the underlying asset.

14ACRT will earn a 12% preferred return on its investment in Fort Washington from the date of investment in the form of distributions and, after a similar preferred return to the other partners, will receive 50% of the remaining distributable cash flow. ACRT received distributions of $232,975 and $60,000 for the six months ended June 30, 2006 and 2005, respectively.

~~ARC~~On ~~CORPORATE~~May 23, 2006, ~~REALTY~~ACRT ~~TRUST~~sold its partnership interest in Fort Washington Fitness LP, ~~INC~~which owns the property in Fort Washington, Pennsylvania leased to LA Fitness, to it’s joint venture partner for $2,500,000 and recognized a gain for financial reporting purposes of $1,546,204.

~~NOTES~~The TOfollowing ~~CONSOLIDATED~~is ~~FINANCIAL~~the ~~STATEMENTS~~summary balance sheet information of Fort Washington as of December 31, 2005:

13. LEASES


	December 31, 2005
Total Assets	$	6,397,442
Total Liabilities		4,932,413

ACRT’s Investment		991,349

~~ACRT~~The following is ~~entitled to certain rentals relating to~~ the ~~properties~~summary itincome ~~owns.~~statement Ininformation ~~addition~~of toFort ~~the~~Washington ~~base~~for ~~rent,~~ the ~~tenants~~two ~~are~~and ~~generally required to pay all~~five ~~operating~~months ~~costs~~ended ~~related~~May 30, to2006 ~~the~~and ~~properties.~~three ~~Future~~and ~~minimum~~six ~~annual~~months ~~base~~ended ~~rentals due under the non-cancelable operating leases in effect as of~~ June 30, ~~2004, are as follows~~2005:

2004	$	2,881,500
	April 1 toMay 23,2006		Three MonthsEnded June 30,2005		January 1,to May 23,2006		Six MonthsEnded June 30, 2005
2005		5,987,427
Rental Revenue	$	123,600	$	185,400	$	309,000	$	370,800
2006		6,075,207
Operating Expenses		6,608		6,782		13,068		10,490
2007		6,140,974
Interest Expense		61,819		89,327		150.879		169,090
2008		6,023,122
Depreciation and Amortization		17,161		28,658		48,006		60,961
Thereafter		31,583,791
Net Income	$	38,012	$	60,633	$	97,047	$	130,259
	$	58,692,021
ACRT’s Equity in Earnings	$	18,559	$	29,643	$	47,403	$	63,783

~~ACRT~~12 seeks to reduce its operating and leasing risks through diversification achieved by geographic distribution of its properties, tenant industry diversification, avoiding dependency on a single property and the creditworthiness of its tenants. For the six months ended June 30, 2004 and 2003 the following tenants accounted for greater than 10% of rental revenues:

	2004		2003
Sports Authority	13.4	%	13.4	%
Bed, Bath and Beyond	11.4	%	11.4	%
Barnes and Noble	11.3	%	—
CaroMont Medical	10.2	%	10.3	%
Bergen Board of Social Services	—		17.4	%

~~Bergen~~ARC ~~County~~CORPORATE ~~Board~~REALTY ~~of Social Services is a tenant in the Rochelle Park~~TRUST, NJINC ~~property, which, beginning in 2003, is accounted for under the equity method of accounting, and, accordingly, the related rent is no longer included in ACRT’s consolidated rental revenues.~~

~~14.~~AND ~~MORTGAGES~~SUBSIDIARIES ~~PAYABLE~~

~~ACRT~~NOTES ~~entered~~TO ~~into~~CONSOLIDATED orFINANCIAL ~~assumed~~STATEMENTS fixed rate mortgages totaling $18,936,917 and $19,165,806 at June 30, 2004 and at December 31, 2003, respectively. These mortgages are secured by the respective properties with a total net book value of $22,057,749 and $22,298,000 at June 30, 2004 and at December 31, 2003, respectively.

~~The~~JUNE ~~fixed~~30, ~~rate~~2006 ~~mortgages~~AND ~~have~~2005 ~~interest rates ranging from 6.86% to 8.65% and have maturities at various dates through July 1, 2017.~~

ACRT entered into variable rate mortgages totaling $13,792,772 and $8,613,071 at June 30, 2004 and December 31, 2003, respectively. The mortgages carry variable interest rates of 206, 220 and 225 basis points over LIBOR (~~1.11% at June 30, 2004~~UNAUDITED). The variable rate mortgages are secured by three properties with a combined net book value of $19,737,424 at June 30, 2004 and two properties with a combined net book value of $9,831,000 at December 31, 2003.

At6. ~~June~~INVESTMENT ~~30,~~IN ~~2004, the payment of principal under the fixed and variable rate mortgages for the next five years and thereafter is as follows:~~ LEVITTOWN

	ScheduledAmortization		BalloonPayments		Total
2004	$	350,604		—	$	350,604
2005		808,429		—		808,429
2006		719,605	$	8,227,954		8,947,559
2007		732,546		3,820,638		4,553,184
2008		648,245		—		648,245
Thereafter		2,508,035		14,913,633		17,421,668
	$	5,767,464	$	26,962,225	$	32,729,689

On March 7, 2003, ACRT acquired a 20% limited partnership interest in Levittown ARC, LP (“Levittown”) for $200,000 plus the assumption of its pro rata share of the debt and acquisition fees. ACRT does not have any additional funding obligations to Levittown. Levittown owns a property located in Levittown, Pennsylvania which is currently leased to Giant Food, Inc.

15ACRT’s investment in Levittown includes the acquisition fee of $17,408 paid to the Advisor per the Advisory Agreement, which is not reflected in the underlying equity of Levittown. ~~DERIVATIVE~~This ~~INSTRUMENTS~~amount is being amortized over the estimated useful life of the underlying asset, which is 39 years.

OnACRT ~~January~~will ~~15,~~earn ~~2003,~~a in9% ~~connection~~preferred ~~with~~return ~~ACRT’s~~on ~~variable~~its ~~rate~~investment ~~mortgage~~in ~~totaling~~Levittown ~~$4,414,500~~in ~~(Note~~the ~~14),~~form ~~ACRT~~of ~~entered~~distributions ~~into an interest rate cap agreement~~and, ~~with~~after a ~~third~~similar ~~party.~~preferred ~~The~~return ~~cap~~to ~~is coterminous with~~ the ~~mortgage~~other ~~loan~~limited ~~and~~partners, ~~its~~all ~~notional~~distributions ~~amount~~in ~~equals~~excess ~~the~~of ~~outstanding~~9% ~~principal~~are ~~balance~~allocated on50% to the ~~mortgage~~limited ~~loan.~~partners ~~The~~and ~~cap~~50% ~~agreement~~to ~~was~~Levittown ~~entered~~ARC ~~into~~Residual asPartners, ~~part~~ of which ACRT’s ~~management~~owns of63%. ~~interest~~ACRT ~~rate~~has ~~exposure and~~received ~~effectively~~$9,000 ~~limits~~in distributions for the ~~amount~~six ofmonths ~~interest~~ended ~~rate~~June 30, ~~risk~~2006 ~~that~~and ~~may~~2005, ~~be taken on its variable rate mortgage~~respectively. In

15The following is the summary balance sheet information of Levittown as of June 30, 2006 and December 31, 2005:

ARC CORPORATE REALTY TRUST, INC.


	June 30, 2006		December 31, 2005
Total Assets	$	3,168,025	$	3,230,738
Total Liabilities		2,498,059		2,530,074

ACRT’s Investment		153,566		160,197

~~NOTES~~The TOfollowing ~~CONSOLIDATED~~is ~~FINANCIAL~~the ~~STATEMENTS~~summary income statement information of Levittown for the three and six months ended June 30, 2006 and 2005:

accordance with SFAS No. 133, the interest rate cap is reflected at its fair value. The carrying amount of the interest rate cap, included in prepaid expenses and other assets, was reported as an asset of $34,193 and $52,513, as of June 30, 2004 and December 31, 2003, respectively, based on information supplied by the counter party to the cap contract, and the change in the fair value of the interest rate cap of $18,320 has been recorded as a loss, and included in loss on interest rate cap, net, on the accompanying consolidated statements of income for the six months ended June 30, 2004.


	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006		2005
Rental Revenue	$	83,007		$	83,007		$	166,014	$	166,014
Operating Expenses		5,527			7,858			10,110		14,029
Interest Expense		45,910			45,551			74,628		90,775
Depreciation and Amortization		34,155			34,155			68,310		68,310

Net Income (Loss)	$	(2,585	)	$	(4,557	)	$	12,966	$	(7,100	)

ACRT’s Equity in Earnings (Loss)	$	(629	)	$	(1,023	)	$	2,370	$	(1,644	)

~~On March 4, 2004, in connection with~~ ACRT’s ~~variable~~expects ~~rate~~to ~~mortgage totaling~~sell $5,300,000 (Note 14), ACRT entered into an interest rate cap agreement and an interest rate swap agreement with a third party. The cap is coterminous with the mortgage loan. The cap, which terminates on March 1, 2007, is for the notional amount of $2,650,000. In accordance with SFAS No. 133, the interest rate cap is reflected at its ~~fair~~investment ~~value. As of June 30, 2004, the carrying amount of the interest rate cap, included~~ in ~~prepaid~~this ~~expenses~~property ~~and other assets, was reported as an asset of $39,775 based on information supplied by the counter party to the cap contract and the change~~ in the fair value of the interest rate cap of $16,725 has been recorded as a loss, and is included in loss on interest rate cap, net on the accompanying consolidated statements of income for the six months ended June 30, 20042006. ~~The impact of the interest rate swap was not material to the consolidated financial statements.~~

167. ~~LINES~~INVESTMENT OFIN ~~CREDIT~~ROCHELLE PARK PROPERTY

On April 1, 2003, ACRT ~~renewed and~~ converted its ~~two~~51% ~~credit~~limited ~~facility~~partnership ~~agreements~~interest ~~into~~in aRochelle ~~single~~Park ~~credit facility. The new credit facility agreement totals $5~~Investors,~~500,000~~ ~~and~~LP ~~replaces~~into ~~the previous credit facility agreements, which had total amounts available of $6,500,000. Interest is payable at LIBOR plus 2% on the new credit facility and ACRT is also required to pay~~ a ~~commitment fee equal to .5~~51% ~~per annum~~undivided oninterest ~~the~~in ~~unused portion of~~ the ~~commitment.~~property ~~The~~held ~~new~~by ~~facility~~Rochelle isACRT ~~for~~1, aLLC ~~period of three years~~ and ~~amounts~~Rochelle ~~available~~ACRT ~~are~~2, ~~reduced by $125~~LLC,~~000~~ ~~per~~both ~~quarter~~wholly ~~from~~owned ~~its~~subsidiaries ~~inception.~~of ACRT.

OnThis ~~April~~conversion ~~30,~~resulted ~~2004,~~in ~~with~~ the ~~sale~~deconsolidation of ~~the~~Rochelle ~~Memphis,~~Park ~~Tennessee~~Investors ~~property~~LP ~~leased~~in ~~to Federal Express,~~ the ~~credit~~consolidated ~~facility~~financial ~~was reduced~~statements ~~by $1,652,387 which represented the collateral value~~ of ~~this property in the loan agreement~~ACRT. InACRT’s undivided ~~addition,~~interest ~~the~~is ~~quarterly~~reflected ~~reduction~~on in the ~~amount~~consolidated ~~available~~financial statements under the ~~loan~~equity ~~was~~method ~~reduced~~of ~~from $125,000 to $84,150~~accounting.

~~The~~On ~~total amount available under this facility at June 30~~April 1, ~~2004~~2003, ~~after~~the ~~quarterly~~property ~~amortization~~was ~~and~~refinanced. ~~the~~The ~~sale~~refinancing ofproduced ~~the~~excess ~~Memphis~~distributable ~~property,~~capital isproceeds ~~$3,263,464~~of ~~and~~approximately $2,~~597~~200,~~613~~000, ~~has~~which ~~been~~were ~~drawn~~distributed ~~leaving~~to aACRT. ~~balance~~ACRT ~~available~~has ~~for~~received ~~use~~distributions of $~~665~~76,~~851~~000 atand ~~June~~$141,000 for the six months ended June 30, ~~2004~~2006 and 2005, respectively.

