Edgar Filing: Cole Credit Property Trust II Inc

Committees of the Board of Directors

We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The board is responsible for the management and control of our affairs. The board has retained Cole Advisors II to manage our day-to-day affairs and the acquisition and disposition of our investments, subject to the board’s supervision. Our charter has been reviewed and ratified by at least a majority of our board of directors, including the independent directors. This ratification by our board of directors is required by the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association, also known as the NASAA REIT Guidelines.

Our charter and bylaws provide that the number of our directors may be established by a majority of the entire board of directors but may not be fewer than three nor more than 15, provided, however, that there may be fewer than three directors at any time that we have only one stockholder of record. We have a total of three directors, including two independent directors. Our charter provides that a majority of the directors must be independent directors. An “independent director” is a person who is not one of our officers or employees or an officer or employee of Cole Advisors II or its affiliates or any other real estate investment trust organized by our sponsor or advised by Cole Advisors II, has not otherwise been affiliated with such entities for the previous two years and does not serve as a director of more than three REITs organized by Christopher H. Cole or advised by Cole Advisors II. Of our three directors, two are considered independent directors. There are no family relationships among any of our directors or officers, or officers of our advisor. Each director who is not an independent director must have at least three years of relevant experience demonstrating the knowledge and experience required to successfully acquire and manage the type of assets being acquired by us. At least one of the independent directors must have at least three years of relevant real estate experience. Currently, each of our directors has substantially in excess of three years of relevant real estate experience.

During the discussion of a proposed transaction, independent directors may offer ideas for ways in which transactions may be structured to offer the greatest value to us, and our management will take these suggestions into consideration when structuring transactions. Each director will serve until the next annual meeting of stockholders or until his or her successor is duly elected and qualified. Although the number of directors may be increased or decreased, a decrease will not have the effect of shortening the term of any incumbent director.

Any director may resign at any time and may be removed with or without cause by the stockholders upon the affirmative vote of at least a majority of all the votes entitled to be cast at a meeting properly called for the purpose of the proposed removal. The notice of the meeting will indicate that the purpose, or one of the purposes, of the meeting is to determine if the director shall be removed. Neither our advisor, any member of our board of directors nor any of their affiliates may vote or consent on matters submitted to the stockholders regarding the removal of our advisor or any director after we accept any subscriptions for the purchase of shares in this offering. In determining the requisite percentage in interest required to approve such a matter after we accept any subscriptions for the purchase of shares in this offering, any shares owned by such persons will not be included.

Any vacancy created by an increase in the number of directors or the death, resignation, removal, adjudicated incompetence or other incapacity of a director may be filled only by a vote of a majority of the remaining directors. Independent directors shall nominate replacements for vacancies in the independent director positions. If at any time there are no directors in office, successor directors shall be elected by the stockholders. Each director will be bound by the charter and the bylaws.

The directors are not required to devote all of their time to our business and are only required to devote the time to our affairs as their duties require. The directors meet quarterly or more frequently if necessary. Our directors are not required to devote a substantial portion of their time to discharge their duties as our directors. Consequently, in the exercise of their responsibilities, the directors heavily rely on our advisor. Our directors have a fiduciary duty to our stockholders to supervise the relationship between us and our advisor. The board is empowered to fix the compensation of all officers that it selects and approve the payment of compensation to directors for services rendered to us in any other capacity.

Our board of directors has written policies on investments and borrowing, the general terms of which are set forth in this prospectus. The directors may establish further written policies on investments and borrowings and monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled and are in the best interest of our stockholders.

The board also is responsible for reviewing our fees and expenses on at least an annual basis and with sufficient frequency to determine that the expenses incurred are in the best interest of the stockholders. In addition, a majority of the directors, including a majority of the independent directors who are not otherwise interested in the transaction, must approve all transactions with Cole Advisors II or its affiliates. The independent directors also are responsible for reviewing the performance of Cole Advisors II and determining that the compensation to be paid to Cole Advisors II is reasonable in relation to the nature and quality of services to be performed and that the provisions of the advisory agreement are being carried out. Specifically, the independent directors consider factors such as:


	•	the amount of the fees paid to Cole Advisors II in relation to the size, composition and performance of our investments;

	•	the success of Cole Advisors II in generating appropriate investment opportunities;

	•	rates charged to other REITs, especially REITs of similar structure, and other investors by advisors performing similar services;

	•	additional revenues realized by Cole Advisors II and its affiliates through their relationship with us, whether we pay them or they are paid by others with whom we do business;

	•	the quality and extent of service and advice furnished by Cole Advisors II and the performance of our investment portfolio; and

	•	the quality of our portfolio relative to the investments generated by Cole Advisors II or its affiliates for its other clients.

Neither our advisor nor any of its affiliates will vote or consent to the voting of shares of our common stock they now own or hereafter acquire on matters submitted to the stockholders regarding either (1) the removal of Cole Advisors II, any non-independent director or any of their respective affiliates, or (2) any transaction between us and Cole Advisors II, any non-independent director or any of their respective affiliates.

Our entire board of directors considers all major decisions concerning our business, including property acquisitions. However, our bylaws provide that our board may establish such committees as the board believes appropriate. The board will appoint the members of the committee in the board’s discretion. Our bylaws require that a majority of the members of each committee of our board is to be comprised of independent directors.

Audit Committee

Our board of directors has established an audit committee, which consists of our two independent directors. The audit committee, by approval of at least a majority of the members, selects the independent registered public accounting firm to audit our annual financial statements, reviews with the independent registered public accounting firm the plans and results of the audit engagement, approves the audit and non-audit services provided by the independent registered public accounting firm, reviews the independence of the independent registered public accounting firm, considers the range of audit and non-audit fees and reviews the adequacy of our internal accounting controls. Our board of directors has adopted a charter for the audit committee that sets forth its specific functions and responsibilities.

Compensation Committee

Our board of directors has established a compensation committee, which consists of our two independent directors. The primary purpose of the compensation committee will be to oversee our compensation programs. Our

board of directors has adopted a charter for the compensation committee that sets forth its specific functions and responsibilities.

Executive Officers and Directors

We have provided below certain information about our executive officers and directors.


Name	Age		Position

Christopher H. Cole		55	Chairman, Chief Executive Officer and President
D. Kirk McAllaster, Jr.		41	Executive Vice President and Chief Financial Officer
John M. Pons		44	Secretary
Marcus E. Bromley		58	Independent Director
Elizabeth L. Watson		48	Independent Director

Christopher H. Cole has served as the chairman, chief executive officer and president of the Company since its formation in September 2004 and also serves as the chief executive officer, president and treasurer of Cole Advisors II, our advisor, since its formation in September 2004. Mr. Cole has served as the chairman, chief executive officer and president of Cole Retail Income Trust, Inc. (CRIT), Cole Retail Income Advisors, LLC (CRIT Advisor) since their formations in January 2008. Mr. Cole is the chairman, chief executive officer, president, secretary, and treasurer of Cole Holdings Corporation and its sole shareholder since August 2004. Mr. Cole has been engaged as a general partner in the structuring and management of real estate limited partnerships since February 1979. Mr. Cole has served as the chief executive officer, president and treasurer of Cole Capital Advisors since October 2007 and previously served as its chief executive officer and treasurer from March 2007 through October 2007 and as chief executive officer, president and treasurer from formation in November 2002 through March 2007. Mr. Cole has served as the chief executive officer, president and treasurer of Cole Capital Partners (CCP) since October 2007 and previously served as its chief executive officer and treasurer from March 2007 through October 2007 and as chief executive officer, president and treasurer from formation in November 2002 through March 2007. Mr. Cole has served as the chief executive officer of Cole REIT Advisors I (Cole Advisors) since April 2004 and as chief executive officer, president and treasurer since October 2007. Mr. Cole has served as the chairman, chief executive officer, and president of Cole Credit Property Trust, Inc. (Cole REIT I) since its formation in March 2004. Mr. Cole has also served as chief executive officer, president and treasurer of Cole Realty Advisors, Inc. (Cole Realty Advisors) since October 2007 and previously served as its chief executive officer and treasurer from March 2007 through October 2007, its chief executive officer, president and treasurer from November 2002 to March 2007 and its president, secretary and treasurer from its formation in November 2002 through November 2002. Mr. Cole has served as the chief executive officer of the Cole Growth Opportunity Fund I GP, LLC (Cole Opportunity Fund) since its formation in March 2007. Mr. Cole also served as the Chief Executive Officer of Cole Partnerships, Inc. (Cole Partnerships) from August 1995 through December 2003. Mr. Cole also served as executive vice president and treasurer of Cole Capital Corporation (CCC) from December 2002 through January 2008.

D. Kirk McAllaster, Jr. has served as executive vice president and chief financial officer of the Company since October 2007. He has served as executive vice president and chief financial officer of our advisor since March 2007 and prior to that time served as vice president, finance and accounting since its formation in September 2004. He has also served as the executive vice president and chief financial officer of CCP and Cole Capital Advisors and has served in such capacity since March 2007. From December 2005 to March 2007, Mr. McAllaster served as vice president, finance and accounting of CCP and Cole Capital Advisors. Mr. McAllaster also serves as executive vice president and chief financial officer of Cole Advisors and previously served as vice president from December 2005 to March 2007. He has also served as executive vice president and chief financial officer of Cole REIT I since October 2007 and as executive vice president and chief financial officer of Cole Realty Advisors and Cole Advisors since March 2007. Mr. McAllaster has served as executive vice president and chief financial officer of CRIT and CRIT Advisor since their formation in January 2008. Prior to joining Cole in May 2003, Mr. McAllaster worked for six years with Deloitte & Touche LLP, most recently as audit Senior Manager. He has over 16 years of accounting and finance experience in public accounting and private industry. Mr. McAllaster received a Bachelor of Science Degree from California State Polytechnic University — Pomona with a major in Accounting. He is a Certified

Public Accountant licensed in the state of Arizona and is a member of the American Institute of CPAs and the Arizona Society of CPAs.

John M. Pons has served as the secretary of our Company and our advisor since their formation in September 2004 and executive vice president, chief administrative officer, general counsel and secretary since October 2007. He served our advisor as executive vice president, chief operating officer and general counsel from March 2007 through October 2007, as senior vice president and general counsel from December 2005 through March 2007, as senior vice president and counsel from August 2005 through December 2005 and as vice president, secretary and counsel from April 2004 through August 2005. He also serves as executive vice president, chief administrative officer, general counsel and secretary of Cole Capital Advisors since October 2007 and served as the executive vice president, chief operating officer, and general counsel from March 2007 through October 2007, as senior vice president and counsel from August 2005 through March 2007 and as vice president and counsel from September 2003 through August 2005. He has also served as executive vice president, chief administrative officer, general counsel and secretary of CCP since October 2007, as executive vice president, chief operating officer and general counsel from March 2007 through October 2007, as senior vice president and general counsel from December 2005 through March 2007, as senior vice president and counsel from August 2005 through December 2005 and as vice president and counsel from September 2003 through August 2005. He has also served as executive vice president, chief administrative officer, secretary, and general counsel of Cole Advisors since October 2007. He served as executive vice president, chief operating officer, general counsel and secretary of Cole Advisors from March 2007 through October 2007, as senior vice president and general counsel from December 2005 through March 2007, as senior vice president and counsel from August 2005 through December 2005 and as vice president, secretary and counsel from April 2004 through August 2005. Mr. Pons has also served as a director and secretary for Cole REIT I since its formation in March 2004. Mr. Pons has also served as executive vice president, chief administrative officer and general counsel of Cole Realty Advisors since October 2007 and served as executive vice president, chief operating officer and general counsel from March 2007 through October 2007. From December 2001 until joining Cole in September 2003, Mr. Pons was associate general counsel and assistant secretary of GE Capital Franchise Finance Corporation. Prior to December 2001, Mr. Pons was engaged in a private legal practice. Mr. Pons has over 13 years experience in all aspects of real estate law, including the acquisition, sale, leasing, development, and financing of real property. Before attending law school, Mr. Pons was a Captain in the United States Air Force where he served from 1988 until 1992. Mr. Pons received a Bachelor of Science Degree in Mathematics from Colorado State University and a Master of Science Degree in Administration from Central Michigan University before attending the University of Denver where he earned his Juris Doctor (Order of St. Ives) in 1995.

Marcus E. Bromley has been a member of our board of directors, chairman of our board’s compensation committee and a member of our board’s audit committee since May 2005. From 1993 through 2005, Mr. Bromley served as a member of the board of trustees of Gables Residential Trust (GBP), a $2 billion multi-family residential REIT with operations in Texas, Georgia, South Florida, Washington, D.C. and Southern California that was listed on the New York Stock Exchange, prior to its sale in 2005. From December 1993 until June 2000, Mr. Bromley also served as the chief executive officer of Gables Residential Trust. Prior to joining Gables Residential Trust, Mr. Bromley was a division partner of Trammell Crow Residential from 1982 until 1993. Mr. Bromley also serves on the board of directors of Private Bank of Buckhead (Atlanta), a community bank, and on the board of directors of Nancy Creek Capital (Atlanta), a private equity firm. Mr. Bromley holds a B.S. in Economics from Washington & Lee University and a M.B.A. from the University of North Carolina.

Elizabeth L. Watson has been a member of our board of directors, the chairperson of our board’s audit committee and a member of our board’s compensation committee since May 2005. Since September 2003, Ms. Watson has been a partner in, and has served as the chief operating officer for, NGP Capital Partners III, LLC (NGP Capital). Prior to joining NGP Capital, she was a retail research analyst for Legg Mason Wood Walker from June 2002 until September 2003. From November 1997 until June 2002, Ms. Watson was a partner in and served as executive vice president and chief financial officer of National Government Properties (NGP). Before joining NGP, Ms. Watson served as the senior vice president, chief financial officer and treasurer of Government Properties Investors, Inc. (GPI) from June 1994 until March 1997. From 1992 until 1994, Ms. Watson served as senior vice president, chief financial officer and treasurer of Prime Retail, Inc., a publicly traded REIT that developed and owned factory outlet centers, and its predecessor company, The Prime Group. Ms. Watson received her B.S.

Accounting and M.B.A. from the University of Maryland. She holds a Masters of Real Estate from Johns Hopkins University and an International Executive M.B.A. from Georgetown University. For the past ten years, she has been a lecturer for Johns Hopkins University’s Real Estate Masters Program and has taught real estate accounting and taxation, real estate finance and real estate investments. She is a licensed certified public accountant and is a member of the Maryland Association of CPAs, NAREIT and the National Association of Real Estate Companies.

Compensation of Directors

We pay to each of our independent directors a retainer of $25,000 per year, plus $2,000 for each board or board committee meeting the director attends in person ($2,500 for attendance by the chairperson of the audit committee at each meeting of the audit committee) and $250 for each meeting the director attends by telephone. In the event there is a meeting of the board and one or more committees in a single day, the fees will be limited to $2,500 per day ($3,000 for the chairperson of the audit committee if there is a meeting of such committee). In addition, we have reserved 1,000,000 shares of common stock for future issuance upon the exercise of stock options that may be granted to our independent directors pursuant to our stock option plan (described below). We have granted each of our independent directors two options to purchase 5,000 shares of common stock. The first options were granted to them on the date such independent director was elected as a director and the second options were granted on the date of our annual meeting of stockholders. Such options have an exercise price equal to $9.15 per share and vest after one year from the date of grant. We expect that the independent directors will continue to receive additional 5,000-share option grants on the date of each annual meeting of stockholders, each with an exercise price equal to $9.15 per share during such time as we are offering shares to the public at $10.00 per share and thereafter at 100% of the then-current fair market value per share. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. If a director is also an employee of Cole REIT II or Cole Advisors II or their affiliates, we do not pay compensation for services rendered as a director. We do not compensate Mr. Cole for his service to us on the board of directors.

Director Compensation Table

The following table sets froth certain information with respect to our director compensation during the fiscal year ended December 31, 2007:


									Change in
									Pension
									Value and
	Fees						Non-Equity		Nonqualified
	Earned						Incentive		Deferred
	or Paid in		Stock		Option		Plan		Compensation		All Other
Name	Cash ($)		Awards ($)		Awards(1) ($)		Compensation ($)		Earnings		Compensation(2) ($)		Total ($)

Christopher H. Cole	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Marcus E. Bromley		43,000		—		12,747		—		—		1,234		56,981
Elizabeth L. Watson		43,500		—		12,747		—		—		—		56,247


(1)		The value of option awards represents the amount of compensation cost recognized by the Company for financial statement purposes under SFAS 123R.

(2)		Amount represents travel expense incurred by Mr. Bromley to attend various director meetings.

2004 Independent Directors’ Stock Option Plan

We have adopted an independent directors’ stock option plan that is designed to attract and retain independent directors by providing them with the opportunity to purchase our shares. Options granted to our independent directors under the plan provide these directors an incentive to increase the value of our shares, and a stake in our future that corresponds to the stake of each of our stockholders. A total of 1,000,000 shares have been authorized and reserved for issuance under the plan. As of the date of this prospectus, we have issued options to purchase a total of 20,000 shares of common stock to our independent directors pursuant to this plan.

The plan is administered by our board of directors. All of our independent directors will be eligible to participate in the plan. The plan authorizes the grant of non-qualified stock options to our independent directors,

subject to the absolute discretion of the board and the applicable limitations of the plan. We intend to grant options under our stock option plan to each qualifying director annually. The initial option grant generally will be made on the date the qualifying director first becomes a director. Annual grants are expected to be made on the date of each annual stockholder meeting in which the respective independent director is re-elected. The exercise price for the options granted under our independent director stock option plan initially will be $9.15 per share. It is intended that the exercise price for future options granted under our independent director stock option plan will be at least 100% of the fair market value of our common stock as of the date that the option is granted.

Options granted to independent directors under the plan will become exercisable on the first anniversary of the date of grant. Options granted under our stock option plan will lapse and no longer be exercisable on the first to occur of (1) the tenth anniversary of the date they are granted or (2) immediately following the date the director ceases to be a director for cause. Options granted under the plan may be exercised by payment of cash or through the delivery of shares of our common stock with a fair market value equal to the exercise price to be paid. No options issued under our stock option plan may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.

The term of the plan is ten years. Upon the earlier of our dissolution or liquidation, upon our reorganization, merger or consolidation with one or more corporations as a result of which we are not the surviving corporation, or upon the sale of all or substantially all of our properties, the plan will terminate, and any outstanding options will be forfeited. Alternatively, the board of directors may provide in writing in connection with any such transaction for any or all of the following alternatives:


	•	the assumption by the successor corporation of the options granted or the replacement of the options with options exercisable into the stock of the successor corporation, or a parent or subsidiary of such corporation, with appropriate adjustments as to the number and kind of shares and exercise prices;

	•	the continuance of the plan and the options by such successor corporation under the original terms; and/or

	•	the payment in cash or shares of our common stock in lieu of and in complete satisfaction of such options.

Provisions Applicable to Our Stock Option Plan

In no event shall an option be granted under our stock option plan to an independent director if the shares available for purchase subject to such grant, when added to all other shares available for purchase and all other shares purchased pursuant to other issued and outstanding options, would exceed 9.8% of the issued and outstanding shares of common stock determined as of the date of grant of such option. Except as otherwise provided in an option agreement, if a change of control occurs and the agreements effectuating the change of control do not provide for the assumption or substitution of all options granted under the plan, the board in its sole and absolute discretion, may, with respect to any or all of such options, take any or all of the following actions to be effective as of the date of the change of control (or as of any other date fixed by the board occurring within the 30-day period immediately preceding the date of the change of control, but only if such action remains contingent upon the change of control):


	•	accelerate the vesting and/or exercisability of the non-assumed option;

	•	unilaterally cancel any such non-assumed option that has not vested and/or that has not become exercisable;

	•	unilaterally cancel such non-assumed option in exchange for:


	•	whole and/or fractional shares (or for whole shares and cash in lieu of any fractional share) that, in the aggregate, are equal in value to the gain that could be realized by the award recipient upon the exercise of such option (taking into account vesting and/or exercisability of such option); or

	•	cash or other property equal in value to the gain that could be realized upon the exercise of such option (taking into account vesting and/or exercisability of such option);


	•	unilaterally cancel such non-assumed option after providing the holder of such option with (1) an opportunity to exercise such non-assumed option to the extent vested within a specified period prior to the date of


		the change of control, and (2) notice of such opportunity to exercise prior to the commencement of such specified period; and/or


	•	unilaterally cancel such non-assumed option if there would be no gain realized upon the immediate exercise price of such option (taking into account vesting).

If the number of our outstanding shares is changed into a different number or kind of shares or securities through a reorganization or merger in which we are the surviving entity, or through a combination, recapitalization or otherwise, an appropriate adjustment will be made in the number and kind of shares that may be issued pursuant to the exercise of options granted under the plan. A corresponding adjustment to the exercise price of such options granted prior to any change will also be made. Any such adjustment, however, will not change the total payment, if any, applicable to the portion of the options not exercised, but will change only the exercise price for each share.

Compliance with the American Jobs Creation Act

As part of our strategy for compensating our independent directors, we have issued, and we intend to issue, options to purchase our common stock under our independent directors’ stock option plan, which is described above. This method of compensating individuals may possibly be considered to be a “nonqualified deferred compensation plan” under Section 409A of the Internal Revenue Code (including amendment by the American Jobs Creation Act of 2004).

Under Section 409A, “nonqualified deferred compensation plans” must meet certain requirements regarding the timing of distributions or payments and the timing of agreements or elections to defer payments, and must also prohibit any possibility of acceleration of distributions or payments, as well as certain other requirements. Stock options with an exercise price that is ever less than the fair market value of the underlying stock as of the date of grant would be considered as “nonqualified deferred compensation plans.”

If Section 409A applies to any of the awards issued under the plan, or if Section 409A applies to any other arrangement or agreement that we may make, and if such award, arrangement or agreement does not meet the timing and prohibition requirements of Section 409A, then (i) all amounts deferred for all taxable years under the award, arrangement or agreement would be currently includible in the gross income of the recipient of such award or of such deferred amount to the extent not subject to a substantial risk of forfeiture and not previously included in the gross income of the recipient, (ii) interest at the underpayment rate plus 1% would be imposed on the underpayments that would have occurred had the compensation been includible in income when first deferred (or, if later, when not subject to a substantial risk of forfeiture) would be imposed upon the recipient and (iii) a 20% additional tax would be imposed on the recipient with respect to the amounts required to be included in the recipient’s income. Furthermore, if the affected individual is our employee, we would be required to withhold federal income taxes on the amount deferred but includible in income due to Section 409A, although there may be no funds currently being paid to the individual from which we could withhold such taxes. We would also be required to report on an appropriate form (W-2 or 1099) amounts which are deferred, whether or not they meet the requirements of Section 409A, and if we fail to do so, penalties could apply.

We do not intend to issue any award, or enter into any agreement or arrangement that would be considered a “nonqualified deferred compensation plan” under Section 409A, unless such award, agreement or arrangement complies with the timing and prohibition requirements of Section 409A. It is our current belief, based upon the statute, the proposed regulations issued under Section 409A and legislative history, the options we have granted, and that the awards, agreements and arrangements that we currently intend to implement will not be subject to taxation under Section 409A because the options, award, agreement or arrangement will not be considered a “nonqualified deferred compensation plan.” Furthermore, if this belief is not correct, we intend to either terminate or modify such option, award, agreement or arrangement (during a transitional period provided by the Internal Revenue Service in Notice 2006-79 extending through December 31, 2007 so that Section 409A would not apply to such option, award, agreement or arrangement, or so that such option, award, agreement or arrangement complies with Section 409A’s timing and prohibition requirements. Nonetheless, there can be no assurances that any options award, agreement or arrangement which we have entered into will not be affected by Section 409A, or that any such award, agreement or arrangement will not be subject to income taxation under Section 409A.

Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents

We are permitted to limit the liability of our directors, officers and other agents, and to indemnify them, only to the extent permitted by Maryland law and the NASAA REIT Guidelines.

Our charter contains a provision that eliminates directors’ and officers’ liability subject to the limitations of Maryland law and the NASAA REIT Guidelines. However, both Maryland law and the NASAA REIT Guidelines limit our ability to exonerate and indemnify our directors and officers, as set forth in our charter. Maryland law permits us to include in our charter a provision limiting the liability of our directors and officers to our stockholders and us for money damages, except for liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active and deliberate dishonesty established by a final judgment and that is material to the cause of action.

The Maryland General Corporation Law requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he is made a party by reason of his service in that capacity. The Maryland General Corporation Law allows directors and officers to be indemnified against judgments, penalties, fines, settlements and expenses actually incurred in a proceeding unless the following can be established:


	•	an act or omission of the director or officer was material to the cause of action adjudicated in the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty;

	•	the director or officer actually received an improper personal benefit in money, property or services;

	•	with respect to any criminal proceeding, the director or officer had reasonable cause to believe his act or omission was unlawful; or

	•	in a proceeding by us or on our behalf, the director or officer was adjudged to be liable to us (although a court may order indemnification for expenses relating to an adverse judgment in a suit by or in the right of the corporation or a judgment of liability on the basis that personal benefit was improperly received).

Our charter provides that we will indemnify and hold harmless a director, an officer, an employee, an agent, Cole Advisors II or an affiliate against any and all losses or liabilities reasonably incurred by such party in connection with or by reason of any act or omission performed or omitted to be performed on our behalf in such capacity. This provision does not reduce the exposure of directors and officers to liability under federal or state securities laws, nor does it limit the stockholders’ ability to obtain injunctive relief or other equitable remedies for a violation of a director’s or an officer’s duties to us, although the equitable remedies may not be an effective remedy in some circumstances.

In addition to the above provisions of the Maryland General Corporation Law, and as set forth in the NASAA REIT Guidelines, our charter further limits our ability to indemnify and hold harmless our directors, our officers, our employees, our agents, Cole Advisors II and our affiliates for losses arising from our operation by requiring that the following additional conditions are met:


	•	the directors, the officers, the employees, the agents, Cole Advisors II or our affiliates have determined, in good faith, that the course of conduct that caused the loss or liability was in our best interests;

	•	the directors, the officers, the employees, the agents, Cole Advisors II or our affiliates were acting on our behalf or performing services for us;

	•	in the case of non-independent directors, Cole Advisors II or our affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking indemnification;

	•	in the case of independent directors, the liability or loss was not the result of gross negligence or willful misconduct by the party seeking indemnification; and

	•	the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from the stockholders.

We have agreed to indemnify and hold harmless Cole Advisors II and its affiliates performing services for us from specific claims and liabilities arising out of the performance of their obligations under the advisory agreement. As a result, our stockholders and we may be entitled to a more limited right of action than they and we would otherwise have if these indemnification rights were not included in the advisory agreement.

The general effect to investors of any arrangement under which we agree to insure or indemnify any persons against liability is a potential reduction in distributions resulting from our payment of premiums associated with insurance or indemnification payments in excess of amounts covered by insurance. In addition, indemnification could reduce the legal remedies available to our stockholders and us against the officers and directors.

The Securities and Exchange Commission takes the position that indemnification against liabilities arising under the Securities Act is against public policy and unenforceable. Indemnification of our directors, our officers, our employees, our agents, Cole Advisors II or our affiliates and any persons acting as a broker-dealer will not be allowed for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met:


	•	there has been a successful adjudication on the merits of each count involving alleged securities law violations;

	•	such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or

	•	a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which our securities were offered as to indemnification for violations of securities laws.

Our charter provides that the advancement of our funds to our directors, officers, employees, agents, advisor or affiliates for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of us; (ii) our directors, officers, employees, agents, advisor or affiliates provide us with written affirmation of their good faith belief that they have met the standard of conduct necessary for indemnification; (iii) the legal action is initiated by a third party who is not a stockholder or, if the legal action is initiated by a stockholder acting in his or her capacity as such, a court of competent jurisdiction specifically approves such advancement; and (iv) our directors, officers, employees, agents, advisor or affiliates agree in writing to repay the advanced funds to us together with the applicable legal rate of interest thereon, in cases in which such persons are found not to be entitled to indemnification.

Indemnification will be allowed for settlements and related expenses of lawsuits alleging securities laws violations and for expenses incurred in successfully defending any lawsuits, provided that a court either:


	•	approves the settlement and finds that indemnification of the settlement and related costs should be made; or

	•	dismisses the lawsuit with prejudice or there is a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and a court approves the indemnification.

The Advisor

Our advisor is Cole Advisors II. Our officers and one of our directors also are officers, key personnel and/or members of Cole Advisors II. Cole Advisors II has contractual responsibility to us and our stockholders pursuant to the advisory agreement. Cole Advisors II is wholly-owned by Christopher H. Cole.

The officers and key personnel of our advisor are as follows:


Name	Age		Position(s)

Christopher H. Cole		55	Chief Executive Officer, President and Treasurer
D. Kirk McAllaster, Jr.		41	Executive Vice President and Chief Financial Officer
Blair D. Koblenz		50	Vice Chairman
Marc T. Nemer		35	Executive Vice President and Managing Director of Capital Markets
John M. Pons		44	Executive Vice President, Chief Administrative Officer, General Counsel and Secretary
Christopher P. Robertson		42	Chief Acquisitions Officer
Daniel E. Weber		40	Chief Investment Officer

The backgrounds of Messrs. Cole, McAllaster and Pons are described in the “Management — Executive Officers and Directors” section of this prospectus. Below is a brief description of the other officers and key employees of Cole Advisors II.

Blair D. Koblenz has served as vice chairman of the Company since October 2007 and previously served as executive vice president and chief financial officer of the Company from its formation in September 2004 until March 2007 and as its president from March 2007 through October 2007. He served as executive vice president and chief financial officer of our advisor from its formation in September 2004 through March 2007 and as president from March 2007 through October 2007. He currently serves as the vice chairman of our advisor. He serves as vice chairman of Cole Holdings Corporation and has served in such capacity since October 2007 and previously served as its executive vice president, chief financial officer and secretary from its formation in August 2004 through October 2007. He served as president and secretary of Cole Capital Advisors from March 2007 until October 2007 and executive vice president, chief financial officer and secretary from December 2002 through March 2007 of Cole Capital Advisors. He served as executive vice president, chief financial officer and secretary of CCP from its formation in November 2002 through March 2007 and as president and secretary from March 2007 through October 2007. Mr. Koblenz was the executive vice president and chief financial officer of Cole Advisors from its formation in April 2004 through March 2007 and previously served as its president from March 2007 through October 2007. Mr. Koblenz also served as executive vice president, chief financial officer and treasurer of Cole REIT I from its formation in March 2004 through October 2007. Mr. Koblenz has also served as a director of Cole REIT I since its formation. He served as president and secretary of CCC from December 2002 until September 2005 and from October 2005 until January 2008. He also served as executive vice president, chief financial officer and secretary of CCP from its formation in November 2002 until March 2007 and president and secretary from March 2007 until October 2007. Mr. Koblenz served as executive vice president, chief financial officer and secretary of Cole Realty Advisors from November 2002 through March 2007 and as president and secretary from March 2007 through October 2007. Mr. Koblenz served as the president and secretary of Cole Opportunity Fund from its formation in March 2007 through October 2007. Mr. Koblenz has also served as the Vice Chairman of CRIT and CRIT Advisors since their formation in January 2008. Prior to joining Cole in 1994, he practiced in public accounting at Toback & Company, CPA from 1979 to 1982 with an emphasis in taxation and business planning. He then served in a financial officer capacity for real estate investment companies and operators in Arizona from 1982 to 1994. Mr. Koblenz received his Bachelor of Science Degree in Accounting from Arizona State University and is a Certified Public Accountant, licensed in the State of Arizona. He holds the designation of Certified Financial Planner as authorized by the CFP Board of Standards and holds securities licenses. He is a member of the American Institute of CPAs, the Arizona Society of CPAs, the Financial Planning Association, and the National Association of Real Estate Investment Trusts.

