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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 September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-51963
 COLE CREDIT PROPERTY TRUST II, INC.
 (Exact name of registrant as specified in its charter)
 Maryland
    
    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 September 30, 2009 and December
31, 2008
    
    
    4Condensed Consolidated Unaudited Statements of Operations for the three and nine months
ended September 30, 2009 and 2008
    
    
    5Condensed Consolidated Unaudited Statement of Stockholders Equity for the nine months
ended September 30, 2009
    
    
    6Condensed Consolidated Unaudited Statements of Cash Flows for the nine months ended
September 30, 2009 and 2008
    
    
    7Notes to Condensed Consolidated Unaudited Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4T. Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    39Signatures
    
    
    40Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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PART I
FINANCIAL INFORMATION
    3




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
  September 30,
    
    
    December 31,2009
    
    
    2008ASSETSInvestment in real estate assets:Land
    
    $
    807,556
    
    
    $
    774,901Buildings and improvements, less accumulated
depreciation of $108,868 and $67,326,
respectively
    
    
    1,941,131
    
    
    
    1,929,829Real estate assets under direct financing
leases, less unearned income of $17,294 and
$19,888, respectively
    
    
    37,938
    
    
    
    38,612Acquired intangible lease assets, less
accumulated amortization of $59,571 and
$37,578, respectively
    
    
    364,197
    
    
    
    383,992Total real estate assets, net
    
    
    3,150,822
    
    
    
    3,127,334Investment in mortgage notes receivable, less
accumulated amortization of $1,216 and $714,
respectively
    
    
    83,143
    
    
    
    84,994Total real estate and mortgage assets, net
    
    
    3,233,965
    
    
    
    3,212,328Cash and cash equivalents
    
    
    25,031
    
    
    
    106,485Restricted cash
    
    
    7,213
    
    
    
    8,565Marketable securities, net of accumulated
amortization of $1,931 and $310, respectively
    
    
    60,330
    
    
    
    24,583Investment in unconsolidated joint ventures
    
    
    41,630
    
    
    
    25,792Rents and tenant receivables, less allowance
for doubtful accounts of $2,260 and $922,
respectively
    
    
    30,150
    
    
    
    22,212Prepaid expenses and other assets
    
    
    3,789
    
    
    
    4,032Deferred financing costs, less accumulated
amortization of $10,226 and $6,512,
respectively
    
    
    26,809
    
    
    
    28,031Total assets
    
    $
    3,428,917
    
    
    $
    3,432,028LIABILITIES AND STOCKHOLDERS EQUITYNotes payable and line of credit
    
    $
    1,609,910
    
    
    $
    1,550,314Accounts payable and accrued expenses
    
    
    20,984
    
    
    
    20,723Escrowed investor proceeds
    
    
    
    
    
    
    18Due to affiliates
    
    
    369
    
    
    
    123Acquired below market lease intangibles, less
accumulated amortization of $18,675 and
$10,897, respectively
    
    
    152,628
    
    
    
    156,813Distributions payable
    
    
    10,427
    
    
    
    11,877Derivative liabilities
    
    
    3,265
    
    
    
    2,794Deferred rent and other liabilities
    
    
    8,283
    
    
    
    9,344Total liabilities
    
    
    1,805,866
    
    
    
    1,752,006Redeemable common stock
    
    
    74,423
    
    
    
    65,046STOCKHOLDERS EQUITY:Preferred stock, $0.01 par value; 10,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value; 240,000,000
shares authorized, 203,245,142 and 202,296,748
shares issued and outstanding, respectively
    
    
    2,033
    
    
    
    2,023Capital in excess of par value
    
    
    1,762,897
    
    
    
    1,763,432Accumulated distributions in excess of earnings
    
    
    (210,929
    )
    
    
    (121,929
    )Accumulated other comprehensive loss
    
    
    (5,373
    )
    
    
    (28,550
    )Total stockholders equity
    
    
    1,548,628
    
    
    
    1,614,976Total liabilities and stockholders equity
    
    $
    3,428,917
    
    
    $
    3,432,028
   4




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Rental and other income
    
    $
    63,241
    
    
    $
    45,403
    
    
    $
    180,996
    
    
    $
    121,475Tenant reimbursement income
    
    
    4,883
    
    
    
    3,287
    
    
    
    14,907
    
    
    
    7,331Earned income from direct financing leases
    
    
    500
    
    
    
    532
    
    
    
    1,412
    
    
    
    1,650Interest income on mortgage notes receivable
    
    
    1,719
    
    
    