On13 June 17, 2004, ACRT established an additional secured credit facility, which provides for additional borrowing of up to $5,500,000 and decreases by $100,000 per annum. This credit facility bears interest at LIBOR plus 225 basis points and matures in five years. ACRT is required to pay an annual commitment fee equal to 0.5% on the unused portion of the facility. The total amount available under this facility at June 30, 2004 was $5,500,000 and $39,602 was drawn, leaving a balance available for use of $5,460,398 at June 30, 2004.

17.Table CREDITof EVENTSContents

OnARC ~~July~~CORPORATE ~~11,~~REALTY ~~2001~~TRUST, ~~Sears~~INC Homelife, the tenant of the San Antonio, Texas property, ceased operations nationwide and filed for Chapter 11 bankruptcy protection. The lease on the San Antonio property was assigned to Sears Homelife in 1998, with the provision that Sears, Roebuck and Co. (in whose name the original lease was executed) would still be responsible for all obligations under the lease in the event of default by Sears Homelife. The lease expires in 2010. ACRT has taken the necessary steps to collect the rent under the guarantee and enforce this provision under the lease assignment. In November 2003, Sears, Roebuck and Co. subleased this property to BEL Furniture Co. for the remainder of the original lease term. As of June 30, 2004, all rents due were paid.

InAND ~~2003,~~SUBSIDIARIES Kids R Us announced it would cease operations. ACRT, through a lease with Toys R Us, leases approximately 18,961 square feet to Kids R Us at its New York City property. Kids R Us closed this Kids R Us location on May 1, 2004 and is currently negotiating to sublease this location to a national pet supply company. As of June 30, 2004, all rents and reimbursements are current under this lease.

~~18.~~NOTES ~~SUBSEQUENT~~TO ~~EVENT~~CONSOLIDATED FINANCIAL STATEMENTS

OnJUNE ~~July 31~~30, ~~2004,~~2006 ~~ACRT~~AND ~~issued~~2005 ~~a quarterly cash dividend of $763,577 to shareholders of record as of June 30, 2004.~~

16(UNAUDITED)

~~ITEM~~The 2.following ~~MANAGEMENT~~is the combined summary balance sheet information of Rochelle ACRT 1 and 2’Ss ~~DISCUSSION~~51% ~~AND~~undivided interests ~~ANALYSIS~~as OFof ~~FINANCIAL~~June 30, ~~CONDITIONS~~2006 ~~AND~~and ~~RESULTS~~December 31, OF2005: ~~OPERATIONS~~

Forward Looking Statements


	June 30, 2006			December 31, 2005
Total Assets	$	4,905,280		$	4,974,889
Total Liabilities		5,531,059			5,591,252

ACRT’s Investment		(539,207	)		(561,090	)

~~Certain~~The ~~information~~following ~~included~~is ~~or incorporated by reference in this Form 10-Q may contain forward-looking statements within~~ the ~~meaning~~combined ofsummary ~~Section~~income ~~27A~~statement ofinformation the Securities Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of ~~the~~Rochelle ~~words~~ACRT ~~“may,”~~1 “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” or the negative of these words or other similar words or terms. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically, adverse developments with respect to our tenants, legislative/regulatory changes2’s ~~including~~51% ~~changes~~undivided tointerests ~~laws~~for ~~governing~~ the ~~taxation~~three ~~of REITs, availability of debt~~ and ~~equity~~six ~~capital,~~months ~~interest~~ended ~~rates~~June 30, ~~competition,~~2006 ~~supply~~ and ~~demand~~2005: for properties in our current and proposed market areas and policies and guidelines applicable to REITs. These risks and uncertainties should be considered in evaluating any forward-looking statements contained in this Form 10-Q.

The following should be read in conjunction with the unaudited consolidated financial statements of ACRT including the respective notes thereto, all of which are included in this Form 10-Q.


	Three Months Ended June 30,					Six Months Ended June 30,
	2006			2005		2006			2005
Rental Revenue	$	289,551		$	305,727	$	573,038		$	576,940
(Gain) Loss on Interest Rate Cap		(13,012	)		40,570		(30,734	)		(11,106	)
Operating Expenses		123,471			106,732		254,887			232,601
Interest Expense		85,945			74,955		170,841			147,610
Depreciation and Amortization		40,080			40,080		80,161			80,161

Net Income	$	53,067		$	43,390	$	97,883		$	127,674

~~General~~ACRT expects to sell its investment in this property in 2006.

~~ACRT was formed as a Maryland corporation in June 1993 and is an externally advised real estate investment trust (“REIT”) under the Internal Revenue Code of 1986~~8. ItINVESTMENT ~~has~~IN ~~operated~~PARAMUS as a REIT since its inception. ACRT is managed by its advisor, ARC Capital Advisors, L.P., an affiliate of Robert Ambrosi, ACRT’s Chairman, President and a director. The advisor performs services for ACRT pursuant to the terms of an advisory agreement. Such services include serving as ACRT’s investment and financial advisor and providing consultation, analysis and supervision of ACRT’s activities in acquiring, financing, managing and disposing of properties. The advisor also performs and supervises the various administrative duties of ACRT, such as maintaining its books and records. PROPERTY

On May 21, 2003, ACRT ~~was~~acquired, ~~formed~~through toParamus ~~purchase~~ACRT, ~~geographically~~LLC ~~diverse~~(a ~~credit~~wholly ~~lease~~owned ~~properties~~subsidiary), ~~which~~a ~~are~~40% ~~general purpose~~undivided interest in a 154,768 square foot retail and warehouse property located in Paramus, ~~office~~New Jersey for $2,400,000 cash plus the assumption of its pro rata share of the debt and ~~industrial~~acquisition ~~properties~~fees. ~~Each~~The property is ~~100%~~ leased to ~~one~~Baby’s orR ~~more~~Us, ~~creditworthy~~Levitz ~~tenants~~Furniture ~~under~~and aWade ~~long-term~~Odell ~~lease~~Wade ~~that~~Padded ~~generally~~Van ~~requires~~Services. ~~tenants~~ACRT tohas ~~pay~~received ~~most~~$133,250 orand ~~all~~$124,300 ofin ~~the~~distributions ~~operating~~for ~~costs of~~ the ~~property,~~six ~~including~~months ~~real estate~~ended ~~taxes~~June 30, 2006 and ~~insurance~~2005, respectively.

AsThe offollowing ~~June~~is ~~30,~~the ~~2004,~~summary ~~ACRT~~balance ~~owned~~sheet orinformation ~~had~~of ~~interests in~~the 18Paramus ~~real~~ACRT’s ~~estate~~40% ~~properties~~undivided ~~encompassing~~interest 1as of June 30,~~071,266~~ 2006 ~~rentable~~and ~~square~~December 31, ~~feet.~~2005:

Critical Accounting Issues


	June 30, 2006		December 31, 2005
Total Assets	$	8,060,904	$	8,164,397
Total Liabilities		5,730,244		5,765,331

ACRT’s Investment		2,633,421		2,659,051

~~ACRT’s~~The ~~accompanying consolidated~~following ~~financial~~is ~~statements have been prepared in conformity with accounting principles generally accepted in~~ the ~~United~~summary ~~States~~income ofstatement ~~America,~~information ~~which require management to make estimates that effect the amounts~~ of ~~revenues, expenses, assets and liabilities reported. The following are critical accounting policies which are important to~~ the ~~understanding~~Paramus of ACRT’s ~~financial~~40% ~~condition and results of operations and which require some of management’s most difficult, subjective and~~undivided ~~complex~~interest ~~judgments. The accounting~~ for ~~these matters involves~~ the ~~making~~three ~~of estimates based on current facts, circumstances~~ and ~~assumptions~~six ~~which~~months ~~could~~ended ~~change in a manner that would materially affect management’s future estimates with respect to such matters. Accordingly~~June 30, ~~future~~2006 ~~reported financial conditions~~ and ~~results~~2005: ~~could differ materially from the current financial condition and results of operations reported based on management’s current estimates.~~

Revenue Recognition. Rental revenue from tenant operating leases which provide for scheduled rental increases are recognized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, on a straight-line basis over the term of the respective leases.


	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Rental Revenue	$	247,158	$	244,035	$	491,976	$	488,069
Operating Expenses		39,192		36,844		75,306		72,078
Interest Expense		108,253		109,470		215,646		218,044
Depreciation and Amortization		45,102		45,102		90,204		90,204

Net Income	$	54,611	$	52,619	$	110,820	$	107,743

ACRT’s Equity in Earnings	$	53,012	$	51,020	$	107,621	$	104,544

~~Gains~~ACRT onexpects ~~sales of real estate are recognized pursuant~~ to ~~the~~sell ~~provisions~~its ofinvestment ~~SFAS No. 66, “Accounting for Sales of Real Estate.” The specific timing of the sale is measured against various criteria~~ in ~~SFAS~~this ~~No.~~property ~~66 related to the terms of the transactions and any continuing involvement~~ in ~~the form of management or financial assistance associated with the properties~~2006. ~~If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met.~~

~~Rent~~14 Receivable. ACRT continuously monitors collections from its tenants and makes a provision for estimated losses based upon historical experience and any specific tenant collection issues that ACRT has identified.

17Table of Contents

~~Impairment~~ARC -CORPORATE ~~ACRT~~REALTY ~~continually assesses the recoverability of its properties by determining whether the costs can be recovered through projected undiscounted cash flows. The amount of impairment~~TRUST, ifINC ~~any, is measured by comparing the carrying amounts to the fair values of such properties.~~

~~The~~AND ~~evaluation~~SUBSIDIARIES includes reviewing anticipated cash flows of the property, based on current leases in place, coupled with an estimate of proceeds to be realized upon sale. However, estimating future sales proceeds is highly subjective and such estimates could differ materially from actual results.

~~Purchase~~NOTES ~~Accounting~~TO ~~for~~CONSOLIDATED ~~the~~FINANCIAL ~~Acquisition~~STATEMENTS of Real Estate. In accordance with SFAS No. 141, commencing with properties acquired after June 30, 2002, the fair value of real estate acquired is allocated to the acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

~~The~~JUNE ~~fair value of the tangible assets of an acquired property (which includes land and building) is determined by valuing the property as if it were vacant~~30, ~~and~~2006 ~~the~~AND ~~“as-if~~2005 vacant” value is then allocated to land and building based on management’s determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease up periods, considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenues during expected lease up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.

In(UNAUDITED) allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the difference between the current in-place lease rent and management’s estimate of current market rent.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above9. ~~This~~INVESTMENT ~~aggregate~~IN ~~value~~WILLOW is allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease. The value of in-place leases and customer relationships are amortized to expense over the remaining non-cancelable periods of the respective leases. GROVE

~~Industry~~On ~~Segments~~October 3, 2003, ACRT, through Willow Grove ACRT, LLC (“Willow Grove ACRT”), a wholly owned subsidiary of ACRT, entered into an operating agreement with Willow Grove, LLC. Willow Grove ACRT ~~currently~~has ~~operates~~a 25% member interest in ~~one~~Willow ~~industry~~Grove, ~~segment~~LLC. Additionally, Willow Grove ACRT will fund up to a maximum of $550,000 in the form of a loan (the “Willow Grove Loan”), to Willow Grove, LLC at an interest rate of 12% per annum payable monthly. The Willow Grove Loan was to mature on April 1, 2006. The purpose of the Willow Grove Loan was to fund pre-construction ~~investments~~costs in connection with the development of 12 acres of land located in Willow Grove, Pennsylvania. The Willow Grove Loan was secured by a second mortgage on 42 ~~credit~~acres ~~lease~~of ~~properties~~land held by an affiliate of the managing member of Willow Grove, LLC. Willow Grove ACRT was not required to make any capital contributions beyond the maximum amount of the Willow Grove Loan.

~~Liquidity~~On ~~and~~October 5, ~~Capital~~2004, ~~Resources~~the operating agreement with Willow Grove, LLC was amended to increase the maximum loan amount to $650,000. On October 21, 2004, the operating agreement with Willow Grove, LLC was further amended to increase the maximum loan amount to $800,000. All other terms and conditions set forth in the original agreement remain unchanged.