Marc T. Nemer has served as executive vice president and managing director of capital markets of our advisor since March 2008 and served from October 2007 through March 2008, as executive vice president, securities and regulatory affairs. Mr. Nemer has also served as executive vice president and managing director of capital markets of Cole Capital Advisors since March 2008 and as executive vice president, securities and regulatory affairs from October 2007 to March 2008 and as vice president, legal services and compliance from March 2007 through

October 2007. Mr. Nemer has also served as executive vice president and managing director of capital markets of CCP since March 2008. He served as executive vice president securities and regulatory affairs from October 2007 through March 2008 and as vice president, legal services and compliance from March 2007 through October 2007. Mr. Nemer also serves as president, secretary and treasurer of CCC and has served in such capacity since January 2008. Mr. Nemer has also served as executive vice president and managing director of capital markets for Cole Advisors I since March 2008. From October 2007 through March 2008, Mr. Nemer served as executive vice president, securities and regulatory affairs for Cole Advisors I. Mr. Nemer has also served as executive vice president and managing director of capital markets for Cole Realty Advisors since March 2008. From October 2007 through March 2008, Mr. Nemer served as executive vice president, securities and regulatory affairs for Cole Realty Advisors Mr. Nemer served as vice president, legal services and compliance of Cole Realty Advisors from March 2007 through October 2007. Mr. Nemer also has served as executive vice president and managing director of capital markets for CRIT Advisors since March 2008 and served as executive vice president, securities and regulatory affairs from their formation in January 2008 through March 2008. Prior to joining Cole, Mr. Nemer was an attorney with the international law firm Latham & Watkins LLP, where he specialized in securities offerings (public and private), corporate governance, and mergers and acquisitions from July 2000 to February 2006. Prior to that, Mr. Nemer worked at the international law firm Skadden, Arps, Slate, Meagher & Flom LLP, where he worked as an attorney in a similar capacity from August 1998 to July 2000. Mr. Nemer earned a J.D. from Harvard Law School in 1998 and a B.A. from the University of Michigan in 1995.

Christopher P. Robertson has served as chief acquisitions officer of our advisor since October 2007. He previously served our advisor as senior vice president, acquisitions from June 2005 through October 2007 and vice president, acquisitions from March 2005 through June 2005. Mr. Robertson has also served as executive vice president and chief acquisitions officer of Cole Capital advisors and CCP since October 2007. Mr. Robertson served as senior vice president, acquisitions for CCP and Cole Capital Advisors from June 2005 through October 2007 and as vice president, acquisitions from March 2005 through June 2005. Mr. Robertson has also served as executive vice president and chief acquisitions officer of Cole Advisors I since October 2007. He served as senior vice president, acquisitions from June 2005 through October 2007 and vice president, acquisitions from March 2005 through June 2005 for Cole Advisors. Mr. Robertson has served as executive vice president and chief acquisitions officer of Cole Realty Advisors since October 2007 and as senior vice president acquisitions from March 2007 through October 2007. Mr. Robertson has served as chief acquisitions officer of CRIT Advisors since its formation in January 2008. Prior to joining Cole in October 2003, Mr. Robertson worked as vice president of business development for Shell Capital, Inc., an investment banking division of Shell Oil Company. Prior to that, Mr. Robinson was employed at Franchise Finance Corporation of America as its vice president of corporate finance. While there Mr. Robertson structured numerous sale-leaseback and senior debt transactions in the restaurant, convenience store/gas, and automotive aftermarket industries. Mr. Robertson received a Bachelor of Business Administration Degree from Baylor University with majors in both Finance and Real Estate in 1988. In 1993 Mr. Robertson received a Master of Business Administration Degree in Finance from Pepperdine University.

Daniel E. Weber has served as chief investment officer of our advisor since October 2007 and served as senior vice president, acquisitions from June 2005 through October 2007. Mr. Weber has also served as executive vice president and chief investment officer of Cole Capital Advisors, CCP, and Cole Advisors since October 2007. Mr. Weber served as senior vice president, acquisitions of each from June 2005 through October 2007. Mr. Weber has also served as executive vice president and chief investment officer of Cole Realty Advisors since October 2007 and as senior vice president, acquisitions from March 2007 through October 2007. Mr. Weber has served as chief investment officer of CRIT Advisors since its formation in January 2008. Prior to joining Cole in June 2005, Mr. Weber worked as managing director for DJM Asset Management, LLC, a Gordon Brothers Group company. Prior to that, Mr. Weber was employed as vice president of business development at Shell Capital, Inc., an investment banking division of Shell Oil Company. Mr. Weber received a Bachelor of Science degree in Business Administration from the University of Northern Colorado. In 1995, Mr. Weber received a Master of Business Administration Degree in Finance from the University of Houston.

In addition to the directors and key personnel listed above, Cole Advisors II employs personnel who have extensive experience in selecting and managing commercial properties similar to the properties sought to be acquired by us. As of the date of this prospectus our advisor is the sole limited partner of Cole OP II.

The Advisory Agreement

Many of the services to be performed by Cole Advisors II in managing our day-to-day activities are summarized below. This summary is provided to illustrate the material functions that we expect Cole Advisors II will perform for us as our advisor, and it is not intended to include all of the services that may be provided to us by third parties. Under the terms of the advisory agreement, Cole Advisors II will undertake to use its commercially reasonable best efforts to present to us investment opportunities consistent with our investment policies and objectives as adopted by our board of directors. In its performance of this undertaking, Cole Advisors II, either directly or indirectly by engaging an affiliate, shall, among other duties and subject to the authority of our board of directors:


	•	find, evaluate, present and recommend to us investment opportunities consistent with our investment policies and objectives;

	•	serve as our investment and financial advisor and provide research and economic and statistical data in connection with our assets and our investment policies;

	•	provide the daily management and perform and supervise the various administrative functions reasonably necessary for our management and operations;

	•	investigate, select, and, on our behalf, engage and conduct business with such third parties as the advisor deems necessary to the proper performance of its obligations under the advisory agreement;

	•	consult with our officers and board of directors and assist the board of directors in the formulating and implementing of our financial policies;

	•	structure and negotiate the terms and conditions of our real estate acquisitions, sales or joint ventures;

	•	review and analyze each property’s operating and capital budget;

	•	acquire properties and make investments on our behalf in compliance with our investment objectives and policies;

	•	arrange, structure and negotiate financing and refinancing of properties;

	•	enter into leases of property and service contracts for assets and, to the extent necessary, perform all other operational functions for the maintenance and administration of such assets, including the servicing of mortgages; and

	•	prepare and review on our behalf, with the participation of one designated principal executive officer and principal financial officer, all reports and returns required by the Securities and Exchange Commission, Internal Revenue Service and other state or federal governmental agencies.

The advisory agreement has a one-year term ending May 23, 2008, and may be renewed for an unlimited number of successive one-year periods. Additionally, either party may terminate the advisory agreement without penalty immediately upon a change of control of us, or upon 60 days’ written notice without penalty. If we elect to terminate the agreement, we must obtain the approval of a majority of our independent directors. In the event of the termination of our advisory agreement, our advisor is required to cooperate with us and take all reasonable steps requested by us to assist our board of directors in making an orderly transition of the advisory function.

We pay Cole Advisors II a monthly asset management fee equal to 0.02083% of the aggregate asset value of our assets. We also pay Cole Advisors II acquisition and advisory fees equal to 2% of the contract purchase price of each property or asset that we acquire, along with reimbursement of acquisition expenses. We also pay to Cole Advisors II a finance coordination fee equal to 1% of the amount available and/or outstanding under any debt financing that we obtain and use for the acquisition of properties and other investments or that is assumed, directly or indirectly, in connection with the acquisition of properties. Additionally, we are required to pay to Cole Advisors II fees based on a percentage of proceeds or stock value upon our sale of assets or the listing of our common stock on a national securities exchange, but only if, in the case of our sale of assets, our investors have received a return of their net capital invested and an 8% annual cumulative, non-compounded return or, in the case of the listing of our common stock, the market value of our common stock plus the distributions paid to our investors

exceeds the sum of the total amount of capital raised from investors plus the amount of cash flow necessary to generate an 8% annual cumulative, non-compounded return to investors. Upon termination of the Advisory Agreement, we may be required to pay to Cole Advisors II a similar performance fee if Cole Advisors II would have been entitled to a subordinated participation in net sale proceeds had the portfolio been liquidated (based on an independent appraised value of the portfolio) on the date of termination.

Cole Advisors II and its officers, employees and affiliates engage in other business ventures and, as a result, their resources are not dedicated exclusively to our business. However, pursuant to the advisory agreement, Cole Advisors II is required to devote sufficient resources to our administration to discharge its obligations. Cole Advisors II currently has no paid employees; however, as of April 25, 2008, its affiliates had approximately 160 full-time employees, each of whom may dedicate a portion of his or her time providing services to our advisor. Our advisor is responsible for a pro rata portion of each employee’s compensation based upon the approximate percentage of time the employee dedicates to our advisor. Cole Advisors II may assign the advisory agreement to an affiliate upon approval of a majority of our independent directors. We may assign or transfer the advisory agreement to a successor entity; provided that at least a majority of our independent directors determines that any such successor advisor possesses sufficient qualifications to perform the advisory function and to justify the compensation payable to the advisor. Our independent directors will base their determination on the general facts and circumstances that they deem applicable, including the overall experience and specific industry experience of the successor advisor and its management. Other factors that will be considered are the compensation to be paid to the successor advisor and any potential conflicts of interest that may occur.

The fees payable to Cole Advisors II under the advisory agreement are described in further detail in the section captioned “Management Compensation” below. We also describe in that section our obligation to reimburse Cole Advisors II for organization and offering expenses, administrative and management services, and payments made by Cole Advisors II to third parties in connection with potential acquisitions.

Affiliated Companies

Property Manager

Our properties are managed and leased initially by Cole Realty Advisors, our property manager. Cole Capital Advisors is the sole shareholder of Cole Realty Advisors, and Cole Holdings Corporation is the sole owner of Cole Capital Advisors. Christopher H. Cole is the sole owner of Cole Holdings Corporation. Mr. Cole serves as chief executive officer and treasurer of Cole Realty Advisors, and Blair D. Koblenz serves as its president and secretary. See the “Conflicts of Interest” section of this prospectus.

Cole Realty Advisors was organized in 2002 to lease and manage properties that we or our affiliated entities acquire. In accordance with the property management and leasing agreement, we pay to Cole Realty Advisors a property management fee up to (i) 2% of gross revenues from our single tenant properties and (ii) 4% of gross revenues from our multi-tenant properties. In addition, we pay leasing commissions to Cole Realty Advisors based upon the customary leasing commission applicable to the geographic location of the property; provided however, that the aggregate of all property management and leasing fees paid to the property manager plus all payments to third parties may not exceed the amount that other nonaffiliated management and leasing companies generally charge for similar services in the same geographic location. Cole Realty Advisors derives substantially all of its income from the property management and leasing services it performs for us and other Cole-sponsored programs.

In the event that Cole Realty Advisors assists a tenant with tenant improvements, a separate fee may be charged to, and payable by, us. This fee will not exceed 5% of the cost of the tenant improvements. The property manager will only provide these services if it does not cause any of our income from the applicable property to be treated as other than rents from real property for purposes of the applicable REIT requirements described under “Federal Income Tax Considerations” below.

Our property management agreement with Cole Realty Advisors has a one-year term ending May 23, 2008, and is subject to successive one-year renewals unless Cole Realty Advisors provides written notice of its intent to terminate 30 days’ prior to the expiration of the initial or renewal term. We may also terminate the agreement upon 30 days’ prior written notice in the event of gross negligence or willful misconduct by the property manager.

Cole Realty Advisors hires, directs and establishes policies for employees who have direct responsibility for the operations of each property we acquire, which may include, but is not be limited to, on-site managers and building and maintenance personnel. Certain employees of the property manager may be employed on a part-time basis and also may be employed by our advisor or certain companies affiliated with it.

The property manager also directs the purchase of equipment and supplies, and supervises all maintenance activity, for our properties. The management fees paid to the property manager cover, without additional expense to us, all of the property manager’s general overhead costs. The principal office of the property manager is located at 2555 East Camelback Road, Suite 400, Phoenix, Arizona 85016.

Dealer Manager

Cole Capital Corporation, our dealer manager, is a member firm of the Financial Industry Regulatory Authority, Inc. (FINRA). Cole Capital Corporation was organized in December 1992 for the purpose of participating in and facilitating the distribution of securities of real estate programs sponsored by Cole Capital Partners, its affiliates and its predecessors.

Cole Capital Corporation provides certain wholesaling, sales, promotional and marketing assistance services to us in connection with the distribution of the shares offered pursuant to this prospectus. It may also sell a limited number of shares at the retail level. The compensation we will pay to Cole Capital Corporation in connection with this offering is described in the section of this prospectus captioned “Management Compensation.” See also “Plan of Distribution — Compensation We Will Pay for the Sale of Our Shares.”

Cole Capital Corporation is wholly-owned by Cole Capital Advisors which, in turn, is wholly-owned by Cole Holdings Corporation, which is wholly-owned by Christopher H. Cole. The backgrounds of the officers of Cole Capital Corporation are described in the “Management — Executive Officers and Directors” and “— The Advisor” sections of this prospectus advisor and the property manager. See “Conflicts of Interest.”

Investment Decisions

The primary responsibility for the investment decisions of Cole Advisors II and its affiliates, the negotiation for these investments, and the property management and leasing of these investment properties resides with Christopher H. Cole and the other executive officers and key personnel of our advisor. Cole Advisors II seeks to invest in commercial properties on our behalf that satisfy our investment objectives. Our board of directors, including a majority of our independent directors, must approve all acquisitions of real estate properties.

MANAGEMENT COMPENSATION

We have no paid employees. Cole Advisors II, our advisor, and its affiliates manages our day-to-day affairs. The following table summarizes all of the compensation and fees we pay to Cole Advisors II and its affiliates, including amounts to reimburse their costs in providing services. The selling commissions may vary for different categories of purchasers. See “Plan of Distribution.” This table assumes the shares are sold through distribution channels associated with the highest possible selling commissions and dealer manager fee.


		Estimated Amount for
Type of Compensation(1)	Determination of Amount	Maximum Offering(2)

*Offering Stage*
Selling Commissions — Cole Capital Corporation(3)	We will pay to Cole Capital Corporation 7% of the gross offering proceeds before reallowance of commissions earned by participating broker-dealers, except that no selling commission is payable on shares sold under our distribution reinvestment plan. Cole Capital Corporation, our dealer manager, will reallow 100% of commissions earned to participating broker-dealers.	$	87,500,000
Dealer Manager Fee — Cole Capital Corporation(3)	We will pay to Cole Capital Corporation 2% of the gross offering proceeds before reallowance to participating broker-dealers, except that no dealer manager fee is payable on shares sold under our distribution reinvestment plan. Cole Capital Corporation may reallow all or a portion of its dealer manager fee to participating broker-dealers. See “Plan of Distribution.”	$	25,000,000
Reimbursement of Other Organization and Offering Expenses — Cole Advisors II(4)	We will reimburse Cole Advisors II up to 1.5% of our gross offering proceeds. Cole Advisors II will incur or pay our organization and offering expenses (excluding selling commissions and the dealer manager fee). We will then reimburse Cole Advisors II for these amounts up to 1.5% of aggregate gross offering proceeds.	$	22,312,500

*Acquisition and Operations Stage*
Acquisition and Advisory Fees — Cole Advisors II(5)(6)	We will pay to Cole Advisors II a 2% of the contract purchase price of each property or asset.	$	26,368,177


		Estimated Amount for
Type of Compensation(1)	Determination of Amount	Maximum Offering(2)

Acquisition Expenses — Cole Advisors II	We will reimburse our advisor for acquisition expenses incurred in the process of acquiring property. We expect these expenses to be approximately 0.5% of the purchase price of each property. In no event will the total of all fees and acquisition expenses payable with respect to a particular property or investment exceed 4% of the contract purchase price.	$6,592,044
Asset Management Fee — Cole Advisors II(7)	We will pay to Cole Advisors II a monthly fee equal to 0.02083%, which is one-twelfth of 0.25%, of the aggregate asset value.	Actual amounts are dependent upon the aggregate asset value of our properties and, therefore, cannot be determined at the present time. Because the fee is based on a fixed percentage of aggregate asset value there is no limit on the aggregate amount of these fees.
Property Management Fees — Cole Realty Advisors(8)	We will pay to Cole Realty Advisors up to (i) 2% of the gross revenues from our single tenant properties and (ii) 4% of the gross revenues from our multi-tenant properties, plus reimbursement of Cole Realty Advisors’ costs of managing the properties.	Actual amounts are dependent upon the gross revenues from properties and, therefore, cannot be determined at the present time. Because the fee is based on a fixed percentage of the gross revenue and/or market rates, there is no limit on the aggregate amount of these fees.
Leasing Commissions — Cole Realty Advisors(8)	We will pay to Cole Realty Advisors prevailing market rates. Cole Realty Advisors may also receive a fee for the initial listing of newly constructed properties, which generally would equal one month’s rent.	Actual amounts are dependent upon prevailing market rates in the geographic regions in which we acquire property and, therefore, cannot be determined at the present time. There is no limit on the aggregate amount of these commissions.


		Estimated Amount for
Type of Compensation(1)	Determination of Amount	Maximum Offering(2)

Financing Coordination Fee — Cole Advisors II(6)	For services in connection with the origination or refinancing of any debt financing we obtain and use to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, we will pay our advisor a financing coordination fee equal to 1% of the amount available and/or outstanding under such financing; provided, however, that our advisor will not be entitled to a financing coordination fee in connection with the refinancing of any loan secured by any particular property that was previously subject to a refinancing in which our advisor received such a fee. Financing coordination fees payable from loan proceeds from permanent financing will be paid to our advisor as we acquire and/or assume such permanent financing. However, no acquisition fees will be paid on the investments of loan proceeds from any line of credit until such time as we have invested all net offering proceeds.	Actual amounts are dependent on the amount of any debt financing or refinancing and, therefore, cannot be determined at the present time. Because the fee is based on a fixed percentage of any debt financing, there is no limit on the aggregate amount of these fees.
Operating Expenses — Cole Advisors II(9)	We will reimburse the expenses incurred by Cole Advisors II in connection with its provision of administrative services, including related personnel costs, subject to the limitation that we will not reimburse our advisor for any amount by which the operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of average invested assets, or (ii) 25% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash reserves and excluding any gain from the sale of assets for that period.	Actual amounts are dependent upon the expenses incurred and, therefore, cannot be determined at the present time.


	Determination of Amount	Estimated Amount for
Type of Compensation(1)	Liquidation/Listing Stage	Maximum Offering(2)

Real Estate Commissions — Cole Advisors II or its Affiliates(10)	For substantial assistance in connection with the sale of properties, we will pay our advisor or its affiliates an amount equal to up to one-half of the brokerage commission paid on the sale of property, not to exceed 2% of the contract price of each property sold; provided, however, in no event may the real estate commissions paid to our advisor, its affiliates and unaffiliated third parties exceed 6% of the contract sales price.	Actual amounts are dependent upon the contract price of properties sold and, therefore, cannot be determined at the present time. Because the commission is based on a fixed percentage of the contract price for a sold property, there is no limit on the aggregate amount of these commissions.
Subordinated Participation in Net Sale Proceeds — Cole Advisors II(11)	After investors have received a return of their net capital invested and an 8% annual cumulative, non- compounded return, then Cole Advisors II is entitled to receive 10% of remaining net sale proceeds. We cannot assure you that we will provide this 8% return, which we have disclosed solely as a measure for our advisor’s incentive compensation.	Actual amounts are dependent upon results of operations and, therefore, cannot be determined at the present time. There is no limit on the aggregate amount of these payments.
Subordinated Incentive Listing Fee — Cole Advisors II (11)(12)	Upon listing our common stock on a national securities exchange, our advisor is entitled to a fee equal to 10% of the amount, if any, by which (1) the market value of our outstanding stock plus distributions paid by us prior to listing, exceeds (2) the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 8% annual cumulative, non- compounded return to investors. We have no intent to list our shares at this time. We cannot assure you that we will provide this 8% return, which we have disclosed solely as a measure for our advisor’s incentive compensation.	Actual amounts are dependent upon total equity and debt capital we raise and results of operations and, therefore, cannot be determined at the present time. There is no limit on the aggregate amount of this fee.


(1)		We will pay all fees, commissions and expenses in cash, other than the subordinated participation in net sales proceeds and incentive listing fees with respect to which we may pay to Cole Advisors II in cash, common stock, a promissory note or any combination of the foregoing, as we may determine in our discretion.

(2)		The estimated maximum dollar amounts are based on the sale of a maximum of 125,000,000 shares to the public at $10.00 per share and the sale of 25,000,000 shares at $9.50 per share pursuant to our distribution reinvestment plan.


(3)		Selling commissions and, in some cases, the dealer manager fee, will not be charged with regard to shares sold to or for the account of certain categories of purchasers. See “Plan of Distribution.” Selling commissions and the dealer manager fee will not be charged with regard to shares purchased pursuant to our distribution reinvestment plan.

(4)		These organization and offering expenses include all expenses (other than selling commissions and the dealer manager fee) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder, due diligence expense reimbursements to participating broker-dealers and amounts to reimburse Cole Advisors II for its portion of the salaries of the employees of its affiliates who provide services to our advisor and other costs in connection with preparing supplemental sales materials, holding educational conferences and attending retail seminars conducted by broker-dealers. Our advisor will be responsible for the payment of all such organization and offering expenses to the extent such expenses exceed 1.5% of the aggregate gross proceeds of this offering.

(5)		This estimate assumes the amount of proceeds available for investment is equal to the gross offering proceeds less the public offering expenses, and we have assumed that no financing is used to acquire properties or other real estate assets. Our board’s investment policies limit our ability to purchase property if the total of all acquisition fees and expenses relating to the purchase exceeds 4% of the contract purchase price unless a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve fees and expenses in excess of this limit and determine the transaction to be commercially competitive, fair and reasonable to us.

(6)		Included in the computation of such fees will be any real estate commission, acquisition and advisory fee, development fee, construction fee, non-recurring management fee, loan fees, financing coordination fees or points or any fee of a similar nature.

(7)		Aggregate asset value will be equal to the aggregate value of our assets (other than investments in bank accounts, money markets funds or other current assets) at cost before deducting depreciation, bad debts or other similar non-cash reserves and without reduction for any debt relating to such assets at the date of measurement, except that during such periods in which our board of directors is determining on a regular basis the current value of our net assets for purposes of enabling fiduciaries of employee benefit plans stockholders to comply with applicable Department of Labor reporting requirements, aggregate asset value is the greater of (i) the amount determined pursuant to the foregoing or (ii) our assets’ aggregate valuation most recently established by our board without reduction for depreciation, bad debts or other similar non-cash reserves and without reduction for any debt secured by or relating to such assets.

(8)		The property management and leasing fees payable to Cole Realty Advisors are subject to the limitation that the aggregate of all property management and leasing fees paid to Cole Realty Advisors and its affiliates plus all payments to third parties for property management and leasing services may not exceed the amount that other non-affiliated property management and leasing companies generally charge for similar services in the same geographic location. Additionally, all property management and leasing fees, including both those paid to Cole Realty Advisors and third parties, are subject to the limit on total operating expenses as described in footnote (4). Cole Realty Advisors may subcontract its duties for a fee that may be less than the fee provided for in our property management agreement with Cole Realty Advisors.

(9)		We may reimburse our advisor in excess of that limit in the event that a majority of our independent directors determine, based on unusual and non-recurring factors, that a higher level of expense is justified. In such an event, we will send notice to each of our stockholders within 60 days after the end of the fiscal quarter for which such determination was made, along with an explanation of the factors our independent directors considered in making such determination. We will not reimburse our advisor for personnel costs in connection with services for which the advisor receives acquisition fees or real estate commissions.

		We lease our office space from an affiliate of our advisor and share the space with other Cole-related entities. The amount we will pay under the lease will be determined on a monthly basis based upon on the allocation of the overall lease cost to the approximate percentage of time, size of the area that we utilize and other resources allocated to us.

(10)		Although we are most likely to pay real estate commissions to Cole Advisors II or an affiliate in the event of our liquidation, these fees may also be earned during our operational stage.


(11)		Upon termination of the advisory agreement, Cole Advisors II may be entitled to a similar performance fee if Cole Advisors II would have been entitled to a subordinated participation in net sale proceeds had the portfolio been liquidated (based on an independent appraised value of the portfolio) on the date of termination. Under our charter, we could not increase these success-based fees without the approval of a majority of our independent directors, and any increase in the subordinated participation in net sale proceeds would have to be reasonable. Our charter provides that such incentive fee is “presumptively reasonable” if it does not exceed 10% of the balance of such net proceeds remaining after investors have received a return of their net capital contributions and an 8% per year cumulative, non-compounded return.

		Cole Advisors II cannot earn both the subordinated participation in net sale proceeds and the subordinated incentive listing fee. The subordinated participation in net sale proceeds or the subordinated listing fee, as the case may be, will be paid in the form of an interest bearing promissory note that will be repaid from the net sale proceeds of each sale after the date of the termination or listing. At the time of such sale, we may, however, at our discretion, pay all or a portion of such promissory note with shares of our common stock. If shares are used for payment, we do not anticipate that they will be registered under the Securities Act and, therefore, will be subject to restrictions on transferability. Any portion of the subordinated participation in net sale proceeds that Cole Advisors II receives prior to our listing will offset the amount otherwise due pursuant to the subordinated incentive listing fee. In no event will the amount paid to Cole Advisors II under the promissory note, if any, including interest thereon, exceed the amount considered presumptively reasonable by the NASAA REIT Guidelines.

(12)		If at any time the shares become listed on a national securities exchange, we will negotiate in good faith with Cole Advisors II a fee structure appropriate for an entity with a perpetual life. Our independent directors must approve the new fee structure negotiated with Cole Advisors II. The market value of our outstanding stock will be calculated based on the average market value of the shares issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed or included for quotation. We have the option to pay the subordinated incentive listing fee in the form of stock, cash, a promissory note or any combination thereof. In the event the subordinated incentive listing fee is earned by Cole Advisors II as a result of the listing of the shares, any previous payments of the subordinated participation in net sale proceeds will offset the amounts due pursuant to the subordinated incentive listing fee, and we will not be required to pay Cole Advisors II any further subordinated participation in net sale proceeds.

At least a majority of our independent directors must determine, from time to time but at least annually, that our total fees and expenses are reasonable in light of our investment performance, net assets, net income and the fees and expenses of other comparable unaffiliated REITs. Each such determination will be reflected in the minutes of our board of directors. The total operating expenses (as defined in the NASAA REIT Guidelines) of the company will not exceed, in any fiscal year, the greater of 2% of the Average Invested Assets (as defined in the NASAA REIT Guidelines) or 25% of Net Income (as defined in the NASAA REIT Guidelines), unless our independent directors find that, based on unusual and non-recurring factors, a higher level of expense is justified for that year. Our independent directors shall also supervise the performance of our advisor and the compensation that we pay to it to determine that the provisions of our advisory agreement are being carried out.

Each such determination will be recorded in the minutes of our board of directors and based on the factors set forth below and other factors that the independent directors deem relevant:


	•	the size of the advisory fee in relation to the size, composition and profitability of our portfolio;

	•	the success of Cole Advisors II in generating opportunities that meet our investment objectives;

	•	the rates charged to other REITs, especially similarly structured REITs, and to investors other than REITs by advisors performing similar services;

	•	additional revenues realized by Cole Advisors II through its relationship with us;

	•	the quality and extent of service and advice furnished by Cole Advisors II;

	•	the performance of our investment portfolio, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and


	•	the quality of our portfolio in relationship to the investments generated by Cole Advisors II for the account of other clients.

Since Cole Advisors II and its affiliates are entitled to differing levels of compensation for undertaking different transactions on our behalf, such as the property management fees for operating our properties and the subordinated participation in net sale proceeds, our advisor has the ability to affect the nature of the compensation it receives by undertaking different transactions. However, Cole Advisors II is obligated to exercise good faith and integrity in all its dealings with respect to our affairs pursuant to the advisory agreement. See “Management — The Advisory Agreement.”

STOCK OWNERSHIP

The following table shows, as of the date of this prospectus, the amount of our common stock beneficially owned by (1) any person who is known by us to be the beneficial owner of more than 5% of our outstanding shares, (2) members of our board of directors and proposed directors, (3) our executive officers, and (4) all of our directors and executive officers as a group.


	Amount and Nature of
Name and Address of Beneficial	Shares Beneficially Owned(1)
Owner	Number		Percentage

Christopher H. Cole(2)		31,800			*
Marcus E. Bromley(3)		15,000			*
Elizabeth L. Watson(3)		15,000			*
Blair D. Koblenz(4)		—		—
D. Kirk McAllaster, Jr.		—		—
John M. Pons		—		—
All officers and directors as a group (6 persons)(5)		61,800			*


*		Represents less than 1% of the outstanding common stock.

(1)		Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities and shares issuable pursuant to options, warrants and similar rights held by the respective person or group which may be exercised within 60 days following March 31, 2008. Except as otherwise indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

(2)		Includes 20,000 shares owned by Cole Holdings Corporation and 11,800 shares owned by the Christopher H. Cole Generation Skipping Trust, for which Mr. Cole is the Trustee, for which Mr. Cole disclaims beneficial ownership. Mr. Cole is the sole stockholder of Cole Holdings Corporation and controls the voting and disposition decisions of Cole Holdings Corporation.

(3)		Includes shares issuable upon exercise of options to purchase up to 15,000 shares of common stock, which are exercisable within 60 days of March 31, 2008.

(4)		Mr. Koblenz served as our executive vice president and chief financial officer until October 2007.

(5)		Includes shares issuable upon exercise of options to purchase an aggregate of up to an aggregate of 30,000 shares of common stock, which are exercisable within 60 days of March 31, 2008.

CONFLICTS OF INTEREST

We are subject to various conflicts of interest arising out of our relationship with Cole Advisors II, our advisor, and its affiliates, including conflicts related to the arrangements pursuant to which Cole Advisors II and its affiliates will be compensated by us. Our agreements and compensation arrangements with our advisor and its affiliates were not determined by arm’s-length negotiations. See the “Management Compensation” section of this prospectus. Some of the conflicts of interest in our transactions with our advisor and its affiliates, and the limitations on our advisor adopted to address these conflicts, are described below.

Our advisor and its affiliates will try to balance our interests with their duties to other Cole-sponsored programs. However, to the extent that our advisor or its affiliates take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to you and the value of our stock. In addition, our directors, officers and certain of our stockholders may engage for their own account in business activities of the types conducted or to be conducted by our subsidiaries and us. For a description of some of the risks related to these conflicts of interest, see the section of this prospectus captioned “Risk Factors — Risks Related to Conflicts of Interest.”

Our independent directors have an obligation to function on our behalf in all situations in which a conflict of interest may arise, and all of our directors have a fiduciary obligation to act on behalf of our stockholders.

Interests in Other Real Estate Programs

An affiliate of our advisor acts as an advisor to, and our officers and certain of our directors act as officers and directors of, Cole REIT I, a real estate investment trust that has investment objectives similar to ours. In addition, as of December 31, 2007, an affiliate of our advisor has issued approximately $114.1 million of debt pursuant to four private offerings, the proceeds of which were used to acquire single-tenant properties in various states. Cole Capital Partners, an affiliate of our advisor, has sponsored 53 currently operating tenant-in-common and Delaware Statutory Trust real estate programs. Affiliates of our advisor and of our officers also act as officers and directors of general partners of seven other currently operating limited partnerships that have invested in unimproved and improved real properties located in various states, including Cole Credit Property Fund Limited Partnership (Cole Credit LP I) and Cole Credit Property Fund II Limited Partnership (Cole Credit LP II). See “Prior Performance Summary.” Affiliates of our officers and entities owned or managed by such affiliates also may acquire or develop real estate for their own accounts, and have done so in the past. Furthermore, affiliates of our officers and entities owned or managed by such affiliates intend to form additional real estate investment entities in the future, whether public or private, which can be expected to have the same investment objectives and policies as we do and which may be involved in the same geographic area, and such persons may be engaged in sponsoring one or more of such entities at approximately the same time as our shares of common stock are being offered. Our advisor, its affiliates and affiliates of our officers are not obligated to present to us any particular investment opportunity that comes to their attention, even if such opportunity is of a character that might be suitable for investment by us. Our advisor and its affiliates likely will experience conflicts of interest as they simultaneously perform services for us and other affiliated real estate programs.

Any affiliated entity, whether or not currently existing, could compete with us in the sale or operation of the properties. We will seek to achieve any operating efficiency or similar savings that may result from affiliated management of competitive properties. However, to the extent that affiliates own or acquire property that is adjacent, or in close proximity, to a property we own, our property may compete with the affiliate’s property for tenants or purchasers.

