##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 _____ 

to
 _____
 Commission file number 000-51963
 COLE CREDIT PROPERTY TRUST II, INC.
 (Exact name of registrant as specified in its charter)
 Maryland(State or other jurisdiction of 
incorporation or organization)
    
    20-1676382(I.R.S. Employer
Identification Number)2555 East Camelback Road, Suite 400
Phoenix, Arizona, 85016(Address of principal executive offices; zip code)
    
    (602) 778-8700(Registrants telephone number, including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ  (Do not check if smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



COLE CREDIT PROPERTY TRUST II, INC.
INDEX
 PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Unaudited Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    4Condensed Consolidated Unaudited Statements of Operations for the three and six months
ended June 30, 2009 and 2008
    
    
    5Condensed Consolidated Unaudited Statement of Stockholders Equity for the six months
ended June 30, 2009
    
    
    6Condensed Consolidated Unaudited Statements of Cash Flows for the six months ended June
30, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Unaudited Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4T. Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    39Signatures
    
    
    40Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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PART I
FINANCIAL INFORMATION
    3




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
  June 30,
    
    
    December 31,2009
    
    
    2008ASSETSInvestment in real estate assets:Land
    
    $
    807,554
    
    
    $
    774,901Buildings and improvements, less accumulated
depreciation of $94,651 and $67,326,
respectively
    
    
    1,954,154
    
    
    
    1,929,829Real estate assets under direct financing
leases, less unearned income of $17,794 and
$19,888, respectively
    
    
    38,139
    
    
    
    38,612Acquired intangible lease assets, less
accumulated amortization of $53,465 and
$37,578, respectively
    
    
    379,622
    
    
    
    383,992Total real estate assets, net
    
    
    3,179,469
    
    
    
    3,127,334Investment in mortgage notes receivable, less
accumulated amortization of $1,049 and $714,
respectively
    
    
    83,765
    
    
    
    84,994Total real estate and mortgage assets, net
    
    
    3,263,234
    
    
    
    3,212,328Cash and cash equivalents
    
    
    27,000
    
    
    
    106,485Restricted cash
    
    
    7,172
    
    
    
    8,565Marketable securities, net of accumulated
amortization of $1,363 and $310, respectively
    
    
    42,188
    
    
    
    24,583Investment in unconsolidated joint ventures
    
    
    42,153
    
    
    
    25,792Rents and tenant receivables, less allowance
for doubtful accounts of $1,730 and $922,
respectively
    
    
    26,088
    
    
    
    22,212Prepaid expenses and other assets
    
    
    2,147
    
    
    
    4,032Deferred financing costs, less accumulated
amortization of $8,713 and $6,512,
respectively
    
    
    28,298
    
    
    
    28,031Total assets
    
    $
    3,438,280
    
    
    $
    3,432,028LIABILITIES AND STOCKHOLDERS EQUITYNotes payable and line of credit
    
    $
    1,618,256
    
    
    $
    1,550,314Accounts payable and accrued expenses
    
    
    19,231
    
    
    
    20,723Escrowed investor proceeds
    
    
    
    
    
    
    18Due to affiliates
    
    
    54
    
    
    
    123Acquired below market lease intangibles, less
accumulated amortization of $16,945 and
$10,897, respectively
    
    
    161,084
    
    
    
    156,813Distributions payable
    
    
    11,586
    
    
    
    11,877Derivative liabilities
    
    
    2,770
    
    
    
    2,794Deferred rent and other liabilities
    
    
    8,923
    
    
    
    9,344Total liabilities
    
    
    1,821,904
    
    
    
    1,752,006Redeemable common stock
    
    
    59,687
    
    
    
    65,046STOCKHOLDERS EQUITY:Preferred stock, $0.01 par value; 10,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value; 240,000,000
shares authorized, 201,682,678 and 202,296,748
shares issued and outstanding, respectively
    
    
    2,017
    
    
    
    2,023Capital in excess of par value
    
    
    1,762,908
    
    
    