~~ACRT’s~~On ~~main~~January 20, ~~source~~2005, ofthe ~~capital~~board ~~for~~of ~~growth~~directors ~~has~~agreed ~~been~~to amend the ~~private placement~~Willow ~~equity~~Grove ~~market,~~agreement ~~selective~~to ~~secured~~accept ~~indebtedness,~~repayment ~~its~~of ~~secured~~the ~~credit~~outstanding ~~facility~~loan ~~and~~balance ~~undistributed~~of $800,000 ~~funds~~plus ~~from~~all ~~operations.~~outstanding ~~ACRT~~and ~~expects~~accrued tointerest ~~continue~~within toninety ~~have~~days ~~access~~in tolieu ~~and~~of ~~use~~waiting ~~these~~the ~~sources~~remaining infifteen ~~the~~months ~~future; however~~outstanding, ~~there~~as ~~are~~stated ~~factors~~in ~~that~~the ~~may~~original ~~have~~agreement. ~~a material~~After ~~adverse~~the ~~effect~~repayment, on ACRT’s ~~access~~investment toin ~~capital~~Willow ~~sources~~Grove was zero. Additionally, ACRT’s ~~ability~~agreed to ~~incur~~sell ~~additional~~its ~~debt~~member tointerest ~~fund~~in ~~acquisitions~~Willow isGrove ~~dependent~~to ~~upon~~the ~~its~~other ~~existing~~Willow ~~leverage,~~Grove ~~the~~member ~~value~~and an affiliate of the ~~assets~~Advisor ~~ACRT~~for isnet ~~attempting~~proceeds toand ~~leverage~~a ~~and~~gain ~~general~~of ~~economic conditions~~$400,000. ~~which~~This ~~may~~transaction bewas ~~outside~~completed ~~management’s~~on ~~control~~February 15, 2005.

~~During~~10. ~~the~~INVESTMENT ~~six months~~IN ~~ended~~ARC ~~June~~INTERNATIONAL ~~30,~~FUND ~~2004~~II, ACRT purchased two retail properties, including an equity method investment in one property, totaling approximately 92,743 rentable square feet for $7,758,000 and sold one property, for net cash proceeds of $2.3 million. LP

~~ACRT’s $5.5 million variable rate secured line-of-credit facility~~On March 31, ~~which is scheduled to expire in April 2006~~2004, isACRT ~~available~~acquired toan ~~finance acquisitions on a temporary basis until selective secured indebtedness can be obtained and to meet any short-term capital requirements~~11.2% ~~Interest~~limited ispartnership ~~payable~~interest atin ~~the~~ARC ~~London~~International ~~Interbank~~Fund ~~Offered Rate~~II, LP (“~~LIBOR~~ARC International”) ~~plus~~for 2%$691,000 onplus the ~~facility~~assumption ~~and~~of ~~ACRT~~its isprorata ~~also~~share ~~required~~of ~~to pay a commitment fee equal to .5% per year on~~ the ~~unused~~debt ~~portion~~and ofacquisition ~~the commitment~~fees. OnACRT ~~April~~does ~~30,~~not ~~2004,~~have ~~with~~any additional ~~the~~funding ~~sale~~obligations ~~of the Memphis, Tennesse property leased~~ to ~~Federal Express,~~ARC ~~the~~International. ~~credit~~ARC ~~facility~~International ~~was~~owns ~~reduced~~a ~~by $1,652,387 which represented the collateral value of the Memphis~~ property inlocated ~~the loan agreement. In addition, the quarterly reduction~~ in ~~the~~Woodcliff ~~amount available under the loan was reduced from $125~~Lake,~~000~~ ~~to $84,150.~~New ~~The total amount available under this facility at June 30~~Jersey, ~~2004,~~which ~~after~~is ~~quarterly~~leased ~~amortization~~to ~~and~~Great ~~the~~Atlantic ~~sale of the Memphis property, is $3,263,464~~ and ~~$2,597,613~~Pacific ~~has~~Tea ~~been drawn leaving a balance available for use of $665,851 at June 30, 2004~~Co.

~~On June 17, 2004,~~ ACRT’s ~~established~~investment anin ~~additional~~ARC ~~secured~~International ~~credit facility,~~includes ~~which~~the ~~provides~~acquisition ~~for~~fee ~~additional borrowing~~ of ~~up to~~ $562,~~500~~655,~~000~~ ~~and~~paid ~~decreases~~to bythe ~~$100,000~~Advisor per ~~annum.~~the ~~This~~Advisory ~~credit~~Agreement, ~~facility~~which ~~bears interest at LIBOR plus 2.25% and matures in five years. ACRT~~ is ~~required to pay an annual commitment fee equal to~~not ~~0.5%~~reflected onin the ~~unused~~underlying ~~portion~~equity of ~~the~~ARC ~~facility~~International. ~~The~~This ~~total~~ amount ~~available~~is ~~under~~being ~~this~~amortized ~~facility~~over atthe ~~June~~estimated ~~30,~~useful ~~2004~~life ~~was~~of ~~$5,500,000~~the ~~and~~underlying ~~$39~~asset,~~602~~ ~~was~~which ~~drawn,~~is ~~leaving~~39 ~~a balance available for use of $5,460,398 at June 30, 2004~~years.

18ACRT will earn a 9.0% return on its investment in ARC International in the form of distributions. ACRT has received $0 distributions for the six months ended June 30, 2006 and 2005.

~~Since~~The ~~1993,~~following ~~ACRT~~is ~~has~~the ~~raised,~~summary ~~through~~balance ~~the~~sheet ~~issuance~~information of ~~shares~~ARC ofInternational ~~Class~~as ~~A common stock, aggregate capital~~ of ~~approximately $~~June 30~~.6 million~~, 2006 and ~~through the issuance of shares of Class B common stock~~December 31, ~~aggregate~~2005: ~~capital of approximately $1.56 million. The capital raised was used primarily to acquire properties and to retire indebtedness.~~

During 2004, ACRT has not sold any additional Class A or Class B common shares.


	June 30, 2006		December 31, 2005
Total Assets	$	20,066,746	$	20,011,100
Total Liabilities		12,025,573		12,143,461

ACRT’s Investment		789,985		760,487

~~Dividends.~~The Infollowing ~~connection~~is ~~with~~the ~~its~~summary ~~intention~~income tostatement ~~continue~~information toof ~~qualify~~ARC asInternational afor ~~REIT~~the ~~for~~three and ~~federal~~six ~~income~~months ~~tax~~ended ~~purposes~~June 30, ~~ACRT~~2006 ~~expects to continue paying regular dividends to its shareholders. These dividends are expected to be paid from operating cash flows~~ and~~/or~~ ~~from~~2005: ~~other sources.~~

Dividends paid to common shareholders increased to $1.448 million in 2004, compared to $866 thousand in the first six months of 2003. The increase is due both to the number of outstanding shares and an increase in the dividend rate during the second half of 2003.


	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Rental Revenue	$	455,129	$	449,303	$	898,465	$	898,232
Operating Expenses		24,164		23,412		50,083		46,845
Interest Expense		209,717		213,722		420,462		427,020
Depreciation and Amortization		78,686		78,685		157,373		157,373

Net Income	$	142,562	$	133,484	$	270,547	$	266,994

ACRT’s Equity in Earnings	$	15,565	$	14,548	$	29,497	$	29,099

~~ACRT~~15 believes that cash flows from operations will continue to provide adequate capital to fund its operating and administrative expenses, regular debt service obligations and all dividend payments in compliance with REIT requirements in both the short and long-term. In addition, ACRT anticipates that cash on hand, borrowings under its secured credit facilities and future issuances of equity will provide the necessary capital for its operations. Cash flows from operations as reported in the Consolidated Statements of Cash Flows were $1.001 million and $1.025 million for 2004 and 2003, respectively. The cash flows were virtually unchanged reflecting higher revenues from the additional properties under ownership in 2004, offset by higher professional expenses in 2004 due to increased costs associated with SEC reporting requirements.

NetTable cash used in investing activities was $5.551 million in 2004 and $2.792 million in 2003. Net cash used in investing activities is related primarily to investments in real estate properties, investments in joint ventures or sales of same. Therefore, the fluctuation in investing activities relates primarily to the timing of investments and dispositions. Contents

~~Net~~ARC ~~cash~~CORPORATE ~~provided~~REALTY ~~by financing activities was $3.966 million in 2004 and $1.847 million in 2003. Cash provided by financing activities during each period was primarily attributable to proceeds from equity offerings~~TRUST, ~~mortgage~~INC ~~financings, and advances under the secured credit facility. Net cash used was for repayments under the secured credit facility, dividends paid and debt service payments.~~

~~Debt~~AND ~~Service~~SUBSIDIARIES ~~Requirements~~

~~ACRT’s~~NOTES ~~principal liquidity~~TO ~~needs~~CONSOLIDATED ~~are~~FINANCIAL ~~payments~~STATEMENTS of interest and principal on outstanding indebtedness. As of June 30, 2004, a total of eight of ACRT’s thirteen consolidated properties were subject to outstanding mortgages which had an aggregate principal amount outstanding of $32.730 million, including $13.8 million in variable interest rate mortgages. As of June 30, 2004, the weighted averaged interest rate on ACRT’s outstanding mortgages was 6.03%. The scheduled principal payments for the next five years are as follows:

2004	$	350,604
2005		808,429
2006		719,605
2007		732,546
2008		648,245

JUNE 30, 2006 AND 2005

~~Balloon~~(UNAUDITED) ~~payment amounts, due in the next five years, excluding the secured credit facility, are as follows:~~

2004	$	—
2005		—
2006		8,227,954
2007		3,820,638
2008		—

11.

NOTE RECEIVABLE -TENANTS

~~The~~ACRT ~~interest~~had ~~rates~~a ~~on ACRT’s~~note ~~outstanding~~receivable ~~indebtedness~~from ~~range~~a ~~from~~tenant ~~3.17%~~totaling ~~(variable~~$0 ~~rate~~and $322,923 at June 30, ~~2004)~~2006 toand ~~8.65%.~~December 31, ~~The~~2005, ~~ability~~respectively. ofOn ~~ACRT~~June 15, to2006, ~~make its balloon payments will depend upon its ability to refinance~~ the ~~mortgages~~note ~~related~~receivable ~~thereto,~~and ~~sell~~ the ~~related~~ property, ~~have~~located ~~amounts available~~in ~~under~~Overland ~~its~~Park, ~~secured~~Kansas, ~~credit~~leased ~~facility or obtain access~~ to ~~other~~Borders ~~capital.~~Books ~~The ability of ACRT to accomplish this will be affected by the availability~~ and ~~cost of mortgage debt at that time~~Bed, ~~ACRT’s~~Bath ~~equity in the mortgaged properties, the~~and ~~financial condition of ACRT~~Beyond, ~~the~~was ~~operating~~sold ~~history~~for ~~of the mortgaged properties~~$13,600,000 ~~the~~to ~~then~~an ~~current~~unrelated ~~tax~~third ~~laws~~party ~~and~~(Note ~~general national, regional and local economic conditions~~3).

1912. RELATED PARTY TRANSACTIONS

~~ACRT~~The ~~expects~~Advisor toperforms services ~~continue~~for ACRT pursuant to ~~use~~the ~~property~~terms ~~specific,~~of ~~non-recourse~~the ~~mortgages~~Advisory asAgreement. itSuch ~~believes~~services ~~that~~include byserving ~~properly~~as ~~matching~~ACRT’s ainvestment ~~debt obligation,~~and ~~including~~financial ~~the~~advisor ~~balloon~~and ~~maturity~~providing ~~risk~~consultation, ~~with~~analysis aand ~~lease~~supervision ~~expiration,~~of ACRT’s ~~cash-on-cash~~activities ~~returns~~in ~~increase~~acquiring, financing, managing and disposing of properties. The Advisor also performs and supervises the ~~exposure~~various toadministrative ~~residual~~duties ~~valuation~~of ~~risk~~ACRT such as maintaining the books and records. The Chairman and President of ACRT is ~~reduced~~an affiliate of the Advisor.

~~ACRT~~For ~~has also purchased interest rate caps in connection with its variable rate mortgage on~~ the ~~Sacramento,~~six ~~California~~months ~~property~~ended ~~and the Philadelphia~~June 30, ~~Pennsylvania~~2006 ~~property. The Sacramento interest rate cap is coterminous with the mortgage~~ and its notional amount equals the outstanding balance on the mortgage. The Philadelphia interest rate cap is coterminous with the mortgage and its notional amount equals 50% of the outstanding principal balance on the mortgage. In addition2005, ACRT ~~has~~incurred ~~an interest swap which is coterminous with~~ the ~~mortgage~~following onfees ~~the Philadelphia property~~ and ~~its~~reimbursements ~~notional~~payable ~~amount~~to ~~equals 50% of~~ the ~~outstanding principal~~Advisor: ~~balance on the mortgage.~~

~~Lease~~Acquisition ~~Obligations~~Fee - The acquisition fee is equal to 3% of the purchase price of the investment. No acquisition fees were incurred in 2006 or 2005.