Every transaction that we enter into with our advisor or its affiliates is subject to an inherent conflict of interest. Our board of directors may encounter conflicts of interest in enforcing our rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and our advisor or any of its affiliates.

Other Activities of Cole Advisors II and its Affiliates

We rely on Cole Advisors II for the day-to-day operation of our business. As a result of the interests of members of its management in other Cole-sponsored programs and the fact that they also are engaged, and will continue to engage, in other business activities, Cole Advisors II and its affiliates have conflicts of interest in allocating their time between us and other Cole-sponsored programs and other activities in which they are involved. However, Cole Advisors II believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all of the Cole-sponsored programs and other ventures in which they are involved.

In addition, each of our executive officers, including Christopher H. Cole, who also serves as the chairman of our board of directors, also serves as an officer of our advisor, our property manager, our dealer manager and/or other affiliated entities. As a result, these individuals owe fiduciary duties to these other entities, which may conflict with the fiduciary duties that they owe to us and our stockholders.

We may purchase properties or interests in properties from affiliates of Cole Advisors II. The prices we pay to affiliates of our advisor for these properties will not be the subject of arm’s-length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated with unaffiliated parties. However, our charter provides that the purchase price of any property acquired from an affiliate may not exceed its fair market value as determined by a competent independent appraiser. In addition, the price must be approved by a majority of our directors who have no financial interest in the transaction, including a majority of our independent directors. If the price to us exceeds the cost paid by our affiliate, our board of directors must determine that there is substantial justification for the excess cost.

Competition in Acquiring, Leasing and Operating of Properties

Conflicts of interest will exist to the extent that we may acquire, or seek to acquire, properties in the same geographic areas where properties owned by other Cole-sponsored programs are located. In such a case, a conflict could arise in the acquisition or leasing of properties in the event that we and another Cole-sponsored program were to compete for the same properties or tenants in negotiating leases, or a conflict could arise in connection with the resale of properties in the event that we and another Cole-sponsored program were to attempt to sell similar properties at the same time. Conflicts of interest may also exist at such time as we or our affiliates managing property on our behalf seek to employ developers, contractors or building managers, as well as under other circumstances. Cole Advisors II will seek to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective employees aware of all such properties seeking to employ such persons. In addition, Cole Advisors II will seek to reduce conflicts that may arise with respect to properties available for sale or rent by making prospective purchasers or tenants aware of all such properties. However, these conflicts cannot be fully avoided in that there may be established differing compensation arrangements for employees at different properties or differing terms for resales or leasing of the various properties.

Affiliated Dealer Manager

Since Cole Capital Corporation, our dealer manager, is an affiliate of Cole Advisors II, we will not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with the offering of securities. See the “Plan of Distribution” section of this prospectus.

Affiliated Property Manager

We expect that all of our properties will be managed and leased by our affiliated property manager, Cole Realty Advisors, pursuant to a property management and leasing agreement. Our agreement with Cole Realty Advisors has a one-year term, which may be renewed for an unlimited number of successive one-year terms upon the mutual consent of the parties. Each such renewal shall be for a term of no more than one year. It is the duty of our board of directors to evaluate the performance of the property manager annually before renewing the agreement. We may terminate the agreement in the event of gross negligence or willful misconduct on the part of Cole Realty Advisors. Cole Realty Advisors also serves as property manager for properties owned by affiliated real estate programs, some of which may be in competition with our properties. Management fees to be paid to our property manager are based

on a percentage of the rental income received by the managed properties. For a more detailed discussion of the anticipated fees to be paid for property management services, see the “Management Compensation” section of this prospectus.

Lack of Separate Representation

Morris, Manning & Martin, LLP acts, and may in the future act, as counsel to us, Cole Advisors II, Cole Capital Corporation and their affiliates in connection with this offering or otherwise. There is a possibility that in the future the interests of the various parties may become adverse, and under the Code of Professional Responsibility of the legal profession, Morris, Manning & Martin, LLP may be precluded from representing any one or all of such parties. In the event that a dispute were to arise between us, Cole Advisors II, Cole Capital Corporation or any of their affiliates, separate counsel for such matters will be retained as and when appropriate.

Joint Ventures with Affiliates of Cole Advisors II

We may enter into joint ventures with other Cole-sponsored programs (as well as other parties) for the acquisition, development or improvement of properties. See “Investment Objectives and Policies — Acquisition and Investment Policies — Joint Venture Investments.” Cole Advisors II and its affiliates may have conflicts of interest in determining that Cole-sponsored program should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals which are or which may become inconsistent with our business interests or goals. In addition, should any such joint venture be consummated, Cole Advisors II may face a conflict in structuring the terms of the relationship between our interests and the interest of the co-venturer and in managing the joint venture. Since Cole Advisors II and its affiliates will control both us and any affiliated co-venturer, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers.

Receipt of Fees and Other Compensation by Cole Advisors II and Its Affiliates

A transaction involving the purchase and sale of properties may result in the receipt of commissions, fees and other compensation by Cole Advisors II and its affiliates, including acquisition and advisory fees, the dealer manager fee, property management and leasing fees, real estate brokerage commissions and participation in nonliquidating net sale proceeds. However, the fees and compensation payable to Cole Advisors II and its affiliates relating to the sale of properties will only payable after the return to the stockholders of their capital contributions plus cumulative returns on such capital. Subject to oversight by our board of directors, Cole Advisors II will have considerable discretion with respect to all decisions relating to the terms and timing of all transactions. Therefore, Cole Advisors II may have conflicts of interest concerning certain actions taken on our behalf, particularly due to the fact that such fees will generally be payable to Cole Advisors II and its affiliates regardless of the quality of the properties acquired or the services provided to us. See the “Management Compensation” section of this prospectus.

Certain Conflict Resolution Procedures

Every transaction that we enter into with Cole Advisors II or its affiliates will be subject to an inherent conflict of interest. Our board of directors may encounter conflicts of interest in enforcing our rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and Cole Advisors II or any of its affiliates.

In order to reduce or eliminate certain potential conflicts of interest, our charter contains a number of restrictions relating to (1) transactions we enter into with Cole Advisors II and its affiliates, (2) certain future offerings, and (3) allocation of investment opportunities among affiliated entities. These restrictions include, among others, the following:


	•	We will not purchase or lease properties in which Cole Advisors II, any of our directors or any of their respective affiliates has an interest without a determination by a majority of the directors, including a majority of the independent directors, not otherwise interested in such transaction that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to the seller or lessor unless there is substantial justification for any amount that exceeds such cost and such excess amount is


		determined to be reasonable. In no event will we acquire any such property at an amount in excess of its appraised value. We will not sell or lease properties to Cole Advisors II, any of our directors or any of their respective affiliates unless a majority of the directors, including a majority of the independent directors not otherwise interested in the transaction, determines that the transaction is fair and reasonable to us.


	•	We will not make any loans to Cole Advisors II, any of our directors or any of their respective affiliates, except that we may make or invest in mortgage loans involving Cole Advisors II, our directors or their respective affiliates, provided that an appraisal of the underlying property is obtained from an independent appraiser and the transaction is approved as fair and reasonable to us and on terms no less favorable to us than those available from third parties. In addition, Cole Advisors II, any of our directors and any of their respective affiliates will not make loans to us or to joint ventures in which we are a joint venture partner unless approved by a majority of the directors, including a majority of the independent directors not otherwise interested in the transaction as fair, competitive and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties.

	•	Cole Advisors II and its affiliates will be entitled to reimbursement, at cost, for actual expenses incurred by them on behalf of us or joint ventures in which we are a joint venture partner; provided, however, Cole Advisors II must reimburse us for the amount, if any, by which our total operating expenses, including the advisor asset management fee, paid during the previous fiscal year exceeded the greater of: (i) 2% of our average invested assets for that fiscal year, or (ii) 25% of our net income, before any additions to reserves for depreciation, bad debts or other similar non-cash reserves and before any gain from the sale of our assets, for that fiscal year.

	•	In the event that an investment opportunity becomes available that is suitable, under all of the factors considered by Cole Advisors II, for both us and one or more other entities affiliated with Cole Advisors II, and for which more than one of such entities has sufficient uninvested funds, then the entity that has had the longest period of time elapse since it was offered an investment opportunity will first be offered such investment opportunity. It will be the duty of our board of directors, including the independent directors, to insure that this method is applied fairly to us. In determining whether or not an investment opportunity is suitable for more than one program, Cole Advisors II, subject to approval by our board of directors, shall examine, among others, the following factors:


	•	the anticipated cash flow of the property to be acquired and the cash requirements of each program;

	•	the effect of the acquisition both on diversification of each program’s investments by type of property, geographic area and tenant concentration;

	•	the policy of each program relating to leverage of properties;

	•	the income tax effects of the purchase to each program;

	•	the size of the investment; and

	•	the amount of funds available to each program and the length of time such funds have been available for investment.


	•	If a subsequent development, such as a delay in the closing of a property or a delay in the construction of a property, causes any such investment, in the opinion of Cole Advisors II, to be more appropriate for a program other than the program that committed to make the investment, Cole Advisors II may determine that another program affiliated with Cole Advisors II or its affiliates will make the investment. Our board of directors has a duty to ensure that the method used by Cole Advisors II for the allocation of the acquisition of properties by two or more affiliated programs seeking to acquire similar types of properties is applied fairly to us.


	•	We will not accept goods or services from Cole Advisors II or its affiliates or enter into any other transaction with Cole Advisors II or its affiliates unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the transaction approve such transaction as fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

The following chart shows the ownership structure of the various Cole entities that are affiliated with Cole Advisors II.


(1)		The investors will own registered shares of common stock in Cole Credit Property Trust II, Inc.

(2)		Cole Holdings Corporation currently owns 20,000 shares of our common stock, which represents less than 0.05% of our outstanding common stock as of April 25, 2008.

INVESTMENT OBJECTIVES AND POLICIES

Acquisition and Investment Policies

We invest in commercial real estate properties. Our primary investment objectives are:


	•	to provide current income for you through the payment of cash distributions; and

	•	to preserve and return your capital contributions.

We also seek capital gain from our investments. You may be able to obtain a return on all or a portion of your capital contribution in connection with the sale of your shares if we list our shares on an exchange. We cannot assure you that we will attain any of these objectives. See “Risk Factors.”

We will seek to list our shares of common stock for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our shares at this time. We do not anticipate that there will be any market for our common stock until our shares are listed or quoted. In making the decision to apply for listing of our shares or provide other forms of liquidity, such as selling our properties and other assets either on a portfolio basis or individually or engaging in a business combination transaction, our board of directors will evaluate whether listing the shares, liquidating or another transaction would result in greater value for our stockholders. It cannot be determined at this time the circumstances, if any, under which the board of directors would determine to list the shares. If we do not list our shares of common stock on a national securities exchange by the tenth anniversary of the termination or completion of our initial offering, our charter requires that we either:


	•	seek stockholder approval of an extension or amendment of this listing deadline; or

	•	seek stockholder approval to adopt a plan of liquidation of the corporation.

If we sought and did not obtain stockholder approval of an extension or amendment to the listing deadline, we would then be required to seek stockholder approval of our plan of liquidation. If we sought and failed to obtain stockholder approval of our plan of liquidation, our charter would not require us to list or liquidate, and we would continue to operate as before. In such event, there will be no public market for shares of our common stock and you may be required to hold the shares indefinitely. If we sought and obtained stockholder approval of our plan of liquidation, we would begin an orderly sale of our properties and distribute our net proceeds to our investors.

Our board of directors may revise our investment policies, which we describe in more detail below, without the concurrence of our stockholders. Our independent directors will review our investment policies, which we discuss in detail below, at least annually to determine that our policies are in the best interest of our stockholders.

Types of Investments

We invest primarily in income-generating retail properties, net leased to investment grade and other creditworthy tenants. Our investments may be direct investments in such properties or in other entities that own or invest in, directly or indirectly, interests in such properties. We seek to acquire a portfolio of real estate that is diversified by geographical location and by type and size of property. Currently, our portfolio consists primarily of freestanding, single-tenant properties net leased for use as retail establishments. A portion of our portfolio also includes multi-tenant retail properties and single-tenant properties leased to office and industrial tenants. Although we expect our portfolio will continue to consist primarily of freestanding, single-tenant properties, we expect to continue to invest in other property types, including office and industrial properties, leased to one or more tenants. In addition, we expect to further diversify our portfolio by investing in multi-tenant properties that compliment our overall investment objectives and mortgage loans See “— Making Loans and Investments in Mortgages.”

Many of our properties will be leased to tenants in the chain or franchise retail industry, including but not limited to convenience stores, drug stores and restaurant properties. Other properties may be leased to large, national “big box” retailers, so-called “power centers,” which are comprised of big box retailers and smaller retail establishments, and other multi-tenant properties that compliment our overall investment objectives. Our advisor

monitors industry trends and invests in properties on our behalf that serve to provide a favorable return balanced with risk. Our management primarily targets retail businesses with established track records. This industry is highly property dependent, therefore our advisor believes it offers highly competitive sale-leaseback investment opportunities.

We believe that our general focus on the acquisition of freestanding, retail properties net leased to investment grade and other creditworthy tenants presents lower investment risks and greater stability than other sectors of today’s commercial real estate market. Unlike funds that invest solely in multi-tenant properties, we plan to acquire a diversified portfolio comprised primarily of single-tenant properties and a smaller number of multi-tenant properties that compliment our overall investment objectives. By primarily acquiring single-tenant properties, we believe that lower than expected results of operations from one or a few investments will not necessarily preclude our ability to realize our investment objectives of cash flow and preservation of capital from our overall portfolio. In addition, we believe that freestanding retail properties, as compared to shopping centers, malls and other traditional retail complexes, offer a distinct investment advantage since these properties generally require less management and operating capital, have less recurring tenant turnover and generally offer superior locations that are less dependent on the financial stability of adjoining tenants. In addition, since we intend to acquire properties that are geographically diverse, we expect to minimize the potential adverse impact of economic downturns in local markets. Our management believes that a portfolio consisting primarily of freestanding, single-tenant retail properties, net leased to creditworthy tenants diversified geographically and by brand and number of tenants will enhance our liquidity opportunities for investors by making the sale of individual properties, multiple properties or our investment portfolio as a whole attractive to institutional investors and by making a possible listing of our shares attractive to the public investment community.

To the extent feasible, we will seek to achieve a well-balanced portfolio diversified by geographic location, age of the property and lease maturity. We will pursue properties whose tenants represent a variety of industries so as to avoid concentration in any one industry. We expect these industries to include all types of retail establishments, such as “big box” retailers, convenience stores, drug stores and restaurant properties. We expect that tenants of our properties will also be diversified between national, regional and local brands. We will generally target properties with lease terms in excess of ten years. We may acquire properties with shorter terms if the property is in an attractive location, if the property is difficult to replace, or if the property has other significant favorable attributes. We expect that these investments will provide long-term value by virtue of their size, location, quality and condition and lease characteristics. We currently expect all of our acquisitions will be in the United States, including U.S. protectorates.

Many retail companies today are entering into sale-leaseback arrangements as a strategy for applying more capital that would otherwise be applied to their real estate holdings to their core operating businesses. We believe that our investment strategy will enable us to take advantage of the increased emphasis on retailers’ core business operations in today’s competitive corporate environment as retailers attempt to divest from real estate assets.

There is no limitation on the number, size or type of properties that we may acquire or on the percentage of net proceeds of this offering that may be invested in a single property. The number and mix of properties will depend upon real estate market conditions and other circumstances existing at the time of acquisition of properties and the amount of proceeds raised in this offering. For a further description, see the section titled “— Other Possible Investments” below.

We intend to incur debt to acquire properties where our board determines that incurring such debt is in our best interest. In addition, from time to time, we may acquire some properties without financing and later incur mortgage debt secured by one or more of such properties if favorable financing terms are available. We will use the proceeds from such loans to acquire additional properties. See “— Borrowing Policies” under this section for a more detailed explanation of our borrowing intentions and limitations.

Investment Grade and Other Creditworthy Tenants

In evaluating potential property acquisitions consistent with our investment objectives, we apply credit underwriting criteria to the tenants of existing properties. Similarly, we will apply credit underwriting criteria to possible new tenants when we are re-leasing properties in our portfolio. Tenants of our properties frequently are

national or super-regional retail chains that are investment grade or otherwise creditworthy entities having high net worth and operating income. Generally, these tenants must be experienced multi-unit operators with a proven track record in order to meet the credit tests applied by our advisor.

A tenant will be considered “investment grade” when the tenant has a debt rating by Moody’s of Baa3 or better or a credit rating by Standard & Poor’s of BBB- or better, or its payments are guaranteed by a company with such rating. Changes in tenant credit ratings, coupled with future acquisition and disposition activity, may increase or decrease our concentration of investment grade tenants in the future.

Moody’s ratings are opinions of future relative creditworthiness based on an evaluation of franchise value, financial statement analysis and management quality. The rating given to a debt obligation describes the level of risk associated with receiving full and timely payment of principal and interest on that specific debt obligation and how that risk compares with that of all other debt obligations. The rating, therefore, measures the ability of a company to generate cash in the future.

A Moody’s debt rating of Baa3, which is the lowest investment grade rating given by Moody’s, is assigned to companies with adequate financial security. However, certain protective elements may be lacking or may be unreliable over any given period of time. A Moody’s debt rating of Aaa, which is the highest investment grade rating given by Moody’s, is assigned to companies with exceptional financial security. Thus, investment grade tenants will be judged by Moody’s to have at least adequate financial security, and will in some cases have exceptional financial security.

Standard & Poor’s assigns a credit rating to both companies as a whole and to each issuance or class of a company’s debt. A Standard & Poor’s credit rating of BBB-, which is the lowest investment grade rating given by Standard & Poor’s, is assigned to companies that exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the company to meet its financial commitments. A Standard & Poor’s credit rating of AAA+, which is the highest investment grade rating given by Standard & Poor’s, is assigned to companies or issuances with extremely strong capacities to meet their financial commitments. Thus, investment grade tenants will be judged by Standard & Poor’s to have at least adequate protection parameters, and will in some cases have extremely strong financial positions.

Other creditworthy tenants are tenants with financial profiles that our advisor believes meet our investment objectives. In evaluating the credit worthiness of a tenant or prospective tenant, our advisor does not use specific quantifiable standards, but does consider many factors, including the proposed terms of the acquisition. The factors our advisor considers include the financial condition of the tenant and/or guarantor, the operating history of the property with such tenant or tenants, the tenant’s or tenants’ market share and track record within its industry segment, the general health and outlook of the tenant’s or tenants’ industry segment, and the lease length and terms at the time of the acquisition.

Description of Leases

We typically purchase single-tenant properties with existing leases, and when spaces become vacant or existing leases expire we anticipate entering into “net” leases. “Net” leases means leases that typically require that tenants pay all or a majority of the operating expenses, including real estate taxes, special assessments and sales and use taxes, utilities, insurance and building repairs related to the property, in addition to the lease payments. There are various forms of net leases, typically classified as triple net or double net. Triple net leases typically require the tenant to pay all costs associated with a property in addition to the base rent and percentage rent, if any. Double net leases typically have the landlord responsible for the roof and structure, or other aspects of the property, while the tenant is responsible for all remaining expenses associated with the property. In the event that we acquire multi-tenant properties, we expect to have a variety of lease arrangements with the tenants of such properties. Since each lease is an individually negotiated contract between two or more parties, each contract will have different obligations of both the landlord and tenant. Many large national tenants have standard lease forms that generally do not vary from property to property, and we will have limited ability to revise the terms of leases to those tenants.

We anticipate that a majority of our acquisitions will have lease terms of ten years or more at the time of the acquisition. We may acquire properties under which the lease term has partially expired. We also may acquire

properties with shorter lease terms if the property is in an attractive location, if the property is difficult to replace, or if the property has other significant favorable real estate attributes. Under most commercial leases, tenants are obligated to pay a predetermined annual base rent. Some of the leases also will contain provisions that increase the amount of base rent payable at points during the lease term and/or percentage rent that can be calculated by a number of factors. Under triple and double net leases, the tenants are generally required to pay the real estate taxes, insurance, utilities and common area maintenance charges associated with the properties. Generally, the leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. As a precautionary measure, our advisor may obtain, to the extent available, secondary liability insurance, as well as loss of rents insurance that covers one year of annual rent in the event of a rental loss. The secondary insurance coverage names the ownership entity as the named insured on the policy. The insurance coverage insures Cole Holdings and any entity formed under Cole Holdings.

Some leases do require that we procure the insurance for both commercial general liability and property damage insurance; however, the premiums are fully reimbursable from the tenant. In the event the we procure such insurance, the policy lists us as the named insured on the policy and the tenant as the additional insured.

Tenants are required to provide proof of insurance by furnishing a certificate of insurance to our advisor on an annual basis. The insurance certificates are carefully tracked and reviewed for compliance by our advisor’s property management department.

In general, leases may not be assigned or subleased without our prior written consent. If we do consent to an assignment or sublease, the original tenant generally will remain fully liable under the lease unless we release that tenant from its obligations under the lease.

Environmental Matters

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. State and federal laws in this area are constantly evolving, and we intend to monitor these laws and take commercially reasonable steps to protect ourselves from the impact of these laws, including obtaining environmental assessments of most properties that we acquire.

Other Possible Investments

Although we expect that most of our property acquisitions will be of the type described above, we may make other investments. For example, we are not limited to investments in single-tenant retail properties or properties leased to investment grade and other creditworthy tenants and complimentary multi-tenant properties. We may invest in other commercial properties such as business and industrial parks, manufacturing facilities, office buildings and warehouse and distribution facilities, or in other entities that make such investments or own such properties, in order to reduce overall portfolio risks or enhance overall portfolio returns if our advisor and board of directors determine that it would be advantageous to do so. Further, to the extent that our advisor and board of directors determine it is in our best interest, due to the state of the real estate market, in order to diversify our investment portfolio or otherwise, we will make or invest in mortgage loans secured by the same types of commercial properties that we intend to acquire.

Our criteria for investing in mortgage loans will be substantially the same as those involved in our investment in properties. We do not intend to make loans to other persons (other than mortgage loans), to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than interests in real estate.

Investment Decisions

Cole Advisors II has substantial discretion with respect to the selection of specific investments and the purchase and sale of our properties, subject to the approval of our board of directors. In pursuing our investment

objectives and making investment decisions for us, Cole Advisors II evaluates the proposed terms of the purchase against all aspects of the transaction, including the condition and financial performance of the property, the terms of existing leases and the creditworthiness of the tenant, terms of the lease and property and location characteristics. Because the factors considered, including the specific weight we place on each factor, will vary for each potential investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.

In addition to procuring and reviewing an independent valuation estimate our advisor also will, to the extent such information is available, consider the following:


	•	a property condition report;

	•	unit level store performance;

	•	property location, visibility and access;

	•	age of the property, physical condition and curb appeal;

	•	neighboring property uses;

	•	local market conditions including vacancy rates;

	•	area demographics, including trade area population and average household income;

	•	neighborhood growth patterns and economic conditions;

	•	presence of nearby properties that may positively impact store sales at the subject property; and

	•	lease terms, including length of lease term, scope of landlord responsibilities, presence and frequency of contractual rental increases, renewal option provisions, exclusive and permitted use provisions, co-tenancy requirements and termination options.

Our advisors consider whether properties are leased by, or have leases guaranteed by, companies that maintain an investment grade rating by either Standard & Poor’s or Moody’s Investor Services. Our advisor also will consider non-rated and non-investment grade rated tenants that we consider creditworthy, as described in “— Investment Grade and Other Creditworthy Tenants” above.

Our advisor reviews the terms of each existing lease by considering various factors, including:


	•	rent escalations

	•	remaining lease term

	•	renewal option terms

	•	tenant purchase options

	•	termination options

	•	scope of the landlord’s maintenance, repair and replacement requirements

	•	projected net cash flow yield

	•	projected internal rates of return.

Conditions to Closing Our Acquisitions

Generally, we condition our obligation to close the purchase of any investment on the delivery and verification of certain documents from the seller or developer, including, where appropriate:


	•	plans and specifications

	•	surveys

	•	evidence of marketable title, subject to such liens and encumbrances as are acceptable to Cole Advisors II

	•	financial statements covering recent operations of properties having operating histories


	•	title and liability insurance policies

	•	tenant estoppel certificates.

We generally do not purchase any property unless and until we also obtain what is generally referred to as a “Phase I” environmental site assessment and are generally satisfied with the environmental status of the property. However, we may purchase a property without obtaining such assessment if our advisor determines it is not warranted. A Phase I environmental site assessment basically consists of a visual survey of the building and the property in an attempt to identify areas of potential environmental concerns, visually observing neighboring properties to asses surface conditions or activities that may have an adverse environmental impact on the property, and contacting local governmental agency personnel who perform a regulatory agency file search in an attempt to determine any known environmental concerns in the immediate identity of the property. A Phase I environmental site assessment does not generally include any sampling or testing of soil, ground water or building materials from the property and may not reveal all environmental hazards on a property.

We may enter into purchase and sale arrangements with a seller or developer of a suitable property under development or construction. In such cases, we will be obligated to purchase the property at the completion of construction, provided that the construction conforms to definitive plans, specifications, and costs approved by us in advance. In such cases, prior to our acquiring the property, we generally would receive a certificate of an architect, engineer or other appropriate party, stating that the property complies with all plans and specifications. If renovation or remodeling is required prior to the purchase of a property, we expect to pay a negotiated maximum amount to the seller upon completion. We do not currently intend to construct or develop properties or to render any services in connection with such development or construction.

In determining whether to purchase a particular property, we may, in accordance with customary practices, obtain an option on such property. The amount paid for an option, if any, normally is surrendered if the property is not purchased and normally is credited against the purchase price if the property is purchased.

In purchasing, leasing and developing properties, we will be subject to risks generally incident to the ownership of real estate. See “Risk Factors — General Risks Related to Investments in Real Estate.”

Ownership Structure

Our investment in real estate generally takes the form of holding fee title or a long-term leasehold estate. We acquire such interests either directly through our operating partnership, or indirectly through limited liability companies, limited partnerships, or through investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with the developers of the properties, affiliates of Cole Advisors II or other persons. See the section captioned “Our Operating Partnership Agreement” elsewhere in this prospectus and the “— Joint Venture Investments” section below. In addition, we may purchase properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction so that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for federal income tax purposes, the Internal Revenue Service could challenge this characterization. In the event that any sale-leaseback transaction is re-characterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. See “Federal Income Tax Considerations — Sale-Leaseback Transactions.”

Joint Venture Investments

We may enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements with third parties as well as affiliated entities, including other real estate programs sponsored by affiliates of our advisor for the acquisition, development or improvement of properties with affiliates of our advisor, including other real estate programs sponsored by affiliates of our advisor. We may also enter into such arrangements with real estate developers, owners and other unaffiliated third parties for the purpose of developing, owning and operating real properties. In determining whether to invest in a particular joint venture, Cole Advisors II will evaluate the real property that such joint venture owns or is being formed to own under the same criteria described above in “— Investment Decisions” for the selection of our real estate property investments.

Our general policy is to invest in joint ventures only when we will have a right of first refusal to purchase the co-venturer’s interest in the joint venture if the co-venturer elects to sell such interest. In the event that the co-venturer elects to sell property held in any such joint venture, however, we may not have sufficient funds to exercise our right of first refusal to buy the other co-venturer’s interest in the property held by the joint venture. In the event that any joint venture with an affiliated entity holds interests in more than one property, the interest in each such property may be specially allocated based upon the respective proportion of funds invested by each co-venturer in each such property.

Cole Advisors II may have conflicts of interest in determining which Cole-sponsored program should enter into any particular joint venture agreement. The co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, Cole Advisors II may face a conflict in structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Since Cole Advisors II and its affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-venturer receiving benefits greater than the benefits that we receive. In addition, we may have liabilities that exceed the percentage of our investment in the joint venture.

We may enter into joint ventures with other Cole real estate programs only if a majority of our directors not otherwise interested in the transaction and a majority of our independent directors approve the transaction as being fair and reasonable to us and on substantially the same terms and conditions as those received by other joint venturers.

Borrowing Policies

Our advisor believes that utilizing borrowing is consistent with our investment objective of maximizing the return to investors. By operating on a leveraged basis, we will have more funds available for investment in properties. This will allow us to make more investments than would otherwise be possible, resulting in a more diversified portfolio. There is no limitation on the amount we may borrow against any single improved property. However, under our charter, we are required to limit our borrowings to 60% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our gross assets, unless excess borrowing is approved by a majority of the independent directors and disclosed to our stockholders in the next quarterly report along with the justification for such excess borrowing. In the event that we issue preferred stock that is entitled to a preference over the common stock in respect of distributions or liquidation or is treated as debt under GAAP, we will include it in the leverage restriction calculations, unless the issuance of the preferred stock is approved or ratified by our stockholders. We expect that during the period of this offering we will request that our independent directors approve borrowings in excess of this limitation since we will then be in the process of raising our equity capital to acquire our portfolio. However, we anticipate that our overall leverage following our offering stage will be within our charter limit. As of December 31, 2007, we had an aggregate debt leverage ratio of 52% of the aggregate original purchase price of our properties.

Our advisor will use its best efforts to obtain financing on the most favorable terms available to us. All of our financing arrangements must be approved by a majority of our board members including a majority of our independent directors. Lenders may have recourse to assets not securing the repayment of the indebtedness. Our advisor may refinance properties during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include increased cash flow resulting from reduced debt service requirements, an increase in dividend distributions from proceeds of the refinancing, if any, and an increase in property ownership is some refinancing proceeds are reinvested in real estate.

Our ability to increase our diversification through borrowing may be adversely impacted if banks and other lending institutions reduce the amount of funds available for loans secured by real estate. When interest rates on mortgage loans are high or financing is otherwise unavailable on a timely basis, we may purchase properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time. To the extent

that we do not obtain mortgage loans on our properties, our ability to acquire additional properties will be restricted and we may not be able to adequately diversify our portfolio.

We may not borrow money from any of our directors or from our advisor or its affiliates unless such loan is approved by a majority of the directors not otherwise interested in the transaction (including a majority of the independent directors) as fair, competitive and commercially reasonable and no less favorable to us than a comparable loan between unaffiliated parties.

Making Loans and Investments in Mortgages

Our criteria for investing in mortgage loans will be similar to those involved in our investment in properties. However, unlike our property investments, we expect that the average duration of loans will typically be one to five years. We currently have not made any loans, although we may do so and are not limited as to the amount of gross offering proceeds that we may apply to mortgage loan investments.

We will not make loans to other entities or other persons unless secured by mortgages. We will not make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans outstanding on the property, including our loan, would exceed an amount equal to 85% of the appraised value of the property as determined by an independent third party appraiser, unless we find substantial justification due to the presence of other underwriting criteria. We may find such justification in connection with the purchase of mortgage loans in cases in which we believe there is a high probability of our foreclosure upon the property in order to acquire the underlying assets and in which the cost of the mortgage loan investment does not exceed the fair market value of the underlying property. We will not invest in or make mortgage loans unless an appraisal has been obtained concerning the underlying property, except for those loans insured or guaranteed by a government or government agency. In cases in which a majority of our independent directors so determine and in the event the transaction is with our advisor, any of our directors or their respective affiliates, the appraisal will be obtained from a certified independent appraiser to support its determination of fair market value.

We may invest in first, second and third mortgage loans, wraparound mortgage loans, construction mortgage loans on real property, and loans on leasehold interest mortgages. However, we will not make or invest in any mortgage loans that are subordinate to any mortgage or equity interest of our advisor or any of its or our affiliates. We also may invest in participations in mortgage loans. Second and wraparound mortgage loans are secured by second or wraparound deeds of trust on real property that is already subject to prior mortgage indebtedness. A wraparound loan is one or more junior mortgage loans having a principal amount equal to the outstanding balance under the existing mortgage loan, plus the amount actually to be advanced under the wraparound mortgage loan. Under a wraparound loan, we would generally make principal and interest payments on behalf of the borrower to the holders of the prior mortgage loans. Third mortgage loans are secured by third deeds of trust on real property that is already subject to prior first and second mortgage indebtedness. Construction loans are loans made for either original development or renovation of property. Construction loans in which we would generally consider an investment would be secured by first deeds of trust on real property for terms of six months to two years. Loans on leasehold interests are secured by an assignment of the borrower’s leasehold interest in the particular real property. These loans are generally for terms of from six months to 15 years. The leasehold interest loans are either amortized over a period that is shorter than the lease term or have a maturity date prior to the date the lease terminates. These loans would generally permit us to cure any default under the lease. Mortgage participation investments are investments in partial interests of mortgages of the type described above that are made and administered by third-party mortgage lenders.

