##### 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, 2010
 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
    
    20-1676382(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)2555 East Camelback Road, Suite 400Phoenix, Arizona, 85016
    
    (602) 778-8700(Address of principal executive offices; zip code)
    
    (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, 2010 and December 31, 2009
    
    
    4Condensed Consolidated Unaudited Statements of Operations for the three and six months
ended June 30, 2010 and 2009
    
    
    5Condensed Consolidated Unaudited Statement of Stockholders Equity for the six months
ended June 30, 2010
    
    
    6Condensed Consolidated Unaudited Statements of Cash Flows for the six months ended June
30, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Unaudited Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. [Removed and Reserved]
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37Signatures
    
    
    38Exhibit 10.1Exhibit 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, 2010
    
    
    December 31, 2009ASSETSInvestment in real estate assets:Land
    
    $
    811,036
    
    
    $
    808,109Buildings and improvements, less accumulated
depreciation of $150,847 and $122,887,
respectively
    
    
    1,913,877
    
    
    
    1,928,786Real estate assets under direct financing
leases, less unearned income of $16,279 and
$16,794, respectively
    
    
    37,379
    
    
    
    37,736Acquired intangible lease assets, less
accumulated amortization of $82,171 and
$67,253, respectively
    
    
    342,806
    
    
    
    357,008Total real estate assets, net
    
    
    3,105,098
    
    
    
    3,131,639Investment in mortgage notes receivable, less
accumulated amortization of $1,724 and $1,385,
respectively
    
    
    81,176
    
    
    
    82,500Total real estate and mortgage assets, net
    
    
    3,186,274
    
    
    
    3,214,139Cash and cash equivalents
    
    
    34,897
    
    
    
    28,417Restricted cash
    
    
    8,921
    
    
    
    9,536Marketable securities
    
    
    64,196
    
    
    
    56,366Investment in unconsolidated joint ventures
    
    
    38,462
    
    
    
    40,206Rents and tenant receivables, less allowance
for doubtful accounts of $1,092 and $1,648,
respectively
    
    
    37,754
    
    
    
    33,544Prepaid expenses, derivative and other assets
    
    
    3,105
    
    
    
    4,253Deferred financing costs, less accumulated
amortization of $12,972 and $11,713,
respectively
    
    
    24,314
    
    
    
    26,643Total assets
    
    $
    3,397,923
    
    
    $
    3,413,104LIABILITIES AND STOCKHOLDERS EQUITYNotes payable and line of credit
    
    $
    1,623,866
    
    
    $
    1,607,473Accounts payable and accrued expenses
    
    
    18,702
    
    
    
    20,023Due to affiliates
    
    
    966
    
    
    
    509Acquired below market lease intangibles, less
accumulated amortization of $26,614 and
$21,470, respectively
    
    
    142,259
    
    
    
    149,832Distributions payable
    
    
    10,639
    
    
    
    10,851Deferred rent, derivative and other liabilities
    
    
    12,230
    
    
    
    14,672Total liabilities
    
    
    1,808,662
    
    
    
    1,803,360Commitments and contingenciesRedeemable common stock
    
    
    112,933
    
    
    
    87,760STOCKHOLDERS 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, 207,336,203 and 204,662,620
shares issued and outstanding, respectively
    
    
    2,073
    
    
    
    2,047Capital in excess of par value
    
    
    1,762,885
    
    
    
    1,762,904Accumulated distributions in excess of earnings
    
    
    (284,552
    )
    
    
    (233,480
    )Accumulated other comprehensive loss
    
    
    (4,078
    )
    
    
    (9,487
    )Total stockholders equity
    
    
    1,476,328
    
    
    
    1,521,984Total liabilities and stockholders equity
    
    $
    3,397,923
    
    
    $
    3,413,104
   4




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COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Rental and other property income
    
    $
    60,010
    
    
    $
    58,148
    
    
    $
    118,953
    
    
    $
    117,478Tenant reimbursement income
    
    
    3,551
    
    
    
    4,791
    
    
    
    7,126
    
    
    
    10,024Earned income from direct financing
leases
    
    
    497
    
    
    
    500
    
    
    
    1,071
    
    
    
    912Interest income on mortgage notes
receivable
    
    
    1,671
    
    
    