    1,763,432Accumulated distributions in excess of earnings
    
    
    (185,954
    )
    
    
    (121,929
    )Accumulated other comprehensive loss
    
    
    (22,282
    )
    
    
    (28,550
    )Total stockholders equity
    
    
    1,556,689
    
    
    
    1,614,976Total liabilities and stockholders equity
    
    $
    3,438,280
    
    
    $
    3,432,028
   4




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedJune 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2009
    
    
    June 30, 2008Revenues:Rental and other income
    
    $
    58,148
    
    
    $
    39,678
    
    
    $
    117,478
    
    
    $
    76,072Tenant reimbursement income
    
    
    4,791
    
    
    
    2,047
    
    
    
    10,024
    
    
    
    4,044Earned income from direct financing leases
    
    
    500
    
    
    
    611
    
    
    
    912
    
    
    
    1,118Interest income on mortgage notes receivable
    
    
    1,720
    
    
    
    1,772
    
    
    
    3,443
    
    
    
    3,554Interest income on marketable securities
    
    
    1,828
    
    
    
    
    
    
    
    3,538
    
    
    
    Total revenue
    
    
    66,987
    
    
    
    44,108
    
    
    
    135,395
    
    
    
    84,788Expenses:General and administrative
    
    
    1,547
    
    
    
    1,111
    
    
    
    3,495
    
    
    
    2,080Property operating expenses
    
    
    6,552
    
    
    
    3,439
    
    
    
    13,476
    
    
    
    6,140Property and asset management fees
    
    
    3,310
    
    
    
    2,046
    
    
    
    6,821
    
    
    
    3,955Acquisition related expenses
    
    
    69
    
    
    
    
    
    
    
    3,241
    
    
    
    Depreciation
    
    
    14,086
    
    
    
    9,259
    
    
    
    27,886
    
    
    
    17,992Amortization
    
    
    7,058
    
    
    
    4,861
    
    
    
    14,005
    
    
    
    9,495Impairment of real estate assets
    
    
    13,500
    
    
    
    
    
    
    
    13,500
    
    
    
    3,550Total operating expenses
    
    
    46,122
    
    
    
    20,716
    
    
    
    82,424
    
    
    
    43,212Operating income
    
    
    20,865
    
    
    
    23,392
    
    
    
    52,971
    
    
    
    41,576Other income (expense):Equity in income of unconsolidated joint
ventures
    
    
    187
    
    
    
    
    
    
    
    527
    
    
    
    Interest and other income
    
    
    141
    
    
    
    264
    
    
    
    225
    
    
    
    628Interest expense
    
    
    (24,891
    )
    
    
    (16,609
    )
    
    
    (47,790
    )
    
    
    (34,570
    )Total other expense
    
    
    (24,563
    )
    
    
    (16,345
    )
    
    
    (47,038
    )
    
    
    (33,942
    )Net (loss) income
    
    $
    (3,698
    )
    
    $
    7,047
    
    
    $
    5,933
    
    
    $
    7,634Weighted average number of common shares
outstanding:Basic
    
    
    201,754,746
    
    
    
    130,357,008
    
    
    
    202,112,149
    
    
    
    117,448,582Diluted
    
    
    201,757,810
    
    
    
    130,360,091
    
    
    
    202,115,117
    
    
    
    117,451,552Net (loss) income per common share:Basic and diluted
    
    $
    (0.02
    )
    
    $
    0.05
    
    
    $
    0.03
    
    
    $
    0.06
   5




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS EQUITY
  Accumulated
    
    
    AccumulatedCommon Stock
    
    
    
    
    
    
    Distributions in
    
    
    Other
    
    
    TotalNumber of
    
    
    
    
    
    
    Capital in Excess
    
    
    Excess of
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Par Value
    
    
    of Par Value
    
    
    Earnings
    
    
    (Loss) Income
    
    
    EquityBalance, December 31, 2008
    
    
    202,296,748
    
    
    $
    2,023
    
    
    $
    1,763,432
    
    
    $
    (121,929
    )
    