In evaluating prospective mortgage loan investments, our advisor will consider factors such as the following:


	•	the ratio of the investment amount to the underlying property’s value

	•	the property’s potential for capital appreciation

	•	expected levels of rental and occupancy rates

	•	current and projected cash flow of the property

	•	potential for rent increases


	•	the degree of liquidity of the investment

	•	the property’s income-producing capacity

	•	the quality, experience and creditworthiness of the borrower

	•	general economic conditions in the area where the property is located.

In addition, we will seek to obtain a customary lender’s title insurance policy or commitment as to the priority of the mortgage or condition of the title. Because the factors considered, including the specific weight we place on each factor, will vary for each prospective mortgage loan investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.

We may originate loans from mortgage brokers or personal solicitations of suitable borrowers, or may purchase existing loans that were originated by other lenders. We may purchase existing mortgage loans from affiliates, and we may make or invest in mortgage loans in which the borrower is an affiliate. Our advisor will evaluate all potential mortgage loan investments to determine if the security for the loan and the loan-to-value ratio meets our investment criteria and objectives. An officer, director, agent or employee of our advisor will inspect the property during the loan approval process. We do not expect to make or invest in mortgage loans with a maturity of more than ten years from the date of our investment, and we anticipate that most loans will have a term of five years. Most loans that we will consider for investment would provide for monthly payments of interest and some may also provide for principal amortization, although many loans of the nature that we will consider provide for payments of interest only and a payment of principal in full at the end of the loan term. We will not originate loans with negative amortization provisions.

We do not have any policies directing the portion of our assets that may be invested in construction loans, loans secured by leasehold interests and second, third and wraparound mortgage loans. However, we recognize that these types of loans are riskier than first deeds of trust or first priority mortgages on income-producing, fee-simple properties, and we expect to minimize the amount of these types of loans in our portfolio, to the extent that that we make or invest in mortgage loans at all. Our advisor will evaluate the fact that these types of loans are riskier in determining the rate of interest on the loans. We do not have any policy that limits the amount that we may invest in any single mortgage loan or the amount we may invest in mortgage loans to any one borrower.

Our mortgage loan investments may be subject to regulation by federal, state and local authorities and subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including among other things, regulating credit granting activities, establishing maximum interest rates and finance charges, requiring disclosures to customers, governing secured transactions and setting collection, repossession and claims handling procedures and other trade practices. In addition, certain states have enacted legislation requiring the licensing of mortgage bankers or other lenders and these requirements may affect our ability to effectuate our proposed investments in mortgage loans. Commencement of operations in these or other jurisdictions may be dependent upon a finding of our financial responsibility, character and fitness. We may determine not to make mortgage loans in any jurisdiction in which the regulatory authority determines that we have not complied in all material respects with applicable requirements.

Acquisition of Properties from Affiliates

We may acquire properties or interests in properties from or in co-ownership arrangements with affiliated entities, including properties acquired from affiliates engaged in construction and development of commercial real properties. We will not acquire any property from an affiliate unless a majority of our directors not otherwise interested in the transaction and a majority of our independent directors determine that the transaction is fair and reasonable to us. The purchase price that we will pay for any property we acquire from our affiliates, including property developed by an affiliate as well as property held by an affiliate that has already been developed, will not exceed the current appraised value of the property. In addition, the price of the property we acquire from an affiliate may not exceed the cost of the property to our affiliate, unless a majority of our directors and a majority of our independent directors determine that substantial justification for the excess exists and the excess is reasonable.

In the case of properties we acquire from an affiliate that have not been constructed at the time of contracting, our affiliate will generally be required to obtain an independent “as built” appraisal for the property prior to our

contracting for the property, in which case the purchase price we will pay under the purchase contract will not exceed the anticipated fair market value of the developed property as determined by the appraisal. Our contract with any affiliate engaged in development of properties for sale to us will require it to deliver to us at closing title to the property, as well as an assignment of leases.

In the case of properties to be developed by any of our affiliates and sold to us, if any of our affiliates develop properties, we anticipate that our development company affiliate will:


	•	acquire a parcel of land;

	•	enter into contracts for the construction and development of a commercial building thereon;

	•	enter into an agreement with one or more tenants to lease all or a majority of the property upon its completion;

	•	secure an earnest money deposit from us, which may be used for acquisition and development expenses;

	•	secure a financing commitment from a commercial bank or other institutional lender to finance the remaining acquisition and development expenses;

	•	complete the development and allow the tenant or tenants to take possession of the property; and

	•	provide for the acquisition of the property by us.

We will be required to pay a substantial sum to our development company affiliate at the time of entering into the contract as a refundable earnest money deposit to be credited against the purchase price at closing, which will be applied to the cost of acquiring the land and initial development costs. We expect that the earnest money deposit will represent approximately 20% to 30% of the purchase price of the developed property set forth in the purchase contract.

We may enter into a contract to acquire property from an affiliate engaged in property development even if we have not yet raised sufficient proceeds to enable us to pay the full amount of the purchase price at closing. We may also elect to close a purchase before the development of the property has been completed, in which case we would obtain an assignment of the construction and development contracts from our affiliate and would complete the construction either directly or through a joint venture with an affiliate. Any contract between us, directly or indirectly through a joint venture with an affiliate, and an affiliated development company for the purchase of property to be developed will provide that we will be obligated to purchase the property only if:


	•	the affiliated development company completes the improvements, which generally will include the completion of the development, in accordance with the specifications of the contract;

	•	one or more approved tenants takes possession of the building under a lease satisfactory to our advisor; and

	•	we have sufficient proceeds available for investment at closing to pay the balance of the purchase price remaining after payment of the earnest money deposit.

Our advisor will not cause us to enter into a contract to acquire property from an affiliated development company if it does not reasonably anticipate that funds will be available to purchase the property at the time of closing. If we enter into a contract to acquire property from an affiliated development company and, at the time for closing, are unable to purchase the property because we do not have sufficient proceeds available for investment, we will not be required to close the purchase of the property and will be entitled to a refund of our earnest money deposit from the affiliated development company. Because the affiliated development company may be an entity without substantial assets or operations, our board of directors may require that the affiliated development company’s obligation to refund our earnest money deposit be guaranteed by another entity, such as Cole Realty Advisors, our affiliated property manager, which provides property management and leasing services to various Cole programs, including us, for substantial monthly fees. As of the time Cole Realty Advisors or any other guarantor may be required to perform under any guaranty, we cannot assure you that such guarantor will have sufficient assets to refund all of our earnest money deposit in a lump sum payment. In such a case, we would be required to accept installment payments over time payable out of the revenues of the guarantor’s operations We

cannot assure you that we would be able to collect the entire amount of our earnest money deposit under such circumstances. See “Risk Factors — General Risks Related to Investments in Real Estate.”

Section 1031 Program

Persons selling real estate held for investment often seek to reinvest the proceeds of that sale in another real estate investment in an effort to obtain favorable tax treatment under Section 1031 of the Internal Revenue Code. Cole Capital Partners, an affiliate of our advisor, has developed a co-ownership programs to facilitate these transactions, which are referred to as “like-kind exchanges.” For each co-ownership program (Section 1031 Program), Cole Capital Partners or another Cole affiliate will create a single member limited liability company or a Delaware statutory trust (each of which we refer to as a Cole Exchange Entity). A Cole Exchange Entity typically will acquire all or part of a real estate property to be owned in co-ownership arrangements with persons wishing to engage in like-kind exchanges, which we refer to as Section 1031 Participants. Generally, a Cole Exchange Entity will acquire the subject property and prepare and, through a registered broker-dealer, market a private placement memorandum for the sale of co-ownership interests in that property. In many instances, affiliates of our advisor will sell or contribute a property to a Cole Exchange Entity for the purpose of selling off the property. Properties acquired in connection with the co-ownership program, if any, initially may be partially or entirely financed with debt. Typically, multiple investors will acquire co-ownership interests in a single property. In a substantial majority of these transactions, the underlying property serves as collateral for the mortgage loan used to finance the purchase of the property. To the extent the loan is not repaid in full as part of the co-ownership program, the loan remains outstanding after the sale of the co-ownership interests to the Section 1031 Participants. These loans generally are non-recourse and are secured by the real property. However, Cole Capital Partners or another Cole affiliate typically is required to indemnify and become liable to the lender for customary carve-outs under the loan financing documents, including but not limited to fraud or intentional misrepresentation , physical waste of the property, misapplication or misappropriation of insurance proceeds and failure to pay taxes.

Although we do not presently intend to participate in the Section 1031 Program, we may do so if our board of directors, including a majority of our independent directors, determines that our participation is in the best interest of our stockholders. In the event that our board of directors determines that it is in our best interest to participate in the Section 1031 Program, we may co-invest in the property with the Cole Exchange Entity or purchase a co-ownership interest from, or in, as applicable, the Cole Exchange Entity. In that event, as an owner of co-ownership interests in properties, we will be subject to the risks that co-ownership of properties with unrelated third parties entails.

We may co-invest with or purchase co-ownership interests from, or in, as applicable, a Cole Exchange Entity only if a majority of our directors not otherwise interested in the transaction and a majority of our independent directors approves of the transaction as being fair, competitive and commercially reasonable to us. We anticipate that in the event we participate in the Section 1031 Program, generally we will purchase the interest at the Cole Exchange Entity’s cost (before offering expenses and fees). However, if the price to us is in excess of the cost of the asset paid by our affiliate, a majority of our directors not otherwise interested in the transaction and a majority of our independent directors must determine that substantial justification for such excess exists and that such excess is reasonable. In no event shall the cost of such asset to us exceed the greater of the Cole Exchange Entity’s cost or the current appraised value for the property interest performed by an independent appraiser.

Although the Cole Exchange Entity will charge fees and expenses to Section 1031 Participants and/or will sell the co-ownership interests at a price above the price it paid for the property, if we participate in the co-ownership program we will not pay any fees or expenses to the Cole Exchange Entity. We will, however, pay our advisor the acquisition and advisory fees and reimburse the advisor for its expenses as described under “Management Compensation” to the same extent as with other types of property acquisitions.

If we purchase co-ownership interests, we will be subject to various risks associated with co-tenancy arrangements which are not otherwise present in real estate investments, such as the risk that the interests of the non-affiliated Section 1031 Participants will become adverse to our interests. In any co-ownership program, Cole Capital Partners, the Cole Exchange Entity, or the other co-owners may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. For instance, Cole Capital Partners

will receive substantial fees in connection with its sponsoring of a Section 1031 Program (although we will not be required to pay such fees) and our participation in such a transaction likely would facilitate its consummation of the transactions. For these reasons, our advisor may face a conflict in structuring the terms of the relationship between our interests and the interest of Cole Capital Partners or the Cole Exchange Entity. As a result, agreements and transactions between the parties with respect to the property will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated parties.

Disposition Policies

We intend to hold each property we acquire for an extended period, generally eight to ten years. However, circumstances might arise that could result in the early sale of some properties. We may sell a property before the end of the expected holding period if we believe the sale of the property would be in the best interests of our stockholders.

The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions and current tenant creditworthiness, with a view to achieving maximum capital appreciation. We cannot assure you that this objective will be realized. The selling price of a property that is net leased will be determined in large part by the amount of rent payable under the lease. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.

Investment Limitations

Our charter and investment policies place numerous limitations on us with respect to the manner in which we may invest our funds or issue securities. These limitations cannot be changed unless our charter is amended, which requires approval of our stockholders, or we otherwise change our investment policies. Unless our charter is amended, or we revise our investment policies, we will not:


	•	borrow in excess of 60% of the greater of the aggregate cost (before deducting depreciation or other non-cash reserves) or fair market value of all assets owned by us, unless approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report along with the justification for such excess borrowing;

	•	make investments in unimproved property or mortgage loans on unimproved property in excess of 10% of our total assets;

	•	make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property, except for those mortgage loans insured or guaranteed by a government or government agency;

	•	make or invest in mortgage loans, including construction loans, on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria;

	•	make an investment in a property or mortgage loan if the related acquisition fees and acquisition expenses are unreasonable or exceed 6% of the purchase price of the property or, in the case of a mortgage loan, 6% of the funds advanced; provided that the investment may be made if a majority of our independent directors determines that the transaction is commercially competitive, fair and reasonable to us;

	•	invest in equity securities unless a majority of our independent directors approves such investment as being fair, competitive and commercially reasonable;

	•	invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title;


	•	invest in commodities or commodity futures contracts, except for futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages;

	•	issue equity securities on a deferred payment basis or other similar arrangement;

	•	issue debt securities in the absence of adequate cash flow to cover debt service;

	•	issue equity securities that are assessable after we have received the consideration for which our board of directors authorized their issuance; or

	•	issue equity securities redeemable solely at the option of the holder, which restriction has no effect on our share redemption program or the ability of our operating partnership to issue redeemable partnership interests.

In addition, our charter includes many other investment limitations in connection with transactions with affiliated entities or persons, which limitations are described above under “Conflicts of Interest.” Our charter also includes restrictions on roll-up transactions, which are described under “Description of Shares” below.

Change in Investment Objectives and Limitations

Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we follow are in the best interest of our stockholders. Each determination and the basis therefor shall be set forth in the minutes of the meetings of our board of directors. The methods of implementing our investment policies also may vary as new real estate development trends emerge and new investment techniques are developed. The methods of implementing our investment objectives and policies, except as otherwise provided in the organizational documents, may be altered by a majority of our directors, including a majority of the independent directors, without the approval of our stockholders.

Real Property Investments

We engage in the acquisition and ownership of commercial properties throughout the United States. We invest primarily in income-generating retail, office and distribution properties, net leased to investment grade and other creditworthy tenants.

As of April 25, 2008, we, through separate wholly-owned limited liability companies, have acquired a 100% fee simple interest in 379 properties consisting of approximately 13.1 million gross rentable square feet of commercial space located in 45 states and the U.S. Virgin Islands. The properties were generally acquired through the use of mortgage notes payable and proceeds from our ongoing public offering of our common stock.

The following table summarizes these properties in order of acquisition date:


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Tractor Supply Parkersburg, WV	Specialty retail	9/26/05		2005	$	3,259,243	$	83,115		21,688		100	%
Walgreens Brainerd, MN	Drugstore	10/5/05		2000		4,328,500		114,710		15,120		100	%
Rite Aid Alliance, OH	Drugstore	10/20/05		1996		2,100,000		42,000		11,348		100	%
La-Z-Boy Glendale, AZ	Home furnishings	10/25/05		2001		5,691,525		148,000		23,000		100	%
Walgreens Florissant, MO	Drugstore	11/2/05		2001		5,187,632		111,671		15,120		100	%
Walgreens Saint Louis, MO (Gravois)	Drugstore	11/2/05		2001		6,152,942		108,917		15,120		100	%
Walgreens Saint Louis, MO (Telegraph)	Drugstore	11/2/05		2001		5,059,426		132,412		15,120		100	%
Walgreens Columbia, MO	Drugstore	11/22/05		2002		6,271,371		125,000		13,973		100	%
Walgreens Olivette, MO	Drugstore	11/22/05		2001		7,822,222		156,000		15,030		100	%
CVS Alpharetta, GA	Drugstore	12/1/05		1998		3,100,000		82,000		10,125		100	%
Lowe’s Enterprise, AL	Home improvement	12/1/05		1995		7,475,000		184,000		95,173		100	%
CVS Richland Hills, TX	Drugstore	12/8/05		1997		3,660,000		97,000		10,908		100	%
FedEx Rockford, IL	Distribution	12/9/05		1994		6,150,000		149,000		67,925		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Plastech Auburn Hills, MI	Automotive parts	12/15/05		1995	$	23,600,000	$	472,000		111,881		100	%
Academy Sports Macon, GA	Sporting goods	1/6/06		2005		5,600,000		148,000		74,532		100	%
David’s Bridal Lenexa, KS	Specialty retail	1/11/06		2005		3,270,000		83,000		12,083		100	%
Rite Aid Enterprise, AL	Drugstore	1/26/06		2005		3,714,000		94,000		14,564		100	%
Rite Aid Wauseon, OH	Drugstore	1/26/06		2005		3,893,679		79,000		14,564		100	%
Staples Crossville, TN	Office supply	1/26/06		2001		2,900,000		77,000		23,942		100	%
Rite Aid Saco, ME	Drugstore	1/27/06		1997		2,500,000		64,000		11,180		100	%
Wadsworth Boulevard Denver, CO	Specialty retail/Warehouse club	2/6/06		1991		18,500,000		490,000		198,477		100	%
Mountainside Fitness Chandler, AZ	Health and fitness	2/9/06		2001		5,863,000		117,000		31,063		100	%
Drexel Heritage Hickory, NC	Furnishings	2/24/06		1963		4,250,000		113,000		261,057		100	%
Rayford Square Spring, TX	Automotive parts/ Restaurant/Specialty retail	3/2/06		1973		9,900,000		257,000		79,968		100	%
CVS Portsmouth, OH	Drugstore	3/8/06		1997		2,166,000		57,000		10,170		100	%
Wawa Hockessin, DE	Convenience stores	3/29/06		2000		4,830,000		—		5,160		100	%(4)
Wawa Manahawkin, NJ	Convenience stores	3/29/06		2000		4,414,000		—		4,695		100	%(4)
Wawa Narbeth, PA	Convenience stores	3/29/06		2000		4,206,000		—		4,461		100	%(4)
CVS Lakewood, OH	Drugstore/Financial services	4/20/06		1996		2,450,000		62,000		12,800		100	%
Rite Aid Cleveland, OH	Drugstore	4/27/06		1997		2,568,700		71,000		11,325		100	%
Rite Aid Fremont, OH	Drugstore	4/27/06		1997		2,524,500		70,000		11,325		100	%
Walgreens Knoxville, TN	Drugstore	5/8/06		2000		4,750,000		125,000		15,120		100	%
CVS Madison, MS	Drugstore	5/26/06		2004		4,463,088		28,000		13,824		100	%(4)
Rite Aid Defiance, OH	Drugstore	5/26/06		2005		4,326,165		23,000		14,564		100	%(4)
Conns San Antonio, TX	Consumer electronics	5/26/06		2002		4,624,619		36,000		25,230		100	%(4)
Dollar General Crossville, TN	Specialty retail	6/2/06		2006		3,000,000		80,000		24,341		100	%
Dollar General Ardmore, TN	Specialty retail	6/9/06		2005		2,775,000		73,000		24,341		100	%
Dollar General Livingston, TN	Specialty retail	6/12/06		2006		2,856,000		76,000		24,341		100	%
Wehrenberg Arnold, MO	Theaters	6/14/06		1998		8,200,000		82,000		50,000		100	%
Sportmans Warehouse Wichita, KS	Specialty retail	6/27/06		2006		8,231,000		226,000		50,003		100	%
CVS Portsmouth, OH	Drugstore	6/28/06		1997		2,101,708		61,000		10,650		100	%(4)
Advance Auto Greenfield, IN	Automotive parts	6/29/06		2003		1,375,500		28,000		7,000		100	%
Advance Auto Trenton, OH	Automotive parts	6/29/06		2003		1,060,000		21,000		7,000		100	%
Rite Aid Lansing, MI	Drugstore	6/29/06		1950		1,735,000		45,000		11,680		100	%
Advance Auto Columbia Heights, MN	Automotive parts	7/06/06		2005		1,730,578		45,000		7,000		100	%
Advance Auto Fergus Falls, MN	Automotive parts	7/06/06		2005		1,203,171		31,000		7,000		100	%
CVS Okeechobee, FL	Drugstore	7/07/06		2001		6,459,262		41,000		13,050		100	%(4)
Office Depot Dayton, OH	Office supply	7/07/06		2005		3,416,526		21,000		19,880		100	%(4)
Advance Auto Holland, MI	Automotive parts	7/12/06		2006		2,071,843		12,000		7,000		100	%(4)
Advance Auto Holland Township, MI	Automotive parts	7/12/06		2006		2,137,244		12,000		7,000		100	%(4)
Advance Auto Zeeland, MI	Automotive parts	7/12/06		2006		1,840,715		11,000		7,000		100	%(4)
CVS Orlando, FL	Drugstore	7/12/06		2005		4,956,763		30,000		13,013		100	%(4)
Office Depot Greenville, MS	Office supply	7/12/06		2000		3,491,470		22,000		25,083		100	%(4)
Office Depot Warrensburg, MO	Office supply	7/19/06		2001		2,880,552		18,000		20,000		100	%(4)
CVS Gulfport, MS	Drugstore	8/10/06		2000		4,414,117		26,000		11,359		100	%(4)
Advance Auto Grand Forks, ND	Automotive parts	8/15/06		2005		1,399,657		36,000		7,000		100	%
CVS Clinton, NY	Drugstore	8/24/06		2006		3,050,000		80,000		10,055		100	%
Oxford Theatre Oxford, MS	Theaters	8/31/06		2006		9,692,503		246,000		35,000		100	%
Advance Auto Duluth, MN	Automotive parts	9/8/06		2006		1,432,565		9,000		7,000		100	%
Walgreens Picayune, MS	Drugstore	9/15/06		2006		4,255,000		113,000		14,820		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Kohl’s Wichita, KS	Apparel	9/27/06		1996	$	7,866,000	$	209,000		86,584		100	%
Lowe’s Lubbock, TX	Home improvement	9/27/06		1996		11,508,000		305,000		137,480		100	%
Lowe’s Midland, TX	Home improvement	9/27/06		1996		11,099,000		293,000		134,050		100	%
Advance Auto Grand Bay, AL	Automotive parts	9/29/06		2005		1,115,605		22,000		7,000		100	%
Advance Auto Hurley, MS	Automotive parts	9/29/06		2005		1,083,195		22,000		7,000		100	%
Advance Auto Rainsville, AL	Automotive parts	9/29/06		2005		1,328,000		27,000		7,000		100	%
Gold’s Gym O’Fallon, IL	Health and fitness	9/29/06		2005		7,300,000		183,000		38,000		100	%
Rite Aid Glassport, PA	Drugstore	10/04/06		2006		3,788,000		99,000		14,564		100	%
David’s Bridal/Radio Shack Topeka, KS	Specialty retail/Consumer electronics	10/13/06		2006		3,021,000		60,000		10,150		100	%
Rite Aid Hanover, PA	Drugstore	10/17/06		2006		6,330,000		168,000		14,584		100	%
American TV & Appliance Peoria, IL	Consumer electronics	10/23/06		2003		11,336,983		304,000		126,852		100	%
Tractor Supply La Grange, TX	Specialty retail	11/06/06		2006		2,580,000		66,000		24,727		100	%
Staples Peru, IL	Office supply	11/09/06		1998		3,215,000		83,000		23,925		100	%
Fedex Council Bluffs, IA	Distribution	11/15/06		1999		3,361,000		89,000		23,510		100	%
Fedex Edwardsville, KS	Distribution	11/15/06		1999		19,815,000		525,000		155,965		100	%
CVS Glenville Scotia, NY	Drugstore	11/16/06		2006		5,250,000		139,000		12,900		100	%
Advance Auto Ashland, KY	Automotive parts	11/17/06		2006		1,681,000		34,000		7,000		100	%
Advance Auto Jackson, OH	Automotive parts	11/17/06		2005		1,352,000		27,000		7,000		100	%
Advance Auto New Boston, OH	Automotive parts	11/17/06		2005		1,516,000		30,000		7,000		100	%
Advance Auto Scottsburg, IN	Automotive parts	11/17/06		2006		1,272,000		25,000		7,000		100	%
Tractor Supply Livingston, TN	Specialty retail	11/22/06		2006		3,100,000		79,000		24,727		100	%
Tractor Supply New Braunfels, TX	Specialty retail	11/22/06		2006		3,150,000		81,000		24,727		100	%
Office Depot Benton, AR	Office supply	11/21/06		2001		3,275,000		87,000		20,515		100	%
Old Time Pottery Fairview Heights,IL	Home furnishings	11/21/06		1979		4,280,000		107,000		97,849		100	%
Infiniti Davie, FL	Motor vehicle dealerships	11/30/06		2006		9,432,000		189,000		20,927		100	%
Office Depot Oxford, MS	Office supply	12/01/06		2006		3,487,450		93,000		20,000		100	%
Tractor Supply Crockett, TX	Specialty retail	12/01/06		2006		2,450,000		62,000		24,727		100	%
Mercedes Benz Atlanta, GA	Motor vehicle dealerships	12/15/06		2000		11,760,000		235,000		40,588		100	%
Dick’s Sporting Goods Amherst, NY	Sporting goods	12/20/06		1986		9,725,000		195,000		55,745		100	%
Chili’s Paris, TX	Restaurant	12/28/06		1999		2,750,000		73,000		6,698		100	%
Staples Clarksville, IN	Office supply	12/29/06		2006		4,430,000		118,000		20,388		100	%
HOM Fargo, ND	Furniture retail	1/04/07		2004		12,000,000		288,000		122,108		100	%
La-Z-Boy Newington, CT	Furnishings store	1/5/07		2006		6,900,000		179,000		20,701		100	%
Advance Auto Maryland Heights, MO	Specialty retailer	1/12/07		2005		1,893,000		38,000		7,000		100	%
Victoria Crossing Victoria, TX	Shopping center	1/12/07		2006		12,608,000		338,000		87,473		92.3	%
Academy Sports Katy, TX	Headquarters	1/18/07		1976		102,000,000		2,683,000		1,500,596		100	%
Gordmans Peoria, IL	Department store	1/18/07		2006		9,000,000		230,000		60,947		100	%
One Pacific Place Omaha, NE	Shopping center	2/6/07		1988		36,000,000		954,000		91,564		95.2	%
Sack n’ Save/O’Reilly Auto Garland, TX	Shopping center	2/6/07		1970		5,060,000		134,000		65,295		100	%
Tractor Supply Ankeny, IA	Specialty retail	2/9/07		2006		3,000,000		60,000		19,097		100	%
ABX Air Coventry, RI	Distribution center	2/16/07		1998		4,090,000		107,000		33,000		100	%
Office Depot Enterprise, AL	Office supply	2/27/07		2006		2,776,357		75,000		20,000		100	%
Northern Tool Blaine, MN	Specialty retail	2/28/07		2006		4,900,000		130,000		25,488		100	%
Office Max Orangeburg, SC	Office supply	2/28/07		1999		3,125,000		82,000		23,500		100	%
Walgreens Cincinnati, OH	Drug store	3/6/07		2000		5,140,000		136,000		15,120		100	%
Walgreens Madeira, OH	Drug store	3/6/07		1998		4,425,000		118,000		13,905		100	%
Walgreens Sharonville, OH	Drug store	3/6/07		1998		4,085,000		109,000		13,905		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

