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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, 2011
 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
    
    (602) 778-8700Phoenix, Arizona, 85016(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 March 31, 2011 and December 31, 2010
    
    
    4Condensed Consolidated Unaudited Statements of Operations for the three months ended
March 31, 2011 and 2010
    
    
    5Condensed Consolidated Unaudited Statement of Stockholders Equity for the three months
ended March 31, 2011
    
    
    6Condensed Consolidated Unaudited Statements of Cash Flows for the three months ended
March 31, 2011 and 2010
    
    
    7Notes to Condensed Consolidated Unaudited Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    32PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. [Removed and Reserved]
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35Exhibit 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, 2011
    
    
    December 31, 2010ASSETSInvestment in real estate assets:Land
    
    $
    836,058
    
    
    $
    833,833Buildings and improvements, less accumulated depreciation of $193,563
and $178,906, respectively
    
    
    1,947,449
    
    
    
    1,943,307Real estate assets under direct financing leases, less unearned income of
$14,798 and $15,284, respectively
    
    
    36,709
    
    
    
    36,946Acquired intangible lease assets, less accumulated amortization of $104,615
and $97,387, respectively
    
    
    333,212
    
    
    
    340,606Total real estate assets, net
    
    
    3,153,428
    
    
    
    3,154,692Investment in mortgage notes receivable, net
    
    
    79,033
    
    
    
    79,778Total real estate and mortgage assets, net
    
    
    3,232,461
    
    
    
    3,234,470Cash and cash equivalents
    
    
    34,228
    
    
    
    45,791Restricted cash
    
    
    7,348
    
    
    
    8,345Marketable securities pledged as collateral
    
    
    60,871
    
    
    
    81,995Investment in unconsolidated joint ventures
    
    
    37,240
    
    
    
    38,324Rents and tenant receivables, less allowance for doubtful accounts of
$482 and $646, respectively
    
    
    47,055
    
    
    
    45,616Prepaid expenses and other assets
    
    
    4,035
    
    
    
    3,866Deferred financing costs, less accumulated amortization of $14,837
and $13,599, respectively
    
    
    25,683
    
    
    
    26,928Total assets
    
    $
    3,448,921
    
    
    $
    3,485,335LIABILITIES AND STOCKHOLDERS EQUITYNotes payable and line of credit
    
    $
    1,676,294
    
    
    $
    1,673,243Repurchase agreement
    
    
    44,663
    
    
    
    54,312Accounts payable and accrued expenses
    
    
    15,123
    
    
    
    15,597Due to affiliates
    
    
    1,004
    
    
    
    1,496Acquired below market lease intangibles, less accumulated amortization of
$34,715 and $32,095, respectively
    
    
    137,814
    
    
    
    140,797Distributions payable
    
    
    11,116
    
    
    
    11,097Deferred rent, derivative and other liabilities
    
    
    12,036
    
    
    
    16,181Total liabilities
    
    
    1,898,050
    
    
    
    1,912,723Commitments and contingenciesRedeemable common stock
    
    
    12,510
    
    
    
    12,237STOCKHOLDERS 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,
209,651,829 and 209,317,346 shares issued and outstanding, respectively
    
    
    2,096
    
    
    
    2,093Capital in excess of par value
    
    
    1,880,823
    
    
    
    1,878,118Accumulated distributions in excess of earnings
    
    
    (348,066
    )
    
    
    (332,547
    )Accumulated other comprehensive income
    
    
    3,508
    
    
    
    12,711Total stockholders equity
    
    
    1,538,361
    
    
    
    1,560,375Total liabilities and stockholders equity
    
    $
    3,448,921
    
    
    $
    3,485,335
   4




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
  Three Months Ended March 31,2011
    
    
    2010Revenues:Rental and other property income
    
    $
    60,983
    
    
    $
    58,943Tenant reimbursement income
    
    
    4,787
    
    
    
    3,575Earned income from direct financing leases
    
    
    486
    
    
    
    574Interest income on mortgage notes receivable
    
    
    1,621
    
    
    
    1,676Interest income on marketable securities
    
    
    1,938
    
    
    
    1,886Total revenue
    
    
    69,815
    
    
    
    66,654Expenses:General and administrative expenses
    
    
    2,002
    
    
    
    2,053Property operating expenses
    
    
    5,812
    
    
    