    $
    (28,550
    )
    
    $
    1,614,976Issuance of common stock
    
    
    3,988,814
    
    
    
    40
    
    
    
    37,913
    
    
    
    
    
    
    
    
    
    
    
    37,953Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,958
    )
    
    
    
    
    
    
    (69,958
    )Other offering costs
    
    
    
    
    
    
    
    
    
    
    (581
    )
    
    
    
    
    
    
    
    
    
    
    (581
    )Redemptions of common
stock
    
    
    (4,602,884
    )
    
    
    (46
    )
    
    
    (43,220
    )
    
    
    
    
    
    
    
    
    
    
    (43,266
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Redeemable common stock
    
    
    
    
    
    
    
    
    
    
    5,359
    
    
    
    
    
    
    
    
    
    
    
    5,359Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,933
    
    
    
    
    
    
    
    5,933Unrealized gain on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,057
    
    
    
    6,057Unrealized gain on
interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    211Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,201Balance, June 30, 2009
    
    
    201,682,678
    
    
    $
    2,017
    
    
    $
    1,762,908
    
    
    $
    (185,954
    )
    
    $
    (22,282
    )
    
    $
    1,556,689
   6




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
  Six Months EndedJune 30, 2009
    
    
    June 30, 2008Cash flows from operating activities:Net income
    
    $
    5,933
    
    
    $
    7,634Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    27,886
    
    
    
    17,992Amortization
    
    
    10,145
    
    
    
    6,935Amortization of deferred financing costs
    
    
    2,810
    
    
    
    2,832Amortization of premiums on mortgage notes receivable
    
    
    335
    
    
    
    314Amortization of discount on marketable securities
    
    
    (1,053
    )
    
    
    Amortization of fair value adjustments of mortgage notes assumed
    
    
    541
    
    
    
    Allowance for doubtful accounts
    
    
    1,573
    
    
    
    981Stock compensation expense
    
    
    5
    
    
    
    4Impairment of real estate assets
    
    
    13,500
    
    
    
    3,550Equity in income of unconsolidated joint ventures
    
    
    (527
    )
    
    
    Distributions from unconsolidated joint ventures
    
    
    1,485
    
    
    
    Property easement loss
    
    
    150
    
    
    
    Changes in assets and liabilities:Decrease in investment in real estate under direct financing leases
    
    
    473
    
    
    
    298Rents and tenant receivables
    
    
    (5,449
    )
    
    
    (5,288
    )Prepaid expenses and other assets
    
    
    2,097
    
    
    
    342Accounts payable and accrued expenses
    
    
    (10
    )
    
    
    1,385Deferred rent and other liabilities
    
    
    (490
    )
    
    
    1,805Net cash provided by operating activities
    
    
    59,404
    
    
    
    38,784Cash flows from investing activities:Investment in real estate and related assets
    
    
    (13,335
    )
    
    
    (399,415
    )Investment in marketable securities
    
    
    (10,495
    )
    
    
    Investment in unconsolidated joint ventures
    
    
    (17,319
    )
    
    
    Acquired intangible lease assets
    
    
    (1,425
    )
    
    
    (50,880
    )Acquired below market lease intangibles
    
    
    1,070
    
    
    
    38,204Acquisition costs related to investment in mortgage notes receivable
    
    
    
    
    
    
    (87
    )Proceeds from mortgage notes receivable
    
    
    894
    
    
    
    755Proceeds from easement of assets
    
    
    11
    
    
    
    Restricted cash
    
    
    1,393
    
    
    
    5,685Net cash used in investing activities
    
    
    (39,206
    )
    
    
    (405,738
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    46
    
    
    
    491,453Offering costs on issuance of common stock
    
    
    (581
    )
    
    
    (47,045
    )Redemptions of common stock
    
    
    (43,266
    )
    
    
    (4,261
    )Distributions to investors
    
    
    (32,342
    )
    
    
    (17,214
    )Proceeds from notes payable and line of credit
    
    
    75,243
    
    
    