~~Since~~Financing ~~ACRT’s~~Fee ~~tenants~~–The ~~bear~~financing ~~all~~fee oris ~~substantially~~generally ~~all~~equal ofto ~~the cost of property operations and maintenance and repairs, ACRT does not anticipate significant need for cash for these costs~~.5% ~~For two~~ of the ~~thirteen~~principal ~~consolidated~~amount ~~properties, ACRT has a certain level of property operating expense responsibility~~financed. ToNo ~~the~~financing fees ~~extent~~were ~~there~~incurred ~~is a vacancy~~ in a2006 ~~property,~~or ~~ACRT would be obligated to pay for all operating expenses, including real estate taxes and insurance~~2005.

~~Results~~Asset Management Fees - Asset management fees of ~~Operations~~$329,756 and $349,238 for the ~~Three~~six ~~Months~~months ended June 30, ~~2004~~2006 and ~~2003~~2005, respectively, were incurred and are payable to the Advisor. The annual asset management fee is equal to 1% of the first

Selected Income Statement Data	2004		2003		Increase(Decrease)2004-2003
	(Dollars in thousands)
Rental revenues	$	1,700	$	1,248	$	452
Interest income		38		13		25
Miscellaneous income		—		39		(39	)
Equity in income of unconsolidated subsidiaries and undivided interests		449		232		217
Interest expense		534		489		(45	)
Depreciation and amortization expense		319		208		(111	)
Management fees-affiliate		176		139		(37	)
Real estate taxes		56		47		(9	)
Property operating expenses		137		56		(81	)
General and administrative taxes		59		36		(23	)
Stock based compensation		75		—		(75	)
Professional expenses		39		9		(30	)
Other expenses		47		29		(18	)
Minority interest in earnings of subsidiaries		52		58		6
Income from discontinued operations		27		59		(32	)
Net income		720		520		200

$36,049,000 of ACRT’s average invested assets (the base amount, as defined in the Advisory Agreement). One half of this fee, the subordinated asset management fee, is withheld by ACRT until the shareholders have been paid the Preferred Return (as defined in the Advisory Agreement). For assets in excess of the first $36,049,000, the asset management fee is equal to 0.5% of

~~The impact of~~ the ~~the~~ACRT’s ~~additional properties~~average ~~purchased~~invested ~~in 2003 and 2004 account for the majority of the variances for the three months ended June 30, 2004 and 2003~~assets. ~~Rental~~Pursuant ~~revenues increased by $452,000 which is attributable~~ to the ~~Montgomeryville~~Advisory ~~and~~Agreement, ~~Philadelphia~~beginning ~~properties purchased~~ in ~~December 2003 and March 2004~~1999, ~~respectively.~~average ~~Interest~~invested ~~income~~assets ~~increased~~were bysubject ~~$25,000 due~~ to ~~the~~periodic ~~accrual~~valuation ofperformed ~~interest~~by ona ~~the~~third ~~Montgomeryville~~party ~~note~~(as ~~and~~defined ~~the~~in ~~payment of interest on~~ the ~~Willow Grove note. Miscellaneous income decreased by $39,000~~Advisory ~~due to a non-recurring insurance settlement in 2003~~Agreement). ~~Equity~~It inwas ~~income~~agreed ~~of unconsolidated subsidiaries and undivided interests increased~~ by ~~$217,000~~the ~~due to a $147~~Advisor,~~000~~ ~~increase~~that ~~in income from~~ the ~~Rochelle~~2004 ~~Park property due mainly to a gain on its interest rate swap~~valuation, ~~a $20,000 increase from the Paramus property~~ which ~~was~~would ~~purchased~~have resulted in ~~May~~an ~~of 2003, a $39,000~~ increase ~~from the Fort Washington property which was under construction~~ in ~~2003~~asset ~~and~~management ~~did~~fees, would not ~~start~~be ~~receiving~~used ~~rent~~to ~~until~~calculate ~~2004, and $14,000 increase from~~ the ~~ARC~~asset ~~International~~management ~~Fund~~fees. ~~II property which was purchased on March 31~~Accordingly, ~~2004~~asset ~~offset~~management byfees awere ~~$3,000~~calculated ~~decrease~~using the ~~due~~2003 ~~to lower income from Triangle Plaza~~valuation.

~~Interest~~Unpaid ~~expense~~asset ~~increased~~management byfees ~~$45,000,~~included ofin ~~which~~due ~~$66,000 is attributable~~ to ~~the~~related ~~Philadelphia~~parties ~~property mortgage and slightly higher interest rates~~ on the ~~secured~~consolidated ~~lines of~~balance ~~credit,~~sheets ~~offset~~were $1290,~~000~~122 ~~due to the shifting of interest to principal over the life of the mortgages~~ and $945,~~000~~061 ~~due~~at toJune 30, ~~lower~~2006 ~~weighted~~and ~~average~~December 31, ~~balances~~2005, ~~on the secured line of credit facilities~~respectively.

~~Depreciation~~Disposition ~~and~~Fee ~~amortization~~– ~~expense~~On ~~increased~~May by23, ~~$111~~2006,~~000,~~ ACRT incurred a disposition fee in the amount of ~~which~~$148,020 and $96203,~~000~~796 ison ~~attributable to~~the sale of the ~~Montgomeryville~~Fort Washington, Pennsylvania investment and ~~Philadelphia~~the ~~properties~~sale ~~purchased~~of inthe ~~December~~Overland ~~2003~~Park, ~~and~~Kansas ~~March~~property. ~~2004~~On ~~respectively~~August 10, ~~and~~2005, ACRT incurred a disposition fee in the amount of $15116,~~000~~015 ~~higher~~on ~~amortization~~the sale of ~~mortgage~~the Philadelphia, Pennsylvania property leased to Barnes and ~~finance~~Noble. ~~costs~~The disposition fee on this sale was equal to 1.5% of the contract sales price. The disposition fee is generally equal to 3% of the contract sales price of each portfolio property, provided that 50% of the disposition fee will be paid only if the property is sold at a gain, pursuant to the Advisory Agreement.

Incentive Fee – ACRT has also agreed to pay the Advisor incentive compensation in the amount of 20% of amounts distributed to our stockholders after our stockholders have received distributions equal to the amount of their initial investment in shares of Common Stock plus a preferred return of 8%.

~~Management~~Stock ~~fees~~Ownership -~~affiliate~~ ~~increased by $37,000 which is mainly attributable to additional properties purchased in the~~As ~~second half~~ of ~~2003. Real estate taxes increased by $9~~June 30,~~000~~ ~~of which $21~~2006,~~000~~ isprincipals ~~due~~of the ~~Montgomeryville~~Advisor ~~and~~owned ~~Philadelphia~~44,760 ~~properties~~shares ~~purchased~~of inClass A ~~December~~Common ~~2003 and March 2004~~Stock, ~~respectively,~~which ~~offset~~represents byapproximately ~~$12,000~~1.4% ~~due~~of ~~to a refund from prior year taxes on~~ the ~~Memphis~~outstanding ~~property.~~shares ~~Property~~of ~~operating~~Class A ~~expenses~~Common ~~increased~~Stock ~~by $81,000,~~ of ~~which~~ACRT. ~~$54,000~~The istotal ~~attributable~~amounts ~~to the additional properties~~ purchased, innet ~~2003~~of ~~and 2004 and also to higher parking lot and access road repairs at the Overland Park~~commissions, ~~Kansas~~ ~~property~~were $414,030.

~~General~~Miscellaneous ~~and~~- ~~administrative~~ACRT ~~expenses~~agreed ~~increased~~to byreimburse ~~$23,000~~the ~~due~~Advisor ~~mainly to~~ $71,~~000~~250 ~~higher~~per ~~board~~month offor ~~directors~~various ~~fees~~legal ~~due~~functions toconnected with anstock ~~increase~~transfers inand ~~fees~~filings ~~and~~of anACRT. ~~additional~~The ~~board~~reimbursements ~~meeting~~were discontinued in ~~June~~May ~~2004,~~2005. ~~$9,000~~These ~~higher~~reimbursements ~~travel~~totaled ~~expenses~~$6,250 ~~due~~for to the ~~additional~~six ~~board~~months ~~meeting~~ended ~~and additional business related travel~~2005, and ~~$7,000~~are ~~increase~~included in ~~Directors~~ ~~and~~professional ~~Officers’~~expenses ~~liability~~on ~~insurance~~the ~~and~~accompanying ~~stationary~~consolidated ~~and~~statements ~~printing~~of income.

~~Stock~~16 ~~based compensation of $74,816 was recorded in 2004 due to modifications made to the 1997 Stock Option Plan.~~

ProfessionalTable expensesof increased by $30,000 due to higher accounting fees attributable to SEC reporting requirements. Contents

~~Other~~ARC ~~expenses~~CORPORATE ~~increased~~REALTY ~~by $18~~TRUST,~~000~~ ~~due~~INC ~~to an $11,000 write-off of minority interest receivable and $8,000 higher state taxes offset by slightly lower loss on interest rate caps.~~

~~Minority~~AND ~~interest~~SUBSIDIARIES in earnings of subsidiaries decreased by $6,000 due to slightly lower income from the joint venture properties. Income from discontinued operations deceased by $32,000 due to the sale of the property on April 30, 2004.

~~Results~~NOTES ofTO ~~Operations~~CONSOLIDATED ~~for~~FINANCIAL ~~the~~STATEMENTS ~~Six Months June 30, 2004 and 2003~~

Selected Income Statement Data	2004		2003		Increase(Decrease)2004-2003
	(Dollars in thousands)
Rental revenues	$	3,071	$	3,006	$	65
Interest income		79		27		52
Miscellaneous income		—		39		(39	)
Equity in income of unconsolidated subsidiaries and undivided interests		647		344		303
Interest expense		1,057		1,134		77
Depreciation and amortization expense		590		507		(83	)
Management fees-affiliate		344		273		(71	)
Real estate taxes		62		102		40
Property operating expenses		234		279		45
General and administrative taxes		119		70		(49	)
Stock based compensation		75		—		(75	)
Professional expenses		155		27		(128	)
Other expenses		63		69		6
Minority interest in earnings of subsidiaries		108		166		58
Income from discontinued operations		32		115		(83	)
Net income		1,022		904		118

JUNE 30, 2006 AND 2005

~~The~~(UNAUDITED) impact of the deconsolidation of the Rochelle Park property, which occurred on April 1, 2003 and the additional properties purchased in 2003 and 2004 account for the majority of the variances for the six months ended June 30, 2004 and 2003. Rental revenues increased by $65,000 of which $623,000 is attributable to the Montgomeryville and Philadelphia properties purchased in December 2003 and March 2004 respectively, offset by $531,000 due to the Rochelle Park deconsolidation. Interest income increased by $52,000 due to the accrual of interest on the Montgomeryville note and the payment of interest on Willow Grove note. Miscellaneous income decreased by $39,000 due to a non-recurring insurance settlement in 2003. Equity in income of unconsolidated subsidiaries and undivided interests increased by $303,000 due to a $150,000 increase in income from the Rochelle Park property, a $70,000 increase from the Paramus property which was purchased in May of 2003, a $78,000 increase in income from the Fort Washington property which was under construction in 2003 and did not start receiving rent until 2004, and $14,000 increase from the ARC International Fund II property which was purchased on March 31, 2004 offset by a $9,000 decrease due to lower income from Triangle Plaza.

2113. LEASES

~~Interest~~ACRT ~~expense~~is ~~decreased~~entitled byto ~~$77,000,~~certain ofrentals relating ~~which $140,000 is attributable~~ to the ~~Rochelle~~properties ~~Park~~it ~~deconsolidation~~owns. ~~and~~In ~~$24,000 due~~addition to the ~~shifting~~base ofrent, ~~interest to principal over~~ the ~~life~~tenants ofare ~~the~~generally ~~mortgages,~~required ~~offset~~to bypay aall ~~$87,000~~operating ~~increase~~costs ~~attributable~~related to the ~~Philadelphia~~properties. ~~property~~Future ~~mortgage~~minimum ~~and~~annual tobase ~~slightly~~rentals ~~higher~~due ~~interest~~under ~~rates~~the onnon-cancelable ~~the~~operating ~~secured~~leases ~~line~~in effect as of ~~credit~~June 30, ~~facilities.~~2006, are as follows:

Depreciation and amortization expense increased by $83,000, of which $166,000 is attributable to the Montgomeryville and Philadelphia properties purchased in December 2003 and March 2004 respectively, and higher amortization of mortgage and finance costs, offset by $84,000 due to the Rochelle Park deconsolidation.


