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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 March 31, 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(State or other jurisdiction ofincorporation or organization)
    
    20-1676382(I.R.S. EmployerIdentification Number)2555 East Camelback Road, Suite 400
Phoenix, Arizona, 85016
    
    (602) 778-8700(Registrants telephone number, including area code)(Address of principal executive offices; zip 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

Smaller reporting company o(Do not check if smaller reporting company)
  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 March 31, 2010 and December 31, 2009
    
    
    4Condensed Consolidated Unaudited Statements of Operations for the three months ended
March 31, 2010 and 2009
    
    
    5Condensed Consolidated Unaudited Statement of Stockholders Equity for the three months
ended March 31, 2010
    
    
    6Condensed Consolidated Unaudited Statements of Cash Flows for the three months ended
March 31, 2010 and 2009
    
    
    7Notes to Condensed Consolidated Unaudited Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4T. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Removed and Reserved
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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PART I
FINANCIAL INFORMATION
    3




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
  March 31, 2010
    
    
    December 31, 2009ASSETSInvestment in real estate assets:Land
    
    $
    808,109
    
    
    $
    808,109Buildings and improvements, less accumulated
depreciation of $136,913 and $122,887,
respectively
    
    
    1,915,196
    
    
    
    1,928,786Real estate assets under direct financing
leases, less unearned income of $16,777 and
$16,794, respectively
    
    
    37,596
    
    
    
    37,736Acquired intangible lease assets, less
accumulated amortization of $74,850 and
$67,253, respectively
    
    
    349,350
    
    
    
    357,008Total real estate assets, net
    
    
    3,110,251
    
    
    
    3,131,639Investment in mortgage notes receivable, less
accumulated amortization of $1,554 and $1,385,
respectively
    
    
    81,837
    
    
    
    82,500Total real estate and mortgage assets, net
    
    
    3,192,088
    
    
    
    3,214,139Cash and cash equivalents
    
    
    33,199
    
    
    
    28,417Restricted cash
    
    
    9,421
    
    
    
    9,536Marketable securities
    
    
    63,219
    
    
    
    56,366Investment in unconsolidated joint ventures
    
    
    38,978
    
    
    
    40,206Rents and tenant receivables, less allowance
for doubtful accounts of $1,388 and $1,648,
respectively
    
    
    34,620
    
    
    
    33,544Prepaid expenses, derivative and other assets
    
    
    4,400
    
    
    
    4,253Deferred financing costs, less accumulated
amortization of $13,311 and $11,713,
respectively
    
    
    25,093
    
    
    
    26,643Total assets
    
    $
    3,401,018
    
    
    $
    3,413,104LIABILITIES AND STOCKHOLDERS EQUITYNotes payable and line of credit
    
    $
    1,607,016
    
    
    $
    1,607,473Accounts payable and accrued expenses
    
    
    17,797
    
    
    
    20,023Due to affiliates
    
    
    362
    
    
    
    509Acquired below market lease intangibles, less
accumulated amortization of $24,200 and
$21,470, respectively
    
    
    146,880
    
    
    
    149,832Distributions payable
    
    
    10,924
    
    
    
    10,851Deferred rent, derivative and other liabilities
    
    
    12,474
    
    
    
    14,672Total liabilities
    
    
    1,795,453
    
    
    
    1,803,360Redeemable common stock
    
    
    100,441
    
    
    
    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, 206,005,935 and 204,662,620
shares issued and outstanding, respectively
    
    
    2,060
    
    
    
    2,047Capital in excess of par value
    
    
    1,762,895
    
    
    
    1,762,904Accumulated distributions in excess of earnings
    
    
    (256,088
    )
    
    
    (233,480
    )Accumulated other comprehensive loss
    
    
    (3,743
    )
    
    
    (9,487
    )Total stockholders equity
    
    
    1,505,124
    
    
    
    1,521,984Total liabilities and stockholders equity
    
    $
    3,401,018
    
    
    $
    3,413,104
   4




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
  Three Months Ended March 31,2010
    
    
    2009Revenues:Rental and other property income
    
    $
    58,943
    
    
    $
    59,331Tenant reimbursement income
    
    
    3,575
    
    
    
    5,233Earned income from direct financing leases
    
    
    574
    
    
    
    411Interest income on mortgage notes receivable
    
    
    1,676
    
    
    
    1,724Interest income on marketable securities
    
    
    1,886
    
    
    
    1,709Total revenue
    
    
    66,654
    
    
    
    68,408Expenses:General and administrative expenses
    
    
    2,053
    
    
    
    1,948Property operating expenses
    
    
    5,095
    
    
    