    120,193Repayment of notes payable and line of credit
    
    
    (95,663
    )
    
    
    (162,032
    )Refund of loan deposits
    
    
    150
    
    
    
    Payment of loan deposits
    
    
    (175
    )
    
    
    (674
    )Escrowed investor proceeds liability
    
    
    (18
    )
    
    
    (9,942
    )Deferred financing costs paid
    
    
    (3,077
    )
    
    
    (3,239
    )Net cash (used in) provided by financing activities
    
    
    (99,683
    )
    
    
    367,239Net (decrease) increase in cash and cash equivalents
    
    
    (79,485
    )
    
    
    285Cash and cash equivalents, beginning of period
    
    
    106,485
    
    
    
    43,517Cash and cash equivalents, end of period
    
    $
    27,000
    
    
    $
    43,802
   7




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COLE CREDIT PROPERTY TRUST II, INC.
 
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
 June 30, 2009
 NOTE 1  ORGANIZATION AND BUSINESS
       8




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
   NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation and Basis of Presentation
   Consolidation of Variable
Interest Entities Consolidated
Financial Statements Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB
   9




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 Restricted Cash and Escrowed Investor Proceeds
  Redeemable Common Stock
 Presentation in Financial Statements of Redeemable Preferred Stock,
 Reportable Segments
 Disclosures about Segments of an Enterprise and Related
Information,
  10




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 Investment in and Valuation of Real Estate Assets
  Investment in Unconsolidated Joint Ventures
  The Equity Method of Accounting for
Investments in Common Stock Equity Method Investment Accounting Considerations
 NOTE 3  FAIR VALUE MEASUREMENTS
 Fair Value Measurements
  11




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 Determining Fair Value when the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
that are not Orderly Recognition and Presentation of
Other-Than-Temporary Impairments
      Balance at
    
    
    Fair Value Measurements of Reporting Date UsingJune 30, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Description:Long-lived assets held and used
    
    $
    9,560
    
    
    $
    
    
    
    $
    
    
    
    $
    9,560
  Disclosures about Fair Value of Financial Instruments
  Cash and cash equivalents, restricted cash, rents and tenant receivable and accounts payable
and accrued expenses
  12




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 Mortgage notes receivable
 Notes payable and line of credit
 Marketable securities
 Derivative Instruments
   Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableBalance at
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    42,188
    
    
    $
    
    
    
    $
    
    
    
    $
    42,188Interest rate cap agreements
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Interest rate swap
    
    
    187
    
    
    
    
    
    
    
    187
    
    
    
    Total Assets
    
    $
    43,377
    
    
    $
    
    
    
    $
    189
    
    
    $
    42,188Liabilities:Interest rate swaps
    
    $
    2,770
    
    
    $
    
    
    
    $
    2,770
    
    
    $
    
  13




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
  Net realized/
    
    
    
    
    
    
    Purchases,unrealized gains
    
    
    Net
    
    
    issuances,
    
    
    Transfers inBalance at
    
    
    (losses) included
    
    
    unrealized
    
    
    settlements and
    
    
    and out of
    
    
    Balance atJanuary 1, 2009
    
    
    in earnings
    
    
    gain
    
    
    amortization
    
    
    Level 3
    
    
    June 30, 2009Marketable securities
    
    $
    24,583
    
    
    $
    
    
    
    $
    6,057
    
    
    $
    11,548
    
    
    $
    
    
    
    $
    42,188
  NOTE 4  REAL ESTATE ASSETS UNDER DIRECT FINANCING LEASES
  June 30, 2009
    
    
    December 31, 2008Minimum lease payments receivable
    
    $
    28,079
    
    
    $
    30,646Estimated residual value of leased assets
    
    
    27,854
    
    
    
    27,854Deferred incremental direct costs
    
    
    
    
    
    
    Unearned income
    
    
    (17,794
    )
    