    1,770
    
    
    
    5,162
    
    
    
    5,324Interest income on marketable securities
    
    
    1,844
    
    
    
    100
    
    
    
    5,382
    
    
    
    100Total revenue
    
    
    72,187
    
    
    
    51,092
    
    
    
    207,859
    
    
    
    135,880Expenses:General and administrative expenses
    
    
    1,767
    
    
    
    1,522
    
    
    
    5,262
    
    
    
    3,601Property operating expenses
    
    
    6,352
    
    
    
    3,215
    
    
    
    19,828
    
    
    
    9,249Property and asset management expenses
    
    
    3,804
    
    
    
    2,866
    
    
    
    10,625
    
    
    
    6,925Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    3,241
    
    
    
    Depreciation
    
    
    14,217
    
    
    
    11,063
    
    
    
    42,103
    
    
    
    29,056Amortization
    
    
    13,719
    
    
    
    5,598
    
    
    
    27,724
    
    
    
    15,093Impairment of real estate assets
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    3,550Total operating expenses
    
    
    39,859
    
    
    
    24,264
    
    
    
    122,283
    
    
    
    67,474Operating income
    
    
    32,328
    
    
    
    26,828
    
    
    
    85,576
    
    
    
    68,406Other income (expense):Equity in income of unconsolidated joint
ventures
    
    
    58
    
    
    
    
    
    
    
    585
    
    
    
    Interest and other income (expense)
    
    
    11
    
    
    
    295
    
    
    
    (41
    )
    
    
    923Interest expense
    
    
    (25,488
    )
    
    
    (18,162
    )
    
    
    (73,278
    )
    
    
    (52,732
    )Total other expense
    
    
    (25,419
    )
    
    
    (17,867
    )
    
    
    (72,734
    )
    
    
    (51,809
    )Net income
    
    $
    6,909
    
    
    $
    8,961
    
    
    $
    12,842
    
    
    $
    16,597Weighted average number of common shares
outstanding:Basic
    
    
    202,514,431
    
    
    
    159,897,175
    
    
    
    202,247,716
    
    
    
    131,701,395Diluted
    
    
    202,516,961
    
    
    
    159,900,068
    
    
    
    202,250,913
    
    
    
    131,704,461Net income per common share:Basic and diluted
    
    $
    0.03
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.13
   5




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS EQUITY
  Accumulated
    
    
    AccumulatedCommon Stock
    
    
    
    
    
    
    Distributions in
    
    
    Other
    
    
    TotalNumber of
    
    
    
    
    
    
    Capital in Excess
    
    
    Excess of
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Par Value
    
    
    of Par Value
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance, December 31, 2008
    
    
    202,296,748
    
    
    $
    2,023
    
    
    $
    1,763,432
    
    
    $
    (121,929
    )
    
    $
    (28,550
    )
    
    $
    1,614,976Issuance of common stock
    
    
    5,789,511
    
    
    
    58
    
    
    
    55,005
    
    
    
    
    
    
    
    
    
    
    
    55,063Distributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,842
    )
    
    
    
    
    
    
    (101,842
    )Offering costs
    
    
    
    
    
    
    
    
    
    
    (580
    )
    
    
    
    
    
    
    
    
    
    
    (580
    )Redemptions of common
stock
    
    
    (4,841,117
    )
    
    
    (48
    )
    
    
    (45,592
    )
    
    
    
    
    
    
    
    
    
    
    (45,640
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Redeemable common stock
    
    
    
    
    
    
    
    
    
    
    (9,377
    )
    
    
    
    
    
    
    
    
    
    
    (9,377
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,842
    
    
    
    
    
    
    
    12,842Net unrealized gain on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,631
    
    
    
    23,631Net unrealized loss on
interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (454
    )
    
    
    (454
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,019Balance, September 30,
2009
    
    
    203,245,142
    
    
    $
    2,033
    
    
    $
    1,762,897
    
    
    $
    (210,929
    )
    
    $
    (5,373
    )
    
    $
    1,548,628
   6




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COLE CREDIT PROPERTY TRUST II, INC.
 
 CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
  Nine Months Ended September 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    12,842
    
    
    $
    16,597Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    42,103
    
    
    
    29,056Amortization of intangible lease assets and below market lease intangibles, net
    
    
    17,292
    
    
    
    10,932Amortization of deferred financing costs
    
    
    4,306
    
    
    
    4,122Amortization of premiums on mortgage notes receivable
    
    
    502
    
    
    
    473Amortization of discount on marketable securities
    
    
    (1,621
    )
    
    
    (24
    )Amortization of fair value adjustments of mortgage notes assumed
    
    
    976
    
    
    
    Allowance for doubtful accounts
    
    
    2,030
    
    
    
    193Stock compensation expense
    
    
    9
    
    
    
    6Impairment of real estate assets
    
    
    13,500
    
    
    
    3,550Equity in income of unconsolidated joint ventures
    
    
    (585
    )
    
    
    Distributions from unconsolidated joint ventures
    
    
    2,071
    
    
    
    Property easement loss
    
    
    150
    
    
    
    Changes in assets and liabilities:Decrease in investment in real estate under direct financing leases
    
    
    674
    
    
    
    473Rents and tenant receivables
    
    
    (9,968
    )
    
    
    (8,554
    )Prepaid expenses and other assets
    
    
    320
    
    
    
    (1,963
    )Accounts payable and accrued expenses
    
    
    1,743
    
    
    
    12,252Due to affiliates and deferred rent and other liabilities
    
    
    (815
    )
    
    
    3,409Net cash provided by operating activities
    
    
    85,529
    
    
    
    70,522Cash flows from investing activities:Investment in real estate and related assets
    
    
    (15,064
    )
    
    
    (1,034,362
    )Investment in marketable securities
    
    
    (10,495
    )
    
    
    (26,824
    )Investment in unconsolidated joint ventures
    
    
    (17,324
    )
    
    
    Acquisition costs related to investment in mortgage notes receivable
    
    
    
    
    
    
    (102
    )Proceeds from mortgage notes receivable
    
    
    1,349
    
    
    
    1,143Proceeds from sale of easement
    
    
    11
    
    
    
    Change in restricted cash
    
    
    1,352
    
    
    
    6,435Net cash used in investing activities
    
    
    (40,171
    )
    
    
    (1,053,710
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    46
    
    
    
    777,509Offering costs on issuance of common stock
    
    
    (580
    )
    
    
    (74,480
    )Redemptions of common stock
    
    
    (45,640
    )
    
    
    (6,232
    )Distributions to investors
    
    
    (48,275
    )
    
    
    (28,877
    )Proceeds from notes payable and line of credit
    
    
    75,243
    
    
    
    587,534Repayment of notes payable and line of credit
    
    
    (104,444
    )
    
    
    (235,596
    )Refund of loan deposits
    
    
    150
    
    
    
    4,094Payment of loan deposits
    
    
    (210
    )
    
    
    (4,721
    )Escrowed investor proceeds liability
    
    
    (18
    )
    
    
    (10,523
    )Deferred financing costs paid
    
    
    (3,084
    )
    
    
    (10,418
    )Net cash (used in) provided by financing activities
    
    
    (126,812
    )
    
    
    998,290Net (decrease) increase in cash and cash equivalents
    
    
    (81,454
    )
    
    
    15,102Cash and cash equivalents, beginning of period
    
    
    106,485
    
    
    
    43,517Cash and cash equivalents, end of period
    
    $
    25,031
    
    
    $
    58,619
   7




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




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
   NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation and Basis of Presentation
   Consolidation
  Restricted Cash and Escrowed Investor Proceeds
   9




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 Redeemable Common Stock
 Distinguishing Liabilities from
Equity ,
 Reportable Segments
 Segment Reporting
 Investment in and Valuation of Real Estate Assets
  Investment in Unconsolidated Joint Ventures
   10




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 Investments  Equity Method and Joint Ventures
 NOTE 3  FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures
      Re-measured
    
    
    Fair Value Measurements of Reporting Date UsingDescription:
    
    Balance
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Long-lived assets held and used
    
    $
    9,560
    
    
    $
    
    
    
    $
    
    
    
    $
    9,560
   Cash and cash equivalents, restricted cash, rents and tenant receivable and accounts payable
and accrued expenses
  11




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 Mortgage notes receivable
 Notes payable and line of credit
 Marketable securities
 Derivative Instruments
   Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableBalance at
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsSeptember 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Marketable securities
    
    $
    60,330
    
    
    $
    
    
    
    $
    
    
    
    $
    60,330Interest rate cap agreements
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    Interest rate swap
    
    
    17
    
    
    
    
    
    
    
    17
    
    
    
    Total Assets
    
    $
    60,361
    
    
    $
    
    
    
    $
    31
    
    
    $
    60,330Liabilities:Interest rate swaps
    
    $
    3,265
    
    
    $
    
    
    