    6,924Property and asset management expenses
    
    
    4,312
    
    
    
    3,512Acquisition related expenses
    
    
    
    
    
    
    3,171Depreciation
    
    
    14,026
    
    
    
    13,799Amortization
    
    
    7,013
    
    
    
    6,948Total operating expenses
    
    
    32,499
    
    
    
    36,302Operating income
    
    
    34,155
    
    
    
    32,106Other income (expense):Equity in income of unconsolidated joint
ventures and interest and other income
    
    
    96
    
    
    
    424Interest expense
    
    
    (25,224
    )
    
    
    (22,899
    )Total other expense
    
    
    (25,128
    )
    
    
    (22,475
    )Net income
    
    $
    9,027
    
    
    $
    9,631Weighted average number of common shares
outstanding:Basic
    
    
    205,318,698
    
    
    
    202,473,523Diluted
    
    
    205,322,134
    
    
    
    202,476,353Net income per common share:Basic and diluted
    
    $
    0.04
    
    
    $
    0.05
   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 of
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Par Value
    
    
    of Par Value
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance, January 1, 2010
    
    
    204,662,620
    
    
    $
    2,047
    
    
    $
    1,762,904
    
    
    $
    (233,480
    )
    
    $
    (9,487
    )
    
    $
    1,521,984Issuance of common stock
    
    
    1,631,247
    
    
    
    16
    
    
    
    15,483
    
    
    
    
    
    
    
    
    
    
    
    15,499Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,635
    )
    
    
    
    
    
    
    (31,635
    )Redemptions of common stock
    
    
    (287,932
    )
    
    
    (3
    )
    
    
    (2,815
    )
    
    
    
    
    
    
    
    
    
    
    (2,818
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Redeemable common stock
    
    
    
    
    
    
    
    
    
    
    (12,681
    )
    
    
    
    
    
    
    
    
    
    
    (12,681
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,027
    
    
    
    
    
    
    
    9,027Unrealized gain on marketable
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,240
    
    
    
    6,240Unrealized loss on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (496
    )
    
    
    (496
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,771Balance, March 31, 2010
    
    
    206,005,935
    
    
    $
    2,060
    
    
    $
    1,762,895
    
    
    $
    (256,088
    )
    
    $
    (3,743
    )
    
    $
    1,505,124
   6




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
  Three Months Ended March 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    9,027
    
    
    $
    9,631Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    14,026
    
    
    
    13,799Amortization of intangible lease assets and below market lease intangibles, net
    
    
    5,243
    
    
    
    4,969Amortization of deferred financing costs
    
    
    1,607
    
    
    
    1,430Amortization of premiums on mortgage notes receivable
    
    
    169
    
    
    
    167Amortization of discount on marketable securities
    
    
    (613
    )
    
    
    (500
    )Amortization of fair value adjustments of mortgage notes assumed
    
    
    444
    
    
    
    119Allowance for doubtful accounts
    
    
    289
    
    
    
    1,100Stock compensation expense
    
    
    4
    
    
    
    2Equity in income of unconsolidated joint ventures
    
    
    (29
    )
    
    
    (340
    )Distributions from unconsolidated joint ventures
    
    
    1,257
    
    
    
    928Property easement gain
    
    
    
    
    
    
    (7
    )Changes in assets and liabilities:Rents and tenant receivables
    
    
    (1,365
    )
    
    
    (2,128
    )Prepaid expenses and other assets
    
    
    965
    
    
    
    1,258Accounts payable and accrued expenses
    
    
    (2,114
    )
    
    
    (1,267
    )Due to affiliates, deferred rent and other liabilities
    
    
    (2,723
    )
    
    
    (164
    )Net cash provided by operating activities
    
    
    26,187
    
    
    
    28,997Cash flows from investing activities:Investment in real estate and related assets and other capital expenditures
    
    
    (1,085
    )
    
    
    (13,079
    )Investment in marketable securities
    
    
    
    
    
    
    (10,495
    )Principal repayments from mortgage
notes receivable and real estate assets under direct financing
leases
    
    
    634
    
    
    
    450Proceeds from easement of assets
    
    
    
    
    
    
    12Change in restricted cash
    
    
    115
    
    
    
    1,811Net cash used in investing activities
    
    
    (336
    )
    
    
    (21,301
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    46Offering costs on issuance of common stock
    
    
    
    
    
    
    (563
    )Redemptions of common stock
    
    
    (2,818
    )
    
    
    (9,845
    )Distributions to investors
    
    
    (16,063
    )
    
    
    (15,575
    )Proceeds from notes payable and line of credit
    
    
    
    
    