    
    (19,888
    )Total
    
    $
    38,139
    
    
    $
    38,612
  NOTE 5  REAL ESTATE ACQUISITIONS
 Property Acquisitions
     14




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
    Earnout Agreements
  Investment in Unconsolidated Joint Ventures
  NOTE 6  INVESTMENT IN MORTGAGE NOTES RECEIVABLE
   15




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COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 NOTE 7  MARKETABLE SECURITIES
  Amortized Cost
    
    
    UnrealizedBasis
    
    
    Gain (Loss)
    
    
    TotalMarketable securities at December 31, 2008
    
    $
    50,339
    
    
    $
    (25,756
    )
    
    $
    24,583Face value of marketable securities acquired
    
    
    19,790
    
    
    
    
    
    
    
    19,790Discounts on purchases of marketable securities
    
    
    (9,295
    )
    
    
    
    
    
    
    (9,295
    )Increase in fair value of marketable securities
    
    
    
    
    
    
    6,057
    
    
    
    6,057Accretion of discounts on marketable securities
    
    
    1,053
    
    
    
    
    
    
    
    1,053Marketable securities at June 30, 2009
    
    $
    61,887
    
    
    $
    (19,699
    )
    
    $
    42,188
    Holding Period of Net Unrealized Losses of Marketable SecuritiesLess than 12 months
    
    
    12 Months or More
    
    
    TotalNet
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesCommercial
mortgage-backed
securities
    
    $
    42,188
    
    
    $
    19,699
    
    
    $
    
    
    
    $
    
    
    
    $
    42,188
    
    
    $
    19,699
  16




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
  Available-for-saleEstimated FairAmortized Cost
    
    
    ValueDue within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    
    
    
    
    Due after five years through ten years
    
    
    61,887
    
    
    
    42,188Due after ten years
    
    
    
    
    
    
    $
    61,887
    
    
    
    42,188
  NOTE 8  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
  Fair Value of Asset (Liability)Balance Sheet
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    June 30,
    
    
    December 31,Location
    
    Value
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2009
    
    
    2008Derivatives not designated as hedging instruments under SFAS No. 133Interest Rate Cap
    
    Prepaid expenses and other assets
    
    $
    36,000
    
    
    
    7.0
    %
    
    
    8/5/2008
    
    
    
    8/5/2010
    
    
    $
    
    (1)
    
    $
    
    (1)Interest Rate Cap
    
    Prepaid expenses and other assets
    
    
    34,000
    
    
    
    7.0
    %
    
    
    10/1/2008
    
    
    
    9/1/2010
    
    
    
    2
    
    
    
    
    (1)$
    70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2
    
    
    $
    Derivatives designated as hedging instruments under SFAS No. 133Interest Rate Swap
    
    Derivative liabilities
    
    $
    32,000
    
    
    
    6.2
    %
    
    
    11/4/2008
    
    
    
    10/31/2012
    
    
    $
    (1,606
    )
    
    $
    (2,090
    )Interest Rate Swap
    
    Derivative liabilities
    
    
    38,250
    
    
    
    5.6
    %
    
    
    12/10/2008
    
    
    
    9/26/2011
    
    
    
    (725
    )
    
    
    (704
    )Interest Rate Swap
    
    Derivative liabilities
    
    
    15,043
    
    
    
    6.2
    %
    
    
    6/12/2009
    
    
    
    6/11/2012
    
    
    
    (439
    )
    
    
    Interest Rate Swap
    
    Prepaid expenses and other assets
    
    
    7,200
    
    
    
    5.8
    %
    
    
    2/20/2009
    
    
    
    3/1/2016
    
    
    
    187
    
    
    
    $
    92,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,583
    )
    
    $
    (2,794
    )
 
 (1)
    
    The fair value of the rate caps was less than $1,000. Accounting for Derivatives
Instruments and Hedging Activities
  17




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
  Derivatives not
    
    
    
    
    