AT&T Beaumont, TX	Office building	3/19/07		1971	$	12,275,000	$	332,000		141,525		100	%
Walgreens Shreveport, LA	Drugstore	3/23/07		1998		4,140,000		111,000		13,905		100	%
Cost-U-Less St. Croix, USVI	Warehouse Club	3/26/07		2005		6,210,000		164,000		38,365		100	%
Gallina Centro Collierville, TN	Shopping center	3/26/07		2000		17,750,000		497,000		142,727		100	%
Apria Healthcare St. John, MO	Healthcare	3/28/07		1996		6,500,000		130,000		52,200		100	%
Logan’s Roadhouse Fairfax, VA	Restaurant	3/28/07		1998		3,209,000		80,000		7,839		100	%
Logan’s Roadhouse Johnson City, TN	Restaurant	3/28/07		1996		3,866,000		97,000		7,839		100	%
Center at 7500 Cottonwood Jenison, MI	Shopping center	3/30/07		1993		5,290,000		106,000		84,933		100	%
Tractor Supply Greenfield, MN	Specialty retail	4/2/07		2006		4,050,000		103,000		22,675		100	%
Eckerd Lincolnton, NC	Drugstore	4/3/07		1998		2,262,000		61,000		10,908		100	%
Lincoln Place Fairview Heights, IL	Shopping center	4/5/07		1998		44,000,000		1,234,320		272,829		100	%
Ashley Furniture Amarillo, TX	Furniture retail	4/6/07		1980		5,920,000		159,000		74,797		100	%
Pocatello Square Pocatello, ID	Shopping center	4/6/07		2006		23,000,000		632,500		138,925		90	%
Tractor Supply Paw Paw, MI	Specialty retail	4/9/07		2006		3,095,000		82,000		22,670		100	%
Tractor Supply Marinette, WI	Specialty retail	4/9/07		2006		2,950,000		78,000		19,097		100	%
Staples Greenville, SC	Office supply	4/11/07		2007		4,545,000		120,000		20,388		100	%
Big 5 Center Aurora, CO	Retail center	4/11/07		2006		4,290,000		114,000		15,800		100	%
Rite Aid Plains, PA	Drugstore	4/16/07		2006		5,200,000		137,800		14,564		100	%
Tractor Supply Navasota, TX	Specialty retail	4/18/07		2006		3,015,000		80,800		22,670		100	%
Sportsman’s Warehouse De Pere, WI	Specialty retail	4/20/07		2004		6,010,000		159,625		48,453		100	%
Eckerd Easton, PA	Drugstore	4/25/07		2005		5,970,000		160,000		13,813		100	%
Applebee’s Portfolio Various	Restaurant	4/26/07(2)		Various		65,000,000		1,722,500		120,246		100	%
Walgreens Bridgetown, OH	Drugstore	4/30/06		1998		4,475,000		119,930		13,905		100	%
Rite Aid Fredericksburg, VA	Drugstore	5/2/07		2007		5,415,000		167,880		14,564		100	%
Tractor Supply Fredericksburg, TX	Specialty retail	5/7/07		2007		3,125,000		82,813		22,670		100	%
Sam’s Club Anderson, SC	Warehouse club	5/8/07		1993		12,000,000		321,600		134,664		100	%
Walgreens Dallas, TX	Drugstore	5/9/07		1996		3,150,000		84,750		13,905		100	%
Wal-Mart New London, WI	Discount retail	5/9/07		1991		2,614,000		70,060		51,985		100	%
Rite Aid Lima, OH	Drugstore	5/14/07		2005		4,745,962		125,949		14,564		100	%
Rite Aid Allentown, PA	Drugstore	5/15/07		2006		5,561,112		147,372		14,564		100	%
CVS Florence, SC	Drugstore	5/17/07		1998		2,625,000		69,563		10,125		100	%
Eckerd Spartanburg (Main), SC	Drugstore	5/17/07		1998		3,475,000		92,088		10,908		100	%
Staples Warsaw, IN	Office supply	5/17/07		1998		3,215,000		82,800		23,990		100	%
Walgreens Bryan, TX	Drugstore	5/18/07		2001		6,325,000		167,610		15,050		100	%
Walgreens Harris County, TX	Drugstore	5/18/07		2000		5,650,000		149,730		15,050		100	%
Wal-Mart Spencer, IN	Discount retail	5/23/07		1987		2,025,682		54,284		41,304		100	%
Tractor Supply Fairview, TN	Specialty retail	5/25/07		2007		2,970,000		78,705		19,067		100	%
Borders Rapid City, SD	Specialty retail	6/1/07		1999		6,461,000		173,150		20,000		100	%
Borders Reading, PA	Specialty retail	6/1/07		1997		6,261,000		167,790		25,023		100	%
Walgreens Gainesville, FL	Drugstore	6/1/07		1997		3,625,000		97,150		13,905		100	%
Chili’s Fredericksburg, TX	Restaurant	6/5/07		1985		2,314,000		61,320		5,494		100	%
Tractor Supply Baytown, TX	Specialty retail	6/11/07		2007		3,310,000		88,710		22,670		100	%
Starbucks Covington, TN	Restaurant	6/22/07		2006		1,516,000		30,320		1,805		100	%
Starbucks Sedalia, MO	Restaurant	6/22/07		2006		1,227,000		24,540		1,800		100	%
Winco Eureka, CA	Grocery store	6/27/07		1960		16,300,000		446,470		82,490		100	%
Eckerd Vineland, NJ	Drugstore	6/27/07		1997		5,000,000		135,000		14,910		100	%
Eckerd Mantua, NJ	Drugstore	6/27/07		1993		2,050,000		55,700		8,710		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Best Buy (Super Value) Warwick, RI	Specialty retail	6/27/07		1992	$	7,300,000	$	199,500		64,514		100	%
Best Buy Evanston, IL	Specialty retail	6/27/07		1996		8,250,000		224,000		45,397		100	%
Academy Sports Houston, TX	Specialty retail	6/27/07		1995		5,400,000		146,250		53,381		100	%
Kroger La Grange, GA	Grocery store	6/28/07		1998		7,293,750		193,500		61,331		100	%
La-Z-Boy Kentwood, MI	Specialty retail	6/28/07		1986		5,145,386		138,928		30,245		100	%
Circuit City Mesquite, TX	Specialty retail	6/29/07		1996		7,825,000		199,550		42,918		100	%
Tractor Supply Prior Lake, MN	Specialty retail	6/29/07		1991		5,050,000		133,833		36,183		100	%
Staples Guntersville, AL	Office supply	7/6/07		2001		3,325,000		88,113		23,942		100	%
Walgreens Kansas City (Independence), MO	Drugstore	7/11/07		1997		4,598,000		121,860		13,905		100	%
Walgreens Topeka, KS	Drugstore	7/11/07		1999		3,121,950		81,139		13,905		100	%
Walgreens Kansas City (Linwood), MO	Drugstore	7/11/07		2000		3,750,000		99,375		13,905		100	%
Walgreens Kansas City (Troost), MO	Drugstore	7/11/07		2000		4,928,000		123,200		13,905		100	%
Walgreens Kansas City (63rd St), MO	Drugstore	7/11/07		2000		4,335,000		117,045		13,905		100	%
Circuit City Taunton, MA	Specialty retail	7/13/07		2001		7,860,000		200,430		32,748		100	%
Circuit City Distribution Center Groveland, FL	Specialty retail	7/17/07		1999		27,548,810		753,476		706,560		100	%
Walgreens Fort Worth, TX	Drugstore	7/17/07		1999		4,855,153		133,853		15,120		100	%
Kohl’s Lake Zurich, IL	Apparel	7/17/07		2000		12,712,730		345,005		88,306		100	%
EDS Salt Lake City, UT	Technology Services	7/17/07		1993		22,824,824		636,496		406,101		100	%
Lowe’s Cincinnati, OH	Home improvement	7/17/07		1998		20,558,483		549,170		129,044		100	%
Dickinson Theatre Yukon, OK	Theaters	7/17/07		2007		4,550,000		91,000		27,442		100	%
Telerx Kings Mountain, NC	Marketing	7/17/07		2007		8,690,000		234,630		60,000		100	%
CVS Amarillo, TX	Drugstore	7/19/07		1994		2,791,067		73,231		9,504		100	%
Taco Bell Brazil, IN	Restaurant	7/19/07		1996		1,969,655		39,393		1,993		100	%
Taco Bell Henderson, KY	Restaurant	7/19/07		1992		1,552,607		31,052		2,320		100	%
Academy Sports Baton Rouge, LA	Sporting goods	7/19/07		1996		6,942,782		185,726		52,500		100	%
Taco Bell Washington, IN	Restaurant	7/19/07		1995		1,255,545		25,111		2,093		100	%
Taco Bell Robinson, IL	Restaurant	7/19/07		1994		1,550,672		31,013		1,944		100	%
Taco Bell Princeton, IN	Restaurant	7/19/07		1992		1,424,328		28,487		2,436		100	%
Eckerd Mableton, GA	Drugstore	7/19/07		1994		1,850,637		48,983		8,996		100	%
Taco Bell/KFC Spencer, IN	Restaurant	7/19/07		1999		964,865		19,297		2,296		100	%
CVS Del City, OK	Drugstore	7/19/07		1998		4,179,502		109,900		10,906		100	%
Taco Bell Anderson, IN	Restaurant	7/19/07		1995		1,725,514		34,510		2,166		100	%
Academy Sports North Richland Hills, TX	Sporting goods	7/19/07		1996		6,292,471		168,019		52,500		100	%
Dave and Buster s Addison, IL	Restaurant	7/19/07		2006		13,928,571		334,571		50,000		100	%
Academy Sports Houston (Southwest), TX	Sporting goods	7/19/07		1996		7,138,821		189,026		52,548		100	%
Academy Sports Houston (Breton), TX	Sporting goods	7/19/07		1995		4,724,567		124,941		53,381		100	%
Eckerd Chattanooga, TN	Drugstore	7/19/07		1997		2,797,644		75,153		10,909		100	%
Taco Bell/KFC Vinceness, IN	Restaurant	7/19/07		2000		1,478,690		29,574		2,691		100	%
Taco Bell Martinsville, IN	Restaurant	7/19/07		1986		1,973,552		39,471		2,057		100	%
LJS/A&W Houston, TX	Restaurant	7/19/07		2004		1,204,821		24,096		34,094		100	%
Fed Ex Peoria, IL	Distribution	7/20/07		1997		3,200,000		84,800		38,200		100	%
Gold’s Gym St. Peters, MO	Fitness	7/31/07		2007		7,500,000		202,500		39,900		100	%
Fed Ex Walker, MI	Distribution	8/8/07		2001		7,323,891		193,168		78,304		100	%
Wal-Mart Bay City, TX	Discount retail	8/14/07		1990		3,755,000		75,100		90,921		30	%
Walgreens Richmond, VA	Drugstore	8/17/07		1997		4,025,000		80,500		13,869		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Circuit City Aurora, CO	Specialty retail	8/22/07		1995	$	7,200,000	$	191,770		39,440		100	%
Home Depot Bedford Park, IL	Home improvement	8/22/07		1992		29,400,000		588,000		217,952		100	%
24 Hr Fitness Olathe, KS	Fitness	8/24/07		2007		7,210,000		192,365		25,000		100	%
Walgreens Dallas, TX (De Soto)	Drugstore	8/27/07		1997		3,367,000		67,340		13,905		100	%
Gold’s Gym O Fallon, MO	Fitness	8/29/07		2007		7,750,000		209,250		39,900		100	%
Wal-Mart Washington, IL	Discount retail	9/10/07		1989		3,578,000		71,560		74,136		35	%
Wal-Mart Borger, TX	Discount retail	9/12/07		1991		3,205,000		64,100		65,930		100	%
Broadview Village Square Chicago, IL	Retail shopping center	9/14/07		1994		58,000,000		1,475,000		329,161		96	%
Chambers Corners Wayland, MI	Retail shopping center	9/19/07		2000		8,823,103		176,462		99,564		100	%
Ashley Furniture Anderson, SC	Furniture retail	9/28/07		2006		4,300,000		86,000		23,800		100	%
Best Buy Fayetteville, NC	Specialty retail	10/4/07		1999		6,727,000		133,540		45,582		100	%
Massard Farms Fort Smith, AR	Shopping center	10/11/07		2001		15,750,000		417,370		126,584		99	%
Wal-Mart Whiteville, NC	Discount retail	10/11/07		1988		2,667,000		53,340		65,930		39	%(2)
Staples Moraine, OH	Office supply	10/12/07		2006		3,800,000		76,000		20,388		100	%
Wickes Furniture Chicago, IL	Furniture retail	10/17/07		2007		23,440,000		628,050		48,000		100	%
Walgreens Brentwood, TN	Drugstore	10/17/07		2006		5,640,000		112,800		14,820		100	%
Starbucks Bowling Green, KY	Restaurant	10/23/07		2007		1,657,000		33,140		1,850		100	%
Walgreens Harriman, TN	Drugstore	10/24/07		2007		5,026,820		101,655		14,820		100	%
Starbucks Shawnee, OK	Restaurant	10/31/07		2006		1,096,909		21,938		1,750		100	%
Station Casino Headquarters Las Vegas, NV	Office	11/1/07		2007		70,000,000		1,822,500		138,558		100	%
Starbucks Oklahoma City, OK	Restaurant	11/20/07		2007		1,238,671		24,773		1,741		100	%
Starbucks Chattanooga, TN	Restaurant	11/26/07		2007		1,420,000		28,400		1,850		100	%
Starbucks Maryville, TN	Restaurant	11/26/07		2007		1,490,000		29,800		1,850		100	%
Starbucks Powell, TN	Restaurant	11/26/07		2007		1,324,000		26,480		1,850		100	%
Starbucks Seymour, TN	Restaurant	11/26/07		2007		1,351,000		27,020		1,850		100	%
Walgreens Beverly Hills, TX	Drugstore	12/5/07		1998		3,600,000		72,000		13,905		100	%
Walgreens Waco, TX	Drugstore	12/5/07		1998		3,600,000		72,000		13,905		100	%
Allstate Ins. Contact Center Cross Plains, WI	Call center	12/7/07		1998		5,720,000		114,400		34,992		100	%
Mealey s Furniture Maple Shade, NJ	Home furnishings	12/12/07		1978		5,350,000		107,000		66,750		100	%
Circle K Albuquerque, NM	Convenience store	12/20/07		1994		1,275,719		34,844		2,700		100	%
Circle K Baton Rouge (Burbank), LA	Convenience store	12/20/07		1976		951,727		33,044		2,400		100	%
Circle K Baton Rouge (Floynell), LA	Convenience store	12/20/07		1977		1,407,341		35,044		2,780		100	%
Circle K Baton Rouge (Jefferson), LA	Convenience store	12/20/07		1970		1,083,349		33,444		2,780		100	%
Circle K Beaufort, SC	Convenience store	12/20/07		1997		1,640,210		36,644		2,660		100	%
Circle K Bluffton, SC	Convenience store	12/20/07		1997		2,591,937		40,644		2,448		100	%
Circle K Bossier City, LA	Convenience store	12/20/07		1987		1,528,838		36,144		3,211		100	%
Circle K Charleston, SC	Convenience store	12/20/07		1987		2,602,061		41,644		3,000		100	%
Circle K Charlotte (Independence), NC	Convenience store	12/20/07		1996		1,883,204		37,994		2,556		100	%
Circle K Charlotte (Sharon), NC	Convenience store	12/20/07		1997		1,954,077		38,344		2,477		100	%
Circle K Charlotte (Sugar Creek), NC	Convenience store	12/20/07		1991		2,014,826		38,644		2,170		100	%
Circle K Columbia (Garners), SC	Convenience store	12/20/07		1993		2,116,073		39,144		2,600		100	%
Circle K Columbia (Hardscrabble), SC	Convenience store	12/20/07		1997		1,751,582		37,344		2,477		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Circle K El Paso (Americas), TX	Convenience store	12/20/07		2000	$	2,217,318	$	40,044		3,500		100	%
Circle K El Paso (Mesa), TX	Convenience store	12/20/07		1999		1,144,097		34,444		3,150		100	%
Circle K El Paso (Zaragosa), TX	Convenience store	12/20/07		1999		2,065,450		39,244		3,800		100	%
Circle K Fort Mill, SC	Convenience store	12/20/07		1999		2,359,067		40,744		6,553		100	%
Circle K Goose Creek, SC	Convenience store	12/20/07		1983		1,366,842		35,044		2,632		100	%
Circle K Huntersville, NC	Convenience store	12/20/07		2006		2,014,826		38,644		2,770		100	%
Circle K Mount Pleasant, SC	Convenience store	12/20/07		1978		1,538,962		35,844		2,820		100	%
Circle K Port Wentworth, GA	Convenience store	12/20/07		1991		2,325,656		39,844		3,760		100	%
Circle K Savannah (Johnny Mercer), GA	Convenience store	12/20/07		1990		1,609,836		35,744		1,152		100	%
Circle K Savannah(King George), GA	Convenience store	12/20/07		1997		1,609,836		36,344		2,477		100	%
Circle K Shreveport, LA	Convenience store	12/20/07		1988		1,214,970		34,544		3,180		100	%
Circle K Springdale, SC	Convenience store	12/20/07		1999		1,741,457		36,944		1,760		100	%
Exxon West Monroe(503 Thomas), LA	Convenience store	12/20/07		1983		1,468,089		35,844		3,327		100	%
Holland Oil Akron (940 Arlington), OH	Convenience store	12/20/07		1991		1,133,972		34,144		2,800		100	%
Holland Oil Akron(1178 Arlington), OH	Convenience store	12/20/07		1994		1,417,465		35,544		2,862		100	%
Holland Oil Akron(1559 E. Market), OH	Convenience store	12/20/07		1995		1,457,964		35,544		1,624		100	%
Holland Oil Akron(1693 West Market), OH	Convenience store	12/20/07		1999		1,599,711		36,844		4,977		100	%
Holland Oil Akron(Albrecht), OH	Convenience store	12/20/07		1997		1,113,723		34,044		2,763		100	%
Holland Oil Akron (Brittain), OH	Convenience store	12/20/07		1995		1,245,345		34,744		2,857		100	%
Holland Oil Akron (Brown), OH	Convenience store	12/20/07		1950		1,306,093		34,744		2,635		100	%
Holland Oil Akron (Cuyahoga), OH	Convenience store	12/20/07		1998		1,630,085		36,944		2,800		100	%
Holland Oil Akron (Darrow), OH	Convenience store	12/20/07		1994		1,214,970		34,744		2,800		100	%
Holland Oil Akron (Exchange), OH	Convenience store	12/20/07		1996		1,468,089		35,844		3,190		100	%
Holland Oil Akron (Main St.), OH	Convenience store	12/20/07		2000		1,184,596		34,344		3,258		100	%
Holland Oil Akron (Manchester), OH	Convenience store	12/20/07		1994		1,640,210		36,744		2,800		100	%
Holland Oil Akron (Ridgewood), OH	Convenience store	12/20/07		1969		1,306,093		34,744		1,710		100	%
Holland Oil Akron (Waterloo), OH	Convenience store	12/20/07		2001		1,184,596		34,644		2,800		100	%
Holland Oil Barberton (5 th St.), OH	Convenience store	12/20/07		1983		1,235,220		34,644		2,800		100	%
Holland Oil Barberton (31st St.), OH	Convenience store	12/20/07		1991		971,976		33,144		2,800		100	%
Holland Oil Barberton (Wooster), OH	Convenience store	12/20/07		1981		2,247,695		39,744		3,600		100	%
Holland Oil Bedford, OH	Convenience store	12/20/07		2000		1,275,719		34,944		2,450		100	%
Holland Oil Brookpark, OH	Convenience store	12/20/07		1998		1,356,717		35,244		2,740		100	%
Holland Oil Canton (12 th Street), OH	Convenience store	12/20/07		1990		1,164,347		33,894		2,800		100	%
Holland Oil Canton (Tuscarawas), OH	Convenience store	12/20/07		2000		2,197,071		39,644		4,500		100	%
Holland Oil Cleveland, OH	Convenience store	12/20/07		2002		1,589,586		36,444		4,318		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Holland Oil Copley, OH	Convenience store	12/20/07		1993	$	1,154,222	$	34,244		2,439		100	%
Holland Oil Cuyahoga Falls (Bath), OH	Convenience store	12/20/07		2002		2,024,951		38,744		4,269		100	%
Holland Oil Cuyahoga Falls (Port), OH	Convenience store	12/20/07		1995		1,387,091		35,444		2,959		100	%
Holland Oil Cuyahoga Falls (State), OH	Convenience store	12/20/07		1972		1,032,725		33,244		2,100		100	%
Holland Oil Fairlawn, OH	Convenience store	12/20/07		1993		1,609,836		36,344		2,900		100	%
Holland Oil Kent, OH	Convenience store	12/20/07		1994		992,226		33,344		2,068		100	%
Holland Oil Maple Heights, OH	Convenience store	12/20/07		1998		1,488,339		35,944		2,967		100	%
Holland Oil Northfield, OH	Convenience store	12/20/07		1983		1,943,953		38,244		4,647		100	%
Holland Oil Norton, OH	Convenience store	12/20/07		1984		1,437,715		35,644		3,750		100	%
Holland Oil Parma, OH	Convenience store	12/20/07		2002		1,255,469		35,044		3,039		100	%
Holland Oil Seville, OH	Convenience store	12/20/07		2003		2,450,190		41,344		7,200		100	%
Holland Oil Twinsburg, OH	Convenience store	12/20/07		2005		1,356,717		35,244		3,298		100	%
Holland Oil Willoughby, OH	Convenience store	12/20/07		1986		1,194,721		34,444		2,938		100	%
Shell Monroe, LA	Convenience store	12/20/07		1986		1,528,838		36,144		4,140		100	%
Spectrum Auburn, AL	Convenience store	12/20/07		1990		1,731,333		36,544		2,772		100	%
Spectrum Augusta, GA	Convenience store	12/20/07		1981		1,103,598		33,644		3,010		100	%
Spectrum Columbus (Airport), GA	Convenience store	12/20/07		1984		1,538,962		35,644		2,205		100	%
Spectrum Columbus (Beaver Run), GA	Convenience store	12/20/07		1995		2,510,939		40,744		3,760		100	%
Spectrum Columbus (Bradley), GA	Convenience store	12/20/07		1995		3,341,168		44,344		4,750		100	%
Spectrum Columbus (Buena Vista), GA	Convenience store	12/20/07		1990		1,609,836		36,044		2,205		100	%
Spectrum Columbus (Lumpkin), GA	Convenience store	12/20/07		2005		1,670,584		36,344		2,874		100	%
Spectrum Columbus (Warm Springs), GA	Convenience store	12/20/07		1978		1,964,202		37,744		4,934		100	%
Spectrum Lanett, AL	Convenience store	12/20/07		1974		850,479		32,894		2,631		100	%
Spectrum Macon (Arkwright), GA	Convenience store	12/20/07		1993		1,144,097		33,944		2,248		100	%
Spectrum Macon (Riverside), GA	Convenience store	12/20/07		1974		1,255,469		34,344		2,580		100	%
Spectrum Martinez, GA	Convenience store	12/20/07		1985		1,275,719		34,644		2,250		100	%
Spectrum Mobile (Airport), AL	Convenience store	12/20/07		1987		1,822,455		36,944		1,800		100	%
Spectrum Mobile (Moffett), AL	Convenience store	12/20/07		1988		1,559,212		34,894		678		100	%
Spectrum North Augusta, GA	Convenience store	12/20/07		1999		1,194,721		34,244		2,240		100	%
Spectrum Opelika (2 nd Ave), AL	Convenience store	12/20/07		1989		1,306,093		34,644		2,531		100	%
Spectrum Opelika (Columbus), AL	Convenience store	12/20/07		1988		2,348,943		39,944		3,796		100	%
Spectrum Phenix City, AL	Convenience store	12/20/07		1999		1,599,711		36,544		3,054		100	%
Spectrum Pine Mountain, GA	Convenience store	12/20/07		1999		1,144,097		34,344		3,285		100	%
Spectrum Valley, AL	Convenience store	12/20/07		1974		1,559,212		36,344		3,312		100	%
Spirit West Monroe (1602 Thomas), LA	Convenience store	12/20/07		1999		1,670,584		36,844		3,927		100	%
Walgreens Cincinnati (Seymour), OH	Drugstore	12/21/07		2000		4,890,000		97,800		15,120		100	%
Tractor Supply Rome, NY	Specialty retail	1/4/08		2007		3,150,000		63,000		19,097		100	%
HH Gregg Greensboro, NC	Specialty retail	1/11/08		2007		6,800,000		136,000		30,167		100	%
Starbucks Altus, OK	Restaurant	1/16/08		2007		1,172,414		23,448		1,741		100	%
Milford Commons Milford, NH	Shopping center	1/17/08		2005		7,950,000		217,169		77,830		100	%
CarMax Greenville, SC	Auto dealership	1/25/08		1998		22,000,000		591,250		46,535		100	%


							Fees		Rentable
		Date	Year		Purchase		Paid to		Square		Physical
Property	Type	Acquired	Built		Price		Sponsor(1)		Feet		Occupancy

Bank of America Delray Beach, FL	Office building	1/31/08		1975	$	15,000,000	$	388,601		54,600		100	%
Circuit City Kennesaw, GA	Specialty retail	1/31/08		1998		19,840,000		514,934		183,088		100	%
Mustang Engineering Houston, TX	Office building	1/31/08		1983		19,000,000		492,228		136,954		100	%
Office Depot Alcoa, TN	Office supply	1/31/08		1999		3,658,000		97,230		26,850		100	%
Arby’s New Castle, PA	Restaurant	1/31/08		1999		1,520,000		39,260		3,263		100	%
CarMax Raleigh, NC	Auto dealership	1/31/08		1994		9,145,000		237,242		56,439		100	%
CarMax Pineville, NC	Auto dealership	1/31/08		2002		9,888,000		256,237		18,697		100	%
Hilltop Plaza Bridgeton, MO	Retail center	2/6/08		1991		23,195,000		463,900		302,921		100	%
Academy Sports Lufkin, TX	Specialty retail	2/7/08		2003		5,200,000		134,715		60,750		100	%
Best Buy Wichita, KS	Specialty retail	2/7/08		1984		11,321,000		293,756		66,756		100	%
Bridgestone Tire Atlanta, GA	Automotive	2/7/08		1998		2,432,000		63,259		10,325		100	%
Boscov’s Voorhees, NJ	Department Store	2/7/08		1970		4,090,000		108,380		173,767		100	%
CVS Indianapolis, IN	Drugstore	2/7/08		1998		3,690,000		96,098		10,880		100	%
FedEx Mishawaka, IN	Distribution	2/7/08		1993		3,932,000		101,971		54,779		100	%
Marsh Supermarket Indianapolis, IN	Grocery	2/7/08		1999		14,316,000		371,671		63,750		100	%
Starbucks Stillwater, OK	Restaurant	2/28/08		2007		1,303,448		26,069		1,850		100	%
Walgreens Oneida, TN	Drugstore	2/29/08		2007		5,022,901		38,000		14,820		100	%(4)
Starbucks Memphis, TN	Restaurant	3/4/08		2007		1,367,000		27,340		1,853		100	%
Starbucks Ponca City, OK	Restaurant	3/11/08		2007		1,061,753		21,235		1,750		100	%
Starbucks Kingsport, TN	Restaurant	3/25/08		2008		1,328,000		26,560		1,850		100	%
Pep Boys Albuquerque, NM	Automotive parts	3/25/08		1990		3,773,000		75,460		21,768		100	%
Pep Boys Arlington Heights, IL	Automotive parts	3/25/08		1995		6,139,000		122,780		20,464		100	%
Pep Boys Clarksville, IN	Automotive parts	3/25/08		1993		2,517,000		50,340		22,211		100	%
Pep Boys Colorado Springs, CO	Automotive parts	3/25/08		1994		2,665,000		53,300		22,211		100	%
Pep Boys El Centro, CA	Automotive parts	3/25/08		2006		2,426,000		48,520		18,196		100	%
Pep Boys Fort Myers, FL	Automotive parts	3/25/08		1994		3,048,000		60,960		22,225		100	%
Pep Boys Frederick, MD	Automotive parts	3/25/08		1987		4,717,000		94,340		17,690		100	%
Pep Boys Hampton, VA	Automotive parts	3/25/08		1993		3,998,000		79,960		22,211		100	%
Pep Boys Lakeland, FL	Automotive parts	3/25/08		1991		2,717,000		54,340		20,747		100	%
Pep Boys Nashua, NH	Automotive parts	3/25/08		1996		4,375,000		87,500		19,300		100	%
Pep Boys New Hartford, NY	Automotive parts	3/25/08		1992		2,369,000		47,380		22,211		100	%
Pep Boys Orem, UT	Automotive parts	3/25/08		1990		3,048,000		60,960		21,770		100	%
Pep Boys Pasadena, TX	Automotive parts	3/25/08		1995		4,988,000		99,760		22,341		100	%
Pep Boys Redlands, CA	Automotive parts	3/25/08		1994		4,620,000		92,400		22,290		100	%
Pep Boys San Antonio, TX	Automotive parts	3/25/08		1988		2,460,000		49,200		23,373		100	%
Pep Boys Tamarac, FL	Automotive parts	3/25/08		1997		4,085,000		81,700		18,020		100	%
Pep Boys Tampa, FL	Automotive parts	3/25/08		1991		1,925,000		38,500		22,356		100	%
Pep Boys West Warwick, RI	Automotive parts	3/25/08		1993		3,702,000		74,040		22,211		100	%
Walgreens Batesville, MS	Drugstore	3/31/08		2007		5,321,000		106,420		14,250		100	%
Tractor Supply Clovis, NM	Specialty retail	4/7/08		2007		3,060,000		61,200		19,097		100	%
BJ’s Wholesale Club Haverhill, MA	Specialty retail	4/14/08		2006		19,400,000		388,000		119,598		100	%

					$	2,002,286,439	$	48,440,647		13,238,022


(1)		Fees paid to sponsor include payments made to an affiliate of our advisor for acquisition fees in connection with the property acquisition and payments to our advisor for finance coordination fees for services in connection with the origination or assumption of debt financing obtained to acquire the respective property. For more


		detailed information on fees paid to affiliates of our sponsor, see the section captioned “Management Compensation” beginning on page 62 of the prospectus.

(2)		The single-tenant restaurants that comprise the Applebee’s Portfolio were built in various years, beginning in 1990 through 2006.

(3)		Wal-Mart Stores, Inc. (“Wal-Mart”) is lessee at this property and they have subleased approximately 25,830 square feet to Tractor Supply Company. The remaining space at the building, approximately 40,100 square feet, is vacant. Wal-Mart remains the tenant under the original lease agreement.

(4)		This property was purchased from affiliates of our advisor. A majority of our board of directors, including all of our independent directors, not otherwise interested in the acquisition, approved the acquisition as being fair and reasonable to us and at a price to us no greater than the cost of the asset to the affiliate. The cost to us was not in excess of the current appraised value of the property as determined by an independent expert selected by our independent directors.

The following table sets forth the principal provisions of the lease terms for the major tenants at each property listed above.


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Tractor Supply Parkersburg, WV		1	Tractor Supply Company		21,688		100	%	4/5 yr.	$	228,147	$	10.52		9/26/2005		7/31/2010
											250,962		11.57		8/1/2010		7/31/2015
											276,058		12.73		8/1/2015		7/31/2020
Walgreens Brainerd, MN		1	Walgreen Co.		15,120		100	%	8/5 yr.		303,000		20.04		10/5/2005		6/30/2020
Rite Aid Alliance, OH		1	Rite Aid of Ohio, Inc.		11,348		100	%	6/5 yr.		189,023		16.66		10/20/2005		4/30/2017
La-Z-Boy Glendale, AZ		1	EBCO, Inc.		23,000		100	%	3/5 yr.		419,750		18.25		10/25/2005		10/31/2015
Walgreens Florissant, MO		1	Walgreen Co.		15,120		100	%	8/5 yr.		344,000		22.75		11/2/2005		2/28/2021
Walgreens Saint Louis, MO (Gravois)		1	Walgreen Co.		15,120		100	%	8/5 yr.		408,000		26.98		11/2/2005		10/31/2021
Walgreens Saint Louis, MO (Telegraph)		1	Walgreen Co.		15,120		100	%	8/5 yr.		335,500		22.19		11/2/2005		12/31/2021
Walgreens Columbia, MO		1	Walgreen Co.		13,973		100	%	8/5 yr.		427,300		30.58		11/22/2005		6/30/2022
Walgreens Olivette, MO		1	Walgreen Co.		15,030		100	%	10/5 yr.		528,000		35.13		11/22/2005		10/31/2026
CVS Alpharetta, GA		1	Mayfield CVS, Inc.,		10,125		100	%	3/5 yr.		206,600		20.40		12/1/2005		5/31/2008
											218,997		21.63		6/1/2008		5/31/2013
											232,136		22.93		6/1/2013		1/31/2019
Lowe’s Enterprise, AL		1	Lowe’s Home Centers, Inc		95,173		100	%	6/5 yr.		500,000		5.25		12/1/2005		4/30/2015
			CVS EGL Grapevine
CVS Richland Hills, TX		1	N Richland Hills Texas, LP		10,908		100	%	4/5 yr.		265,249		24.32		12/8/2005		8/28/2007
											270,849		24.83		8/29/2007		8/28/2012
											276,449		25.34		8/29/2012		8/28/2017
FedEx Rockford, IL		1	Fed Ex Ground Package System, Inc.		67,925		100	%	2/5 yr.		445,632		6.56		12/9/2005		9/30/2015
Plastech Auburn Hills, MI		1	LDM Technologies, Inc.		111,881		100	%	2/5 yr.		1,790,100		16.00		12/15/2005		1/31/2021	(2)
Academy Sports Macon, GA		1	Academy, LTD		74,532		100	%	4/5 yr.		408,804		5.48		1/6/2006		1/31/2011
											421,064		5.65		2/1/2011		1/31/2016
											433,695		5.82		2/1/2016		1/31/2021
											446,706		5.99		2/1/2021		1/31/2026
David’s Bridal Lenexa, KS		1	David’s Bridal, Inc.		12,083		100	%	2/5 yr.		235,200		19.47		1/11/2006		12/31/2010
											258,720		21.41		1/1/2011		12/31/2015
Rite Aid Enterprise, AL		1	Harco, Inc.		14,564		100	%	6/5 yr.		289,629		19.89		1/26/2006		1/31/2026
Rite Aid Wauseon, OH		1	Rite Aid of Ohio, Inc.		14,564		100	%	6/5 yr.		311,720		21.40		1/26/2006		1/31/2026
Staples Crossville, TN		1	Staples the Office Superstore East, Inc		23,942		100	%	3/5 yr.		221,463		9.25		1/26/2006		6/30/2016
Rite Aid Saco, ME		1	Rite Aid of Maine, Inc.		11,180		100	%	4/5 yr.		210,743		18.85		1/27/2006		2/2 8/2017
Wadsworth Boulevard Denver, CO		2	Sam’s PW, Inc.		108,224		55	%	10/5 yr.		820,245		7.58		2/8/2006		11/30/2016
			Hob-Lob Limited Partnership		90,253		45	%	10/5 yr.		585,000		6.48		2/8/2006		10/31/2016
Mountainside Fitness Chandler, AZ		1	Hatten Holdings, Inc.		31,063		100	%	2/5 yr.		469,051		15.10		2/10/2006		12/31/2006
											523,101		16.84		1/1/2007		12/31/2011
											583,363		18.78		1/1/2012		12/31/2016
											651,391		20.97		1/1/2017		7/18/2022
Drexel Heritage Hickory, NC		1	Drexel Heritage Furniture Industries, Inc.		261,057		100	%	3/5 yr.		338,078		1.30		2/24/2006		9/8/2010
											390,090		1.49		9/9/2010		9/8/2015
Rayford Square Spring, TX		5	Academy Corp		50,500		63	%	2/5 yr.		371,175		7.35		3/1/2006		10/31/2009
											383,800		7.60		11/1/2009		10/31/2014
											396,425		7.85		11/1/2014		10/31/2019
											409,050		8.10		11/1/2019		10/31/2024
			CB Jackson		12,302		15	%	None		125,484		10.20		3/1/2006		12/31/2008
			Hi-Lo Auto Supply, LP		8,136		10	%	1/5 yr.		60,720		7.46		3/1/2006		3/31/2008
CVS Portsmouth OH (Scioto Trail)		1	Revco Discount Drug Centers, inc.		10,170		100	%	4/5 yr.		153,333		15.08		3/8/2006		7/31/2008
											156,666		15.40		8/1/2008		7/31/2013
											160,000		15.73		8/1/2013		7/31/2018
Wawa Hockessin, DE		1	Wawa, Inc.		5,160		100	%	6/5 - 9 yrs.		365,185		70.77		3/29/2006		12/31/2021	(3)
Wawa Manahawkin, NJ		1	Wawa, Inc.		4,695		100	%	6/5 - 9 yrs.		332,276		70.77		3/29/2006		12/31/2021	(3)
Wawa Narbeth, PA		1	Wawa, Inc.		4,461		100	%	6/5 - 9 yrs.		315,715		70.77		3/29/2006		12/31/2021	(3)