    
    7,200Repayment of notes payable and line of credit
    
    
    (901
    )
    
    
    (40,812
    )Refund of loan deposits
    
    
    410
    
    
    
    125Payment of loan deposits
    
    
    (1,640
    )
    
    
    (125
    )Escrowed investor proceeds liability
    
    
    
    
    
    
    (18
    )Deferred financing costs paid
    
    
    (57
    )
    
    
    (2,055
    )Net cash used in financing activities
    
    
    (21,069
    )
    
    
    (61,622
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,782
    
    
    
    (53,926
    )Cash and cash equivalents, beginning of period
    
    
    28,417
    
    
    
    106,485Cash and cash equivalents, end of period
    
    $
    33,199
    
    
    $
    52,559
   7




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COLE CREDIT PROPERTY TRUST II, INC.
 
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
 March 31, 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
March 31, 2010
   Restricted Cash and Escrows
  Concentration of Credit Risk
  Investment in Unconsolidated Joint Ventures
  Redeemable Common Stock
  NOTE 3  FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures
  9




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
      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
   10




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
  Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableBalance as of
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsMarch 31, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    63,219
    
    
    $
    
    
    
    $
    
    
    
    $
    63,219Interest rate cap agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    23
    
    
    
    
    
    
    
    23
    
    
    
    Total Assets
    
    $
    63,242
    
    
    $
    
    
    
    $
    23
    
    
    $
    63,219Liabilities:Interest rate swaps
    
    $
    3,321
    
    
    $
    
    
    
    $
    3,321
    
    
    $
    Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableBalance as of
    
    
    Identical Assets
    
    
    Inputs
    
    
    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
    
    
    Net
    
    
    issuances,
    
    
    Transfers inBalance as of
    
    
    (losses) included
    
    
    unrealized
    
    
    settlements and
    
    
    and out of
    
    
    Balance as ofJanuary 1, 2010
    
    
    in earnings
    
    
    gain
    
    
    amortization
    
    
    Level 3
    
    
    March 31, 2010Marketable securities
    
    $
    56,366
    
    
    $
    
    
    
    $
    6,240
    
    
    $
    613
    
    
    $
    
    
    
    $
    63,219
 NOTE 4  INVESTMENT IN DIRECT FINANCING LEASES
  March 31, 2010
    
    
    December 31, 2009Minimum lease payments receivable
    
    $
    26,520
    
    
    $
    26,676Estimated residual value of leased assets
    
    
    27,853
    
    
    
    27,854Deferred incremental direct costs
    
    
    
    
    
    
    Unearned income
    
    
    (16,777
    )
    
    
    (16,794
    )Total
    
    $
    37,596
    
    
    $
    37,736
  11




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
 NOTE 5  REAL ESTATE ACQUISITIONS
 2010 Property Acquisitions
  2009 Property Acquisitions
      Earnout Agreements
  NOTE 6  INVESTMENT IN MORTGAGE NOTES RECEIVABLE
   12




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
 NOTE 7  MARKETABLE SECURITIES
  Amortized Cost
    
    
    UnrealizedBasis
    
    
    (Loss) Gain
    
    
    TotalMarketable securities as of December 31, 2009
    
    $
    63,050
    
    
    $
    (6,684
    )
    
    $
    56,366Increase in fair value of marketable securities
    
    
    
    
    
    
    6,240
    
    
    
    6,240Accretion of discounts on marketable securities
    
    
    613
    
    
    
    
    
    
    
    613Marketable securities as of March 31, 2010
    
    $
    63,663
    
    
    $
    (444
    )
    
    $
    63,219
   Holding Period of Gross Unrealized Gains (Losses) of Marketable SecuritiesLess than 12 months
    
    
    12 Months or More
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedSecurities
    
    Value
    
    
    Losses
    
    
    Gains
    
    
    Value
    
    
    Losses
    
    
    Gains
    
    
    Value
    
    
    Losses
    
    
    GainsCommercial
mortgage-backed
securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    63,219
    
    
    $
    (9,995
    )
    
    $
    9,551
    
    
    $
    63,219
    
    
    $
    (9,995
    )
    
    $
    9,551
   Available-for-saleEstimated FairAmortized Cost
    
    
    ValueDue within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    16,010
    
    
    
    18,109Due after five years through ten years
    
    
    47,653
    
    
    
    45,110Due after ten years
    
    
    
    
    
    
    $
    63,663
    
    
    $
    63,219
   13




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
 NOTE 8  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
  Fair Value of AssetBalance Sheet
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    March 31,
    