    Amount of Gain (Loss) Recognized in Income on Derivativedesignated
    
    Location of Gain
    
    
    Three months
    
    
    Six months
    
    
    Three months
    
    
    Six monthsas hedging instruments
    
    Recognized in Income
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    endedunder SFAS No. 133
    
    on Derivative
    
    
    June 30, 2009
    
    
    June 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2008Interest Rate Caps
    
    Interest expense
    
    $
    (2
    )
    
    $
    2
    
    
    $
    
    
    
    $
    
 Amount of Gain Recognized in Other Comprehensive Income on DerivativeThree months
    
    
    Six months
    
    
    Three months
    
    
    Six monthsDerivatives in SFAS No. 133 Cash Flow Hedging
    
    ended
    
    
    ended
    
    
    ended
    
    
    endedRelationships
    
    June 30, 2009
    
    
    June 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2008Interest Rate Swaps (1)
    
    $
    884
    
    
    $
    211
    
    
    $
    
    
    
    $
    
 
 (1)
    
    There were no portions relating to the change in the fair value of the
interest rate swap agreements that were considered ineffective during
the six months ended June 30, 2009 and 2008. No previously effective
portion of gains or losses that were recorded in accumulated other
comprehensive income during the term of the hedging relationship was
reclassified into earnings during the three and six months ended June
30, 2009 and 2008.   NOTE 9  NOTES PAYABLE AND LINE OF CREDIT
   18




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
   NOTE 10  SUPPLEMENTAL CASH FLOW DISCLOSURES
  Six months endedJune 30, 2009
    
    
    June 30, 2008Supplemental Disclosures of Non-Cash Investing and Financing Activities:Dividends declared and unpaid
    
    $
    11,586
    
    
    $
    8,012Fair value of mortgage notes assumed in real estate acquisitions at
date of assumption
    
    $
    87,821
    
    
    $
    24,742Common stock issued through distribution reinvestment plan
    
    $
    37,907
    
    
    $
    21,086Unrealized gain on marketable securities
    
    $
    6,057
    
    
    $
    Unrealized gain on interest rate swaps
    
    $
    211
    
    
    $
    Supplemental Cash Flow Disclosures:Interest paid
    
    $
    43,765
    
    
    $
    31,206
  19




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 NOTE 11  COMMITMENTS AND CONTINGENCIES
 Litigation
  Environmental Matters
  NOTE 12  RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
     20




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COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
       21




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
    NOTE 13  ECONOMIC DEPENDENCY
  NOTE 14  NEW ACCOUNTING PRONOUNCEMENTS
   Disclosures about Derivative Instruments and
Hedging Activities  an amendment to FASB Statement No. 133
  22




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
 Equity Method Investment Accounting
Considerations
 Subsequent Events
 Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification Accounting Standards
Codification
 NOTE 15  INDEPENDENT DIRECTORS STOCK OPTION PLAN
    23




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
 June 30, 2009
  NOTE 16  SUBSEQUENT EVENTS
  Sale of Shares of Common Stock
  Redemption of Shares of Common Stock
  Notes Payable and Line of Credit
   24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
    Overview
   25




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##### Table of Contents



Recent Market Conditions
   26




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##### Table of Contents



Results of Operations
  Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008
  Revenue.
     27




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##### Table of Contents



General and Administrative Expenses.
 Property Operating Expenses.
 Property and Asset Management Fees.
  Acquisition Related Expenses. Business
Combinations
 Depreciation and Amortization Expenses.
  28




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##### Table of Contents



Impairment of Real Estate Assets.
 Equity in Income of Unconsolidated Joint Ventures.
 Interest and Other Income.
 Interest Expense.
 Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008
  Revenue.
      29




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##### Table of Contents



General and Administrative Expenses.
 Property Operating Expenses.
 Property and Asset Management Fees.
  Acquisition Related Expenses.
 Depreciation and Amortization Expenses.
 Impairment of Real Estate Assets.
  30




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##### Table of Contents



Equity in Income of Unconsolidated Joint Ventures.
 Interest and Other Income.
 Interest Expense.
  Modified Funds from Operations
    31