    5,095Property and asset management expenses
    
    
    4,356
    
    
    
    4,312Acquisition related expenses
    
    
    362
    
    
    
    Depreciation
    
    
    14,657
    
    
    
    14,026Amortization
    
    
    7,397
    
    
    
    7,013Total operating expenses
    
    
    34,586
    
    
    
    32,499Operating income
    
    
    35,229
    
    
    
    34,155Other income (expense):Equity in income of unconsolidated joint ventures and other income
    
    
    168
    
    
    
    96Gain on sale of marketable securities
    
    
    7,859
    
    
    
    Interest expense
    
    
    (26,521
    )
    
    
    (25,224
    )Total other expense
    
    
    (18,494
    )
    
    
    (25,128
    )Net income
    
    $
    16,735
    
    
    $
    9,027Weighted average number of common shares outstanding:Basic
    
    
    209,271,540
    
    
    
    205,318,698Diluted
    
    
    209,271,540
    
    
    
    205,322,134Net income per common share:Basic and diluted
    
    $
    0.08
    
    
    $
    0.04Distributions declared per common share
    
    $
    0.15
    
    
    $
    0.15
   5




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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
    
    
    Income
    
    
    EquityBalance, January 1, 2011
    
    
    209,317,346
    
    
    $
    2,093
    
    
    $
    1,878,118
    
    
    $
    (332,547
    )
    
    $
    12,711
    
    
    $
    1,560,375Issuance of common stock
    
    
    1,848,451
    
    
    
    18
    
    
    
    14,866
    
    
    
    
    
    
    
    
    
    
    
    14,884Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,254
    )
    
    
    
    
    
    
    (32,254
    )Redemptions of common stock
    
    
    (1,513,968
    )
    
    
    (15
    )
    
    
    (11,888
    )
    
    
    
    
    
    
    
    
    
    
    (11,903
    )Redeemable common stock
    
    
    
    
    
    
    
    
    
    
    (273
    )
    
    
    
    
    
    
    
    
    
    
    (273
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,735
    
    
    
    
    
    
    
    16,735Unrealized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,713
    )
    
    
    (1,713
    )Reclassification of previous
unrealized gain on marketable securities
into net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,748
    )
    
    
    (7,748
    )Unrealized gain on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    258Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,532Balance, March 31, 2011
    
    
    209,651,829
    
    
    $
    2,096
    
    
    $
    1,880,823
    
    
    $
    (348,066
    )
    
    $
    3,508
    
    
    $
    1,538,361
   6




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
  Three Months Ended March 31,2011
    
    
    2010Cash flows from operating activities:Net income
    
    $
    16,735
    
    
    $
    9,027Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    14,657
    
    
    
    14,026Amortization of intangible lease assets and below market lease intangibles, net
    
    
    6,045
    
    
    
    5,243Amortization of deferred financing costs
    
    
    1,679
    
    
    
    1,607Amortization of premiums on mortgage notes receivable
    
    
    173
    
    
    
    169Accretion of discount on marketable securities
    
    
    (684
    )
    
    
    (613
    )Amortization of fair value adjustments of mortgage notes payable assumed
    
    
    478
    
    
    
    444Bad debt expense
    
    
    18
    
    
    
    289Stock compensation expense
    
    
    
    
    
    
    4Equity in income of unconsolidated joint ventures
    
    
    (153
    )
    
    
    (29
    )Return on investment in unconsolidated joint ventures
    
    
    226
    
    
    
    1,257Gain on sale of marketable securities
    
    
    (7,859
    )
    
    
    Changes in assets and liabilities:Rents and tenant receivables
    
    
    (1,457
    )
    
    
    (1,365
    )Prepaid expenses and other assets
    
    
    981
    
    
    
    965Accounts payable and accrued expenses
    
    
    (392
    )
    
    
    (2,114
    )Due to affiliates, deferred rent and other liabilities
    
    
    (4,379
    )
    
    
    (2,723
    )Net cash provided by operating activities
    
    
    26,068
    
    
    
    26,187Cash flows from investing activities:Investment in real estate and related assets and other capital expenditures
    
    
    (22,765
    )
    
    
    (1,085
    )Proceeds from sale of marketable securities
    
    
    20,206
    
    
    
    Principal repayments from mortgage notes receivable and real estate assets under
direct financing leases
    