2006	$	2,189,590
2007		4,416,164
2008		4,282,843
2009		4,187,626
2010		4,077,256
Thereafter		18,178,659

	$	37,332,138

~~Management~~ACRT ~~fees-affiliate~~seeks ~~increased by $71,000 which is mainly attributable~~ to ~~additional properties~~reduce ~~purchased~~its inoperating ~~the~~and ~~second~~leasing ~~half~~risks ofthrough ~~2003.~~diversification ~~Real~~achieved ~~estate taxes decreased~~ by geographic ~~$40,000~~distribution ~~due mainly to the deconsolidation~~ of ~~the~~its ~~Rochelle~~properties, ~~Park~~tenant ~~property~~industry ~~offset~~diversification, byavoiding ~~real~~dependency ~~estate taxes~~ on ~~the~~a ~~properties~~single ~~purchased~~property ~~in December 2003~~ and ~~March~~the ~~2004.~~creditworthiness ~~Property operating expenses decreased by $45,000,~~ of ~~which~~its ~~$168,000~~tenants. isFor ~~due to~~ the ~~deconsolidation~~six ofmonths ~~the~~ended ~~Rochelle Park property~~June 30, ~~offset~~2006 byand ~~$92~~2005,~~000~~ ~~additional property operating expenses for~~ the ~~properties~~following ~~purchased~~tenants inaccounted ~~2003 and 2004 and higher parking lot and~~for ~~access~~greater ~~road~~than ~~repairs~~10% atof ~~the~~rental ~~Overland~~revenues: ~~Park, Kansas property.~~

General and administrative expenses increased by $49,000 due mainly to $20,000 higher board of directors fees due to an increase in fees and an additional board meeting in June 2004, $12,000 higher travel expenses due to the additional board meeting and business related travel, and a $17,000 increase in Directors and Officers’ liability insurance and stationary and printing.


	2006		2005
Sports Authority	16.1	%	13.8	%
Bed, Bath and Beyond	11.3		11.1
Barnes and Noble	—		11.5
Office Max	10.0		8.6
CaroMont Medical	11.5		10.0

~~Stock based compensation of $74,816 was recorded in 2004 due to modifications made to the 1997 Stock Option Plan~~14. MORTGAGES PAYABLE

~~Professional~~ACRT ~~expenses~~had ~~increased~~fixed byrate mortgages totaling $~~128~~9,~~000~~739,716 ~~due~~and to $~~104~~18,~~000~~179,843 ~~higher~~at ~~accounting~~June 30, ~~fees attributable~~2006 toand ~~SEC~~at ~~reporting~~December 31, ~~requirements~~2005, respectively. These mortgages are secured by the respective properties with a total net book value of $12,192,864 and $21,~~000~~358,469 ofat ~~legal~~June 30, ~~fees~~2006 ~~associated~~and ~~with~~at December 31, ~~trademark~~2005, ~~protection~~respectively. The fixed rate mortgages have interest rates ranging from 6.86% to 8.65% and have maturities at various dates through July 1, 2017.

~~Other~~On ~~expenses decreased by $~~January 6,~~000~~ ~~due~~2006, tothe ~~$34,000~~fixed ~~lower~~rate ~~loss~~mortgage on ~~interest~~the ~~rate~~San ~~caps~~Antonio, ~~offset~~Texas byproperty aof $171,608,000 ~~write-off~~matured ofand ~~minority~~was ~~interest~~repaid. ~~receivable~~The ~~and~~repayment was made by drawing down $111,610,000 inon ~~higher~~ACRT’s ~~state~~existing ~~taxes~~line of credit.

~~Minority~~On ~~interest~~March 1, in2006, ~~earnings~~the offixed ~~subsidiaries~~rate ~~decreased~~mortgage byon the Overland Park, Kansas property of $586,627,000 ~~due~~matured toand ~~the~~was ~~deconsolidation of~~extended ~~the~~for ~~Rochelle~~120 ~~Park~~days. ~~property~~On ~~and~~April 11, ~~slightly~~2006, ~~lower~~the ~~income~~loan on the ~~remaining~~Overland ~~joint~~Park, ~~venture~~Kansas ~~properties.~~property ~~Income~~of ~~from~~$6,627,000 ~~discontinued~~was ~~operations~~repaid. ~~decreased~~The repayment was made by securing a $831,600,000 ~~due~~short toterm loan on the ~~sale~~property ofand ~~the~~by drawing ~~Memphis~~down $5,065,000 ~~Tennessee~~on ~~property~~ACRT’s ~~leased~~line toof ~~Federal~~credit. ~~Express~~The ~~Corp.~~$1,600,000 short term loan on ~~April 30,~~the ~~2004~~property and to the $525,065,000 ~~impairment~~draw ~~charge~~down ~~taken~~ on ~~the~~ACRT’s ~~property~~line ~~prior~~of tocredit were repaid on the sale of the Overland Park, Kansas property.

~~Funds~~ACRT ~~from~~had ~~Operations~~variable rate mortgages totaling $8,076,284 and $8,215,184 at June 30, 2006 and December 31, 2005, respectively. The mortgages carry variable interest rates of 206 and 225 basis points over LIBOR (4.62% at June 30, 2006). The variable rate mortgages are secured by two properties with a combined net book value of $ 9,106,229 and $9,171,429 at June 30, 2006 and December 31, 2005, respectively.

~~ACRT~~17 believes that Funds from Operations (“FFO”) enhances an investors understanding of ACRT’s financial condition, results of operations and cash flows. ACRT believes that FFO is an appropriate but limited measure of the performance of an equity REIT. FFO is defined in the April 2002 “White Paper” issued by the National Association of Real Estate Investments Trusts, Inc. (“NAREIT”) as “net income (or loss) computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains (or losses) from the sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.” FFO should not be considered an alternative to net income as an indicator of operating performance or to cash flows from operating activities as determined in accordance with GAAP, or as a measure of liquidity to other consolidated income or cash flow statement data as determined in accordance with GAAP.

TheTable following table reflects the calculation of ACRT’s FFO and cash flow activities for the six months ended June 30, 2004 and 2003. Contents

	2004			2003
Income from continuing operations before minority interest	$	1,098		$	955
Depreciation and amortization of real estate		532			510
Amortization of leasing commissions		7			7
Joint venture adjustment-depreciation and amortization of real estate		291			143
Joint venture adjustment-amortization of leasing commissions		11			11
Funds from Operations		1,939			1,626
Cash flow from operating activities		1,001			1,025
Cash flow used in investing activities		(5,551	)		(2,792	)
Cash flow provided by financing activities		3,966			1,847

ARC CORPORATE REALTY TRUST, INC

~~Off-Balance~~AND ~~Sheet Arrangements~~SUBSIDIARIES

~~Unconsolidated~~NOTES ~~Real~~TO ~~Estate~~CONSOLIDATED ~~Joint~~FINANCIAL ~~Ventures~~STATEMENTS ~~and Undivided Interests~~

~~ACRT~~JUNE ~~has investments in various real estate joint ventures with varying structures. These investments include ACRT’s non-controlling interests in Triangle Plaza II~~30, ~~LLC~~2006 ~~(Note~~AND ~~4),~~2005 Fort Washington Fitness, L.P. (Note 5), Levittown ARC, LP (Note 6), Willow Grove ACRT, LLC (Note 9) and ARC International Fund II, LP (Note 10) and its undivided interests in the Rochelle Park property (Note 7) and the Paramus property (Note 8).

~~The~~(UNAUDITED) properties owned by the joint ventures and the undivided interests are financed with individual non-recourse mortgage loans. Non-recourse mortgage debt is generally defined as debt whereby the lenders’ sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by the borrower or any of the members of the borrower, except for certain specified expectations listed in the particular loan documents. These exceptions generally relate to limited circumstances including breaches of material representations. ACRT invests in joint ventures with third parties to increase portfolio diversification, reduce the amount of equity invested in any one property and to increase returns on equity due to the realization of advisory fees. See the footnotes to the consolidated financial statements referenced above for summary balance sheet and income statement data.

22At June 30, 2006, the payment of principal under the fixed and variable rate mortgages for the next five years and thereafter is as follows:

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


	Scheduled Amortization		Balloon Payments		Total
2006	$	322,521		—	$	322,521
2007		597,818	$	3,897,539		4,495,357
2008		576,742		—		576,742
2009		453,255		3,747,919		4,201,174
2010		479,848		—		479,848
Thereafter		1,081,129		6,659,229		7,740,358

	$	3,511,313	$	14,304,687	$	17,816,000

~~Quantitative~~15. ~~and~~DERIVATIVE ~~Qualitative Disclosures about Market Risk~~ INSTRUMENTS

~~ACRT’s~~On ~~exposure~~January 15, to2003, in ~~market~~connection ~~risk~~with ~~relates~~ACRT’s ~~to its~~ variable rate ~~debt.~~mortgage Attotaling ~~June 30~~$4,414,500 ~~2004~~(Note 14), ACRT ~~had~~entered ~~three~~into ~~variable~~an interest rate ~~mortgages~~cap ~~outstanding~~agreement ~~totaling~~with ~~$13.8~~a ~~million~~third party. ~~These mortgages~~The ~~bear~~cap ~~interest~~is atcoterminous ~~LIBOR~~with ~~plus~~the ~~206~~mortgage ~~basis~~loan ~~points~~and ~~(3.17%~~its ~~per~~notional ~~year~~amount onequals ~~$4.248~~the ~~million),~~outstanding principal ~~LIBOR~~balance ~~plus~~on ~~225~~the ~~basis~~mortgage ~~points (3~~loan.~~36%~~ ~~per~~The ~~year~~cap onagreement ~~$4.258~~was ~~million)~~entered ~~and~~into ~~LIBOR~~as ~~plus~~part ~~220~~of ~~basis~~ACRT’s ~~points~~management ~~(3.31%~~of ~~per~~interest ~~year~~rate onexposure ~~$5.3~~and ~~million).~~effectively ~~Had~~limits the ~~LIBOR~~amount of interest rate ~~been~~risk ~~100 basis~~that ~~points~~may ~~higher~~be ~~during~~taken ~~the~~on ~~three~~its ~~months~~variable ~~ended~~rate ~~June~~mortgage. ~~30,~~In accordance ~~2004~~with SFAS No. 133, ~~ACRT’s~~the ~~net~~interest ~~income~~rate ~~would~~cap ~~have~~is ~~been~~reflected ~~reduced~~at byits ~~approximately~~fair ~~$69,000~~value. ~~ACRT~~The ~~also~~carrying ~~entered~~amount ~~into~~of anthe interest rate cap, ~~agreement~~included onin aprepaid ~~notional~~expenses ~~amount~~and ~~equal~~other toassets, ~~the~~net was reported as an asset of $~~4.248~~15,356 ~~million~~and ~~mortgage balance~~$6,786, atas of June 30, ~~2004~~2006 and December 31, ~~which~~2005, ~~effectively~~respectively, ~~caps~~based on information supplied by the ~~LIBOR~~counter ~~rate~~party atto ~~7.45%~~the ~~per~~cap ~~year~~contract, and ~~50%~~the ofchange in the ~~notional~~fair ~~amount~~value of the ~~$5.3~~interest ~~million~~rate ~~mortgage~~cap ~~balance~~of at$8,570 ~~June~~and 30($6,151) ~~2004,~~has ~~which~~been ~~effectively~~recorded ~~caps~~as ~~the~~a ~~LIBOR~~gain (loss) on interest rate cap, net on the accompanying consolidated statements of ~~9.2%~~income ~~per~~(loss) ~~year~~for the six months ended June 30, 2006 and 2005, respectively.

~~ITEM~~On March 4, 2004, in connection with ACRT’s variable rate mortgage totaling $5,300,000 (Note 14) on the Philadelphia, Pennsylvania property leased to Barnes and Noble, ACRT entered into an interest rate cap agreement and an interest rate swap agreement with a third party. ~~CONTROLS~~The ~~AND~~cap ~~PROCEDURES~~was coterminous with the mortgage loan. The cap had a notional amount of $2,650,000. In accordance with SFAS No. 133, the interest rate cap was reflected at its fair value. In connection with the sale of the Philadelphia, Pennsylvania property on August 10, 2005 (Note 3), the interest rate cap was written off.