    $
    3,265
    
    
    $
    
  12




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
  Net realized/
    
    
    
    
    
    
    Purchases,Balance at
    
    
    unrealized gains
    
    
    Net
    
    
    issuances,
    
    
    Transfers in
    
    
    Balance atDecember 31,
    
    
    (losses) included in
    
    
    unrealized
    
    
    settlements and
    
    
    and out of
    
    
    September 30,2008
    
    
    earnings
    
    
    gain
    
    
    amortization
    
    
    Level 3
    
    
    2009Marketable securities
    
    $
    24,583
    
    
    $
    
    
    
    $
    23,631
    
    
    $
    12,116
    
    
    $
    
    
    
    $
    60,330
 NOTE 4  REAL ESTATE ASSETS UNDER DIRECT FINANCING LEASES
  September 30, 2009
    
    
    December 31, 2008Minimum lease payments receivable
    
    $
    27,378
    
    
    $
    30,646Estimated residual value of leased assets
    
    
    27,854
    
    
    
    27,854Deferred incremental direct costs
    
    
    
    
    
    
    Unearned income
    
    
    (17,294
    )
    
    
    (19,888
    )Total
    
    $
    37,938
    
    
    $
    38,612
 NOTE 5  REAL ESTATE ACQUISITIONS
 Property Acquisitions
      13




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
   Earnout Agreements
  Investment in Unconsolidated Joint Ventures
  NOTE 6  INVESTMENT IN MORTGAGE NOTES RECEIVABLE
   14




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COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 NOTE 7  MARKETABLE SECURITIES
  Amortized Cost
    
    
    UnrealizedBasis
    
    
    Gain (Loss)
    
    
    TotalMarketable securities at December 31, 2008
    
    $
    50,339
    
    
    $
    (25,756
    )
    
    $
    24,583Face value of marketable securities acquired
    
    
    19,790
    
    
    
    
    
    
    
    19,790Discounts on purchases of marketable securities
    
    
    (9,295
    )
    
    
    
    
    
    
    (9,295
    )Increase in fair value of marketable securities
    
    
    
    
    
    
    23,631
    
    
    
    23,631Accretion of discounts on marketable securities
    
    
    1,621
    
    
    
    
    
    
    
    1,621Marketable securities at September 30, 2009
    
    $
    62,455
    
    
    $
    (2,125
    )
    
    $
    60,330
    Holding Period of Gross Unrealized Gains (Losses) of Marketable SecuritiesLess than 12 months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Gains
    
    
    Value
    
    
    Losses
    
    
    Gains
    
    
    Value
    
    
    Losses
    
    
    GainsCommercial
mortgage-backed
securities
    
    $
    42,730
    
    
    $
    (351
    )
    
    $
    8,223
    
    
    $
    17,600
    
    
    $
    (9,997
    )
    
    $
    
    
    
    $
    60,330
    
    
    $
    (10,348
    )
    
    $
    8,223
  15




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
  Available-for-saleEstimated FairAmortized Cost
    
    
    ValueDue within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    
    
    
    
    Due after five years through ten years
    
    
    62,455
    
    
    
    60,330Due after ten years
    
    
    
    
    
    
    $
    62,455
    
    
    $
    60,330
  NOTE 8  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
  Fair Value of AssetBalance Sheet
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    September 30,
    
    
    December 31,Location
    
    Value
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2009
    
    
    2008 (1)Derivatives not designated as hedging instrumentsInterest Rate Cap
    
    Prepaid expenses and other assets
    
    $
    36,000
    
    
    
    7.0
    %
    
    
    8/5/2008
    
    
    
    8/5/2010
    
    
    $
    4
    
    
    $
    Interest Rate Cap
    
    Prepaid expenses and other assets
    
    
    34,000
    
    
    
    7.0
    %
    
    
    10/1/2008
    
    
    
    9/1/2010
    
    
    
    10
    
    
    
    $
    70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14
    
    
    $
    
 Fair Value of Asset (Liability)Balance Sheet
    
    Notional
    
    
    Interest
    
    
    Effective
    
    
    Maturity
    
    
    September 30,
    
    
    December 31,Location
    
    Value
    
    
    Rate
    
    
    Date
    
    
    Date
    
    
    2009
    
    
    2008Derivatives designated as  hedging instrumentsInterest Rate Swap
    
    Derivative liabilities
    
    $
    32,000
    
    
    
    6.2
    %
    
    
    11/4/2008
    
    
    