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

CVS Lakewood, OH		2	Revco Discount Drug Centers		10,800		84	%	2/5 yr.	$	180,900	$	16.75		4/20/2006		9/30/2006
											191,700		17.75		10/1/2006		9/30/2016
			Charter One Bank, N.A		2,000		16	%	1/5yr		30,992		15.50		4/20/2006		7/31/2006
											33,898		16.95		8/1/2006		7/31/2011
Rite Aid Cleveland, OH		1	Rite Aid of Ohio, Inc.		11,325		100	%	6/5 yr.		220,470		19.47		4/27/2006		6/30/2018
Rite Aid Fremont, OH		1	Rite Aid of Ohio, Inc.		11,325		100	%	6/5 yr.		201,955		17.83		4/27/2006		2/28/2018
Walgreens Knoxville, TN		1	Walgreen Co.		15,120		100	%	8/5 yr.		350,000		23.15		5/8/2006		5/31/2020
CVS Madison, MS		1	CVS EGL Highland Madison MS, Inc.		13,824		100	%	4/5 yr.		302,484		21.88		5/26/2006		6/10/2024
Rite Aid Defiance, OH		1	Rite Aid of Ohio, Inc.		14,564		100	%	6/5 yr.		337,917		23.20		5/26/2006		1/31/2026
Conns San Antonio, TX		1	CAI, LP		25,230		100	%	5/3 yr.		338,000		13.40		5/26/2006		4/30/2008
											351,520		13.93		5/1/2008		4/30/2011
											365,581		14.49		5/1/2011		4/30/2014
											380,204		15.07		5/1/2014		4/30/2017
Dollar General Crossville, TN		1	Dolgencorp, Inc.		24,341		100	%	6/5 yr.		217,852		8.95		6/2/2006		3/31/2016
											239,637		9.84		4/1/2016		3/31/2021
Dollar General Ardmore, TN		1	Dolgencorp, Inc.		24,341		100	%	6/5 yr.		208,116		8.55		6/9/2006		11/30/2015
											228,928		9.41		12/1/2015		11/30/2020
Dollar General Livingston, TN		1	Dolgencorp, Inc.		24,341		100	%	6/5 yr.		214,200		8.80		6/12/2006		4/30/2016
											235,620		9.68		5/1/2016		4/30/2021
Wehrenberg Theatre Arnold, MO		1	Wehrenberg, Inc.		50,000		100	%	2/5 yr.		784,453		15.69		6/14/2006		3/31/2009
											836,094		16.72		4/1/2009		3/31/2014
											897,572		17.95		4/1/2014		3/31/2019
Sportmans Warehouse Wichita, KS		1	Sportsman’s Warehouse, Inc.,		50,003		100	%	5/5 yr.		639,046		12.78		6/27/2006		4/30/2011
											670,998		13.42		5/1/2011		4/30/2016
											704,548		14.09		5/1/2016		4/30/2021
CVS Portsmouth OH (Chillicothe)		1	Revco Discount Drug Centers, Inc.		10,650		100	%	4/5 yr.		143,700		13.49		6/28/2006		11/30/2007
											149,100		14.00		12/1/2007		11/30/2017
Advance Auto Greenfield, IN		1	Advance Stores Company, Inc.		7,000		100	%	2/5 yr.		110,040		15.72		6/29/2006		6/30/2013
Advance Auto Trenton, OH		1	Advance Stores Company, Inc.		7,000		100	%	2/5 yr.		84,782		12.11		6/29/2006		6/30/2013
Rite Aid Lansing, MI		1	Rite Aid of Michigan, Inc.		11,680		100	%	4/5 yr.		160,480		13.74		6/29/2006		12/31/2006
											166,320		14.24		1/1/2007		12/31/2011
											172,160		14.74		1/1/2012		12/31/2016
Advance Auto Columbia Heights, MN		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		131,524		18.79		7/6/2006		1/31/2016
											138,100		19.73		2/1/2016		1/31/2021
Advance Auto Fergus Falls, MN		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		91,441		13.06		7/6/2006		11/30/2015
											96,013		13.72		12/1/2015		11/30/2020
CVS Okeechobee, FL		1	Eckerd Corporation		13,050		100	%	5/5 yr.		435,130		33.34		7/7/2006		7/5/2026
Office Depot Dayton, OH		1	Office Depot, Inc.		19,880		100	%	4/5 yr.		237,566		11.95		7/7/2006		12/31/2021
Advance Auto Holland, MI		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		149,063		21.29		7/12/2006		1/31/2016
											163,969		23.42		2/1/2016		1/31/2021
Advance Auto Holland Township, MI		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		153,908		21.99		7/12/2006		1/31/2016
											169,299		24.19		2/1/2016		1/31/2021
Advance Auto Zeeland, MI		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		132,089		18.87		7/12/2006		1/31/2016
											145,298		20.76		2/1/2016		1/31/2026
CVS Orlando, FL		1	CVS EGL Lake Pickett FL, LLC		13,013		100	%	4/5 yr.		324,765		24.96		7/12/2006		11/1/2025
Office Depot Greenville, MS		1	Office Depot, Inc.		25,083		100	%	3/5 yr.		256,804		10.24		7/12/2006		9/30/2015
Office Depot Warrensburg, MO		1	Office Depot, Inc.		20,000		100	%	4/5 yr.		210,000		10.50		7/19/2006		8/31/2016
CVS Gulfport, MS		1	CVS EGL East Pass Gulfport MS, Inc.		11,359		100	%	4/5 yr.		281,136		24.75		8/10/2006		10/24/2025
Advance Auto Grand Forks, ND		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		106,375		15.20		8/15/2006		12/31/2015
											111,694		15.96		1/1/2016		12/31/2020
CVS Clinton, NY		1	CVS BDI, Inc.,		10,055		100	%	4/5 yr.		222,661		22.14		8/24/2006		1/31/2032


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Oxford Theatre Oxford, MS		1	Oxford Theater Company, Inc.		35,000		100	%	N/A	$	848,088	$	24.23		8/31/2006		7/31/2011
											883,092		25.23		8/1/2011		7/31/2016
											918,084		26.23		8/1/2016		7/31/2021
											953,088		27.23		8/1/2021		7/31/2026
Advance Auto Duluth, MN		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		108,875		15.55		9/8/2006		2/28/2016
											114,319		16.33		3/1/2016		2/28/2021
Walgreens Picayune, MS		1	Walgreen Co.		14,820		100	%	10/5 yr.		291,385		19.66		9/15/2006		3/31/2031
Kohl’s Wichita, KS		1	Kohl’s Illinois, Inc.		86,584		100	%	6/5 yr.		601,759		6.95		9/27/2006		1/28/2017
Lowe’s Lubbock, TX		1	Lowe’s Home Centers, Inc.		137,480		100	%	6/5 yr.		861,280		6.26		9/27/2006		4/30/2016
Lowe’s Midland, TX		1	Lowe’s Home Centers, Inc.		134,050		100	%	6/5 yr.		829,960		6.19		9/27/2006		4/30/2016
Advance Auto Grand Bay, AL		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		84,786		12.11		9/29/2006		8/31/2015
											93,265		13.32		9/1/2015		8/31/2020
Advance Auto Hurley, MS		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		82,324		11.76		9/29/2006		3/31/2016
											90,556		12.94		4/1/2016		3/31/2021
Advance Auto Rainsville, AL		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		100,928		14.42		9/29/2006		12/31/2015
											111,021		15.86		1/1/2015		12/31/2020
Gold’s Gym O’Fallon, IL		1	Gold’s St Louis, LLC		38,000		100	%	2/5 yr.		588,000		15.47		9/29/2006		9/30/2015
											616,800		16.23		10/1/2015		9/30/2019
Rite Aid Glassport, PA		1	Rite Aid of Pennsylvania, Inc.		14,564		100	%	6/5 yr.		295,504		20.29		10/4/2006		7/31/2026
David’s Bridal/Radio Shack Topeka, KS		2	David’s Bridal, Inc.		7,750		76	%	2/5 yr.		166,625		21.50		10/13/2006		10/31/2011
											183,288		23.65		11/1/2011		10/31/2016
			Radio Shack Corporation		2,400		24	%	3/5 yr.		60,000		25.00		10/13/2006		1/31/2012
Rite Aid Hanover, PA		1	Rite Aid		14,584		100	%	4/5 yr.		493,787		33.86		10/17/2006		10/31/2026
American TV & Appliance Peoria, IL		1	American TV & Appliance of Madison, Inc.		126,852		100	%	8/5 yr.		840,750		6.63		10/23/2006		9/23/2008
											924,825		7.29		9/24/2008		9/23/2013
											1,017,308		8.02		9/24/2013		9/23/2018
Tractor Supply La Grange, TX		1	Tractor Supply Texas		24,727		100	%	4/5 yr.		189,000		7.64		11/6/2006		5/31/2011
											207,900		8.41		6/1/2011		5/31/2016
											228,690		9.25		6/1/2016		5/31/2021
Staples Peru, IL		1	Staples the Office Superstore East, Inc		23,925		100	%	3/5 yr.
											257,194		10.75		11/10/2006		6/30/2008
											258,390		10.80		7/1/2008		6/30/2013
Fedex Council Bluffs, IA		1	Fedex Freight East, Inc.		23,510		100	%	4/5 yr.		252,054		10.72		11/15/2006		9/30/2021
Fedex Edwardsville, KS		1	Fedex Freight East, Inc.		155,965		100	%	4/5 yr.		1,486,123		9.53		11/15/2006		9/30/2021
CVS Glenville Scotia, NY		1	CVS Mack Drug of New York, LLC		12,900		100	%	4/5 yr.		371,912		28.83		11/16/2006		1/31/2032
Advance Auto Ashland, KY		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		126,948		18.14		11/17/2006		6/30/2016
											139,643		19.95		7/1/2016		6/30/2021
Advance Auto Jackson, OH		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		102,100		14.59		11/17/2006		9/30/2015
											112,304		16.04		10/1/2015		9/30/2020
Advance Auto New Boston, OH		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		114,501		16.36		11/17/2006		6/30/2015
											125,951		17.99		7/1/2015		6/30/2020
Advance Auto Scottsburg, IN		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		96,008		13.72		11/17/2006		8/31/2016
											100,808		14.40		9/1/2016		8/31/2021
Tractor Supply Livingston, TN		1	Tractor Supply Texas		24,727		100	%	4/5 yr.		225,000		9.10		11/22/2006		11/13/2011
											247,500		10.01		11/14/2011		11/13/2016
											272,250		11.01		11/14/2016		11/13/2021
Tractor Supply New Braunfels, TX		1	Tractor Supply Texas		24,727		100	%	4/5 yr.		224,500		9.08		11/22/2006		2/28/2011
											246,950		9.99		3/1/2011		2/28/2016
											271,645		10.99		3/1/2016		2/28/2021
Office Depot Benton, AR		1	Office Depot, Inc.		20,515		100	%	4/5 yr.		246,180		12.00		11/21/2006		11/30/2011
											251,309		12.25		12/1/2011		11/30/2016
Old Time Pottery Fairview Heights, IL		1	Old Time Pottery, Inc.		97,849		100	%	3/5 yr.		342,472		3.50		11/21/2006		12/31/2010
											366,934		3.75		1/1/2011		12/30/2015
Infiniti Davie, FL		1	Warren Henry Automobiles, Inc.		20,927		100	%	4/5 yr.		707,395		33.80		11/30/2006		7/1/2021	(4)


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Office Depot Oxford, MS		1	Office Depot, Inc.		20,000		100	%	3/5 yr.	$	264,000	$	13.20		12/1/2006		10/31/2016
											290,000		14.50		11/1/2016		10/31/2021
Tractor Supply Crockett, TX		1	Tractor Supply Texas		24,727		100	%	4/5 yr.		179,000		7.24		12/1/2006		10/23/2011
											196,900		7.96		10/24/2011		10/23/2016
											216,590		8.76		10/24/2016		10/23/2021
Mercedes Benz Atlanta, GA		1	Atlanta Eurocars		40,588		100	%	4/5 yr.		900,000		22.17		12/15/2006		12/31/2011
											990,000		24.39		1/1/2012		12/31/2016
											1,089,000		26.83		1/1/2017		12/31/2021
											1,197,900		29.51		1/1/2022		12/31/2026
Dick’s Sporting Goods Amherst, NY		1	Dick’s Sporting Goods		55,745		100	%	3/5 yr.		762,592		13.68		12/20/2006		11/30/2010
											790,464		14.18		12/1/2010		11/30/2015
Chili’s Paris, TX		1	Brinker Texas, L.P.		6,698		100	%	2/5 yr.		200,913		30.00		12/28/2006		11/30/2025
Staples Clarksville, IN		1	Staples the Office Superstore East, Inc.		20,388		100	%	3/5 yr.		326,208		16.00		12/29/2006		10/31/2011
											356,790		17.50		11/1/2011		10/31/2016
HOM Fargo, ND		1	HOM Furniture, Inc.		122,108		100	%	4/5 yr.		968,000		7.93		1/4/2007		12/31/2011
											1,017,159		8.33		1/1/2012		12/31/2016
											1,070,877		8.77		1/1/2017		1/31/2022
La-Z-Boy Newington, CT		1	LZB Furniture Galleries of Paramus, Inc.		20,701		100	%	2/5 yr.		496,824		24.00		1/5/2007		12/31/2016
											558,297		27.00		1/1/2017		12/26/2021
Advance Auto Maryland Heights, MO		1	Advance Stores Company, Inc.		7,000		100	%	3/5 yr.		142,940		20.42		1/12/2007		2/28/2016
											150,088		21.44		3/1/2016		2/28/2021
Victoria Crossing Victoria, TX		3	Ross Dress for Less, Inc.		30,187		35	%	5/5 yr.		279,230		9.25		1/12/2007		1/31/2012
											286,777		9.50		2/1/2012		1/31/2017
			Bed Bath & Beyond, Inc.		23,000		26	%	5/5 yr.		172,500		7.50		1/12/2007		1/31/2017
			Petsmart, Inc.		20,087		23	%	6/5 yr.		270,959		13.50		1/12/2007		5/31/2016
Academy Sports Katy, TX		1	Academy Ltd		1,500,596		100	%	8/5 yr.		7,038,000		4.69		1/18/2007		1/31/2027	(5)
Gordmans Peoria, IL		1	Gordmans, Inc.		60,947		100	%	4/5 yr.		684,000		11.22		1/18/2007		3/31/2011
											714,000		11.72		4/1/2011		3/31/2016
One Pacific Place Omaha, NE		24	No single tenant occupies greater than 10.0% of the rentable square feet of this property.		85,763		95	%	Various
Sack n’ Save/O’Reilly Auto Garland, TX		2	Minyard Food Stores, Inc.		58,695		90	%	3/10 yr.		375,648		6.40		2/6/2007		4/30/2010
											396,191		6.75		5/1/2010		4/30/2020
			Hi-Lo Auto Supply, LP		6,600		10	%	3/5 yr.		25,920		3.93		2/6/2007		6/30/2011
											27,994		4.24		7/1/2011		6/30/2016
											30,233		4.58		7/1/2016		6/30/2021
Tractor Supply Ankeny, IA		1	Tractor Supply Company		19,097		100	%	4/5 yr.		213,252		11.17		2/9/2007		8/23/2011
											234,576		12.28		8/24/2011		8/23/2016
											258,036		13.51		8/24/2016		8/23/2021
ABX Air Coventry, RI		1	ABX Air, Inc.		33,000		100	%	4/5 yr.		316,990		9.61		2/14/2007		1/31/2014	(6)
Office Depot Enterprise, AL		1	Office Depot, Inc.		20,000		100	%	3/5 yr.		215,129		10.76		2/27/2007		10/31/2016
											225,135		11.26		11/1/2016		10/31/2021
Northern Tool Blaine, MN		1	Northern Tool and Equipment, Inc.		25,488		100	%	3/5 yr.		344,598		13.52		2/28/2007		11/30/2016
											380,536		14.93		12/1/2016		11/30/2021
Office Max Orangeburg, SC		1	OfficeMax, Inc.		23,500		100	%	4/5 yr.		252,625		10.75		2/28/2007		6/30/2014
Walgreens Cincinnati, OH		1	Walgreen Co.		15,120		100	%	8/5 yr.		365,000		24.14		3/6/2007		3/31/2020
Walgreens Madeira, OH		1	Walgreen Co.		13,905		100	%	8/5 yr.		314,000		22.58		3/6/2007		8/31/2018
Walgreens Sharonville, OH		1	Walgreen Co.		13,905		100	%	8/5 yr.		290,000		20.86		3/6/2007		10/31/2023
AT&T Beaumont, TX		1	AT&T Services, Inc.		141,525		100	%	2/5 yr.		900,473		6.36		3/19/2007		3/18/2012	(7)
Walgreens Shreveport, LA		1	Walgreen Co.		13,905		100	%	8/5 yr.		327,000		23.52		3/23/2007		9/30/2019
Cost-U-Less St. Crois, USVI		1	CULUSVI, Inc.		38,365		100	%	2/5 yr.		512,000		13.35		3/26/2007		3/31/2022
Gallina Centro Collierville, TN		11	Stein Mart, Inc.		36,000		34	%	3/5 yr.		234,000		6.50		3/28/2007		3/31/2011
											252,000		7.00		4/1/2011		3/31/2016
			Kroger Limited
			Partnership, I		59,670		41	%	11/5 yr.		172,000		2.88		3/28/2007		3/31/2011
											189,200		3.17		4/1/2011		3/31/2021
			Walgreen Co.		20,071		14	%	8/5 yr.		350,000		17.44		5/9/2006		5/31/2016

100


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Apria Healthcare St. John, MO		1	Apria Healthcare, Inc.		52,200		100	%	1/5 yr.	$	514,464	$	9.86		3/28/2007		10/31/2013
Logan’s Roadhouse Fairfax, VA		1	Logan’s Roadhouse, Inc.		7,839		100	%	5/5 yr.		224,619		28.65		3/28/2007		11/29/2026	(8)
Logan’s Roadhouse Johnson City, TN		1	Logan’s Roadhouse, Inc.		7,839		100	%	5/5 yr.		270,623		34.52		3/28/2007		11/29/2026	(9)
Center at 7500 Cottonwood Jenison, MI		4	Hob-Lob Limited Partnership		54,533		64	%	2/5 yr.		259,032		4.75		3/30/2007		10/31/2009
			Leppinks, Inc.		16,000		19	%	3/5 yr.		97,104		6.07		3/30/2007		7/31/2007
											99,046		6.19		8/1/2007		7/31/2008
											101,027		6.31		8/1/2008		7/31/2009
											103,048		6.44		8/1/2009		7/31/2010
											105,108		6.57		8/1/2010		7/31/2011
Eckerd Lincolnton, NC		1	ECK-001, LLC		10,908		100	%	4/5 yr.		169,648		15.55		4/30/2007		8/7/2007
											175,100		16.05		8/8/2007		8/7/2012
											180,552		16.55		8/8/2012		8/7/2017
Tractor Supply Greenfield, MN		1	Tractor Supply Company		22,675		100	%	4/5 yr.		289,228		12.76		4/2/2007		3/31/2011
											318,150		14.03		4/1/2011		3/31/2016
											349,965		15.43		4/1/2016		3/31/2021
Lincoln Place Fairview Heights, IL		19	Kohl’s Department Stores, Inc.		86,584		32	%	5/5 yr.		530,760		6.13		4/5/2007		2/1/2020
			Ultimate Electronics, Inc.		31,000		13	%	2/5 yr.		367,816		11.50		4/5/2007		2/28/2008
											409,780		12.81		3/1/2008		2/28/2010
											439,780		13.75		3/1/2010		2/28/2013
											483,758		15.13		3/1/2013		2/28/2018
			Marshalls of IL, LLC		30,000		11	%	3/5 yr.		292,500		9.75		4/5/2007		8/31/2007
											307,500		10.25		9/1/2007		8/31/2012
			LNT, Inc.		28,023		10	%			308,000		10.99		4/5/2007		8/31/2007
											322,000		11.49		9/1/2007		8/31/2012
Amarillo Furniture Ashley, TX		1	Choice Furniture, Inc.		74,797		100	%	N/A		463,741		6.20		4/6/2007		4/30/2011
											493,660		6.60		5/1/2011		4/30/2016
											523,579		7.00		5/1/2016		4/30/2021
Pocatello Square Pocatello, ID		5	Sportsman’s Warehouse, Inc		47,979		35	%	5/5 yr.		428,705		8.94		4/6/2007		11/30/2007
											476,605		9.93		12/1/2007		11/30/2008
											493,370		10.28		12/1/2008		11/30/2009
											514,925		10.73		12/1/2009		11/30/2010
											535,522		11.16		12/1/2010		11/30/2011
											562,346		11.72		12/1/2011		11/30/2016
											590,607		12.31		12/1/2016		11/30/2021
			Ross Dress for Less, Inc.		30,187		22	%	4/5 yr.		530,760		17.58		4/6/2007		1/31/2017
			Staples the Office Superstore, Inc.		20,388		15	%	2/5 yr.		243,637		11.95		4/6/2007		9/30/2016
Tractor Supply Paw Paw, MI		1	Tractor Supply Company		22,670		100	%	4/5 yr.		277,840		10.05		4/9/2007		12/10/2011
											250,624		11.06		12/11/2011		12/10/2016
											275,686		12.16		12/11/2016		12/10/2021
Tractor Supply Marinette, WI			Tractor Supply Company		19,097		100	%	4/5 yr.		213,933		11.20		4/9/2007		12/15/2011
											235,326		12.32		12/16/2011		12/15/2016
											258,858		13.55		12/16/2016		12/15/2021
Staples Greenville, SC		1	Staples the Office Superstore East, Inc.		20,388		100	%	4/5 yr.		318,053		15.60		4/11/2007		3/31/2012
											339,460		16.65		4/1/2012		3/31/2017
Big 5 Center Aurora, CO		4	Big 5 Corporation		10,000		63	%	3/5 yr.		150,000		15.00		4/11/2007		12/31/2011
											162,000		16.20		1/1/2012		12/31/2016
											178,200		17.82		1/1/2017		1/31/2022
			M-Fast, Inc.		3,500		22	%	2/5 yr.		87,500		25.00		4/11/2007		12/31/2007
											88,900		25.40		1/1/2008		12/31/2008
											90,300		25.80		1/1/2009		12/31/2009
											91,700		26.20		1/1/2010		12/31/2010
											93,100		26.60		1/1/2011		12/31/2011
											94,500		27.00		1/1/2012		12/31/2012
											95,900		27.40		1/1/2013		12/31/2013
											97,300		27.80		1/1/2014		12/31/2014
											98,700		28.20		1/1/2015		12/31/2015
											100,100		28.60		1/1/2016		12/31/2016
Rite Aid Plains, PA		1	Rite Aid of Pennsylvania, Inc.		14,564		100	%	6/5 yr.		390,173		26.79		4/16/2007		5/3/2026

101


							% of				Current		Base
	Number				Total		Total				Annual		Rent per
	of				Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants			Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Tractor Supply Navasota, TX		1		Tractor Supply Company of Texas, LP		22,670		100	%	4/5 yr.	$	215,640	$	9.51		4/18/2007		9/26/2011
												229,640		10.13		9/27/2011		9/26/2015
												244,584		10.79		9/27/2015		9/26/2021
Sportsman’s Warehouse De Pere, WI		1		Sportsman’s Warehouse, Inc.		48,453		100	%	5/5 yr.		474,839		9.80		4/20/2007		10/28/2009
												CPI		CPI		10/29/2009		10/28/2014
												CPI		CPI		10/29/2014		10/28/2019
Eckerd Easton, PA		1		Thrift Drug, Inc.		13,813		100	%	2/5 yr.		464,379		33.62		4/25/2007		2/1/2026
Applebee’s Portfolio Master		(10	)	Restaurant Concepts Lease III, LLC		44,781		100	%	N/A		1,702,000
														38.01		4/26/2007		4/30/2012	(10)
												1,838,160		41.05		5/1/2012		4/30/2017
												2,003,594		44.74		5/1/2017		4/30/2022
												2,203,954		49.22		5/1/2022		4/30/2027
Applebee’s Portfolio Master Lease II		(11	)	Restaurant Concepts II, LLC		36,985		100	%	N/A		1,486,000		40.18		4/26/2007		4/30/2012	(11)
												1,604,880		43.39		5/1/2012		4/30/2017
												1,749,319		47.30		5/1/2017		4/30/2022
												1,924,251		52.03		5/1/2022		4/30/2027
Applebee’s Portfolio Master Lease III		(12	)	Restaurant Concepts II, LLC		38,480		100	%	N/A		1,555,000		40.41		4/25/2007		4/30/2012	(12)
												1,679,400		43.64		5/1/2012		4/30/2017
												1,830,546		47.57		5/1/2017		4/30/2022
												2,013,601		52.33		5/1/2022		4/30/2027
Walgreens Bridgetown, OH		1		Walgreen Co.		13,905		100	%	8/5 yr.		315,300		22.68		4/30/2007		5/31/2019
Rite Aid Fredericksburg, VA		1		Rite Aid of Virginia, Inc.		14,564		100	%	4/5 yr.		392,063		26.92		5/2/2007		2/28/2027
Sam’s Club Anderson, SC		1		Wal-Mart Stores, Inc.		134,664		100	%	6/5 yr.		810,677		6.02		5/8/2007		11/14/2013
Tractor Supply Fredericksburg, TX		1		Tractor Supply Company of Texas, LP		22,670		100	%	4/5 yr.		225,000		9.93		5/7/07		3/3/2012
												247,500		10.92		3/4/2012		3/3/2017
												272,250		12.01		3/4/2017		3/3/2022
Walgreens Dallas, TX		1		Walgreen Co.		13,905		100	%	8/5yr.		240,000		17.26		5/9/2007		9/30/2016
Wal-Mart New London, WI		1		Wal-Mart Stores, Inc.		51,985		100	%	5/5yr.		202,640		3.90		5/9/2007		1/31/2017
Rite Aid Lima, OH (Bellefontaine)		1		Rite Aid of Ohio, Inc.		14,564		100	%	6/5yr		370,185		25.42		05/14/07		01/31/26
Rite Aid Allentown, PA		1		Rite Aid of Pennsylvania, Inc.		14,564		100	%	6/5yr.		419,864		28.83		05/15/07		02/21/27
CVS Florence, SC		1		Florence CVS, Inc.		10,125		100	%	4/5yr.		177,188		17.50		05/17/07		01/31/19
Eckerd Spartanburg (Main), SC		1		Eckerd Corporation		10,908		100	%	4/5yr.		268,555		24.62		05/17/07		09/28/18
Staples Warsaw, IN		1		Staples the Office Superstore East, Inc.		23,990		100	%	4/5yr.		261,491		10.90		05/17/07		05/31/13
Walgreens Bryan, TX		1		Walgreen Co.		15,050		100	%	8/5yr.		432,900		28.76		05/18/07		04/30/21
Walgreens Harris County, TX		1		Walgreen Co.		15,050		100	%	8/5yr.		389,340		25.87		05/18/07		03/31/21
Tractor Supply Fairview, TN		1		Tractor Supply Company		19,067		100	%	4/5yr.		216,420		11.35		05/25/07		05/04/22
Borders Rapid City, SD		1		Borders, Inc.		20,000		100	%	5/5yr.		465,923		23.30		06/01/07		03/31/16
Borders Reading, PA		1		Borders, Inc.		25,023		100	%	4/5yr.		451,392		18.04		06/01/07		01/31/19
Walgreens Gainesville, FL		1		Walgreen Co.		13,905		100	%	8/5yr.		262,800		18.90		06/01/07		01/31/18
Chili’s Fredericksburg, TX		1		Brinker Texas, L.P.		5,494		100	%	2/5yr.		162,000		29.49		06/05/07		11/30/25
Tractor Supply Baytown, TX		1		Tractor Supply Company		22,670		100	%	4/5yr.		235,000		10.37		06/11/07		05/29/22
Winco Eureka, CA		1		Winco Foods, LLC		82,490		100	%	2/5yr.		1,043,955		12.66		06/27/07		06/23/16
Eckerd Vineland, NJ		1		Eckerd Corporation		14,910		100	%	4/5yr.		363,310		24.37		06/27/07		03/05/19
Eckerd Mantua, NJ		1		Eckerd Corporation		8,710		100	%	4/5yr.		157,227		18.05		06/27/07		06/17/14
Best Buy (Super Value) Warwick, RI		1		Best Buy Stores, LP		64,514		100	%	4/5yr.		537,625		8.33		06/27/07		02/01/20
Best Buy Evanston, IL		1		Best Buy Stores, LP		45,397		100	%	3/5yr.		576,300		12.69		06/27/07		02/26/17
Academy Sports Houston, TX		1		Academy, LTD		53,381		100	%	4/5yr.		379,277		7.11		06/27/07		05/31/15
Starbucks Covington, TN		1		Starbucks Corporation		1,805		100	%	4/5yr.		105,376		58.38		06/22/07		04/30/17
Starbucks Sedalia, MO		1		Starbucks Corporation		1,800		100	%	4/5yr.		85,302		47.39		06/22/07		03/31/17
Kroger La Grange, GA		1		The Kroger Co.		61,331		100	%	N/A		531,126		8.66		06/28/07		01/31/18
La-Z-Boy Kentwood, MI		1		La-Z-Boy Showcase Shoppes of Detroit, Inc.		30,245		100	%	4/5yr.		385,904		12.76		06/28/07		10/31/17