    1,720
    
    
    
    3,347
    
    
    
    3,443Interest income on marketable securities
    
    
    1,907
    
    
    
    1,828
    
    
    
    3,793
    
    
    
    3,538Total revenue
    
    
    67,636
    
    
    
    66,987
    
    
    
    134,290
    
    
    
    135,395Expenses:General and administrative expenses
    
    
    1,840
    
    
    
    1,547
    
    
    
    3,893
    
    
    
    3,495Property operating expenses
    
    
    5,169
    
    
    
    6,552
    
    
    
    10,264
    
    
    
    13,476Property and asset management expenses
    
    
    4,065
    
    
    
    3,310
    
    
    
    8,377
    
    
    
    6,821Acquisition related expenses
    
    
    625
    
    
    
    69
    
    
    
    625
    
    
    
    3,241Depreciation
    
    
    14,018
    
    
    
    14,086
    
    
    
    28,044
    
    
    
    27,886Amortization
    
    
    8,043
    
    
    
    7,058
    
    
    
    15,056
    
    
    
    14,005Impairment of real estate assets
    
    
    4,500
    
    
    
    13,500
    
    
    
    4,500
    
    
    
    13,500Total operating expenses
    
    
    38,260
    
    
    
    46,122
    
    
    
    70,759
    
    
    
    82,424Operating income
    
    
    29,376
    
    
    
    20,865
    
    
    
    63,531
    
    
    
    52,971Other income (expense):Equity in (loss) income of
unconsolidated joint ventures and
interest and other income
    
    
    (10
    )
    
    
    328
    
    
    
    86
    
    
    
    752Interest expense
    
    
    (25,626
    )
    
    
    (24,891
    )
    
    
    (50,850
    )
    
    
    (47,790
    )Total other expense
    
    
    (25,636
    )
    
    
    (24,563
    )
    
    
    (50,764
    )
    
    
    (47,038
    )Net income (loss)
    
    $
    3,740
    
    
    $
    (3,698
    )
    
    $
    12,767
    
    
    $
    5,933Weighted average number of common
shares outstanding:Basic
    
    
    206,653,839
    
    
    
    201,754,746
    
    
    
    205,989,957
    
    
    
    202,112,149Diluted
    
    
    206,656,925
    
    
    
    201,757,810
    
    
    
    205,993,403
    
    
    
    202,115,117Net income (loss) per common share:Basic and diluted
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    0.06
    
    
    $
    0.03Distributions declared per common share
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.31
    
    
    $
    0.35
   5




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS EQUITY
 Accumulated
    
    
    AccumulatedCommon Stock
    
    
    Capital in
    
    
    Distributions
    
    
    Other
    
    
    TotalNumber of
    
    
    
    
    
    
    Excess
    
    
    in Excess
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Par Value
    
    
    of Par Value
    
    
    of Earnings
    
    
    Loss
    
    
    EquityBalance, January 1, 2010
    
    
    204,662,620
    
    
    $
    2,047
    
    
    $
    1,762,904
    
    
    $
    (233,480
    )
    
    $
    (9,487
    )
    
    $
    1,521,984Issuance of common stock
    
    
    3,262,558
    
    
    
    32
    
    
    
    30,961
    
    
    
    
    
    
    
    
    
    
    
    30,993Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,839
    )
    
    
    
    
    
    
    (63,839
    )Redemptions of common stock
    
    
    (588,975
    )
    
    
    (6
    )
    
    
    (5,814
    )
    
    
    
    
    
    
    
    
    
    
    (5,820
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Redeemable common stock
    
    
    
    
    
    
    
    
    
    
    (25,173
    )
    
    
    
    
    
    
    
    
    
    
    (25,173
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,767
    
    
    
    
    
    
    
    12,767Unrealized gain on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,584
    
    
    
    6,584Unrealized loss on interest
rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,175
    )
    
    
    (1,175
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,176Balance, June 30, 2010
    
    
    207,336,203
    
    
    $
    2,073
    
    
    $
    1,762,885
    
    
    $
    (284,552
    )
    
    $
    (4,078
    )
    
    $
    1,476,328
   6




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
 Six Months Ended June 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    12,767
    
    
    $
    5,933Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation
    
    
    28,044
    
    
    