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2009
    
    
    June 30, 2008Net (loss) income
    
    $
    (3,698
    )
    
    $
    7,047
    
    
    $
    5,933
    
    
    $
    7,634Depreciation of real estate assets
    
    
    14,086
    
    
    
    9,259
    
    
    
    27,886
    
    
    
    17,992Amortization of lease related costs
    
    
    7,058
    
    
    
    4,861
    
    
    
    14,005
    
    
    
    9,495Depreciation and amortization of
real estate assets in
unconsolidated joint ventures
    
    
    741
    
    
    
    
    
    
    
    1,033
    
    
    
    Acquisition related expenses
    
    
    69
    
    
    
    
    
    
    
    3,241
    
    
    
    Impairment on real estate assets
    
    
    13,500
    
    
    
    
    
    
    
    13,500
    
    
    
    3,550Loss on sale of easement
    
    
    157
    
    
    
    
    
    
    
    150
    
    
    
    MFFO
    
    $
    31,913
    
    
    $
    21,167
    
    
    $
    65,748
    
    
    $
    38,671
  
    
    In order to recognize revenues on a straight-line basis over the terms
of the respective leases, we recognized additional revenue by
straight-lining rental revenue of approximately $2.1 million and
approximately $5.2 million during the three and six months ended June
30, 2009, respectively and approximately $2.1 million and
approximately $4.2 million during the three and six months ended June
30, 2008, respectively.
 
    
    Amortization of deferred financing costs and amortization of fair
value adjustments of mortgage notes assumed totaled approximately $1.8
million and approximately $3.4 million during the three and six months
ended June 30, 2009, respectively and approximately $1.0 million and
approximately $2.8 million during the three and six months ended June
30, 2008, respectively.
 Liquidity and Capital Resources
 General
   Short-term Liquidity and Capital Resources
   32




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Long-term Liquidity and Capital Resources
     33




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##### Table of Contents



Payments due by period (2)Less Than 1
    
    
    
    
    
    
    
    
    
    
    More Than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    YearsPrincipal payments  fixed rate debt (3)
    
    $
    1,439,972
    
    
    $
    5,768
    
    
    $
    230,831
    
    
    $
    74,305
    
    
    $
    1,129,068Interest payments  fixed rate debt
    
    
    571,766
    
    
    
    82,928
    
    
    
    232,505
    
    
    
    142,214
    
    
    
    114,119Principal payments  variable rate debt
(3)
    
    
    129,155
    
    
    
    55,000
    
    
    
    74,155
    
    
    
    
    
    
    
    Interest payments  variable rate debt (1)
    
    
    6,222
    
    
    
    4,760
    
    
    
    1,462
    
    
    
    
    
    
    
    Principal payments  line of credit
    
    
    64,000
    
    
    
    
    
    
    
    64,000
    
    
    
    
    
    
    
    Interest payments  line of credit (4)
    
    
    4,306
    
    
    
    2,240
    
    
    
    2,066
    
    
    
    
    
    
    
    Total
    
    $
    2,215,421
    
    
    $
    150,696
    
    
    $
    605,019
    
    
    $
    216,519
    
    
    $
    1,243,187
 (1)
    
    Rates ranging from 2.31% to 3.50% were used to calculate the variable debt payment
obligations in future periods. These were the rates effective as of June 30, 2009.(2)
    
    Principal paydown amounts are included in payments due by period.(3)
    
    Principal payment amounts reflect actual payments based on face value of notes payable.(4)
    
    Based on interest rate in effect at June 30, 2009.  Cash Flow Analysis
 Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008
 Operating Activities.
 Investing Activities.
  34




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##### Table of Contents



Financing Activities.
 Election as a REIT
  Inflation
  Critical Accounting Policies and Estimates
  
    
    Investment in and Valuation of Real Estate Assets;
    
    Allocation of Purchase Price of Acquired Assets;
    
    Investment in Direct Financing Leases;
    
    Investment in Mortgage Notes Receivable;
    
    Investment in Marketable Securities;
    