~~Evaluation~~16. ofLINES ~~Disclosure~~OF ~~Controls and Procedures~~ CREDIT

~~(a)~~On ~~Disclosure~~April 1, ~~Controls~~2003, ACRT renewed and ~~Procedures.~~converted ~~ACRT’s~~its ~~management,~~two ~~with~~credit ~~the~~facility ~~participation~~agreements ofinto ~~ACRT’s~~a ~~Chief~~single ~~Executive~~credit ~~Officer~~facility. ~~and~~The ~~Chief~~new ~~Financial~~credit ~~Officer~~facility ~~has~~agreement ~~evaluated~~totals ~~the~~$5,500,000 ~~effectiveness~~and ofreplaces ~~ACRT’s~~the ~~disclosure~~previous ~~controls~~credit ~~and~~facility ~~procedures~~agreements, ~~(as~~which ~~such~~had ~~term~~total isamounts ~~defined~~available inof ~~Rules~~$6,500,000. Interest ~~13a-15~~is ~~(e)~~payable ~~and~~at ~~15d-15(e)~~LIBOR ~~under~~plus ~~the~~2% ~~Securities~~on ~~Exchange~~the ~~Act~~new ofcredit ~~1934,~~facility asand ~~amended)~~ACRT asis ofalso ~~the~~required ~~end~~to ofpay ~~the~~a ~~period~~commitment ~~covered~~fee byequal ~~this~~to ~~report~~0.5% per ~~Based~~annum on ~~such~~the ~~evaluation,~~unused ~~ACRT’s~~portion ~~Chief~~of ~~Executive~~the ~~Officer~~commitment. ~~and~~The ~~Chief~~new ~~Financial~~facility ~~Officer~~is ~~have~~for ~~concluded~~a ~~that,~~period as of ~~the~~three ~~end~~years ofand ~~such~~amounts available ~~period,~~are ~~ACRT’s~~reduced ~~disclosure~~by ~~controls~~$125,000 ~~and~~per ~~procedures~~quarter ~~are~~from ~~effective~~its inception.

~~Internal~~On ~~Control~~April 30, ~~Over~~2004, ~~Financial~~with ~~Reporting~~the sale of the Memphis, Tennessee property leased to Federal Express Corp., the credit facility was reduced by $1,652,387 which represented the collateral value of this property in the loan agreement. In addition, the quarterly reduction in the amount available under the loan was reduced from $125,000 to $84,150.

~~(b)~~On ~~Internal~~April 1, ~~Control~~2006, ~~Over~~this ~~Reporting.~~credit ~~There~~facility ~~have~~matured ~~not~~and ~~been~~was ~~any~~extended ~~changes~~on ina ~~ACRT’s~~temporary ~~internal~~basis ~~control~~for ~~over~~60 ~~financial~~days ~~reporting~~under ~~during~~ the existing ~~second~~terms. ~~quarter~~ACRT tohas ~~which~~determined ~~this~~that ~~report~~with ~~relates~~the ~~that~~board ~~have~~of ~~materially~~directors ~~affected,~~decision orto ~~are~~adopt ~~reasonably~~a ~~like~~Plan toof ~~materially affect~~Liquidation, ~~ACRT’s~~this ~~internal~~credit ~~control~~facilty ~~over~~will ~~reporting~~not be renewed.

23On June 17, 2004, ACRT established an additional secured credit facility, which provides for additional borrowing of up to $5,500,000 and decreases by $100,000 per annum. This credit facility bears interest at LIBOR plus 225 basis points and matures in five years. ACRT is required to pay an annual commitment fee equal to 0.5% on the unused portion of the facility. On April 11, 2006 $5,065,000 was drawn down on this credit faclilty and used to pay off the Overland Park, Kansas mortgage. On June 15, 2006, the property located in Overland Park, Kansas was sold and the credit facility was paid off. The total amount available under this facility at June 30, 2006 was $5,300,000.

~~PART~~18 ~~II - OTHER INFORMATION~~

ITEMTable 1.of Legal Proceedings-not applicableContents

~~ITEM~~ARC 2.CORPORATE ~~Changes~~REALTY inTRUST, ~~Securities~~INC ~~and Use of Proceeds- not applicable~~

~~ITEM~~AND 3.SUBSIDIARIES ~~Defaults Upon Senior Securities-not applicable~~

~~ITEM~~NOTES 4.TO ~~Submission~~CONSOLIDATED ofFINANCIAL ~~Matters~~STATEMENTS ~~to a Vote of Security Holders:~~

~~ACRT’s~~JUNE ~~annual meeting of shareholders was held on May 21~~30, ~~2004.~~2006 ~~Three~~AND ~~items~~2005 ~~were submitted to a vote of shareholders.~~

~~Item~~(UNAUDITED) ~~1. In connection with proposal 1 to extend ACRT’s liquidity plan, 1,729,933 votes were cast approving the extension, 100,829 votes were cast against the proposal, and 81,005 abstained.~~

~~Item 2~~17. InSTOCK ~~connection~~OPTION ~~with proposal 2 to amend ACRT’s 1997 stock option plan, 1,672,611 votes were cast approving the proposal, 96,219 votes were cast against the proposal and there were 142,377 votes abstained.~~ PLANS

~~Item~~ACRT 3.established, Inwith ~~connection~~the approval ~~with~~of ~~proposal~~the 3Shareholders, ~~regarding~~the 1997 Stock Option Plan (the ~~election~~“Plan”) for the purposes of ~~board~~encouraging ~~members,~~and ~~there~~enabling ~~was~~ACRT’s noofficers, ~~solicitation~~employees, indirectors ~~opposition~~and advisors to acquire a proprietary interest in ACRT’s. ~~nominees~~The Plan provides for administration by the Compensation Committee (the “Committee”) of the Board of Directors. A maximum of seven hundred and fifty thousand Class A common shares have been reserved under the Plan. The Plan authorized (i) the grant of stock options that qualify as ~~listed~~Incentive instock options (“ISO”) under section 422 of the ~~proxy~~Code ~~statement~~(ii) the grant of stock options that do not so qualify and ~~all~~(iii) grants of ~~such~~shares ~~nominees~~upon ~~were~~the ~~elected~~attainment of performance goals or subject to restrictions.

~~ITEM~~Options granted under the Plan may be subject to various restrictions on exercise including vesting provisions and a requirement that the Class A common shares be listed on a national exchange or quoted on NASDAQ and/or the requirement that the options when exercised will not constitute an amount greater than a specified percentage of ACRT’s issued and outstanding stock. On January 21, 1998, ACRT, pursuant to the Plan previously approved by the shareholders, granted 25,000 nonqualified stock options to purchase Class A common stock to the five non-employee directors and 650,000 nonqualified stock options to purchase Class A common stock to the advisor at an exercise price of $8.50. In January 2000 and October 2003, ACRT granted each of its three additional non-employee directors an option under the Option Plan to purchase 5,000 shares of Class A common stock at an exercise price of $8.50. ~~Other~~Each ~~information~~of these will vest as to 25% of such option for each full year that the non-employee Director has previously served and continues to serve as a Director of ACRT. In 1998 and 2003, three non-employee directors holding a total of 15,000 stock options retired with their stock options unexercised. These stock options were retired and are available to be re-granted. The options are not exercisable unless and until both of the following requirements are met: (a) either (i) the Class A common stock is listed for trading on any national securities exchange or quoted on any tier of the NASDAQ Stock Market or (ii) the occurrence of a Change of Control of ACRT, as defined in the Plan, the sale of all or substantially all of ACRT’s assets or adoption of a plan of liquidation by ACRT and (b) immediately prior to such exercise the number of shares of Class A common stock issued and outstanding, as a result of the exercise of the options granted under the plan, shall not exceed fifteen percent of the issued and outstanding shares of Class A common stock. At June 30, 2006, no stock options under the Plan have been exercised, all but 2,500 of the stock options granted have been vested and 75,000 are available for grant. Amendments to the Plan were recommended by the Board of Directors and approved by the shareholders of ACRT at the annual meeting held in May 2004. The Plan now allows for grants of options until March 31, 2013. In addition, the current term of outstanding stock options awarded pursuant to the Plan were extended from 10 years to 15 years and all future stock options awarded pursuant to the Plan will have a term that ends in 2013. The restrictions applicable to the exercise of the options will be removed effective April 1, 2008 or upon the occurrence of one of the events noted above.

~~ITEM~~Other 6Awards under the Option Plan. ~~Exhibits~~In addition to the incentive and ~~Reports~~non-qualified stock options available for grant under the Option Plan, the compensation committee may also award:

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

•

stock appreciation rights;

24• restricted stock awards;

~~SIGNATURES~~• phantom stock unit awards; and

~~Pursuant~~• toperformance ~~the requirements~~share of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on this 6th day of August, 2004units.

~~ARC~~There ~~CORPORATE~~are ~~REALTY~~options ~~TRUST,~~outstanding ~~INC.~~as of ~~By:~~June 30, ~~/s/~~2006, ~~Robert~~and J.December 31, ~~Ambrosi~~2005 ~~Name:~~for ~~Robert~~675,000 J.shares ~~Ambrosi~~at ~~Title:~~a ~~Chairman~~weighted ~~and~~exercise ~~President~~price ~~By:~~of ~~/s/~~$8.50. ~~Bruce Nelson Name: Bruce Nelson Chief Financial Officer~~

25The following are disclosures for common stock options outstanding at June 30, 2006:


Options Outstanding				Exercisable Options
Number	Exercise Price		Remaining Life (Years)	Number	Exercise Price
660,000	$	8.50	2.00	660,000	$	8.50
10,000		8.50	4.00	10,000		8.50
5,000		8.50	7.80	2,500		8.50

675,000	$	8.50		672,500	$	8.50

ARC CORPORATE REALTY TRUST, INC

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006 AND 2005

(UNAUDITED)

Compensation expense was calculated thru December 31, 2005 using a market price of $12.00 based on ACRT’s last stock offering which expired on December 31, 2003, and the option price of $8.50 per option. The compensation expense calculation was adjusted in the first quarter of 2006 to reflect the current projected liquidation values on the shares of $13.50 a share. For the six months ended June 30, 2006 and 2005, ACRT recognized stock based compensation expense totaling $886,203 and $224,379, respectively.

18.

CREDIT EVENTS

On October 11, 2005, Levitz Furniture, one of the tenants in the Paramus, New Jersey property, declared bankruptcy under Chapter 11 of the U.S. Bankruptcy code. At the time of declaration, October rent totaling $99,572 was unpaid. All subsequent months have been paid. On June 16, 2006, Levitz paid all outstanding rents related to October 2005 and is now current on all rent.

On March 4, 2006, OfficeMax, one of the tenants in the Lilburn, Georgia property, closed its store at this location. OfficeMax is still responsible for all rent payments and all minimum rent payments are current under the lease, which runs through 2016.

19.

CLASS B COMMON STOCK

In 2004, ACRT approved dividends to the holders of Class B common stock for the year ending 2003. The dividends, totaling $118,077, were paid on April 25, 2005. In 2005, ACRT approved dividends to the holders of Class B common stock for the year ending 2004. These dividends, totaling $162,769, were paid on April 25, 2005.

On February 8, 2006, the board of directors declared dividends to common stock shareholders-class B for 2005 totaling $162,770. The payment of these dividends were subject to the receipt of various tax documents due from the class B shareholders, which were not provided in the second quarter of 2006.

20.

LEGAL MATTER

On March 25, 2005, Whitestone Triangle LP (“Whitestone”), a wholly owned subsidiary of ACRT, brought suit against its joint venture partner in the New York, NY property (Note 4) regarding the exercise of a right of first refusal to purchase ACRT’s

interest in the property. On January 5, 2005, Whitestone sent to the joint venture partner a notice of right of first refusal to purchase Whitestone’s interest in the property at a price and other terms as set forth in the notice, subject to an attached form of

contract that required both shareholder and board of director approval. Subsequently, ACRT discovered that the calculation used to allocate capital proceeds in the contemplated sale, prepared by a third party, was incorrectly allocated and as a result

management and the board of directors of ACRT did not approve the terms of the sale. In addition, ACRT believes the joint venture partner, due to their unique insight into the value of the interest as the manager of the property, was aware that the

capital proceeds were incorrectly allocated. The joint venture partner has refused to accept a revised purchase price calculation, which necessitated ACRT bringing suit to halt the sale.