    27,886Amortization of intangible lease assets and below market lease
intangibles, net
    
    
    10,327
    
    
    
    10,145Amortization of deferred financing costs
    
    
    3,544
    
    
    
    2,810Amortization of premiums on mortgage notes receivable
    
    
    339
    
    
    
    335Amortization of discount on marketable securities
    
    
    (1,246
    )
    
    
    (1,053
    )Amortization of fair value adjustments of mortgage notes
assumed
    
    
    900
    
    
    
    541Allowance for doubtful accounts
    
    
    50
    
    
    
    1,573Stock compensation expense
    
    
    7
    
    
    
    5Impairment of real estate assets
    
    
    4,500
    
    
    
    13,500Equity in income of unconsolidated joint ventures
    
    
    (7
    )
    
    
    (527
    )Distributions of earnings from unconsolidated joint ventures
    
    
    1,751
    
    
    
    1,485Property easement loss
    
    
    
    
    
    
    150Changes in assets and liabilities:Rents and tenant receivables
    
    
    (4,260
    )
    
    
    (5,449
    )Prepaid expenses and other assets
    
    
    1,922
    
    
    
    2,570Accounts payable and accrued expenses
    
    
    (2,261
    )
    
    
    (10
    )Due to affiliates, deferred rent and other liabilities
    
    
    (3,019
    )
    
    
    (490
    )Net cash provided by operating activities
    
    
    53,358
    
    
    
    59,404Cash flows from investing activities:Investment in real estate and related assets and other capital
expenditures
    
    
    (23,320
    )
    
    
    (13,690
    )Investment in marketable securities
    
    
    
    
    
    
    (10,495
    )Investment in unconsolidated joint ventures
    
    
    
    
    
    
    (17,319
    )Principal repayments from mortgage notes receivable and real estate
assets under direct financing leases
    
    
    1,342
    
    
    
    894Proceeds from easement of assets
    
    
    
    
    
    
    11Change in restricted cash
    
    
    615
    
    
    
    1,393Net cash used in investing activities
    
    
    (21,363
    )
    
    
    (39,206
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    46Offering costs on issuance of common stock
    
    
    
    
    
    
    (581
    )Redemptions of common stock
    
    
    (5,820
    )
    
    
    (43,266
    )Distributions to investors
    
    
    (33,058
    )
    
    
    (32,342
    )Proceeds from notes payable and line of credit
    
    
    144,000
    
    
    
    75,243Repayment of notes payable and line of credit
    
    
    (128,507
    )
    
    
    (95,663
    )Refund of loan deposits
    
    
    1,230
    
    
    
    150Payment of loan deposits
    
    
    (2,145
    )
    
    
    (175
    )Escrowed investor proceeds liability
    
    
    
    
    
    
    (18
    )Deferred financing costs paid
    
    
    (1,215
    )
    
    
    (3,077
    )Net cash used in financing activities
    
    
    (25,515
    )
    
    
    (99,683
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,480
    
    
    
    (79,485
    )Cash and cash equivalents, beginning of period
    
    
    28,417
    
    
    
    106,485Cash and cash equivalents, end of period
    
    $
    34,897
    
    
    $
    27,000
   7




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
June 30, 2010
 NOTE 1  ORGANIZATION AND BUSINESS
    NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation and Basis of Presentation
   Consolidation
 Valuation of Real Estate and Related Assets
   8




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
   Restricted Cash and Escrows
  Concentration of Credit Risk
  Investment in Unconsolidated Joint Ventures
  Investments  Equity Method and Joint Ventures
  9




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 Redeemable Common Stock
    Distributions Payable and Distribution Policy
    NOTE 3  FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures
    10




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
    Fair Value Measurements of ReportingRe-measured
    
    
    Date UsingDescription:
    
    Balance
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment in real estate assets
    
    $
    3,523
    
    
    $
    
    
    
    $
    
    
    
    $
    3,523
   Cash and cash equivalents, restricted cash, rents and tenant receivables and accounts payable
and accrued expenses
 Mortgage notes receivable
 Notes payable and line of credit
 Marketable securities
 Derivative Instruments
   11




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
  Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantBalance as of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsJune 30, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    64,196
    
    
    $
    
    
    
    $
    
    
    