102


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Circuit City Mesquite, TX		1	Circuit City Stores, Inc.		42,918		100	%	4/5yr.	$	586,844	$	13.67		06/29/07		01/31/17
Tractor Supply Prior Lake, MN		1	Tractor Supply Company		36,183		100	%	4/5yr.		366,000		10.12		06/29/07		06/04/22
Circuit City Distribution Center Groveland, FL		1	Circuit City Stores, Inc.		706,560		100	%	2/10yr.		1,830,075		2.59		07/17/07		08/31/21
Walgreens Fort Worth, TX		1	Walgreen Co.		15,120		100	%	8/5yr.		305,842		20.23		07/17/07		11/30/19
Kohl’s Lake Zurich, IL		1	Kohl’s Department Stores, Inc.		88,306		100	%	6/5yr.		800,902		9.07		07/17/07		01/30/21
			EDS Information Services,
EDS Salt Lake City, UT		1	LLC		406,101		100	%	3/5yr.		593,418		1.46		07/17/07		07/31/16
Lowe’s Cincinnati, OH		1	Lowe’s Home Centers, Inc.		129,044		100	%	6/5yr.		1,227,509		9.51		07/17/07		02/28/19
Walgreens Kansas City (Linwood), MO		1	Walgreen Co.		13,905		100	%	8/5yr.		264,400		19.01		07/11/07		01/31/18
Walgreens Kansas City (Troost), MO		1	Walgreen Co.		13,905		100	%	8/5yr.		348,000		25.03		07/11/07		03/31/20
Walgreens Kansas City (63rd St), MO		1	Walgreen Co.		13,905		100	%	8/5yr.		307,857		22.14		07/11/07		12/31/19
Walgreens Kansas City (Independence), MO		1	Walgreen Co.		13,905		100	%	8/5yr.		323,291		23.25		07/11/07		12/31/17
Walgreens Topeka, KS		1	Walgreen Co.		13,905		100	%	8/5yr.		228,000		16.40		07/11/07		09/30/19
CVS Amarillo, TX		1	Eckerd Corporation		9,504		100	%	4/5yr.		187,488		19.73		07/19/07		12/03/14
Taco Bell Brazil, IN		1	Southern Bells, Inc.		1,993		100	%	3/5yr.		142,800		71.65		07/19/07		05/17/21
Taco Bell Henderson, KY		1	Southern Bells, Inc.		2,320		100	%	3/5yr.		114,117		49.19		07/19/07		05/17/21
Academy Sports Baton Rouge, LA		1	Academy Louisiana Co., LLC		52,500		100	%	4/5yr.		455,582		8.68		07/19/07		06/30/17
Taco Bell Washington, IN		1	Southern Bells, Inc.		2,093		100	%	3/5yr.		93,538		44.69		07/19/07		05/17/21
Taco Bell Robinson, IL		1	Southern Bells, Inc.		1,944		100	%	3/5yr.		116,300		59.83		07/19/07		05/17/21
Taco Bell Princeton, IN		1	Southern Bells, Inc.		2,436		100	%	3/5yr.		106,825		43.85		07/19/07		05/17/21
Eckerd Mableton, GA		1	Eckerd Corporation		8,996		100	%	4/5yr.		135,490		15.06		07/19/07		01/28/14
Taco Bell/KFC Spencer, IN		1	Southern Bells, Inc.		2,296		100	%	3/5yr.		71,400		31.10		07/19/07		05/17/21
CVS Del City, OK		1	Eckerd Corporation		10,906		100	%	4/5yr.		283,290		25.98		07/19/07		10/06/18
Taco Bell Anderson, IN		1	Southern Bells, Inc.		2,166		100	%	3/5yr.		124,237		57.36		07/19/07		05/17/21
Academy Sports N Richland Hills, TX		1	Academy, LTD		52,500		100	%	4/5yr.		450,850		8.59		07/19/07		05/31/07
Dave and Buster’s Addison, IL		1	Dave and Buster’s, Inc.		50,000		100	%	3/5yr.		975,000		19.50		07/19/07		05/31/24
Academy Sports Houston (Southwest), TX		1	Academy, LTD		52,548		100	%	4/5yr.		494,548		9.41		07/19/07		02/01/17
Academy Sports Houston (Breton), TX		1	Academy, LTD		53,381		100	%	4/5yr.		325,550		6.10		07/19/07		06/30/15
Eckerd Chattanooga, TN		1	Eckerd Corporation		10,909		100	%	4/5yr.		201,276		18.45		07/19/07		07/25/17
Taco Bell/KFC Vinceness, IN1		1	Southern Bells, Inc.		2,691		100	%	3/5yr.		107,205		39.84		07/19/07		05/17/21
Taco Bell Martinsville, IN		1	Southern Bells, Inc.		2,057		100	%	3/5yr.		143,082		69.56		07/19/07		05/17/21
LJS/A&W Houston, TX		1	LJS Restaurants, Inc.		34,094		100	%	3/5yr.		72,000		2.11		07/19/07		12/01/18
Dickinson Theatre Yukon, OK		1	Dickinson Theatres, Inc.		27,442		100	%	3/5yr.		392,421		14.30		07/17/07		06/30/22
Circuit City Taunton, MA		1	Circuit City Stores, Inc.		32,748		100	%	2/10yr.		570,000		17.41		07/13/07		02/28/21
Telerx Kings Mountain, NC		1	TelerX Marketing, Inc.		60,000		100	%	3/5yr.		604,800		10.08		07/17/07		05/31/17
Staples Guntersville, AL		1	Staples the Office Super Store East, Inc.		23,942		100	%	4/5yr.		248,997		10.40		07/06/07		03/31/16
Federal Express Peoria, IL		1	Federal Express Corporation		38,200		100	%	2/5yr.		227,290		5.95		07/20/07		03/31/17
Wal-Mart Spencer, IN		1	Wal-Mart Stores, Inc.		41,304		100	%	5/5yr.		147,553		3.57		05/23/07		01/31/13
Gold’s Gym St. Peters, MO		1	Gold’s St. Louis, LLC		39,900		100	%	2/5yr.		584,136		14.64		07/31/07		07/27/17
											642,789		16.11		07/28/17		07/27/22
Fed Ex Walker, MI		1	FedEx Ground Package System, Inc.		78,304		100	%	2/5yr.		549,292		7.01		08/08/07		05/31/17
Wal-Mart Bay City, TX		1	Wal-Mart Realty Company		90,921		100	%	5/5yr.		338,799		3.73		08/14/07		01/31/17
Walgreens Richmond, VA		1	Walgreen Co.		13,869		100	%	8/5yr.		292,000		21.05		08/17/07		08/31/17
Circuit City Aurora, CO		1	Circuit City Stores West Coast, Inc.		39,440		100	%	2/10yr.		538,382		13.65		08/22/07		01/31/18
Home Depot Bedford Park, IL		1	Home Depot U.S.A., Inc. (Waban Lease)		109,952		50	%	3/5yr.		1,130,856		10.28		08/22/07		10/31/17
			Home Depot U.S.A., Inc.
		1	(Pace Lease)		108,000		50	%	10/5yr.		756,000		7.00		08/22/07		10/31/17

103


						% of				Current			Base
	Number			Total		Total				Annual			Rent per
	of			Square		Square			Renewal	Base			Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent			Foot		Beginning		To

24 Hr Fitness Olathe, KS		1	24 Hour Fitness USA, Inc.		25,000		100	%	4/5yr.	$	537,500		$	21.50		08/24/07		07/31/12
											602,000			24.08		08/01/12		07/31/17
											674,250			26.97		08/01/17		07/31/22
											755,250			30.21		08/01/22		07/31/27
Walgreens Dallas, TX (De Soto)		1	Walgreen Co.		13,905		100	%	8/5yr.		245,230			17.64		08/27/07		11/30/17
Golds Gym O Fallon, MO		1	Gold’s St. Louis, LLC		39,900		100	%	2/5yr.		605,868			15.18		08/29/07		08/10/17
											666,456			16.70		08/11/17		08/10/22
Wal-Mart Washington, IL		1	Wal-Mart Realty Company		74,136		100	%	5/5yr.		295,483			3.99		09/10/07		01/31/16
Wal-Mart Borger, TX		1	Wal-Mart Real Estate Business Trust		65,930		100	%	5/5yr.		280,482			4.25		09/12/07		01/31/17
Broadview Village Square Chicago, IL		25	Home Depot U.S.A, Inc.		135,351		41	%	4/5yr.		1,458,703			10.78		09/14/07		01/31/15
			The Sports Authority, Inc.		42,658		13	%	4/5yr.		387,330			9.08		09/14/07		01/31/10
											426,149			9.99		02/01/10		01/31/15
Chambers Corners Wayland, MI		8	FFH Wayland, LLC		41,400		42	%	3/5yr.		240,000			5.80		09/19/07		08/31/12
											252,000			6.09		09/01/12		08/31/17
			Harding and Hill, Inc.		35,764		36	%	4/5yr.		343,000			9.59		09/19/07		06/14/10
Ashley Furniture Anderson, SC		1	Hillsboro Retail Group, Inc.		23,800		100	%	1/5yr.		333,200			14.00		09/28/07		08/31/14
											366,520			15.40		09/01/14		12/31/18
Best Buy Fayetteville, NC		1	Best Buy Stores, LP		45,582		100	%	3/5yr.		463,911			10.18		10/04/07		06/21/09
											477,828			10.48		06/22/09		06/21/14
											492,163			10.80		06/22/14		06/21/19
Massard Farms Fort Smith, AR		6	Kohl’s Department Stores,Inc.		86,584		68	%	5/5yr.		684,014			7.90		10/11/07		01/29/22
			LNT, Inc.		32,000		25	%	3/5yr.		344,000			10.75		10/11/07		01/31/12
Wal-Mart Whiteville, NC		1	Wal-Mart Stores, Inc.		65,930		100	%	5/5yr.		243,532			3.69		10/11/07		01/31/15
Staples Moraine, OH		1	Staples the Office Superstore East, Inc.		20,388		100	%	4/5yr.		285,432			14.00		10/12/07		01/31/16
Wickes Furniture Chicago, IL		1	Wickes Furniture Company, Inc.		48,000		100	%	5/5yr.		1,920,000			40.00		10/17/07		05/31/17
											2,208,000			46.00		06/01/17		05/31/22
Walgreens Brentwood, TN		1	Walgreen Co.		14,820		100	%	10/5yr.		371,800			25.09		10/17/07		09/30/31
Starbucks Bowling Green, KY		1	Starbucks Corporation		1,850		100	%	4/5yr.		115,995			62.70		10/23/07		02/28/12
											127,595			68.97		03/01/12		02/28/17
Walgreens Harriman, TN		1	Walgreen Co.		14,820		100	%	10/5yr.		335,500			22.64		10/24/07		08/31/32
Starbucks Shawnee, OK		1	Starbucks Corporation		1,750		100	%	2/5yr.		78,000			44.57		10/31/07		09/30/11
											85,800			49.03		10/01/11		09/30/16
Station Casino Headquarters Las Vegas, NV		1	Station Casino, Inc.		138,558		100	%	4/5yr.		5,250,000	(14)		37.89		11/01/07		10/31/27
Starbucks Oklahoma City, OK		1	Starbucks Corporation		1,741		100	%	4/5yr.		88,500			50.83		11/20/07		10/31/12
											97,350			55.92		11/01/12		02/28/18
Starbucks Chattanooga, TN		1	Starbucks Corporation		1,850		100	%	4/5yr.		102,953			55.65		11/26/07		10/31/12
											113,239			61.21		11/01/12		02/28/18
Starbucks Maryville, TN		1	Starbucks Corporation		1,850		100	%	4/5yr.		108,000			58.38		11/26/07		07/31/12
											118,800			64.22		08/01/12		07/31/17
Starbucks Powell, TN		1	Starbucks Corporation		1,850		100	%	4/5yr.		96,000			51.89		11/26/07		06/30/12
											105,600			57.08		07/01/12		06/30/17
Starbucks Seymour, TN		1	Starbucks Corporation		1,850		100	%	4/5yr.		98,000			52.97		11/26/07		10/31/12
											107,800			58.27		01/01/12		02/28/18
Walgreens Beverly Hills, TX		1	Walgreen Co.		13,905		100	%	8/5yr.		270,000			19.42		12/05/07		09/30/18
Walgreens Waco, TX		1	Walgreen Co.		13,905		100	%	8/5yr.		270,000			19.42		12/05/07		10/31/18
Allstate Insurance Contact Center — Cross Plains, WI		1	Allstate Insurance Company		34,992		100	%	2/5yr.		443,349			12.67		12/07/07		06/30/08
											452,216			12.92		07/01/08		06/30/09
											461,260			13.18		07/01/09		06/30/10
											470,485			13.45		07/01/10		06/30/11
											479,895			13.71		07/01/11		06/30/12
											489,493			13.99		07/01/12		06/30/13
											499,283			14.27		07/01/13		06/30/14

104


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Mealey’s Furniture Maple Shade, NJ		1	Mealey’s Furniture Holdings, Inc.		66,750		100	%	1/5yr.	$	475,000	$	7.12		12/12/07		12/31/13
Circle K Albuquerque, NM		1	Circle K/Mac’s, G.P.		2,700		100	%	5/5yr; 2/10 yr.		96,955		35.91		12/20/07		12/31/28	(13)
Circle K Baton Rouge (Burbank), LA		1	Circle K/Mac’s, G.P.		2,400		100	%	5/5yr; 2/10 yr.		72,331		30.14		12/20/07		12/31/27	(13)
Circle K Baton Rouge (Floynell), LA		1	Circle K/Mac’s, G.P.		2,780		100	%	5/5yr; 2/10 yr.		106,958		38.47		12/20/07		12/31/28	(13)
Circle K Baton Rouge (Jefferson), LA		1	Circle K/Mac’s, G.P.		2,780		100	%	5/5yr; 2/10 yr.		82,335		29.62		12/20/07		12/31/27	(13)
Circle K Beaufort, SC		1	Circle K/Mac’s, G.P.		2,660		100	%	5/5yr; 2/10 yr.		124,656		46.86		12/20/07		12/31/26	(13)
Circle K Bluffton, SC		1	Circle K/Mac’s, G.P.		2,448		100	%	5/5yr; 2/10 yr.		196,987		80.47		12/20/07		12/31/26	(13)
Circle K Bossier City, LA		1	Circle K/Mac’s, G.P.		3,211		100	%	5/5yr; 2/10 yr.		116,192		36.19		12/20/07		12/31/28	(13)
Circle K Charleston, SC		1	Circle K/Mac’s, G.P.		3,000		100	%	5/5yr; 2/10 yr.		197,757		65.92		12/20/07		12/31/27	(13)
Circle K Charlotte (Independence), NC		1	Circle K/Mac’s, G.P.		2,556		100	%	5/5yr; 2/10 yr.		143,124		56.00		12/20/07		12/31/28	(13)
Circle K Charlotte (Sharon), NC		1	Circle K/Mac’s, G.P.		2,477		100	%	5/5yr; 2/10 yr.		148,510		59.96		12/20/07		12/31/27	(13)
Circle K Charlotte (Sugar Creek), NC		1	Circle K/Mac’s, G.P.		2,170		100	%	5/5yr; 2/10 yr.		153,127		70.57		12/20/07		12/31/26	(13)
Circle K Columbia (Garners), SC		1	Circle K/Mac’s, G.P.		2,600		100	%	5/5yr; 2/10 yr.		160,822		61.85		12/20/07		12/31/26	(13)
Circle K Columbia (Hardscrabble), SC		1	Circle K/Mac’s, G.P.		2,477		100	%	5/5yr; 2/10 yr.		133,120		53.74		12/20/07		12/31/28	(13)
Circle K El Paso (Americas), TX		1	Circle K/Mac’s, G.P.		3,500		100	%	5/5yr; 2/10 yr.		168,516		48.15		12/20/07		12/31/26	(13)
Circle K El Paso (Mesa), TX		1	Circle K/Mac’s, G.P.		3,150		100	%	5/5yr; 2/10yr.		86,951		27.60		12/20/07		12/31/28	(13)
Circle K El Paso (Zaragosa), TX		1	Circle K/Mac’s, G.P.		3,800		100	%	5/5yr; 2/10 yr.		156,974		41.31		12/20/07		12/31/26	(13)
Circle K Fort Mill, SC		1	Circle K/Mac’s, G.P.		6,553		100	%	5/5yr; 2/10 yr.		179,289		27.36		12/20/07		12/31/26	(13)
Circle K Goose Creek, SC		1	Circle K/Mac’s, G.P.		2,632		100	%	5/5yr; 2/10 yr.		103,880		39.47		12/20/07		12/31/26	(13)
Circle K Huntersville, NC		1	Circle K/Mac’s, G.P.		2,770		100	%	5/5yr; 2/10 yr.		153,127		55.28		12/20/07		12/31/27	(13)
Circle K Mount Pleasant, SC		1	Circle K/Mac’s, G.P.		2,820		100	%	5/5yr; 2/10 yr.		116,961		41.48		12/20/07		12/31/26	(13)
Circle K Port Wentworth, GA		1	Circle K/Mac’s, G.P.		3,760		100	%	5/5yr; 2/10 yr.		176,750		47.01		12/20/07		12/31/27	(13)
Circle K Savannah (Johnny Mercer), GA		1	Circle K/Mac’s, G.P.		1,152		100	%	5/5yr; 2/10 yr.		122,348		106.20		12/20/07		12/31/27	(13)
Circle K Savannah (King George), GA		1	Circle K/Mac’s, G.P.		2,477		100	%	5/5yr; 2/10 yr.		122,348		49.39		12/20/07		12/31/28	(13)
Circle K Shreveport, LA		1	Circle K/Mac’s, G.P.		3,180		100	%	5/5yr; 2/10 yr.		92,338		29.04		12/20/07		12/31/26	(13)
Circle K Springdale, SC		1	Circle K/Mac’s, G.P.		1,760		100	%	5/5yr; 2/10 yr.		132,351		75.20		12/20/07		12/31/27	(13)

105


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Exxon West Monroe (503 Thomas), LA		1	Circle K/Mac’s, G.P.		3,327		100	%	5/5yr; 2/10 yr.	$	111,575	$	33.54		12/20/07		12/31/27	(13)
Holland Oil Akron (940 Arlington), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		86,182		30.78		12/20/07		12/31/28	(13)
Holland Oil Akron (1178 Arlington), OH		1	Circle K/Mac’s, G.P.		2,862		100	%	5/5yr; 2/10 yr.		107,727		37.64		12/20/07		12/31/27	(13)
Holland Oil Akron (1559 E. Market), OH		1	Circle K/Mac’s, G.P.		1,624		100	%	5/5yr; 2/10 yr.		110,805		68.23		12/20/07		12/31/27	(13)
Holland Oil Akron (1693 West Market), OH		1	Circle K/Mac’s, G.P.		4,977		100	%	5/5yr; 2/10 yr.		121,578		24.43		12/20/07		12/31/28	(13)
Holland Oil Akron (Albrecht), OH		1	Circle K/Mac’s, G.P.		2,763		100	%	5/5yr; 2/10 yr.		84,643		30.63		12/20/07		12/31/27	(13)
Holland Oil Akron (Brittain), OH		1	Circle K/Mac’s, G.P.		2,857		100	%	5/5yr; 2/10 yr.		94,646		33.13		12/20/07		12/31/26	(13)
Holland Oil Akron (Brown), OH		1	Circle K/Mac’s, G.P.		2,635		100	%	5/5yr; 2/10 yr.		99,263		37.67		12/20/07		12/31/26	(13)
Holland Oil Akron (Cuyahoga), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		123,886		44.25		12/20/07		12/31/26	(13)
Holland Oil Akron (Darrow), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		92,338		32.98		12/20/07		12/31/26	(13)
Holland Oil Akron (Exchange), OH		1	Circle K/Mac’s, G.P.		3,190		100	%	5/5yr; 2/10 yr.		111,575		34.98		12/20/07		12/31/28	(13)
Holland Oil Akron (Main St.), OH		1	Circle K/Mac’s, G.P.		3,258		100	%	5/5yr; 2/10 yr.		90,029		27.63		12/20/07		12/31/26	(13)
Holland Oil Akron (Manchester), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		124,656		44.52		12/20/07		12/31/27	(13)
Holland Oil Akron (Ridgewood), OH		1	Circle K/Mac’s, G.P.		1,710		100	%	5/5yr; 2/10 yr.		99,263		58.05		12/20/07		12/31/27	(13)
Holland Oil Akron (Waterloo), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		90,029		32.15		12/20/07		12/31/28	(13)
Holland Oil Barberton (5 th St.), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		93,877		33.53		12/20/07		12/31/28	(13)
Holland Oil Barberton (31 st St.), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		73,870		26.38		12/20/07		12/31/27	(13)
Holland Oil Barberton (Wooster), OH		1	Circle K/Mac’s, G.P.		3,600		100	%	5/5yr; 2/10 yr.		170,825		47.45		12/20/07		12/31/26	(13)
Holland Oil Bedford, OH		1	Circle K/Mac’s, G.P.		2,450		100	%	5/5yr; 2/10 yr.		96,955		39.57		12/20/07		12/31/28	(13)
Holland Oil Brookpark, OH		1	Circle K/Mac’s, G.P.		2,740		100	%	5/5yr; 2/10 yr.		103,110		37.63		12/20/07		12/31/26	(13)
Holland Oil Canton (12 th Street), OH		1	Circle K/Mac’s, G.P.		2,800		100	%	5/5yr; 2/10 yr.		88,490		31.60		12/20/07		12/31/26	(13)
Holland Oil Canton (Tuscarawas), OH		1	Circle K/Mac’s, G.P.		4,500		100	%	5/5yr; 2/10 yr.		166,977		37.11		12/20/07		12/31/28	(13)
Holland Oil Cleveland, OH		1	Circle K/Mac’s, G.P.		4,318		100	%	5/5yr; 2/10 yr.		120,809		27.98		12/20/07		12/31/26	(13)
Holland Oil Copley, OH		1	Circle K/Mac’s, G.P.		2,439		100	%	5/5yr; 2/10 yr.		87,721		35.97		12/20/07		12/31/27	(13)

106


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Holland Oil Cuyahoga Falls (Bath), OH		1	Circle K/Mac’s, G.P.		4,269		100	%	5/5yr; 2/10 yr.	$	153,896	$	36.05		12/20/07		12/31/28	(13)
Holland Oil Cuyahoga Falls (Port), OH		1	Circle K/Mac’s, G.P.		2,959		100	%	5/5yr; 2/10 yr.		105,419		35.63		12/20/07		12/31/26	(13)
Holland Oil Cuyahoga Falls (State), OH		1	Circle K/Mac’s, G.P.		2,100		100	%	5/5yr; 2/10 yr.		78,487		37.37		12/20/07		12/31/28	(13)
Holland Oil Fairlawn, OH		1	Circle K/Mac’s, G.P.		2,900		100	%	5/5yr; 2/10 yr.		122,348		42.19		12/20/07		12/31/28	(13)
Holland Oil Kent, OH		1	Circle K/Mac’s, G.P.		2,068		100	%	5/5yr; 2/10 yr.		75,409		36.46		12/20/07		12/31/27	(13)
Holland Oil Maple Heights, OH		1	Circle K/Mac’s, G.P.		2,967		100	%	5/5yr; 2/10 yr.		113,114		38.12		12/20/07		12/31/26	(13)
Holland Oil Northfield, OH		1	Circle K/Mac’s, G.P.		4,647		100	%	5/5yr; 2/10 yr.		147,740		31.79		12/20/07		12/31/28	(13)
Holland Oil Norton, OH		1	Circle K/Mac’s, G.P.		3,750		100	%	5/5yr; 2/10 yr.		109,266		29.14		12/20/07		12/31/26	(13)
Holland Oil Parma, OH		1	Circle K/Mac’s, G.P.		3,039		100	%	5/5yr; 2/10 yr.		95,416		31.40		12/20/07		12/31/28	(13)
Holland Oil Seville, OH		1	Circle K/Mac’s, G.P.		7,200		100	%	5/5yr; 2/10 yr.		186,214		25.86		12/20/07		12/31/28	(13)
Holland Oil Twinsburg, OH		1	Circle K/Mac’s, G.P.		3,298		100	%	5/5yr; 2/10 yr.		103,110		31.26		12/20/07		12/31/28	(13)
Holland Oil Willoughby, OH		1	Circle K/Mac’s, G.P.		2,938		100	%	5/5yr; 2/10 yr.		90,799		30.91		12/20/07		12/31/26	(13)
Shell Monroe, LA		1	Circle K/Mac’s, G.P.		4,140		100	%	5/5yr; 2/10 yr.		116,192		28.07		12/20/07		12/31/28	(13)
Spectrum Auburn, AL		1	Circle K/Mac’s, G.P.		2,772		100	%	5/5yr; 2/10 yr.		131,581		47.47		12/20/07		12/31/26	(13)
Spectrum Augusta, GA		1	Circle K/Mac’s, G.P.		3,010		100	%	5/5yr; 2/10 yr.		83,873		27.86		12/20/07		12/31/26	(13)
Spectrum Columbus (Airport), GA		1	Circle K/Mac’s, G.P.		2,205		100	%	5/5yr; 2/10 yr.		116,961		53.04		12/20/07		12/31/27	(13)
Spectrum Columbus (Beaver Run), GA		1	Circle K/Mac’s, G.P.		3,760		100	%	5/5yr; 2/10 yr.		190,831		50.75		12/20/07		12/31/28	(13)
Spectrum Columbus (Bradley), GA		1	Circle K/Mac’s, G.P.		4,750		100	%	5/5yr; 2/10 yr.		253,929		53.46		12/20/07		12/31/28	(13)
Spectrum Columbus (Buena Vista), GA		1	Circle K/Mac’s, G.P.		2,205		100	%	5/5yr; 2/10 yr.		122,348		55.49		12/20/07		12/31/27	(13)
Spectrum Columbus (Lumpkin), GA		1	Circle K/Mac’s, G.P.		2,874		100	%	5/5yr; 2/10 yr.		126,964		44.18		12/20/07		12/31/28	(13)
Spectrum Columbus (Warm Springs), GA		1	Circle K/Mac’s, G.P.		4,934		100	%	5/5yr; 2/10 yr.		149,279		30.26		12/20/07		12/31/27	(13)
Spectrum Lanett, AL		1	Circle K/Mac’s, G.P.		2,631		100	%	5/5yr; 2/10 yr.		64,636		24.57		12/20/07		12/31/28	(13)
Spectrum Macon (Arkwright), GA		1	Circle K/Mac’s, G.P.		2,248		100	%	5/5yr; 2/10 yr.		86,951		38.68		12/20/07		12/31/26	(13)
Spectrum Macon (Riverside), GA		1	Circle K/Mac’s, G.P.		2,580		100	%	5/5yr; 2/10 yr.		95,416		36.98		12/20/07		12/31/28	(13)
Spectrum Martinez, GA		1	Circle K/Mac’s, G.P.		2,250		100	%	5/5yr; 2/10 yr.		96,955		43.09		12/20/07		12/31/26	(13)
Spectrum Mobile (Airport), AL		1	Circle K/Mac’s, G.P.		1,800		100	%	5/5yr; 2/10 yr.		138,507		76.95		12/20/07		12/31/26	(13)
Spectrum Mobile (Moffett), AL		1	Circle K/Mac’s, G.P.		678		100	%	5/5yr; 2/10 yr.		118,500		174.78		12/20/07		12/31/26	(13)

107


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square			Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot			Beginning		To

Spectrum North Augusta, GA		1	Circle K/Mac’s, G.P.		2,240		100	%	5/5yr; 2/10 yr.	$	90,799	$	40.54			12/20/07		12/31/28	(13)
Spectrum Opelika (2 nd Ave), AL		1	Circle K/Mac’s, G.P.		2,531		100	%	5/5yr; 2/10 yr.		99,263		39.22			12/20/07		12/31/28	(13)
Spectrum Opelika (Columbus), AL		1	Circle K/Mac’s, G.P.		3,796		100	%	5/5yr; 2/10 yr.		178,520		47.03			12/20/07		12/31/27	(13)
Spectrum Phenix City, AL		1	Circle K/Mac’s, G.P.		3,054		100	%	5/5yr; 2/10 yr.		121,578		39.81			12/20/07		12/31/28	(13)
Spectrum Pine Mountain, GA		1	Circle K/Mac’s, G.P.		3,285		100	%	5/5yr; 2/10 yr.		86,951		26.47			12/20/07		12/31/26	(13)
Spectrum Valley, AL		1	Circle K/Mac’s, G.P.		3,312		100	%	5/5yr; 2/10 yr.		118,500		35.78			12/20/07		12/31/28	(13)
Spirit West Monroe (1602 Thomas), LA		1	Circle K/Mac’s, G.P.		3,927		100	%	5/5yr; 2/10 yr.		126,964		32.33			12/20/07		12/31/26	(13)
Hilltop Plaza Bridgeton, MO		4	Lowe’s Home Centers, Inc.(1)		136,641		45	%	6/5yr.		615,000		4.50			02/06/08		05/29/27
			Kmart Corporation		104,231		35	%	10/5yr.		609,751		5.85			02/06/08		09/30/16
			TSA Stores, Inc.		42,000		14	%	10/5yr.		300,000		7.14			02/06/08		08/31/16
											364,500		6.00			02/07/08		05/31/09
											375,419		6.18			06/01/09		05/31/14
											386,664		6.36			06/01/14		05/31/19
Academy Sports Lufkin, TX		1	Academy, Ltd.		60,750		100	%	4/5yr.		398,246		6.56			06/01/19		06/30/24
											781,152		11.70			02/07/08		05/09/11
											804,587		12.05			05/10/11		05/09/16
Best Buy Wichita, KS		1	Best Buy Stores, LP		66,756		100	%	3/5yr.		828,724		12.41			05/10/16		05/09/21
											182,412		17.67			02/07/08		11/30/08
											189,708		18.37			12/01/08		11/30/13
Bridgestone Tire Atlanta, GA		1	BFS Retail & Commercial Operations, LLC		10,325		100	%	4/5yr.		197,297		19.11			12/01/13		11/30/18
											417,041		2.40			02/07/08		09/30/08
Boscov’s Voorhees, NJ		1	Boscov’s Department Store, LLC		173,767		100	%	3/10yr.		324,699		1.87			10/01/08		09/27/18
CVS Indianapolis, IN		1	Hook-Superx, LLC		10,880		100	%	4/5yr.		258,304		23.74			02/07/08		12/12/23
FedEx Mishawaka, IN		1	FedEx Ground Package System, Inc.		54,779		100	%	2/5yr.		304,800		5.56			02/07/08		08/31/14
Marsh Supermarket Indianapolis, IN		1	Marsh Supermarkets, LLC		63,750		100	%	4/5yr.		1,208,363		18.95			02/07/08		09/30/20
											94,500		51.08			02/28/08		02/28/13
Starbucks Stillwater, OK		1	Starbucks Corporation		1,850		100	%	4/5yr.		103,950		56.19			03/01/13		02/28/18
Walgreens Oneida, TN		1	Walgreen Co.		14,820		100	%	10/5yr.		329,000		22.20			02/29/08		07/31/32
											95,744		51.67			03/04/08		01/31/13
Starbucks Memphis, TN		1	Starbucks Corporation		1,853		100	%	4/5yr.		105,306		56.83			2/1/13		1/31/18
Walgreens Cincinnati (Seymour), OH		1	Walgreen Co.		15,120		100	%	8/5yr.		380,000		25.13			12/21/07		11/30/20
Tractor Supply Rome, NY		1	Tractor Supply Company		19,097		100	%	4/5yr.		235,000		12.31			01/04/08		12/18/22
											510,426		16.92			01/11/08		11/30/12
											540,593		17.92			12/01/12		11/30/17
HH Gregg Greensboro, NC		1	Gregg Appliances, Inc.		30,167		100	%	4/5yr.		570,760		18.92			12/01/17		11/30/22
											85,000		48.82			01/16/08		11/30/12
Starbucks Altus, OK		1	Starbucks Corporation		1,741		100	%	4/5yr.		93,500		53.70			12/01/12		02/28/18
											358,000		N/A	(15)		01/17/08		04/30/11
											390,715		N/A	(15)		05/01/11		04/30/16
											423,430		N/A	(15)		05/01/16		04/30/21
Milford Commons Milford, NH		5	The Stop & Shop Supermarket Company, LLC		65,430		84	%	11/5yr.		456,146		N/A	(15)		05/01/21		04/30/26
											1,493,604		32.10			01/25/08		08/09/08
											1,527,210		32.82			08/10/08		08/09/09
											1,561,573		33.56			08/10/09		08/09/10
											1,596,708		34.31			08/10/10		08/09/11
											1,632,634		35.08			08/10/11		08/09/12
											1,669,368		35.87			08/10/12		08/09/13
											1,706,929		36.68			08/10/13		08/09/14
											1,745,335		37.51			08/10/14		08/09/15

108


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

CarMax Greenville, SC		1	CarMax Auto Superstores, Inc.		46,535		100	%	2/10yr.	$	1,784,605	$	38.35		08/10/15		08/09/16
Bank of America Delray Beach, FL		1	Bank of America, N.A.		54,600		100	%	N/A		900,000		16.48		01/31/08		01/31/36
Circuit City Kennesaw, GA		1	Circuit City Stores, Inc.		183,088		100	%	2/10yr.		1,488,000		8.13		01/31/08		09/30/22
											1,369,540		10.00		01/31/08		08/31/08
											1,417,474		10.35		09/01/08		08/31/09
											1,465,408		10.70		09/01/09		08/31/10
											1,513,342		11.05		09/01/10		08/31/11
											1,561,276		11.40		09/01/11		08/31/12
											1,609,210		11.75		09/01/12		08/31/13
											1,657,143		12.10		09/01/13		08/31/14
Mustang Engineering Houston, TX		1	Mustang Engineering, LP		136,954		100	%	4/5yr.		1,705,077		12.45		09/01/14		08/31/15
Office Depot Alcoa, TN		1	Office Depot, Inc.		26,850		100	%	3/5yr.		292,665		10.90		01/31/08		09/30/14
Arby’s New Castle, PA		1	RTM Acquisition Company, LLC		3,263		100	%	2/5yr.		117,807		36.10		01/31/08		12/31/08
											118,985		36.46		01/01/09		12/31/09
											120,175		36.83		01/01/10		12/31/10
											121,376		37.20		01/01/11		12/31/11
											122,590		37.57		01/01/12		12/31/12
											123,816		37.95		01/01/13		12/31/13
											125,054		38.32		01/01/14		12/31/14
											126,305		38.71		01/01/15		12/31/15
											127,568		39.10		01/01/16		12/31/16
											128,843		39.49		01/01/17		12/31/17
											130,312		39.88		01/01/18		12/31/18
											131,433		40.28		01/01/19		12/31/19
											132,747		40.68		01/01/20		12/31/20
CarMax Raleigh, NC		1	CarMax Auto Superstores, Inc.		56,439		100	%	2/10yr.		685,910		12.15		01/31/08		11/30/17
CarMax Pineville, NC		1	CarMax Auto Superstores, Inc.		18,687		100	%	4/5yr.		692,216		37.02		01/31/08		07/31/18
											77,500		44.29		3/11/2008		01/31/13
Starbucks Ponca City, OK		1	Starbucks Corporation		1,750		100	%	4/5yr.		85,250		48.71		2/1/2013		02/28/18
											97,607		52.76		3/25/2008		01/31/13
Starbucks Kingsport, TN		1	Starbucks Corporation		1,850		100	%	4/5yr.		107,368		58.04		2/1/2013		02/28/18
Pep Boys Albuquerque, NM		1	The Pep Boys Manny, Moe, and Jack		21,768		100	%	4/5yr.		292,417		13.43		3/25/2008		03/31/23
Pep Boys Arlington Heights, IL		1	The Pep Boys Manny, Moe, and Jack		20,464		100	%	4/5yr.		475,788		23.25		3/25/2008		03/31/23
Pep Boys Clarksville, IN		1	The Pep Boys Manny, Moe, and Jack		22,211		100	%	4/5yr.		195,087		8.78		3/25/2008		03/31/23
Pep Boys Colorado Springs, CO		1	The Pep Boys Manny, Moe, and Jack		22,211		100	%	4/5yr.		206,562		9.30		3/25/2008		03/31/23
Pep Boys El Centro, CA		1	The Pep Boys Manny, Moe, and Jack		18,196		100	%	4/5yr.		188,025		10.33		3/25/2008		03/31/23
Pep Boys Fort Myers, FL		1	The Pep Boys Manny, Moe, and Jack		22,225		100	%	4/5yr.		236,215		10.63		3/25/2008		03/31/23
Pep Boys Frederick, MD		1	The Pep Boys Manny, Moe, and Jack		17,690		100	%	4/5yr.		365,593		20.67		3/25/2008		03/31/23
Pep Boys Hampton, VA		1	The Pep Boys Manny, Moe, and Jack		22,211		100	%	4/5yr.		309,843		13.95		3/25/2008		03/31/23
Pep Boys Lakeland, FL		1	The Pep Boys Manny, Moe, and Jack		20,747		100	%	4/5yr.		210,531		10.15		3/25/2008		03/31/23
Pep Boys Nashua, NH		1	The Pep Boys Manny, Moe, and Jack		19,300		100	%	4/5yr.		339,037		17.57		3/25/2008		03/31/23
Pep Boys New Hartford, NY		1	The Pep Boys Manny, Moe, and Jack		22,211		100	%	4/5yr.		183,611		8.27		3/25/2008		03/31/23
Pep Boys Orem, UT		1	The Pep Boys Manny, Moe, and Jack		21,770		100	%	4/5yr.		236,205		10.85		3/25/2008		03/31/23
Pep Boys Pasadena, TX		1	The Pep Boys Manny, Moe, and Jack		22,341		100	%	4/5yr.		386,558		17.30		3/25/2008		03/31/23
Pep Boys Redlands, CA		1	The Pep Boys Manny, Moe, and Jack		22,290		100	%	4/5yr.		358,037		16.06		3/25/2008		03/31/23
Pep Boys San Antonio, TX		1	The Pep Boys Manny, Moe, and Jack		23,373		100	%	4/5yr.	$	190,636	$	8.16		3/25/2008		03/31/23
Pep Boys Tamarac, FL		1	The Pep Boys Manny, Moe, and Jack		18,020		100	%	4/5yr.		316,551		17.57		3/25/2008		03/31/23

109


						% of				Current		Base
	Number			Total		Total				Annual		Rent per
	of			Square		Square			Renewal	Base		Square		Lease Term
Property	Tenants		Major Tenants*	Feet Leased		Feet			Options**	Rent		Foot		Beginning		To

Pep Boys Tampa, FL		1	The Pep Boys Manny, Moe, and Jack		22,356		100	%	4/5yr.	$	149,184	$	6.67		3/25/2008		03/31/23
Pep Boys West Warwick, RI		1	The Pep Boys Manny, Moe, and Jack		22,211		100	%	4/5yr.		286,892		12.92		3/25/2008		03/31/23
Walgreens Batesville, MS		1	Walgreen Co.		14,250		100	%	10/5yr.		351,200		24.65		3/31/2008		07/31/32
											228,000		11.94		4/7/08		11/20/12
											250,800		13.13		11/21/12		11/20/17
Tractor Supply Clovis, NM		1	Tractor Supply Company		19,097		100	%	4/5yr.		275,880		14.45		11/21/17		11/20/22
BJ’s Wholesale Club Haverhill, MA		1	BJ’s Wholesale Club, Inc.		119,598		100	%	4/5yr.		1,285,679		10.75		4/14/08		4/4/27


*		Major tenants include those tenants that occupy greater than 10.0% of the rentable square feet of their respective property.