    
    December 31,Location
    
    Amount
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2010
    
    
    2009 (1)Derivatives not designated as hedging instrumentsInterest 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. Fair Value of (Liability) AssetBalance Sheet
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    March 31,
    
    
    December 31,Location
    
    Amount
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2010
    
    
    2009Derivatives designated as hedging instrumentsInterest Rate Swap
    
    Deferred rent,
derivative and
other liabilities
    
    $
    32,000
    
    
    
    6.2
    %
    
    
    11/4/2008
    
    
    
    10/31/2012
    
    
    $
    (1,781
    )
    
    $
    (1,663
    )Interest Rate Swap
    
    Deferred rent,
derivative and
other liabilities
    
    
    38,250
    
    
    
    5.6
    %
    
    
    12/10/2008
    
    
    
    9/26/2011
    
    
    
    (766
    )
    
    
    (778
    )Interest Rate Swap
    
    Deferred rent,
derivative and
other liabilities
    
    
    15,043
    
    
    
    6.2
    %
    
    
    6/12/2009
    
    
    
    6/11/2012
    
    
    
    (557
    )
    
    
    (503
    )Interest Rate Swap (1)
    
    Deferred rent,
derivative and
other liabilities
    
    
    30,000
    
    
    
    6.0
    %
    
    
    11/24/2009
    
    
    
    10/16/2012
    
    
    
    (217
    )
    
    
    41Interest Rate Swap
    
    Prepaid expenses,
derivative and
other assets
    
    
    7,200
    
    
    
    5.8
    %
    
    
    2/20/2009
    
    
    
    3/1/2016
    
    
    
    23
    
    
    
    100$
    122,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,298
    )
    
    $
    (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.   14




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
  Amount of Gain Recognized in Income on DerivativeDerivatives not designated as
    
    Location of Gain Recognized in
    
    Three Months Ended
    
    
    Three Months Endedhedging instruments
    
    Income on Derivative
    
    March 31, 2010 (1)
    
    
    March 31, 2009Interest Rate Caps
    
    Interest expense
    
    $
    
    
    
    $
    4Amount of (Loss) Recognized in Other Comprehensive Losson DerivativeDerivatives in Cash Flow
    
    
    
    Three Months Ended
    
    Three Months EndedHedging Relationships
    
    
    
    March 31, 2010
    
    March 31, 2009Interest Rate Swaps (2)
    
   
   
    $
    (496
    )
    
    $
    (674
    )
 
 (1)
    
    The loss recognized on the interest rate caps was less than $1,000.(2)
    
    There were no portions relating to the change in the fair value of the
interest rate swap agreements that were considered ineffective during
the three months ended March 31, 2010 and 2009. No previously
effective portion of gains or losses that were recorded in accumulated
other comprehensive loss during the term of the hedging relationship
was reclassified into earnings during the three months ended March 31,
2010 and 2009.  NOTE 9  NOTES PAYABLE AND LINE OF CREDIT
    15




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
   NOTE 10  SUPPLEMENTAL CASH FLOW DISCLOSURES
  Three months ended March 31,2010
    
    
    2009Supplemental Disclosures of Non-Cash Investing and Financing Activities:Dividends declared and unpaid
    
    $
    10,924
    
    
    $
    12,070Fair value of mortgage notes assumed in real estate acquisitions at date of
assumption
    
    $
    
    
    
    $
    87,821Common stock issued through distribution reinvestment plan
    
    $
    15,499
    
    
    $
    19,157Net unrealized gain on marketable securities
    
    $
    6,240
    
    
    $
    2,820Net unrealized loss on interest rate swaps
    
    $
    (496
    )
    
    $
    (674
    )Supplemental Cash Flow Disclosures:Interest paid
    
    $
    23,432
    
    
    $
    20,776
 NOTE 11  COMMITMENTS AND CONTINGENCIES
 Litigation
  Environmental Matters
  NOTE 12  RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
  Offering
   16




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
 Acquisitions and Operations
       Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009Acquisitions and Operations:Acquisition and advisory fees and expenses
    
    $
    
    
    
    $
    2,606Asset management fees and expenses
    
    $
    2,132
    
    
    $
    1,931Property management and leasing fees and expenses
    
    $
    2,118
    
    
    $
    1,249Operating expenses
    
    $
    540
    
    
    $
    Financing coordination fees
    
    $
    
    
    
    $
    1,080
  17




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
 Liquidation/Listing
     Other
  NOTE 13  ECONOMIC DEPENDENCY
  NOTE 14  NEW ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements and Disclosures (Topic
820)
  18