    
    809
    
    
    
    634Return of investment from unconsolidated joint ventures
    
    
    1,011
    
    
    
    Payment of property escrow deposits
    
    
    (1,150
    )
    
    
    Change in restricted cash
    
    
    997
    
    
    
    115Net cash used in investing activities
    
    
    (892
    )
    
    
    (336
    )Cash flows from financing activities:Redemptions of common stock
    
    
    (11,903
    )
    
    
    (2,818
    )Distributions to investors
    
    
    (17,351
    )
    
    
    (16,063
    )Proceeds from notes payable and line of credit
    
    
    29,111
    
    
    
    Repayment of notes payable and line of credit
    
    
    (26,538
    )
    
    
    (901
    )Proceeds from repurchase agreement
    
    
    8,078
    
    
    
    Repayment of repurchase agreement
    
    
    (17,727
    )
    
    
    Refund of loan deposits
    
    
    
    
    
    
    410Payment of loan deposits
    
    
    
    
    
    
    (1,640
    )Deferred financing costs paid
    
    
    (409
    )
    
    
    (57
    )Net cash used in financing activities
    
    
    (36,739
    )
    
    
    (21,069
    )Net (decrease) increase in cash and cash equivalents
    
    
    (11,563
    )
    
    
    4,782Cash and cash equivalents, beginning of period
    
    
    45,791
    
    
    
    28,417Cash and cash equivalents, end of period
    
    $
    34,228
    
    
    $
    33,199
   7




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COLE CREDIT PROPERTY TRUST II, INC.
 
 NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
 March 31, 2011
 NOTE 1  ORGANIZATION AND BUSINESS
    NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation and Basis of Presentation
   Consolidation
  8




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 Valuation of Real Estate and Related Assets
    Restricted Cash and Escrows
  Concentration of Credit Risk
  Investment in Unconsolidated Joint Ventures
   9




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 Investments  Equity Method and Joint Ventures
 Redeemable Common Stock
   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)
March 31, 2011
  Cash and cash equivalents, restricted cash, rents and tenant receivables, and accounts payable
and accrued expenses
 Mortgage notes receivable
 Notes payable, line of credit and repurchase agreement
 Marketable securities
 Derivative Instruments
   Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableBalance as of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    InputsMarch 31, 2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    60,871
    
    
    $
    
    
    
    $
    
    
    
    $
    60,871Liabilities:Interest rate swaps
    
    $
    3,398
    
    
    $
    
    
    
    $
    3,398
    
    
    $
    
  11




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
  Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableBalance as of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    InputsDecember 31, 2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    81,995
    
    
    $
    
    
    
    $
    
    
    
    $
    81,995Liabilities:Interest rate swaps
    
    $
    3,656
    
    
    $
    
    
    
    $
    3,656
    
    
    $
    
  Three months ended March 31,2011
    
    
    2010Balance at beginning of period
    
    $
    81,995
    
    
    $
    56,366Total gains or lossesRealized gain included in earnings
    
    
    (7,748
    )
    
    
    Unrealized (loss) gain included in other comprehensive income
    
    
    (1,713
    )
    
    
    6,240Purchases, issuances, settlements, sales and accretionPurchases
    
    
    
    
    
    
    Issuances
    
    
    
    
    
    
    Settlements
    
    
    
    
    
    
    Sales
    
    
    (12,347
    )
    
    
    Accretion of discount
    
    
    684
    
    
    
    613Balance at end of period
    
    $
    60,871
    
    
    $
    63,219
 NOTE 4  INVESTMENT IN DIRECT FINANCING LEASES
  March 31, 2011
    
    
    December 31, 2010Minimum lease payments receivable
    
    $
    23,653
    
    
    $
    24,376Estimated residual value of leased assets
    
    
    27,854
    
    
    
    27,854Unearned income
    
    
    (14,798
    )
    
    
    (15,284
    )Total
    
    $
    36,709
    
    
    $
    36,946
  12




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 NOTE 5  REAL ESTATE ACQUISITIONS
 2011 Property Acquisitions
  March 31, 2011Land
    
    $
    2,225Building and improvements
    
    
    5,058Acquired in-place leases
    
    
    1,289Acquired above-market leases
    
    
    98Total purchase price
    
    $
    8,670
   March 31, 2011
    
    
    March 31, 2010Pro Forma Basis:Revenue
    
    $
    69,893
    
    
    $
    66,818Net income
    
    $
    16,949
    
    
    $
    8,768
  2011 Other Investment in Real Estate
  2010 Property Acquisitions
   13