    $
    64,196Interest rate cap agreements (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Assets
    
    $
    64,196
    
    
    $
    
    
    
    $
    
    
    
    $
    64,196Liabilities:Interest rate swaps
    
    $
    3,978
    
    
    $
    
    
    
    $
    3,978
    
    
    $
    
 
 (1)
    
    The fair value of the interest rate cap agreements was less than $1,000 as of June 30, 2010. Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantBalance as of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDecember 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    56,366
    
    
    $
    
    
    
    $
    
    
    
    $
    56,366Interest rate cap agreements (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    141
    
    
    
    
    
    
    
    141
    
    
    
    Total Assets
    
    $
    56,507
    
    
    $
    
    
    
    $
    141
    
    
    $
    56,366Liabilities:Interest rate swaps
    
    $
    2,944
    
    
    $
    
    
    
    $
    2,944
    
    
    $
    
 
 (1)
    
    The fair value of the interest rate cap agreements was less than $1,000 as of December 31, 2009.  Net realized/
    
    
    
    
    
    
    Purchases,unrealized gains
    
    
    
    
    
    
    issuances,Balance as of
    
    
    (losses) included
    
    
    
    
    
    
    settlements and
    
    
    Transfers in and
    
    
    Balance as ofJanuary 1, 2010
    
    
    in earnings
    
    
    Net unrealized gain
    
    
    amortization
    
    
    out of Level 3
    
    
    June 30, 2010Marketable securities
    
    $
    56,366
    
    
    $
    
    
    
    $
    6,584
    
    
    $
    1,246
    
    
    $
    
    
    
    $
    64,196
 NOTE 4  INVESTMENT IN DIRECT FINANCING LEASES
  June 30, 2010
    
    
    December 31, 2009Minimum lease payments receivable
    
    $
    25,805
    
    
    $
    26,676Estimated residual value of leased assets
    
    
    27,854
    
    
    
    27,854Unearned income
    
    
    (16,280
    )
    
    
    (16,794
    )Total
    
    $
    37,379
    
    
    $
    37,736
  12




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 NOTE 5  REAL ESTATE ACQUISITIONS
 2010 Property Acquisitions
        2009 Property Acquisitions
     13




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
   Earnout Agreements
  NOTE 6  INVESTMENT IN MORTGAGE NOTES RECEIVABLE
  NOTE 7  MARKETABLE SECURITIES
  Amortized Cost
    
    
    Unrealized (Loss)Basis
    
    
    Gain
    
    
    TotalMarketable securities as of December 31, 2009
    
    $
    63,050
    
    
    $
    (6,684
    )
    
    $
    56,366Increase in fair value of marketable securities
    
    
    
    
    
    
    6,584
    
    
    
    6,584Accretion of discounts on marketable securities
    
    
    1,246
    
    
    
    
    
    
    
    1,246Marketable securities as of June 30, 2010
    
    $
    64,296
    
    
    $
    (100
    )
    
    $
    64,196
    14




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
  Holding Period of Gross Unrealized Gains (Losses) of Marketable SecuritiesLess than 12 months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Gains
    
    
    Value
    
    
    Losses
    
    
    Gains
    
    
    Fair Value
    
    
    Losses
    
    
    GainsCommercial
mortgage-backed
securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    64,196
    
    
    $
    (9,824
    )
    
    $
    9,725
    
    
    $
    64,196
    
    
    $
    (9,824
    )
    
    $
    9,725
  Available-for-saleEstimated FairAmortized Cost
    
    
    ValueDue within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    16,124
    
    
    
    18,255Due after five years through ten years
    
    
    48,172
    
    
    
    45,941Due after ten years
    
    
    
    
    
    
    $
    64,296
    
    
    $
    64,196
  NOTE 8  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
  Fair Value of AssetDerivatives not designated
    
    Balance Sheet
    
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    June 30,
    
    
    December 31,as hedging instruments
    
    Location
    
    
    Amount
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2010 (1)
    
    
    2009 (1)Interest Rate Cap
    
    Prepaid expenses, derivative and other assets
    
    $
    36,000
    
    
    
    7.0
    %
    
    
    8/5/2008
    
    
    
    8/5/2010
    
    
    $
    
    
    