On April 1, 2005, ACRT’s joint venture partner filed a separate lawsuit against Whitestone compelling a sale of ACRT’s interest under the terms of the original right of first refusal.

On October 31, 2005, ACRT’s request for summary judgment against its joint venture partner regarding the joint venture partner’s exercise of a right of first refusal to purchase ACRT’s interest in the New York, NY property was denied. Summary judgment was found in favor of its joint venture partner in enforcement of the right of first refusal to purchase ACRT’s interest as now written. ACRT plans to appeal this ruling. ACRT’s management does not believe that the ruling will have a material adverse impact on ACRT’s consolidated financial position or results of operations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Certain information included or incorporated by reference in this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” or the negative of these words or other similar words or terms. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically, adverse developments with respect to our tenants, legislative/regulatory changes including changes to laws governing the taxation of REITs, availability of debt and equity capital, interest rates, competition, supply and demand for properties in our current and proposed market areas and policies and guidelines applicable to REITs. These risks and uncertainties should be considered in evaluating any forward-looking statements contained in this Form 10-Q.

The following should be read in conjunction with the unaudited consolidated financial statements of ACRT including the respective notes thereto, all of which are included in this Form 10-Q.

General

ACRT was formed as a Maryland corporation in June 1993 and is an externally advised real estate investment trust (“REIT”) under the Internal Revenue Code of 1986. It has operated as a REIT since its inception. ACRT is managed by its advisor, ARC Capital Advisors, L.P., an affiliate of Robert Ambrosi, ACRT’s Chairman, President and a director. The advisor performs services for ACRT pursuant to the terms of an advisory agreement. Such services include serving as ACRT’s investment and financial advisor and providing consultation, analysis and supervision of ACRT’s activities in acquiring, financing, managing and disposing of properties. The advisor also performs and supervises the various administrative duties of ACRT, such as maintaining its books and records.

ACRT was formed to purchase geographically diverse credit lease properties, which are general purpose retail, office and industrial properties. Each property is 100% leased to one or more creditworthy tenants under a long-term lease that generally requires tenants to pay most or all of the operating costs of the property, including real estate taxes and insurance.

On December 20, 2004, ACRT entered into a Contract of Purchase and Sale (the “Agreement”), by and among ACRT, certain affiliates of ACRT and HPI/NL Investors LLC (the “Purchaser”). The Agreement provides for the sale to the Purchaser of 14 of ACRT’s 21 properties and a limited partnership interest in an entity that owns a property.

On June 30, 2005, the Agreement became subject to termination. On November 30, 2005, ACRT entered into a Termination and Release Agreement with the Purchaser. The Termination and Release Agreement called for the payment of $150,000 to ACRT from the deposit escrow and an additional payment to ACRT of $37,450 as reimbursement of survey and other costs related to the Agreement. In exchange ACRT released the Purchaser from any further obligations under the Agreement.

In addition to the above, during 2005, ACRT, pursuant to various rights of first refusal and purchase agreements, entered into various contracts to sell investments not included in the above Agreement. The purchasers of these properties include joint venture partners, minority interest holders, tenants in common and affiliates of the Advisor. The investments included in these various contracts are:

New York, NY (partnership interest)

Fort Washington, PA (partnership interest)

Paramus, NJ (partnership interest)

ACRT anticipates that the sale of these investments will close in 2006. Based on the current sales prices, ACRT anticipates that the above three investments will be sold for amounts in excess of their carrying amounts and, therefore, will result in a gain for financial reporting purposes.

On January 25, 2005, the tenant in the Rochelle Park, NJ property, who had filed suit against ACRT, signed a stipulation of settlement agreeing to dismiss the suit against ACRT. As part of the settlement, the tenant entered into a contract to purchase ACRT’s 51% tenant in common interest and the remaining 49% tenant in common interest not owned by ACRT for $19,500,000. This contract was subsequently terminated.

ACRT is again in negotiations with the tenant on purchasing the property. However, at this time ACRT and the tenant have not been able to agree on a purchase price.

On February 8, 2006, the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the “Plan”). The Plan is subject to the approval of ACRT’s Common stockholders, by two-thirds vote. ACRT intends to sell its real estate properties on an orderly basis, to pay or provide for its liabilities and to distribute its remaining cash to its shareholders.

On May 23, 2006, ACRT sold its partnership interest in Fort Washington Fitness LP, which owns the property in Fort Washington, Pennsylvania leased to LA Fitness, to it’s joint venture partner for $2,500,000 and recognized a gain for financial reporting purposes of $1,546,204.

On June 15, 2006, the property located in Overland Park, Kansas, which is partially owned by ACRT, leased to Borders Books and Bed, Bath and Beyond, was sold for $13,600,000 to an unrelated third party, which resulted in a gain for financial reporting purposes of $6,137,479.

As of June 30, 2006, ACRT owned or had interests in 18 real estate properties encompassing 927,495 rentable square feet.

Critical Accounting Issues

ACRT’s accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates that effect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting policies which are important to the understanding of ACRT’s financial condition and results of operations and which require some of management’s most difficult, subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which could change in a manner that would materially affect management’s future estimates with respect to such matters. Accordingly, future reported financial conditions and results could differ materially from the current financial condition and results of operations reported based on management’s current estimates.

Revenue Recognition. Rental revenue from tenant operating leases which provide for scheduled rental increases are recognized in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13, on a straight-line basis over the term of the respective leases.

Gains on sales of real estate are recognized pursuant to the provisions of SFAS No. 66, “Accounting for Sales of Real Estate.” The specific timing of the sale is measured against various criteria in SFAS No. 66 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, the gain is deferred and the finance, installment or cost recovery method, as appropriate, is applied until the sales criteria are met.

Rent Receivable. ACRT continuously monitors collections from its tenants and makes a provision for estimated losses based upon historical experience and any specific tenant collection issues that ACRT has identified.

Purchase Accounting for the Acquisition of Real Estate. In accordance with SFAS No. 141, commencing with properties acquired after June 30, 2002, the fair value of real estate acquired is allocated to the acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

The fair value of the tangible assets of an acquired property (which includes land and building) is determined by valuing the property as if it were vacant, and the “as-if vacant” value is then allocated to land and building based on management’s determination of relative fair values of these assets. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease up periods, considering current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenues during expected lease up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the difference between the current in-place lease rent and management’s estimate of current market rent.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (1) the purchase price paid for a property over (2) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease. The value of in-place leases and customer relationships are amortized to expense over the remaining non-cancelable periods of the respective leases.

Industry Segments. ACRT currently operates in one industry segment - investments in credit lease properties.

Impairment. ACRT continually assesses the recoverability of its properties by determining whether the costs can be recovered through projected undiscounted cash flows. The amount of impairment, if any, is measured by comparing the carrying amounts to the fair values of such properties. Based on ACRT’s analysis, management does not believe that any of its properties are impaired. SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” updates and clarifies the accounting and reporting for the impairment of assets held in use and to be disposed of. The Statement, among other things, requires ACRT to classify the operations and cash flow of properties to be disposed of as discontinued operations.

For the six months ended June 30, 2006 and 2005, ACRT incurred an impairment charge of $0 and $275,000, respectively. The impairment charge in 2005 was on the Philadelphia, Pennsylvania property leased to Barnes and Noble, which is included in discontinued operations.

ACRT accounts for properties held for sale in accordance with SFAS No. 144. SFAS No. 144 requires that the assets and liabilities of properties that meet various criteria in SFAS No. 144 be presented separately in the balance sheet with assets and liabilities being separately stated. The operating results of these properties are reflected as discontinued operations in the statement of income (loss).

Liquidity and Capital Resources

ACRT’s main source of capital for growth has been the private placement equity market, selective secured indebtedness, its secured credit facility and undistributed funds from operations. ACRT expects to continue to have access to and use these sources in the future; however, there are factors that may have a material adverse effect on ACRT’s access to capital sources. ACRT’s ability to incur additional debt to fund acquisitions is dependent upon its existing leverage, the value of the assets ACRT is attempting to leverage and general economic conditions, which may be outside management’s control.

ACRT’s $5.5 million variable rate secured line-of-credit facility, which was scheduled to expire in April 2006, is available to finance acquisitions on a temporary basis until selective secured indebtedness can be obtained and to meet any short-term capital requirements. Interest is payable at the London Interbank Offered Rate (“LIBOR”) plus 2% on the facility and ACRT is also required to pay a commitment fee equal to 0.5% per year on the unused portion of the commitment. On April 30, 2004, with the sale of the Memphis, Tennesse property leased to Federal Express Corp., the credit facility was reduced by $1,652,387 which represented the collateral value of the Memphis property in the loan agreement. In addition, the quarterly reduction in the amount available under the loan was reduced from $125,000 to $84,150.

On April 1, 2006, this credit facility matured and was extended on a temporary basis for 60 days under the existing terms. ACRT has determined that with the board of directors decision to adopt a Plan of Liquidation, this credit facilty will not be renewed.

On June 17, 2004, ACRT established an additional secured credit facility, which provides for additional borrowing of up to $5,500,000 and decreases by $100,000 per annum. This credit facility bears interest at LIBOR plus 2.25% and matures in five years. ACRT is required to pay an annual commitment fee equal to 0.5% on the unused portion of the facility. The total amount available under this facility at June 30, 2006 was $5,300,000.

Since 1993, ACRT has raised, through the issuance of shares of Class A common stock, aggregate capital of approximately $30.6 million, and through the issuance of shares of Class B common stock, aggregate capital of approximately $1.56 million. The capital raised was used primarily to acquire properties and to retire indebtedness.

During 2006, ACRT has not sold any additional Class A or Class B common shares. As a result of the Plan of Liquidation it is unlikely that ACRT will raise any additional capital through the issuance of common stock. Furthermore, liquidity will be primarily based upon the sales of existing properties.

See the comments under the General section regarding the sale of certain assets.

Dividends. On February 8, 2006 the board of directors approved the adoption of a Plan of Liquidation and Dissolution (the “Plan”). The Plan is subject to the approval of ACRT’s Common stockholders, by two-thirds vote. ACRT intends to sell its real estate properties on an orderly basis, to pay or provide for its liabilities and to distribute its remaining cash to its shareholders.

Pursuant to the Plan, ACRT plans to stop future regular quarterly dividend payments.

Dividends paid to common shareholders were $763,577 and $1,808,000 for the six months ended June 30, 2006 and 2005, respectively.

In the first quarter of 2006, ACRT paid dividends of $763,577 of which Net Cash Flow from Operations funded $580,112 and the remainder of $183,465 was funded primarily from distributions from unconsolidated subsidiaries and undivided interests of $244,700. For the six months ended June 30, 2005, Net Cash Flow from Operations funded $1,112,831 of the total dividends paid of $1,808,000 with the remainder of $695,169 being funded primarily from distributions from unconsolidated subsidiaries and undivided interests of $675,000 and cash on hand and borrowing from ACRT’s lines of credit.

ACRT believes that cash flow from operations and distributions from unconsolidated subsidiaries will provide a portion of the capital to fund operating and administrative expenses and debt service. In addition, ACRT anticipates that cash on hand and borrowings under its secured facilities will assist in providing funds for these expenses and costs. Upon the approval of the shareholders of the Plan of Liquidation, dividends will only be paid from the proceeds of the sale of properties or upon final liquidation, as determined by the board of directors. Cash flows from operations as reported in the consolidated statements of cash flows were $1,021,254 and $1,112,831 for the six months ended June 30, 2006 and 2005, respectively.

Net cash provided by investing activities was $16,061,400 and $1,898,544 for the six months ended June 30, 2006 and 2005, respectively. Net cash provided by investing activities is related primarily to sale of properties or investments and repayments of notes receivable.

Net cash used in financing activities was $12,807,848 and $3,118,999 for the six months ended June 30, 2006 and 2005, respectively. Net cash used in financing activities is primarily dividends paid, distributions to minority interest owners and debt service payments including paydown of a mortgage loan and the line of credit.