    10/31/2012
    
    
    $
    (1,829
    )
    
    $
    (2,090
    )Interest Rate Swap
    
    Derivative liabilities
    
    
    38,250
    
    
    
    5.6
    %
    
    
    12/10/2008
    
    
    
    9/26/2011
    
    
    
    (887
    )
    
    
    (704
    )Interest Rate Swap
    
    Derivative liabilities
    
    
    15,043
    
    
    
    6.2
    %
    
    
    6/12/2009
    
    
    
    6/11/2012
    
    
    
    (549
    )
    
    
    Interest Rate Swap
    
    Prepaid expenses and other assets
    
    
    7,200
    
    
    
    5.8
    %
    
    
    2/20/2009
    
    
    
    3/1/2016
    
    
    
    17
    
    
    
    $
    92,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,248
    )
    
    $
    (2,794
    )
 
 (1)
    
    The fair value of the rate caps was less than $1,000.  16




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 Derivatives and Hedging
  Amount of Gain Recognized in Income on DerivativeThree months
    
    
    Nine months
    
    
    Three months
    
    
    Nine monthsLocation of Gain
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    endedDerivatives not designated
    
    Recognized in Income
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,as hedging instruments
    
    on Derivative
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Interest Rate Caps
    
    Interest expense
    
    $
    12
    
    
    $
    14
    
    
    $
    39
    
    
    $
    39
 Amount of (Loss) Recognized in Other Comprehensive Income on DerivativeThree months
    
    
    Nine months
    
    
    Three months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,Derivatives in Cash Flow Hedging Relationships
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Interest Rate Swaps (1)
    
    $
    (665
    )
    
    $
    (454
    )
    
    $
    
    
    
    $
    
 
 (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 three and nine months ended September 30,
2009 and 2008. No previously effective portion of gains or
losses that were recorded in accumulated other comprehensive
income during the term of the hedging relationship was
reclassified into earnings during the three and nine months ended
September 30, 2009 and 2008.  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)
September 30, 2009
   NOTE 10  SUPPLEMENTAL CASH FLOW DISCLOSURES
  Nine months ended September 30,2009
    
    
    2008Supplemental Disclosures of Non-Cash Investing and Financing Activities:Dividends declared and unpaid
    
    $
    10,427
    
    
    $
    9,747Fair value of mortgage notes assumed in real estate acquisitions at
date of assumption
    
    $
    87,821
    
    
    $
    99,823Common stock issued through distribution reinvestment plan
    
    $
    55,017
    
    
    $
    35,839Net unrealized gain (loss) on marketable securities
    
    $
    23,631
    
    
    $
    (3,297
    )Net unrealized loss on interest rate swaps
    
    $
    (454
    )
    
    $
    Supplemental Cash Flow Disclosures:Interest paid
    
    $
    67,414
    
    
    $
    47,152
  18




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 NOTE 11  COMMITMENTS AND CONTINGENCIES
 Litigation
  Environmental Matters
  NOTE 12  RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
    19




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
     20




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##### Table of Contents



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




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 NOTE 13  ECONOMIC DEPENDENCY
  NOTE 14  NEW ACCOUNTING PRONOUNCEMENTS
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an Amendment of ARB
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment to FASB Statement No. 133
 Equity Method Investment Accounting
Considerations
 Determining Fair
Value when the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions that are not Orderly Fair Value Measurements and Disclosures
 Recognition and Presentation of
Other-Than-Temporary Impairments Investments  Debt and Equity
Securities
  22




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##### Table of Contents



COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS  (Continued)
September 30, 2009
 Subsequent Events Subsequent Events
 Amendments to FASB Interpretation No. 46(R)
 The FASB Accounting Standards Codification Accounting Standards
Codification
 Fair Value Measurements
and Disclosures
 NOTE 15  INDEPENDENT DIRECTORS STOCK OPTION PLAN
   23




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



Recent Market Conditions
    26




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##### Table of Contents



Results of Operations
  Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008
  Revenue.
     General and Administrative Expenses.
  27




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##### Table of Contents



Property Operating Expenses.
 Property and Asset Management Expenses.
  Depreciation and Amortization Expenses.
 Equity in Income of Unconsolidated Joint Ventures.
 Interest and Other Income (Expense).
  28




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##### Table of Contents



Interest Expense.
 Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
  Revenue.
     General and Administrative Expenses.
  29