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 NOTE 6  INVESTMENT IN MORTGAGE NOTES RECEIVABLE
   NOTE 7  MARKETABLE SECURITIES
   Amortized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    TotalMarketable securities as of December 31, 2010
    
    $
    65,628
    
    
    $
    16,367
    
    
    $
    81,995Sale of marketable securities
    
    
    (12,347
    )
    
    
    (7,748
    )
    
    
    (20,095
    )Decrease in fair value of marketable securities
    
    
    
    
    
    
    (1,713
    )
    
    
    (1,713
    )Accretion of discounts on marketable securities
    
    
    684
    
    
    
    
    
    
    
    684Marketable securities as of March 31, 2011
    
    $
    53,965
    
    
    $
    6,906
    
    
    $
    60,871
    14




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
  Holding Period of Gross Unrealized (Loss)Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Security
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossCMBS
    
    $
    27,914
    
    
    $
    (785
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,914
    
    
    $
    (785
    )
  Available-for-saleAmortized Cost
    
    
    Estimated Fair ValueDue within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    16,484
    
    
    
    19,168Due after five years through ten years
    
    
    37,481
    
    
    
    41,703Due after ten years
    
    
    
    
    
    
    $
    53,965
    
    
    $
    60,871
  NOTE 8  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
  Fair Value of LiabilityBalance Sheet
    
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    March 31,
    
    
    December 31,Location
    
    
    Amount
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2011
    
    
    2010Derivatives designated as hedging instrumentsInterest
Rate Swap
    
    Deferred rent, derivative
and other liabilities
    
    
    $
    32,000
    
    
    
    6.2
    %
    
    
    11/4/2008
    
    
    
    10/31/2012
    
    
    $
    (1,535
    )
    
    $
    (1,767
    )Interest
Rate Swap
    
    Deferred rent, derivative 
and other liabilities
    
    
    
    38,250
    
    
    
    5.6
    %
    
    
    12/10/2008
    
    
    
    9/26/2011
    
    
    
    (388
    )
    
    
    (571
    )Interest
Rate Swap
    
    Deferred rent, derivative 
and other liabilities
    
    
    
    15,043
    
    
    
    6.2
    %
    
    
    6/12/2009
    
    
    
    6/11/2012
    
    
    
    (447
    )
    
    
    (531
    )Interest
Rate Swap
    
    Deferred rent, derivative 
and other liabilities
    
    
    
    7,200
    
    
    
    5.8
    %
    
    
    2/20/2009
    
    
    
    3/1/2016
    
    
    
    (157
    )
    
    
    (210
    )Interest
Rate Swap
    
    Deferred rent, derivative 
and other liabilities
    
    
    
    30,000
    
    
    
    6.0
    %
    
    
    11/24/2009
    
    
    
    10/16/2012
    
    
    
    (474
    )
    
    
    (577
    )Interest
Rate Swap
    
    Deferred rent, derivative 
and other liabilities
    
    
    
    111,111
    
    
    
    4.9
    %(1)
    
    
    2/28/2011
    
    
    
    11/30/2013
    
    
    
    (397
    )
    
    
    $
    233,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,398
    )
    
    $
    (3,656
    )
 
 (1)
    
    The interest rate swap fixes LIBOR at 1.44%. The applicable spread is based on the Companys overall leverage.   15




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
   Amount of Gain (Loss) Recognized in OtherComprehensive Income on DerivativeDerivatives in Cash Flow
    
    Three Months Ended March 31,Hedging Relationships
    
    2011
    
    
    2010Interest Rate Swaps (1)
    
    $
    258
    
    
    $
    (496
    )
 
 (1)
    
    There were no portions of the change in the fair value of the interest
rate swap agreements that were considered ineffective during the three
months ended March 31, 2011 and 2010. 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 months ended March 31,
2011 and 2010.  NOTE 9  NOTES PAYABLE, LINE OF CREDIT AND REPURCHASE AGREEMENT
   Notes Payable
   16




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 Line of Credit
   Repurchase Agreement
    NOTE 10  SUPPLEMENTAL CASH FLOW DISCLOSURES
  Three months ended March 31,2011
    