Debt Service Requirements

ACRT’s principal liquidity needs are payments of interest and principal on outstanding indebtedness. As of June 30, 2006, a total of five of ACRT’s seven consolidated properties were subject to outstanding mortgages which had an aggregate principal amount outstanding of $17.8 million, including $8.1 million in variable interest rate mortgages. As of June 30, 2006, the weighted averaged interest rate on ACRT’s outstanding mortgages was 7.83%. The scheduled principal payments as of June 30, 2006 for the next five years are as follows:


2006	$	322,521
2007		597,818
2008		576,742
2009		453,255
2010		479,848

Balloon payment amounts, due in the next five years, excluding the secured credit facility, are as follows:


2007	$	3,897,539
2009		3,747,919

The interest rates on ACRT’s outstanding indebtedness range from 6.7% (variable rate at June 30, 2006) to 8.65%. The ability of ACRT to make its balloon payments will depend upon its ability to refinance the mortgages related thereto, sell the related property, have amounts available under its secured credit facility or obtain access to other sources of capital. The ability of ACRT to accomplish this will be affected by the availability and cost of mortgage debt at that time, ACRT’s equity in the mortgaged properties, the financial condition of ACRT, the operating history of the mortgaged properties, the then current tax laws and general national, regional and local economic conditions.

ACRT expects to continue to use property specific, non-recourse mortgages as it believes that by properly matching a debt obligation, including the balloon maturity risk, with a lease expiration, ACRT’s cash-on-cash returns increase and the exposure to residual valuation risk is reduced.

ACRT has also purchased an interest rate cap in connection with its variable rate mortgage on the Sacramento, California property. The Sacramento interest rate cap is coterminous with the mortgage and its notional amount equals the outstanding balance on the mortgage.

Lease Obligations

Since ACRT’s tenants bear all or substantially all of the cost of property operations and maintenance and repairs, ACRT does not anticipate significant need for cash for these costs. For two of the thirteen consolidated properties, ACRT has a certain level of property operating expense responsibility. To the extent there is a vacancy in a property, ACRT would be obligated to pay for all operating expenses, including real estate taxes and insurance.

Results of Operations for the Three Months Ended June 30, 2006 and 2005


Selected Income Statement Data	2006			2005		Favorable (Unfavorable) 2006-2005
	(Dollars in thousands)
Rental revenues and reimbursements	$	1,081		$	1,259	$	(178	)
Interest income		46			1		45
Interest expense		378			321		(57	)
Depreciation and amortization expense		187			196		9
Management fees-affiliate		164			175		11
Real estate taxes		116			143		27
Property operating expenses		37			36		(1	)
General and administrative taxes		26			19		(7	)
Stock based compensation		189			112		(77	)
Professional expenses		191			149		(42	)
(Gain) Loss on interest rate cap, net		(6	)		9		15
Other expenses		2			3		1
Minority interest in earnings of subsidiaries		17			15		(2	)
Equity in income of unconsolidated subsidiaries and undivided interests		258			244		14
Gain on sale of unconsolidated subsidiaries and undivided interests		1,546			—		1,546

Income from discontinued operations		2,947			190		2,757
Net income		4,577			516		4,061

Rental revenues decreased by $178,000 which is primarily attributable to $160,000 of rent in 2005 on the Montgomeryville property, and to lower real estate tax reimbursements in 2006 on the Wichita, Kansas property. The decrease in real estate tax reimbursements is offset by a similar decrease in real estate tax expense.

Interest income increased by $45,000 due mainly to interest income from the loan from ACRT’s line of credit to the Overland Park, Kansas property.

Interest expense increased by $57,000 primarily due to higher interest rates in 2006 and a slightly higher average outstanding loan balance on the line of credit.

Depreciation and amortization expense decreased by $9,000 due to the slightly lower amortization of deferred financing costs in 2006.

Management fees –affiliate decreased by $11,000 due to having less properties in 2006 due to sales in 2006 and the second half of 2005.

Real estate taxes decreased by $27,000 due to lower real estate taxes on the Wichita Kansas property (see rental revenues).

General expense increased by $7,000 due primarily to higher D&O insurance.

Stock based compensation increased $77,000 due to changes in the estimated fair value of ACRT’s common stock from $12.00 to $13.50 per share in 2006.

Professional expense increased by $42,000 due to increased legal and accounting fees associated with the proxy preparation and lawsuits.

Equity in income of unconsolidated subsidiaries and undivided interests increased by $14,000 primarily due to slightly higher income from the Rochelle investment offset due primarily to gains on the value of the interest rate cap and swap offset by lower income from the Fort Washington, Pennsylvania investment due to its sale in May 2006.

Gain on sale of unconsolidated subsidiaries and undivided interests increased by $1,546,000 due to the sale of the Fort Washington, Pennsylvania investment.

Income from discontinued operations increased by $2,757,000 due primarily to the sale of the Overland Park, Kansas property.

Results of Operations for the Six Months Ended June 30, 2006 and 2005


Selected Income Statement Data	2006			2005		Favorable (Unfavorable) 2006-2005
	(Dollars in thousands)
Rental revenues and reimbursement	$	2,159		$	2,364	$	(205	)
Interest income		49			22		27
Interest Expense		647			639		(8	)
Depreciation and amortization expense		383			393		10
Asset management fees-affiliate		330			349		19
Real estate taxes		232			284		52
Property operating expenses		73			81		8
General and administrative expenses		64			69		5
Stock based compensation		886			224		(662	)
Professional expenses		290			258		(32	)
(Gain) on interest rate cap, net		(8	)		6		14
Other expenses		5			11		6
Minority interest in earnings of subsidiaries		31			29		(2	)
Equity in income of unconsolidated subsidiaries and undivided interest		522			549		(27	)
Gain on sale of investment in unconsolidated subsidiaries		1,546			400		1,146
Income (loss) from discontinued operations		3,058			119		2,939
Net (loss) income		4,401			1,111		3,290

Rental revenues decreased by $205,000 due to $160,000 of rent in 2005 on the Montgomeryville property and to lower real estate tax reimbursements on the Wichita, Kansas property. The decrease in real estate tax reimbursements is offset by a similar decrease in real estate tax expense.

Interest income increased by $27,000 due primarily to interest income from the loan from ACRT’s line of credit to the Overland Park, Kansas property.

Interest expense increased by $8,000 primarily due to the higher interest rates.

Depreciation and amortization expense decreased by $10,000 due to the slightly lower amortization of deferred financing costs in 2006.

Management fees –affiliate decreased by $19,000 due to having less properties in 2006 due to sales in 2006 and the second half of 2005.

Real estate taxes decreased by $52,000 to lower real estate taxes on the Wichita Kansas property (see rental revenues).

Stock based compensation increased by $662,000 due to changes in the estimated fair value of ACRT’s common stock from $12.00 to $13.50 per share in 2006.

Professional expenses increased by $32,000 due to increased legal and accounting fees associated with the proxy preparation and lawsuits.

Equity in income of unconsolidated subsidiaries and undivided interests decreased by $27,000 primarily due to lower income on the Rochelle Park investment due to higher interest expense and legal expense and by lower income from the Fort Washington, Pennsylvania investment due to its sale in May 2006.

Gain on sale of investment in unconsolidated subsidiaries was $1,546,000 in 2006 from the sale of the Fort Washington, Pennsylvania investment and $400,000 in 2005 from the sale of the Willow Grove, Pennsylvania investment.

Income from discontinued operations increased by $2,939,000 due primarily to the gain on the sale of the Overland Park, Kansas property.

Environmental Matters

Based upon management’s ongoing review of its properties, management is not aware of any environmental conditions with respect to any of ACRT’s properties, which would be reasonably likely to have a material adverse effect on ACRT. There can be no assurance, however, that the discovery of environmental conditions which were previously unknown, changes in law, the conduct of tenants or activities relating to properties in the vicinity of ACRT’s properties, will not expose ACRT to material liability in the future. Changes in law increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of ACRT’s tenants, which would adversely affect ACRT’s consolidated financial condition and results of operations.

Off-Balance Sheet Arrangements

Unconsolidated Real Estate Joint Ventures and Undivided Interests

ACRT has investments in various real estate joint ventures with varying structures. These investments include ACRT’s non-controlling interests in Triangle Plaza II, LLC, Fort Washington Fitness, L.P., Levittown ARC, LP, Willow Grove ACRT, LLC and ARC International Fund II, LP and its undivided interests in the Rochelle Park property and the Paramus property. See Item 1 Notes 4 to 10 of Notes to Consolidated Financial Statements (unaudited) for information on these investments.

The properties owned by the joint ventures and the undivided interests are financed with individual non-recourse mortgage loans. Non-recourse mortgage debt is generally defined as debt whereby the lenders’ sole recourse with respect to borrower defaults is limited to the value of the property collateralized by the mortgage. The lender generally does not have recourse against any other assets owned by the borrower or any of the members of the borrower, except for certain specified expectations listed in the particular loan documents. These exceptions generally relate to limited circumstances including breaches of material representations. ACRT invests in joint ventures with third parties to increase portfolio diversification, reduce the amount of equity invested in any one property and to increase returns on equity due to the realization of advisory fees. See the footnotes to the consolidated financial statements referenced above for summary balance sheet and income statement data.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk

ACRT’s exposure to market risk relates to its variable rate debt. At June 30, 2006, ACRT had two variable rate mortgages outstanding totaling $8.076 million and $0 outstanding on its variable rate line of credit. The mortgages bear interest at LIBOR plus 206 basis points (7.17% on $4.018 million) and LIBOR plus 225 basis points (7.36% on $4.058 million) and the line of credit bear interest at LIBOR plus 200 basis points. Had the LIBOR rate been 100 basis points higher during the six months ended June 30, 2006, ACRT’s net income would have been reduced by approximately $40,000. ACRT also entered into an interest rate cap agreement on a notional amount equal to the $4.018 million mortgage balance at June 30, 2006, which effectively caps the LIBOR rate at 7.45% per year.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

(a)

Disclosure Controls and Procedures. ACRT’s management, with the participation of ACRT’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of ACRT’s disclosure controls and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, ACRT’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, ACRT’s disclosure controls and procedures are effective.

Internal Control Over Financial Reporting

(b)

Internal Control Over Financial Reporting. There have not been any changes in ACRT’s internal control over financial reporting during the second quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, ACRT’s internal control over financial reporting.

PART II - OTHER INFORMATION


ITEM 1.		Legal Proceedings - On March 25, 2005, Whitestone Triangle LP (“Whitestone”), a wholly owned subsidiary of ACRT, brought suit against the joint venture partner in the New York, NY property (see Note 4 of Notes to Consolidated Financial Statements) regarding the exercise of a right of first refusal to purchase ACRT’s interest in the property. On January 5, 2005, Whitestone sent to the joint venture partner a notice of right of first refusal to purchase Whitestones’s interest in the property at a price and other terms as set forth in the notice, subject to an attached form of contract that required both shareholder and board of director approval. Subsequently, ACRT discovered that the calculation used to allocate capital proceeds in the contemplated sale, prepared by a third party firm, was incorrectly allocated and as a result management and the board of directors of ACRT did not approve the terms of the sale. In addition, ACRT believes the joint venture partner, due to their unique insight into the value of the interest as the manager of the property, was aware that the capital proceeds were incorrectly allocated. The joint venture partner has refused to accept a revised purchase price calculation, which necessitated ACRT bringing suit to halt the sale.

		On April 1, 2005, the joint venture partner filed a separate lawsuit against Whitestone compelling a sale of ACRT’s interest under the terms of the original right of first refusal.

		On October 31, 2005, ACRT’s request for summary judgment against its joint venture partner regarding the joint venture partner’s exercise of a right of first refusal to purchase ACRT’s interest in the New York, NY property was denied. Summary judgment was found in favor of its joint venture partner in enforcement of the right of first refusal to purchase ACRT’s interest as now written. ACRT plans to appeal this ruling. ACRT’s management does not believe that the ruling will have a material adverse impact on ACRT’s consolidated financial position or results of operations.

ITEM 1A.		There has been no material changes in ACRT’s risk factors from those disclosed in our Annual Report on Form 10K/A for the year ended December 31, 2005

ITEM 2.		Changes in Securities, Use of Proceeds and Issuers Purchase of Equity Securities- not applicable

ITEM 3.		Defaults Upon Senior Securities-not applicable

ITEM 4.		Submission of Matters to a Vote of Security Holders- not applicable

ITEM 5.		Other information- not applicable

ITEM 6.		Exhibits and Reports

		31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

		31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

		32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

		32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 14th day of August 2006.


ARC CORPORATE REALTY TRUST, INC.

By:		/s/ Robert J. Ambrosi
Name:		Robert J. Ambrosi
Title:		Chairman and President

By:		/s/ Bruce Nelson
Name:		Bruce Nelson
Title:		Chief Financial Officer

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