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##### Table of Contents



Property Operating Expenses.
 Property and Asset Management Expenses.
  Acquisition Related Expenses.
 Depreciation and Amortization Expenses.
 Impairment of Real Estate Assets.
 Equity in Income of Unconsolidated Joint Ventures.
  30




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##### Table of Contents



Interest and Other Income (Expense).
 Interest Expense.
  Modified Funds from Operations
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    6,909
    
    
    $
    8,961
    
    
    $
    12,842
    
    
    $
    16,597Depreciation of real estate assets
    
    
    14,217
    
    
    
    11,063
    
    
    
    42,103
    
    
    
    29,056Amortization of lease related costs
    
    
    13,719
    
    
    
    5,598
    
    
    
    27,724
    
    
    
    15,093Depreciation and amortization of
real estate assets in
unconsolidated joint ventures
    
    
    830
    
    
    
    
    
    
    
    1,863
    
    
    
    Acquisition related expenses
    
    
    
    
    
    
    
    
    
    
    3,241
    
    
    
    Impairment on real estate assets
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    3,550Loss on sale of easement
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    MFFO
    
    $
    35,675
    
    
    $
    25,622
    
    
    $
    101,423
    
    
    $
    64,296
  31




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##### Table of Contents




    
    In order to recognize revenues on a straight-line basis
over the terms of the respective leases, we recognized
additional revenue by straight-lining rental revenue of
approximately $2.4 million and approximately $7.6
million during the three and nine months ended
September 30, 2009, respectively and approximately $2.3
million and approximately $6.5 million during the three
and nine months ended September 30, 2008, respectively.
    
    Amortization of deferred financing costs and
amortization of fair value adjustments of mortgage
notes assumed totaled approximately $2.0 million and
approximately $5.3 million during the three and nine
months ended September 30, 2009, respectively and
approximately $1.2 million and approximately $4.0
million during the three and nine months ended
September 30, 2008, respectively.
 Liquidity and Capital Resources
 General
   Short-term Liquidity and Capital Resources
    32




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##### Table of Contents



Long-term Liquidity and Capital Resources
      33




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##### Table of Contents



Payments due by period (1) (2)Less Than 1
    
    
    
    
    
    
    
    
    
    
    More Than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    YearsPrincipal payments  fixed rate debt (3)
    
    $
    1,439,191
    
    
    $
    5,865
    
    
    $
    231,252
    
    
    $
    105,131
    
    
    $
    1,096,943Interest payments  fixed rate debt
    
    
    553,951
    
    
    
    85,006
    
    
    
    231,986
    
    
    
    140,372
    
    
    
    96,587Principal payments  variable rate debt (3)
    
    
    129,155
    
    
    
    90,905
    
    
    
    38,250
    
    
    
    
    
    
    
    Interest payments  variable rate debt (4)
    
    
    4,820
    
    
    
    3,943
    
    
    
    877
    
    
    
    
    
    
    
    Principal payments  line of credit
    
    
    56,000
    
    
    
    
    
    
    
    56,000
    
    
    
    
    
    
    
    Interest payments  line of credit (5)
    
    
    3,267
    
    
    
    1,960
    
    
    
    1,307
    
    
    
    
    
    
    
    Total
    
    $
    2,186,384
    
    
    $
    187,679
    
    
    $
    559,672
    
    
    $
    245,503
    
    
    $
    1,193,530
 (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 paydown amounts are included in payments due by period.(3)
    
    Principal payment amounts reflect actual payments based on face value of notes payable.(4)
    
    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 September 30,
2009.(5)
    
    Based on interest rate in effect at September 30, 2009.  Cash Flow Analysis
 Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
 Operating Activities.
 Investing Activities.
 Financing Activities.
  34




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##### Table of Contents



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




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##### Table of Contents



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 repayments.
 New Accounting Pronouncements
   36




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



Total Number of Shares
    
    
    Maximum Number ofPurchased as Part of
    
    
    Shares that May YetTotal Number of
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Be Purchased UnderShares Redeemed
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    the Plans or ProgramsJuly 2009
    
    
    228,547
    
    
    $
    9.96
    
    
    
    228,547
    
    
    
    (1
    )August 2009
    
    
    9,686
    
    
    
    9.96
    
    
    
    9,686
    
    
    
    (1
    )September 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Total
    
    
    238,233
    
    
    
    
    
    
    
    238,233
    
    
    
    (1
    )
 (1)
    
    A description of the maximum number of shares that may be purchased under our share
redemption program is included in the narrative preceding this table. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
   39




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##### Table of Contents



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




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##### Table of Contents



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