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2010
 NOTE 15  INDEPENDENT DIRECTORS STOCK OPTION PLAN
    NOTE 16  SUBSEQUENT EVENTS
 Sale of Shares of Common Stock
  Redemption of Shares of
Common Stock
  Notes Payable and Line of Credit
    19




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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
   20




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##### Table of Contents



Recent Market Conditions
   Results of Operations
   21




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##### Table of Contents



Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
 Revenue.
     General and Administrative Expenses.
 Property Operating Expenses.
 Property and Asset Management Expenses.
  22




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##### Table of Contents



Acquisition Related Expenses.
 Depreciation and Amortization Expenses.
 Equity in income of unconsolidated joint ventures and interest and other income.
 Interest Expense.
 Modified Funds from Operations
   23




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##### Table of Contents



Three Months EndedMarch 31, 2010
    
    
    March 31, 2009Net income
    
    $
    9,027
    
    
    $
    9,631Depreciation of real estate assets
    
    
    14,026
    
    
    
    13,799Amortization of lease related costs
    
    
    7,013
    
    
    
    6,948Depreciation and amortization of real
estate assets in unconsolidated joint
ventures
    
    
    823
    
    
    
    292Acquisition related expenses
    
    
    
    
    
    
    3,171Gain on easement of assets
    
    
    
    
    
    
    (7
    )MFFO
    
    $
    30,889
    
    
    $
    33,834
  
    
    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
$2.6 million and $3.1 million during the three months
ended March 31, 2010 and 2009, respectively. In addition,
related to our unconsolidated joint ventures,
straight-line revenue of $12,000 and $41,000 for the
three months ended March 31, 2010 and 2009, respectively,
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 $2.1 million and $1.5 million during the three
months ended March 31, 2010 and 2009, respectively. In
addition, related to our unconsolidated joint ventures,
amortization of deferred financing costs and amortization
of fair value adjustments of mortgage notes assumed
totaled $252,000 and $16,000, respectively, which is
included in equity in income of unconsolidated joint
ventures for the three months ended March 31, 2010 and
2009, respectively.
 Distributions and Share Redemptions
     24




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##### Table of Contents



Liquidity and Capital Resources
 General
   Short-term Liquidity and Capital Resources
  Long-term Liquidity and Capital Resources
   25




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##### Table of Contents



Payments due by period (1) (2)More Than 5Total
    
    
    Less Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    YearsPrincipal payments  fixed rate debt (3)
    
    $
    1,464,571
    
    
    $
    43,948
    
    
    $
    224,207
    
    
    $
    292,399
    
    
    $
    904,017Interest payments  fixed rate debt (4)
    
    
    513,622
    
    
    
    86,280
    
    
    
    228,344
    
    
    
    133,791
    
    
    
    65,207Principal payments  variable rate debt (3)
    
    
    122,991
    
    
    
    84,741
    
    
    
    38,250
    
    
    
    
    
    
    
    Interest payments  variable rate debt (5)
    
    
    2,154
    
    
    
    1,736
    
    
    
    418
    
    
    
    
    
    
    
    Principal payments  line of credit
    
    
    33,000
    
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    Interest payments  line of credit (6)
    
    
    1,344
    
    
    
    1,155
    
    
    
    189
    
    
    
    
    
    
    
    Total
    
    $
    2,137,682
    
    
    $
    217,860
    
    
    $
    524,408
    
    
    $
    426,190
    
    
    $
    969,224
 
 (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 face
amount of notes payable. As of March 31, 2010, the fair value
adjustment, net of amortization, of mortgage notes assumed was
$13.5 million.(4)
    
    As of March 31, 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 2.25% to 5.00% were used to calculate the
variable debt payment obligations in future periods. These were
the rates effective as of March 31, 2010.(6)
    
    Based on interest rates in effect as of March 31, 2010.   26




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##### Table of Contents



Cash Flow Analysis
 Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Election as a REIT
  Inflation
  Critical Accounting Policies and Estimates
   27




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##### Table of Contents




    
    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;
    
    Mortgage notes payable incurred and repaid; and
    
    Credit Facility borrowings and repayments.
 New Accounting Pronouncements
  Off Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
   28




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##### Table of Contents



Item 4T.
    
    Controls and Procedures
    29




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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
      30




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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 ProgramsJanuary 2010
    
    
    256,173
    
    
    $
    9.96
    
    
    
    256,173
    
    
    
    (1
    )February 2010
    
    
    31,759
    
    
    
    10.00
    
    
    
    31,759
    
    
    
    (1
    )March 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Total
    
    
    287,932
    
    
    
    
    
    
    
    287,932
    
    
    
    (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.
    
    Removed and Reserved
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
   31




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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)
   32




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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).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.  33