    $
    Interest Rate Cap
    
    Prepaid expenses, derivative and other assets
    
    
    34,000
    
    
    
    7.0
    %
    
    
    10/1/2008
    
    
    
    9/1/2010
    
    
    
    
    
    
    
    $
    70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    The fair value of the rate caps was less than $1,000. 15




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 Fair Value of (Liability) AssetDerivatives designated
    
    Balance Sheet
    
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    June 30,
    
    
    December 31,as hedging instruments
    
    Location
    
    
    Amount
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2010
    
    
    2009Interest Rate Swap
    
    Deferred rent, derivative and other liabilities
    
    $
    32,000
    
    
    
    6.2
    %
    
    
    11/4/2008
    
    
    
    10/31/2012
    
    
    $
    (1,968
    )
    
    $
    (1,663
    )Interest Rate Swap
    
    Deferred rent, derivative and other liabilities
    
    
    38,250
    
    
    
    5.6
    %
    
    
    12/10/2008
    
    
    
    9/26/2011
    
    
    
    (645
    )
    
    
    (778
    )Interest Rate Swap
    
    Deferred rent, derivative and other liabilities
    
    
    15,043
    
    
    
    6.2
    %
    
    
    6/12/2009
    
    
    
    6/11/2012
    
    
    
    (601
    )
    
    
    (503
    )Interest Rate Swap (1)
    
    Deferred rent, derivative and other liabilities
    
    
    30,000
    
    
    
    6.0
    %
    
    
    11/24/2009
    
    
    
    10/16/2012
    
    
    
    (515
    )
    
    
    41Interest Rate Swap (1)
    
    Deferred rent, derivative and other liabilities
    
    
    7,200
    
    
    
    5.8
    %
    
    
    2/20/2009
    
    
    
    3/1/2016
    
    
    
    (249
    )
    
    
    100$
    122,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,978
    )
    
    $
    (2,803
    )
 
 (1)
    
    As of December 31, 2009, the fair value of the interest rate swap
agreement was in a financial asset position and is included in
the accompanying condensed consolidated unaudited balance sheets
in prepaid expenses, derivative and other assets.   Amount of Gain (Loss) Recognized in Income on DerivativeLocation of Gain
    
    
    Three months
    
    
    Six months
    
    
    Three months
    
    
    Six monthsDerivatives not designated
    
    Recognized in Income
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Endedas hedging instruments
    
    on Derivative
    
    
    June 30, 2010
    
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2009Interest Rate Caps
    
    Interest expense
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    2
 Amount of Gain (Loss) Recognized in Other Comprehensive Income onDerivativeThree months
    
    
    Six months
    
    
    Three months
    
    
    Six monthsended
    
    
    ended
    
    
    Ended
    
    
    endedDerivatives in Cash Flow Hedging Relationships
    
    June 30, 2010
    
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2009Interest Rate Swaps (1)
    
    $
    (679
    )
    
    $
    (1,175
    )
    
    $
    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, 2010 and 2009.
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, 2010 and 2009. 16




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
  NOTE 9  NOTES PAYABLE AND LINE OF CREDIT
     17




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 NOTE 10  SUPPLEMENTAL CASH FLOW DISCLOSURES
  Six months ended June 30,2010
    
    
    2009Supplemental Disclosures of Non-Cash Investing and Financing Activities:Dividends declared and unpaid
    
    $
    10,639
    
    
    $
    11,586Fair value of mortgage notes assumed in real estate acquisitions at date of assumption
    
    $
    
    
    
    $
    87,821Common stock issued through distribution reinvestment plan
    
    $
    30,993
    
    
    $
    37,907Net unrealized gain on marketable securities
    
    $
    6,584
    
    
    $
    6,057Net unrealized (loss) gain on interest rate swaps
    
    $
    (1,175
    )
    
    $
    211Change in earnout liability
    
    $
    983
    
    
    $
    1,482Change in accrued capital expenditures
    
    $
    1,923
    
    
    $
    Supplemental Cash Flow Disclosures:Interest paid
    
    $
    47,060
    
    
    $
    43,765
  NOTE 11  COMMITMENTS AND CONTINGENCIES
 Litigation
  Environmental Matters
  NOTE 12  RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
  Offering
  18




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 Acquisitions and Operations
      19