    
    2010Supplemental Disclosures of Non-Cash Investing and Financing ActivitiesDistributions declared and unpaid
    
    $
    11,116
    
    
    $
    10,924Common stock issued through the DRIP Offering
    
    $
    14,884
    
    
    $
    15,499Net unrealized (loss) gain on marketable securities
    
    $
    (1,713
    )
    
    $
    6,240Reclassification of unrealized gain on marketable securities into net income
    
    $
    7,748
    
    
    $
    Net unrealized gain (loss) on interest rate swaps
    
    $
    258
    
    
    $
    (496
    )Accrued capital expenditures
    
    $
    684
    
    
    $
    112Accrued deferred financing costs
    
    $
    25
    
    
    $
    Supplemental Cash Flow Disclosures:Interest paid
    
    $
    24,243
    
    
    $
    23,432
  17




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 NOTE 11  COMMITMENTS AND CONTINGENCIES
 Litigation
  Purchase Commitments
  Environmental Matters
  NOTE 12  RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
  DRIP Offering
  Acquisitions and Operations
    18




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
     Three Months Ended March 31,2011
    
    
    2010Acquisitions and Operations:Acquisition and advisory fees and expenses
    
    $
    413
    
    
    $
    Asset management fees and expenses
    
    $
    2,158
    
    
    $
    2,132Property management and leasing fees and expenses
    
    $
    2,103
    
    
    $
    2,118Operating expenses
    
    $
    433
    
    
    $
    540Financing coordination fees
    
    $
    111
    
    
    $
    
 Liquidation/Listing
    19




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
   Other
  NOTE 13  ECONOMIC DEPENDENCY
  NOTE 14  NEW ACCOUNTING PRONOUNCEMENT
 Disclosure of Supplementary Pro Forma Information
for Business Combinations
 NOTE 15  INDEPENDENT DIRECTORS STOCK OPTION PLAN
    20




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
March 31, 2011
 NOTE 16  SUBSEQUENT EVENTS
 Issuance of shares of common stock through DRIP Offering
  Redemption of Shares of Common Stock
  Real Estate Acquisitions
  Notes Payable and Line of Credit
  Declaration of Distributions
  Sale of Marketable Securities and Repayment of Repurchase Agreement
   21




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
 Form 10-K
   Overview
   22




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##### Table of Contents



Recent Market Conditions
    23




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##### Table of Contents



Results of Operations
  Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010
 Revenue.
     General and Administrative Expenses.
 Property Operating Expenses.
  24




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##### Table of Contents



Property and Asset Management Expenses.
  Acquisition Related Expenses.
 Depreciation and Amortization Expenses.
 Equity in income of unconsolidated joint ventures and other income.
 Gain on sale of marketable securities
 Interest Expense.
 Funds From Operations and Modified Funds from Operations
    25




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##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010NET INCOME
    
    $
    16,735
    
    
    $
    9,027Depreciation of real estate assets
    
    
    14,657
    
    
    
    14,026Amortization of lease related costs
    
    
    7,397
    
    
    
    7,013Depreciation and amortization of real estate assets in
unconsolidated joint ventures
    
    
    550
    
    
    
    823Funds from operations (FFO)
    
    
    39,339
    
    
    
    30,889Acquisition related expenses
    
    
    362
    
    
    
    Modified funds from operations (MFFO)
    
    $
    39,701
    
    
    $
    30,889
  
    
    In March 2011, we sold two CMBS bonds for $20.2 million, and realized a gain on the sale of
$7.9 million, of which $7.7 million had previously been recorded in other comprehensive income. No
sales of CMBS bonds occurred during the three months ended March 31, 2010.
 