    Investment in Unconsolidated Joint Ventures;
    
    Revenue Recognition; and
    
    Income Taxes.
  35




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##### Table of Contents



Investment in Unconsolidated Joint Ventures
  The Equity Method of Accounting for
Investments in Common Stock Equity Method Investment
Accounting Considerations
 Commitments and Contingencies
  Related-Party Transactions and Agreements
  Subsequent Events
  
    
    Issuance of shares of common stock through DRIP;
    
    Redemption of shares of common stock; and
    
    Credit Facility repayments.
 New Accounting Pronouncements
   36




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4T. Controls and Procedures
    37




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##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     38




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##### Table of Contents



Total Number of Shares
    
    
    Maximum Number ofPurchased as Part of
    
    
    Shares that May YetTotal Number of
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Be Purchased UnderShares Redeemed
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    the Plans or ProgramsApril 2009
    
    
    3,435,605
    
    
    $
    9.39
    
    
    
    3,435,605
    
    
    
    (1
    )May 2009
    
    
    110,691
    
    
    
    9.46
    
    
    
    110,691
    
    
    
    (1
    )June 2009
    
    
    10,849
    
    
    
    9.30
    
    
    
    10,849
    
    
    
    (1
    )Total
    
    
    3,557,145
    
    
    
    
    
    
    
    3,557,145
    
    
    
    (1
    )
 (1)
    
    A description of the maximum number of shares that may be purchased under our share
redemption program is included in the narrative preceding this table. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Nominee
    
    Votes For
    
    
    Votes Withheld
    
    
    Abstentions / Broker Non-VotesChristopher H. Cole
    
    
    101,357,171
    
    
    
    1,717,703
    
    
    
    N/AMarcus E. Bromley
    
    
    101,301,884
    
    
    
    1,772,990
    
    
    
    N/AElizabeth L. Watson
    
    
    101,345,306
    
    
    
    1,729,568
    
    
    
    N/A
  
 Item 5. Other Information
  
 Item 6. Exhibits
   39




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##### Table of Contents



SIGNATURES
  Cole Credit Property Trust II, Inc.(Registrant)By:
    /s/ Christopher H. ColeChristopher H. ColeChief Executive Officer and PresidentBy:
    /s/ D. Kirk McAllaster, Jr.D. Kirk McAllaster, Jr.Executive Vice President and Chief Financial Officer   40




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##### Table of Contents



EXHIBIT INDEX
  Exhibit No.
    
    Description3.1
    
    
    Fifth Articles of Amendment and Restatement, as corrected.
(Incorporated by reference to Exhibit 3.1 of the Companys
Form 10-K (File No. 333-121094), filed on March 23, 2006).3.2
    
    
    Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 99.1 to the Companys Form 8-K (File No. 333-121094),
filed on September 6, 2005).3.3
    
    
    Articles of Amendment to Fifth Articles of Amendment and
Restatement. (Incorporated by reference to Exhibit 3.3 to the
Companys Form S-11 (File No. 333-138444), filed on November
6, 2006).4.1
    
    
    Form of Subscription Agreement and Subscription Agreement
Signature Page. (Incorporated by reference to Appendix B to
the Companys post-effective amendment to Form S-11 (File No.
333-138444), filed on February 1, 2008).4.2
    
    
    Form of Additional Investment Subscription Agreement for
current stockholders (Incorporated by reference to Appendix C
to the Companys post-effective amendment to Form S-11 (File
No. 333-138444), filed on February 1, 2008).31.1
    
    
    Certification of the Chief Executive Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).31.2
    
    
    Certification of the Chief Financial Officer of the Company
pursuant to Securities Exchange Act Rule 13a-14(a) or
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).32.1*
    
    
    Certification of the Chief Executive Officer and Chief
Financial Officer of the Company pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (furnished herewith).
 *
    
    In accordance with Item 601(b) (32) of Regulation S-K, this Exhibit is not deemed filed for
purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.
Such certifications will not be deemed incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.  41