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Acquisitions and Operations:Acquisition fees and expenses
    
    $
    460
    
    
    $
    1,422
    
    
    $
    460
    
    
    $
    3,935Asset management fees and expenses
    
    $
    2,119
    
    
    $
    2,191
    
    
    $
    4,251
    
    
    $
    4,122Property management and leasing
fees and expenses
    
    $
    1,915
    
    
    $
    843
    
    
    $
    4,033
    
    
    $
    2,092Operating expenses
    
    $
    306
    
    
    $
    
    
    
    $
    846
    
    
    $
    Financing coordination fees
    
    $
    410
    
    
    $
    716
    
    
    $
    410
    
    
    $
    1,796
 Liquidation/Listing
     Other
  NOTE 13  ECONOMIC DEPENDENCY
  20




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 NOTE 14  NEW ACCOUNTING PRONOUNCEMENTS
 Fair Value
Measurements and Disclosures (Topic 820)
 NOTE 15  INDEPENDENT DIRECTORS STOCK OPTION PLAN
    NOTE 16  SUBSEQUENT EVENTS
 Sale of Shares of Common Stock
  Redemption of Shares of Common Stock
  21




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
June 30, 2010
 Real Estate Acquisitions
  Notes Payable
  22




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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
   23




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##### Table of Contents



Recent Market Conditions
    24




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##### Table of Contents



Results of Operations
  Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
 Revenue.
     General and Administrative Expenses.
 Property Operating Expenses.
  25




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##### Table of Contents



Property and Asset Management Expenses.
   Acquisition Related Expenses.
 Depreciation and Amortization Expenses.
 Impairment of Real Estate Assets. Form 10-Q
 Equity in income of unconsolidated joint ventures and interest and other income.
 Interest Expense.
  26




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##### Table of Contents



Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
 Revenue.
     General and Administrative Expenses.
 Property Operating Expenses.
 Property and Asset Management Expenses.
   27




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##### Table of Contents



Acquisition Related Expenses.
 Depreciation and Amortization Expenses.
 Impairment of Real Estate Assets. Form 10-Q
 Equity in Income of Unconsolidated Joint Ventures and interest and other income.
 Interest Expense.
  28




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##### Table of Contents



Modified Funds from Operations
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    3,740
    
    
    $
    (3,698
    )
    
    $
    12,767
    
    
    $
    5,933Depreciation of real estate assets
    
    
    14,018
    
    
    
    14,086
    
    
    
    28,044
    
    
    
    27,886Amortization of lease related costs
    
    
    8,043
    
    
    
    7,058
    
    
    
    15,056
    
    
    
    14,005Depreciation and amortization of
real estate assets in unconsolidated
joint ventures
    
    
    823
    
    
    
    741
    
    
    
    1,647
    
    
    
    1,033Acquisition related expenses
    
    
    625
    
    
    
    69
    
    
    
    625
    
    
    
    3,241Impairment on real estate assets
    
    
    4,500
    
    
    
    13,500
    
    
    
    4,500
    
    
    
    13,500Loss on sale of easement
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    150MFFO
    
    $
    31,749
    
    
    $
    31,913
    
    
    $
    62,639
    
    
    $
    65,748
  
    
    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
$2.8 million and $5.4 million during the three and six
months ended June 30, 2010, respectively and $2.1 million
and $5.2 million during the three and six months ended
June 30, 2009. In addition, related to our unconsolidated
joint ventures, straight-line revenue of $11,000 and
$23,000 for the three and six months ended June 30, 2010,
respectively and $26,000 and $67,000 during the three and
six months ended June 30, 2009 is included in equity in
income of unconsolidated joint ventures.
    