    
    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 $2.7 million and $2.6
million during the three months ended March 31, 2011 and 2010, respectively. In addition, related
to our unconsolidated joint ventures, straight-line revenue of $8,000 and $12,000 for the three
months ended March 31, 2011 and 2010, 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 $2.2 million and $2.1 million during the three months ended March
31, 2011 and 2010, 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 $135,000 and $252,000, which is included in equity in income of
unconsolidated joint ventures for the three months ended March 31, 2011 and 2010, respectively.
  26




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##### Table of Contents



Distributions
   Share Redemptions
   Liquidity and Capital Resources
 General
   27




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##### Table of Contents



Short-term Liquidity and Capital Resources
  Long-term Liquidity and Capital Resources
     28




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##### Table of Contents



Payments due by period(1) (2) (3)Less Than 1
    
    
    
    
    
    
    
    
    
    
    More Than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    YearsPrincipal payments  fixed rate debt (4)
    
    $
    1,522,597
    
    
    $
    85,650
    
    
    $
    144,238
    
    
    $
    598,536
    
    
    $
    694,173Interest payments  fixed rate debt (5)
    
    
    465,349
    
    
    
    86,898
    
    
    
    234,409
    
    
    
    119,837
    
    
    
    24,205Principal payments  variable rate debt
    
    
    38,250
    
    
    
    38,250
    
    
    
    
    
    
    
    
    
    
    
    Interest payments  variable rate debt (6)
    
    
    399
    
    
    
    399
    
    
    
    
    
    
    
    
    
    
    
    Principal payments  repurchase agreement (7)
    
    
    44,663
    
    
    
    44,663
    
    
    
    
    
    
    
    
    
    
    
    Interest payments  repurchase agreement
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Principal payments  credit facility
    
    
    127,111
    
    
    
    
    
    
    
    127,111
    
    
    
    
    
    
    
    Interest payments  credit facility (5) (8)
    
    
    17,401
    
    
    
    6,409
    
    
    
    10,992
    
    
    
    
    
    
    
    Total
    
    $
    2,215,772
    
    
    $
    262,271
    
    
    $
    516,750
    
    
    $
    718,373
    
    
    $
    718,378
 
 (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)
    
    The table above does not include loan amounts associated with the two unconsolidated joint
ventures, with a face amount totaling $111.1 million which matures in January 2012 (with an
extension option to January 2019) and January 2016, as these loans are non-recourse to us.(4)
    
    Principal payment amounts reflect actual payments based on face amount of notes payable. As of
March 31, 2011, the fair value adjustment, net of amortization, of mortgage notes assumed was $11.7
million.(5)
    
    As of March 31, 2011, we had $233.6 million of Variable Rate Debt and Credit Facility
borrowings 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.(6)
    
    Rates ranging from 2.26% to 3.26% were used to calculate the variable debt payment obligations
in future periods. These were the rates effective as of March 31, 2011.(7)
    
    The Company may elect to renew the terms under the Repurchase Agreement for periods ranging
from seven days to 90 days until the CMBS bonds, which are held as collateral, mature.(8)
    
    Payment obligations for Revolving Loans outstanding under the Credit Facility based on interest
rate of 5.75% in effect as of March 31, 2011.    29




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##### Table of Contents



Cash Flow Analysis
 Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Election as a REIT
   Inflation
   30




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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 our DRIP Offering;
    
    Redemption of shares of common stock;
    
    Real estate acquisitions;
    
    Notes payable and line of credit;
    
    Declaration of distributions; and
    
    Sale of marketable securities and repayment of Repurchase Agreement.
  31




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##### Table of Contents



New Accounting Pronouncements
  Off Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
     
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   32




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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 Shares
    
    
    Maximum Number ofTotal Number
    
    
    
    
    
    
    Purchased as Part
    
    
    Shares that May Yet Beof Shares
    
    
    Average Price
    
    
    of Publicly Announced
    
    
    Purchased Under theRedeemed
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    Plans or ProgramsJanuary 2011
    
    
    1,510,780
    
    
    $
    7.86
    
    
    
    1,510,780
    
    
    
    (1
    )February 2011
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    (1
    )March 2011
    
    
    3,188
    
    
    $
    7.86
    
    
    
    3,188
    
    
    
    (1
    )Total
    
    
    1,513,968
    
    
    
    
    
    
    
    1,513,968
    
    
    
    (1
    )
 
 (1)
    
    A description of the maximum number of shares that may be purchased under our redemption
program is included in the
narrative preceding this table.  33




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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
   34




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##### Table of Contents



SIGNATURES
  Cole Credit Property Trust II, Inc.(Registrant)By:
    /s/ Simon J. MisselbrookName:
    Simon J. MisselbrookTitle:
    Vice President of Accounting
(Principal Accounting Officer)   35




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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 of 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 2002.31.2
    *
    
    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 2002.32.1
    **
    
    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.
 *
    
    Filed 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.  36