    Amortization of deferred financing costs and amortization
of fair value adjustments of mortgage notes assumed
totaled $2.3 million and $4.4 million during the three
and six months ended June 30, 2010, respectively and $1.8
million and $3.4 million during the three and six months
ended June 30, 2009. In addition, related to our
unconsolidated joint ventures, amortization of deferred
financing costs and amortization of fair value
adjustments of mortgage notes assumed totaled $257,000
and $509,000, respectively, which is included in equity
in income of unconsolidated joint ventures for the three
and six months ended June 30, 2010, respectively and
$247,000 and $263,000 during the three and six months
ended June 30, 2009.
  29




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##### Table of Contents



Distributions and Share Redemptions
        30




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##### Table of Contents



Liquidity and Capital Resources
 General
   Short-term Liquidity and Capital Resources
  Long-term Liquidity and Capital Resources
    31




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##### Table of Contents



Payments due by period (1) (2)Total
    
    
    Less Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    More Than 5 YearsPrincipal payments  fixed rate debt (3)
    
    $
    1,504,707
    
    
    $
    78,759
    
    
    $
    188,595
    
    
    $
    349,550
    
    
    $
    887,803Interest payments  fixed rate debt (4)
    
    
    511,520
    
    
    
    87,643
    
    
    
    230,683
    
    
    
    131,562
    
    
    
    61,632Principal payments  variable rate debt (3)
    
    
    38,250
    
    
    
    
    
    
    
    38,250
    
    
    
    
    
    
    
    Interest payments  variable rate debt (5)
    
    
    1,146
    
    
    
    951
    
    
    
    195
    
    
    
    
    
    
    
    Principal payments  line of credit (6)
    
    
    94,000
    
    
    
    94,000
    
    
    
    
    
    
    
    
    
    
    
    Interest payments  line of credit (7)
    
    
    2,997
    
    
    
    2,997
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,152,620
    
    
    $
    264,350
    
    
    $
    457,723
    
    
    $
    481,112
    
    
    $
    949,435
 
 (1)
    
    The table does not include amounts due to our advisor or its affiliates
pursuant to our advisory agreement because such amounts are not fixed and
determinable.(2)
    
    Principal pay-down amounts are included in payments due by period.(3)
    
    Principal payment amounts reflect actual payments based on the face amount of
notes payable. As of June 30, 2010, the fair value adjustment, net of
amortization, of mortgage notes assumed was $13.1 million.(4)
    
    As of June 30, 2010, we had $122.5 million of variable rate debt fixed
through the use of interest rate swaps. We used the fixed rates under the
swap agreement to calculate the debt payment obligations in future periods.(5)
    
    Rates ranging from 2.34% to 3.60% were used to calculate the variable rate
debt payment obligations in future periods. These were the rates effective
as of June 30, 2010.(6)
    
    The line of credit includes an option to extend the maturity date to May 2012.(7)
    
    Based on interest rates in effect as of June 30, 2010.  Cash Flow Analysis
 Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
 Operating Activities.
  32




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##### Table of Contents



Investing Activities.
 Financing Activities.
 Election as a REIT
   Inflation
   33




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##### Table of Contents



Critical Accounting Policies and Estimates
  
    
    Investment in and Valuation of Real Estate and Related Assets;
    
    Allocation of Purchase Price of Real Estate and Related Assets;
    
    Investment in Direct Financing Leases;
    
    Investment in Mortgage Notes Receivable;
    
    Investment in Marketable Securities;
    
    Investment in Unconsolidated Joint Ventures;
    
    Revenue Recognition;
    
    Income Taxes; and
    
    Derivative Instruments and Hedging Activities.
  Commitments and Contingencies
  Related-Party Transactions and Agreements
  Subsequent Events
  
    
    Issuance of shares of common stock through DRIP;
    
    Redemption of shares of common stock;
    
    Real estate acquisitions;
    
    Notes payable borrowings; and
    
    Credit facility repayments.
 New Accounting Pronouncements
   34




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##### Table of Contents



Off Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
      
 Item 4.
    
    Controls and Procedures
    35




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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
     Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    the Plans orShares Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsApril 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    (1
    )May 2010
    
    
    301,043
    
    
    
    9.97
    
    
    
    301,043
    
    
    
    (1
    )June 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Total
    
    
    301,043
    
    
    
    
    
    
    
    301,043
    
    
    
    (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.  36




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##### Table of Contents



Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    [Removed and Reserved]
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
   37




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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 President
(Principal Executive Officer)By:
    /s/ D. Kirk McAllaster, Jr.D. Kirk McAllaster, Jr.Executive Vice President and Chief Financial Officer
(Principal Financial Officer)   38




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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).10.1
    
    Second Amendment to the Amended and Restated Advisory
Agreement by and between the Company and Cole Advisors II
(filed herewith).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.  39