**		Represents option renewal period / term of each option.

(1)		The initial annual rent of $419,750 — as displayed in the table above — is subject to rental escalations of 2% each year through the remainder of the lease, which expires October 31, 2015. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(2)		The annual base rent of $1,790,100 — as displayed in the table above — is fixed through the first 13 months of the initial lease term, with a 2.5% rental escalation beginning 14 months after the start of the initial lease term, and every 12 months thereafter for the remaining term of the lease, which expires January 31, 2021. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(3)		The Wawa Properties are 100% leased to Wawa under a master lease agreement. The current aggregate annual base rent of $1,013,117 is fixed through the initial lease term and was allocated based on the square feet of each property as a percentage of the total square feet for all three properties.

(4)		The current aggregate annual base rent of $707,395 — as displayed in the table above — is fixed through July 1, 2007 with rental escalations of 1.25% each year for the remainder of the initial lease term, which expires July 1, 2021. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(5)		The initial annual base rent under the lease is $7,038,000 — as displayed in the table above — increases each year, by 1.5% of the then current annual base rent. The initial term of the lease expires January 31, 2027. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(6)		The current aggregate annual base rent of $316,990 — as displayed in the table above — is fixed through the first year of the initial lease term and increases 3% each year through the remainder of the lease term, which expires January 31, 2014. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(7)		The current aggregate annual base rent of $900,473 is fixed through the first year of the initial lease, and increases 1.5% each year through the initial lease term, which expires March 31, 2017. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(8)		The current aggregate annual base rent of $224,619 — as displayed in the table above — is fixed through November 29, 2007 with rental escalations of 1.75% each year for the remainder of the initial lease term, which expires November 29, 2026. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(9)		The current aggregate annual base rent of $270,623 — as displayed in the table above — is fixed through November 29, 2007 with rental escalations of 1.75% each year for the remainder of the initial lease term, which expires November 29, 2026. For the purposes of presentation the individual rental escalations were not displayed in the table above.

110


(10)		The lease consists of eight single-tenant restaurants, which are subject to a master lease agreement. The properties are located in New Mexico, Georgia, Oregon, Washington, and Colorado.

(11)		The lease consists of seven single-tenant restaurants, which are subject to a master lease agreement. The properties are located in New Mexico, Georgia, Washington, and Colorado.

(12)		The lease consists of seven single-tenant restaurants, which are subject to a master lease agreement. The properties are located in New Mexico, Georgia, Washington, and Colorado.

(13)		The initial annual rent for the property is subject to rental escalations of 1.5% each year through the remainder of the lease. For the purposes of presentation the individual rental escalations were not displayed in the table above.

(14)		The lease with Station Casino, Inc. includes annual rental increases of 1.25% each year of the initial lease term.

(15)		The lease agreement with Stop & Shop Supermarket Company, LLC, is a ground lease. As such, base rent per square foot is not applicable for this lease.

Cole Realty Advisors has the sole and exclusive right to manage, operate, lease and supervise the overall maintenance of the properties listed above and currently receives a property management fee of 2% of the monthly gross revenues from our single-tenant properties and 4% of the gross revenues from our multi-tenant properties. We currently have no plan for any renovations, improvements or development of the properties listed above and we believe that all are adequately insured.

In connection with the property acquisitions noted above, we incurred or assumed the following fixed and variable rate mortgage notes:


	Fixed Rate		Fixed
	Loan		Interest			Maturity		Variable Rate		Maturity		Total Loan
Property	Amount		Rate			Date		Loan Amount		Date		Outstanding

Tractor Supply Parkersburg, WV	$	1,793,000		5.57	%		10/11/15	$	814,000		12/26/05	$	2,607,000
Walgreens Brainerd, MN		2,814,000		5.44	%		10/11/15		649,000		1/4/06		3,463,000
Rite Aid Alliance, OH		—		N/A			N/A		—		N/A		—
La-Z-Boy Glendale, AZ		3,415,000		5.76	%		11/11/10		1,138,000		1/25/06		4,553,000
Walgreens Florissant, MO		3,372,000		5.48	%		11/11/15		778,000		2/2/06		4,150,000
Walgreens Saint Louis, MO (Gravois)		3,289,000		5.48	%		11/11/15		759,000		2/2/06		4,048,000
Walgreens Saint Louis, MO (Telegraph)		3,999,000		5.48	%		11/11/15		923,000		2/2/06		4,922,000
Walgreens Columbia, MO		4,645,369		5.15	%		7/11/08		—		N/A		4,487,895
Walgreens Olivette, MO		5,567,894		5.15	%		7/11/08		—		N/A		5,379,146
CVS Alpharetta, GA		2,015,000		5.52	%		12/11/10		465,000		3/1/06		2,480,000
Lowe’s Enterprise, AL		4,859,000		5.52	%		12/11/10		1,121,000		3/1/06		5,980,000
CVS Richland Hills, TX		2,379,000		5.52	%		12/11/10		549,000		3/8/06		2,928,000
FedEx Rockford, IL		3,998,000		5.61	%		12/11/10		922,000		3/10/06		4,920,000
Plastech Auburn Hills, MI		—		N/A			N/A		17,700,000		12/14/06		17,700,000
Academy Sports Macon, GA		3,478,000		5.69	%		1/11/16		802,000		4/6/06		4,280,000
David’s Bridal Lenexa, KS		1,799,000		5.86	%		1/11/11		817,000		4/11/06		2,616,000
Rite Aid Enterprise, AL		2,043,000		5.80	%		2/11/16		928,000		4/26/06		2,971,000
Rite Aid Wauseon, OH		2,142,000		5.80	%		2/11/16		973,000		4/26/06		3,115,000
Staples Crossville, TN		1,885,000		5.71	%		2/11/11		435,000		4/26/06		2,320,000
Rite Aid Saco, ME		1,375,000		5.82	%		2/11/11		625,000		4/27/06		2,000,000
Wadsworth Boulevard Denver, CO		12,025,000		5.57	%		3/1/11		2,275,000		12/31/06		14,300,000
Mountainside Fitness Chandler, AZ		—		N/A			N/A		4,690,400		12/31/06		4,690,400
Drexel Heritage Hickory, NC		2,763,000		5.80	%		3/11/11		637,000		5/24/06		3,400,000
Rayford Square Spring, TX		5,940,000		5.64	%		4/1/16		—		N/A		5,940,000
CVS Portsmouth, OH		1,424,000		5.67	%		3/11/11		329,000		6/8/06		1,753,000

111.1


	Fixed Rate		Fixed
	Loan		Interest			Maturity		Variable Rate		Maturity		Total Loan
Property	Amount		Rate			Date		Loan Amount		Date		Outstanding

Wawa Hockessin, DE, Manahawkin, NJ, Narberth, PA	$	—		N/A			N/A	$	7,234,787		2/26/10	$	7,234,787
CVS Lakewood, OH		1,348,000		5.77	%		5/11/11		612,000		7/20/06		1,960,000
Rite Aid Cleveland, OH		1,413,000		6.05	%		5/11/11		642,000		7/27/06		2,055,000
Rite Aid Fremont, OH		1,388,000		6.05	%		5/11/11		632,000		7/27/06		2,020,000
Walgreens Knoxville, TN		3,088,000		5.80	%		5/11/11		712,000		8/8/06		3,800,000
CVS Madison, MS		2,809,000		5.60	%		2/11/16		—		N/A		2,809,000
Rite Aid Defiance, OH		2,321,000		5.76	%		1/11/16		—		N/A		2,321,000
Conns San Antonio, TX		2,461,000		5.86	%		5/11/11		1,119,000		7/25/06		3,580,000
Dollar General Crossville, TN		1,950,000		5.75	%		6/11/16		450,000		9/2/06		2,400,000
Dollar General Ardmore, TN		1,804,000		5.79	%		6/11/16		416,000		9/9/06		2,220,000
Dollar General Livingston, TN		1,856,000		5.79	%		7/11/16		429,000		10/12/06		2,285,000
Wehrenberg Arnold, MO		—		N/A			N/A		—		N/A		—
Sportmans Warehouse Wichita, KS		—		N/A			N/A		6,173,250		12/27/06		6,173,250
CVS Portsmouth, OH		—		N/A			N/A		—		N/A		—
Advance Auto Greenfield, IN		—		N/A			N/A		—		N/A		—
Advance Auto Trenton, OH		—		N/A			N/A		—		N/A		—
Rite Aid Lansing, MI		1,041,000		5.90	%		7/1/16		—		N/A		1,041,000
Advance Auto Columbia Heights, MN		1,038,000		5.83	%		7/11/16		346,000		10/6/06		1,384,000
Advance Auto Fergus Falls, MN		722,000		5.83	%		7/11/16		241,000		10/6/06		963,000
CVS Okeechobee, FL		4,076,000		5.60	%		2/11/16		—		N/A		4,076,000
Office Depot Dayton, OH		2,130,000		5.73	%		2/11/16		—		N/A		2,130,000
Advance Auto Holland, MI		1,193,000		5.83	%		4/11/16		—		N/A		1,193,000
Advance Auto Holland Township, MI		1,231,000		5.83	%		4/11/16		—		N/A		1,231,000
Advance Auto Zeeland, MI		1,057,000		5.83	%		4/11/16		—		N/A		1,057,000
CVS Orlando, FL		3,016,000		5.68	%		4/11/16		—		N/A		3,016,000
Office Depot Greenville, MS		2,192,000		5.76	%		3/11/11		—		N/A		2,192,000
Office Depot Warrensburg, MO		1,810,000		5.85	%		4/11/11		—		N/A		1,810,000
CVS Gulfport, MS		2,611,000		5.28	%		4/11/16		—		N/A		2,611,000
Advance Auto Grand Forks, ND		840,000		5.87	%		9/11/16		280,000		11/15/06		1,120,000
CVS Clinton, NY		1,983,000		5.74	%		9/11/16		457,000		12/24/06		2,440,000	(2)
Oxford Theatre Oxford, MS		5,175,000		6.11	%		9/1/16		—		N/A		5,175,000	(1)
Advance Auto Duluth, MN		860,000		5.87	%		10/11/16		286,000		12/22/06		1,146,000
Walgreens Picayune, MS		2,766,000		5.53	%		10/11/16		638,000		1/15/07		3,404,000	(2)
Kohl’s Wichita, KS		5,200,000		6.11	%		9/1/16		—		N/A		5,200,000	(1)
Lowe’s Lubbock, TX		7,150,000		6.11	%		9/1/16		—		N/A		7,150,000	(1)
Lowe’s Midland, TX		7,475,000		6.11	%		9/1/16		—		N/A		7,475,000	(1)
Advance Auto Grand Bay, AL		—		N/A			N/A		—		N/A		—
Advance Auto Hurley, MS		—		N/A			N/A		—		N/A		—
Advance Auto Rainsville, AL		—		N/A			N/A		—		N/A		—
Gold’s Gym O’Fallon, IL		3,650,000		5.83	%		10/11/16		2,190,000		17/27/06		5,840,000	(2)
Rite Aid Glassport, PA		2,325,000		6.10	%		11/1/16		—		N/A		2,325,000
David’s BridalRadio Shack Topeka, KS		2,000,000		5.77	%		12/1/16		—		N/A		2,000,000
Rite Aid Hanover, PA		4,115,000		6.11	%		11/1/16		—		N/A		4,115,000
American TV & Appliance Peoria, IL		7,358,971		6.00	%		10/1/18		—		N/A		7,358,971
Tractor Supply La Grange, TX		1,405,000		5.99	%		12/1/16		—		N/A		1,405,000	(3)
Staples Peru, IL		1,930,000		5.66	%		12/1/11		—		N/A		1,930,000

112


	Fixed Rate		Fixed
	Loan		Interest			Maturity		Variable Rate		Maturity		Total Loan
Property	Amount		Rate			Date		Loan Amount		Date		Outstanding

Fedex Council Bluffs, IA	$	2,185,000		5.97	%		12/1/16	$	—		N/A	$	2,185,000
Fedex Edwardsville, KS		12,880,000		5.97	%		12/1/16		—		N/A		12,880,000
CVS Glenville Scotia, NY		3,413,000		5.74	%		12/11/16		787,000		3/16/07		4,200,000
Advance Auto Ashland, KY		—		N/A			N/A		—		N/A		—
Advance Auto Jackson, OH		—		N/A			N/A		—		N/A		—
Advance Auto New Boston, OH		—		N/A			N/A		—		N/A		—
Advance Auto Scottsburg, IN		—		N/A			N/A		—		N/A		—
Tractor Supply Livingston, TN		1,725,000		5.99	%		12/1/16		—		N/A		1,725,000	(3)
Tractor Supply New Braunfels, TX		1,750,000		5.99	%		12/1/16		—		N/A		1,750,000	(3)
Office Depot Benton, AR		2,130,000		5.77	%		12/1/16		—		N/A		2,130,000
Old Time Pottery Fairview Heights, IL		2,140,000		6.31	%		12/11/11		1,284,000		3/21/07		3,424,000
Infiniti Davie, FL		—		N/A			N/A		—		N/A		—
Office Depot Oxford, MS		2,295,000		6.17	%		12/1/16		—		N/A		2,295,000
Tractor Supply Crockett, TX		1,325,000		5.99	%		12/1/16		—		N/A		1,325,000	(3)
Mercedes Benz Atlanta, GA		—		N/A			N/A		—		N/A		—
Dick’s Sporting Goods Amherst, NY		6,321,000		5.62	%		2/1/17		—		N/A		6,321,000
Chili’s Paris, TX		1,790,000		5.65	%		1/1/17		—		N/A		1,790,000
Staples Clarksville, IN		2,900,000		5.78	%		1/1/17		—		N/A		2,900,000
HOM Fargo, ND		4,800,000		5.56	%		2/1/2017		—		N/A		4,800,000
La-Z-Boy Newington, CT		4,140,000		5.66	%		2/1/2017		—		N/A		4,140,000
Advance Auto Maryland Heights, MO		—		N/A			N/A		—		N/A		—
Victoria Crossing Victoria, TX		8,288,000		5.71	%		2/11/17		1,912,000		4/12/07		10,200,000
Academy Sports Katy, TX		68,250,000		5.61	%		2/1/17		—		N/A		68,250,000
Gordmans Peoria, IL		4,950,000		5.71	%		2/1/17		—		N/A		4,950,000
One Pacific Place Omaha, NE		23,400,000		5.53	%		3/1/17		—		N/A		23,400,000
Sack n’ SaveO’Reilly Auto Garland, TX		3,290,000		5.54	%		3/1/17		—		N/A		3,290,000
Tractor Supply Ankeny, IA		1,950,000		5.65	%		5/1/17		—		N/A		1,950,000
ABX Air Coventry, RI		2,454,000		5.70	%		4/1/12		—		N/A		2,454,000
Office Depot Enterprise, AL		1,850,000		6.29	%		3/1/17		—		N/A		1,850,000
Northern Tool Blaine, MN		3,185,000		6.00	%		9/1/16		—		N/A		3,185,000	(4)
Office Max Orangeburg, SC		1,875,000		5.61	%		4/1/12		—		N/A		1,875,000
Walgreens Cincinnati, OH		3,341,000		6.00	%		9/1/16		—		N/A		3,341,000	(4)
Walgreens Madeira, OH		2,876,000		5.70	%		4/1/12		—		N/A		2,876,000
Walgreens Sharonville, OH		2,655,000		5.62	%		4/1/12		—		N/A		2,655,000
AT&T Beaumont, TX		8,592,000		5.87	%		4/1/17		—		N/A		8,592,000
Walgreens Shreveport, LA		2,815,000		5.56	%		4/11/17		497,000		6/23/07		3,312,000
Cost-U-Less,- St. Crois, USVI		4,035,000		5.76	%		4/1/17		—		N/A		4,035,000
Gallina Centro Collierville, TN		14,200,000		5.72	%		4/11/17		—		N/A		14,200,000
Apria Healthcare St. John, MO		—		N/A			N/A		—		N/A		—
Logan’s Roadhouse Fairfax, VA		1,605,000		6.00	%		4/11/17		962,000		6/27/07		2,567,000
Logan’s Roadhouse Johnson City, TN		1,933,000		6.00	%		4/11/17		1,160,000		6/27/07		3,093,000
Center at 7500 Cottonwood Jenison, MI		—		N/A			N/A		—		N/A		—
Eckerd Lincolnton, NC		1,538,000		5.80	%		4/11/17		271,000		7/3/07		1,809,000
Tractor Supply Greenfield, MN		2,227,500		5.57	%		7/1/17		—		N/A		2,227,500
Lincoln Place Fairview Heights, IL		35,432,000		5.70	%		5/1/17		—		N/A		35,432,000
Amarillo Furniture Ashley, TX		4,026,000		5.59	%		4/11/17		710,000		7/5/07		4,736,000

113


	Fixed Rate		Fixed
	Loan		Interest			Maturity		Variable Rate		Maturity		Total Loan
Property	Amount		Rate			Date		Loan Amount		Date		Outstanding

Pocatello Square Pocatello, ID	$	17,250,000		5.53	%		4/11/17	$	1,150,000		8/6/07	$	18,400,000
Tractor Supply Paw Paw, MI		2,048,000		5.65	%		5/1/17		—		N/A		2,048,000
Tractor Supply Marinette, WI		1,918,000		5.65	%		5/1/17		—		N/A		1,918,000
Staples Greenville, SC		2,955,000		5.51	%		6/11/17		—		N/A		2,955,000
Big 5 Center Aurora, CO		2,804,000		5.57	%		6/11/17		—		N/A		2,804,000
Rite Aid Plains, PA		3,380,000		5.60	%		5/17/17		—		N/A		3,380,000
Tractor Supply Navasota, TX		2,050,000		5.80	%		5/11/17		362,000		7/18/2007		2,412,000
Sportsman’s Warehouse De Pere, WI		3,906,500		5.52	%		5/1/17		—		N/A		3,906,500
Eckerd Easton, PA		4,060,000		5.80	%		4/11/17		716,000		7/4/2007		4,776,000
Applebee’s Portfolio Master Loan I		15,161,185		5.68	%		5/11/17		—		N/A		15,161,185	(5)
Applebee’s Portfolio Master Loan II		13,237,086		5.68	%		5/11/17		—		N/A		13,327,086	(6)
Applebee’s Portfolio Master Loan III		13,851,729		5.68	%		5/11/17		—		N/A		13,851,729	(7)
Walgreens Bridgetown, OH		3,043,000		5.80	%		5/11/17		537,000		8/27/2007		3,580,000
Rite Aid Fredericksburg, VA		2,979,000		5.92	%		5/11/17		1,353,000		8/2/2007		4,332,000
Sam’s Club Anderson, SC		8,160,000		5.80	%		5/11/17		1,440,000		8/4/2007		9,600,000
Tractor Supply Fredericksburg, TX		2,031,250		5.57	%		6/1/17		—		N/A		2,031,250
Walgreens Dallas, TX		2,175,000		5.76	%		6/1/17		—		N/A		2,175,000
Wal-Mart New London, WI		1,778,000		5.80	%		5/11/17		313,000		8/9/2007		2,091,000
Rite Aid Lima, OH (Bellefontaine)		3,103,000		5.46	%		6/1/2017		—		N/A		3,103,000
Rite Aid Allentown, PA		3,615,000		5.78	%		6/1/2017		—		N/A		3,615,000
CVS Florence, SC		1,706,205		5.73	%		6/1/2017		—		N/A		1,706,205
Eckerd Spartanburg (Main), SC		2,258,750		5.73	%		6/1/2017		—		N/A		2,258,750
Staples Warsaw, IN		1,850,000		5.73	%		6/1/2017		—		N/A		1,850,000
Walgreens Bryan, TX		4,111,000		5.70	%		6/11/2017		949,000		8/18/2007		5,060,000
Walgreens Harris County, TX		3,673,000		5.70	%		6/11/2017		848,000		8/18/2007		4,521,000
Tractor Supply Fairview, TN		1,930,500		5.59	%		6/1/2017		—		N/A		1,930,500
Borders Rapid City, SD		4,393,000		5.66	%		6/11/2017		776,000		9/1/2007		5,169,000
Borders Reading, PA		4,257,000		5.66	%		6/11/2017		752,000		9/1/2007		5,009,000
Walgreens Gainesville, FL		2,465,000		5.60	%		6/11/2017		435,000		9/1/2007		2,900,000
Chili’s Fredericksburg, TX		1,504,000		5.55	%		6/11/2017		347,000		9/5/2007		1,851,000
Tractor Supply Baytown, TX		2,251,000		5.60	%		6/11/2017		397,000		9/11/2007		2,648,000
Winco Eureka, CA		11,247,000		5.71	%		7/1/2017		—		N/A		11,247,000
Eckerd Vineland, NJ		3,500,000		5.71	%		7/1/2017		—		N/A		3,500,000
Eckerd Mantua, NJ		1,470,000		5.71	%		7/1/2017		—		N/A		1,470,000
Best Buy (Super Value) Warwick, RI		5,350,000		5.71	%		7/1/2017		—		N/A		5,350,000
Best Buy Evanston, IL		5,900,000		5.71	%		7/1/2017		—		N/A		5,900,000
Academy Sports Houston, TX		3,825,000		5.71	%		7/1/2017		—		N/A		3,825,000
Starbucks Covington, TN		—		N/A			N/A		—		N/A		—
Starbucks Sedalia, MO		—		N/A			N/A		—		N/A		—
Kroger La Grange, GA		4,750,000		5.21	%		7/1/2012		—		N/A		4,750,000
La-Z-Boy Kentwood, MI		3,602,000		5.32	%		7/1/2012		—		N/A		3,602,000
Circuit City Mesquite, TX		4,305,000		5.32	%		7/1/2012		—		N/A		4,305,000
Tractor Supply Prior Lake, MN		3,283,250		5.73	%		7/1/2017		—		N/A		3,283,250
Circuit City Distribution Center Groveland, FL		20,250,000		5.55	%		8/11/2017		—		N/A		20,250,000
Walgreens Fort Worth, TX		3,675,000		5.55	%		8/11/2017		—		N/A		3,675,000

114


	Fixed Rate		Fixed
	Loan		Interest			Maturity		Variable Rate		Maturity		Total Loan
Property	Amount		Rate			Date		Loan Amount		Date		Outstanding

Kohl’s Lake Zurich, IL	$	9,075,000		5.55	%		8/11/2017	$	—		N/A	$	9,075,000
EDS Salt Lake City, UT		18,000,000		5.55	%		8/11/2017		—		N/A		18,000,000
Lowe’s Cincinnati, OH		13,800,000		5.55	%		8/11/2017		—		N/A		13,800,000
Walgreens Kansas City (Linwood), MO		2,437,500		5.69	%		7/11/2017		—		N/A		2,437,500
Walgreens Kansas City (Troost), MO		2,464,000		5.79	%		7/11/2017		—		N/A		2,464,000
Walgreens Kansas City (63rd St), MO		3,034,500		5.79	%		7/11/2017		—		N/A		3,034,500
Walgreens Kansas City (Independence), MO		2,990,000		5.69	%		7/11/2017		—		N/A		2,990,000
Walgreens Topeka, KS		1,870,000		5.79	%		7/11/2017		—		N/A		1,870,000
CVS Amarillo, TX		1,741,000		5.83	%		8/1/2017		—		N/A		1,741,000
Taco Bell Brazil, IN		—		N/A			N/A		—		N/A		—
Taco Bell Henderson, KY		—		N/A			N/A		—		N/A		—
Academy Sports Baton Rouge, LA		4,687,000		5.83	%		8/1/2017		—		N/A		4,687,000
Taco Bell Washington, IN		—		N/A			N/A		—		N/A		—
Taco Bell Robinson, IL		—		N/A			N/A		—		N/A		—
Taco Bell Princeton, IN		—		N/A			N/A		—		N/A		—
Eckerd Mableton, GA		1,197,000		5.67	%		8/1/2017		—		N/A		1,197,000
Taco Bell/KFC Spencer, IN		—		N/A			N/A		—		N/A		—
CVS Del City, OK		2,631,000		5.82	%		8/1/2017		—		N/A		2,631,000
Taco Bell Anderson, IN		—		N/A			N/A		—		N/A		—
Academy Sports N Richland Hills, TX		4,217,000		5.83	%		8/1/2017		—		N/A		4,217,000
Dave and Busters Addison, IL		5,600,000		5.56	%		8/1/2017		—		N/A		5,600,000
Academy Sports Houston (Southwest), TX		4,625,000		5.83	%		8/1/2017		—		N/A		4,625,000
Academy Sports Houston (Breton), TX		3,045,000		5.83	%		8/1/2017		—		N/A		3,045,000
Eckerd Chattanooga, TN		1,920,000		5.67	%		8/1/2017		—		N/A		1,920,000
Taco Bell/KFC Vinceness, IN		—		N/A			N/A		—		N/A		—
Taco Bell Martinsville, IN		—		N/A			N/A		—		N/A		—
LJS/A&W Houston, TX		—		N/A			N/A		—		N/A		—
Dickinson Theatre Yukon, OK		—		N/A			N/A		—		N/A		—
Circuit City Taunton, MA		4,323,000		5.32	%		8/1/2012		—		N/A		4,323,000
Telerx Kings Mountain, NC		6,083,000		5.27	%		8/1/2012		—		N/A		6,083,000
Staples Guntersville, AL		2,161,250		5.24	%		8/1/2012		—		N/A		2,161,250
Federal Express Peoria, IL		2,080,000		5.6	%		7/20/2017		—		N/A		2,080,000
Wal-Mart Spencer, IN		1,377,000		5.8	%		6/11/2017		243,000		8/3/2007		1,620,000
Gold’s Gym St. Peters, MO		5,250,000		5.91	%		10/1/2017		—		N/A		5,250,000
Fed Ex Walker, MI		4,669,000		6.30	%		9/1/2012		—		N/A		4,669,000
Circuit City Aurora, CO		4,777,000		6.30	%		9/1/2017		—		N/A		4,777,000
24 Hour Fitness Olathe, KS		4,816,500		6.15	%		9/1/2017		—		N/A		4,816,500
Gold s Gym O Fallon, MO		5,425,000		6.09	%		9/1/2017		—		N/A		5,425,000
Broadview Village Square Chicago, IL		31,500,000		5.86	%		10/1/2017		—		N/A		31,500,000
Massard Farms Fort Smith, AR		10,237,000		6.86	%		11/1/2017		—		N/A		10,237,000
Wickes Furniture Chicago, IL		15,925,000		6.88	%		10/1/2017		—		N/A		15,925,000
Station Casino Las Vegas, NV		42,250,000		6.52	%		11/1/2017		—		N/A		42,250,000
Circle K Portfolio		66,000,000		6.69	%		1/1/2018		—		N/A		66,000,000
Academy Sports Lufkin, TX		—		N/A			N/A		3,685,765		2/1/2009		3,685,765

115


	Fixed Rate		Fixed
	Loan		Interest			Maturity		Variable Rate		Maturity		Total Loan
Property	Amount		Rate			Date		Loan Amount		Date		Outstanding

Best Buy Wichita, KS	$	—		N/A			N/A	$	8,080,331		2/1/2009	$	8,080,331
Bridgestone Tire Atlanta, GA		—		N/A			N/A		1,754,282		2/1/2009		1,754,282
Boscov’s Voorhees, NJ		—		N/A			N/A		3,189,604		2/1/2009		3,189,604
CVS Indianapolis, IN		—		N/A			N/A		2,675,724		2/1/2009		2,675,724
FedEx Mishawaka, IN		—		N/A			N/A		2,799,764		2/1/2009		2,799,764
Marsh Supermarket Indianapolis, IN		—		N/A			N/A		10,242,174		2/1/2009		10,242,174
Walgreens Oneida, TN		—		N/A			N/A		3,800,000		8/30/2009		3,800,000
Milford Commons Milford, NH		5,816,924		5.59	%		4/11/2016		—		N/A		5,816,924
CarMax Greenville, SC		15,125,000		5.90	%		12/1/2016		—		N/A		15,125,000
Bank of America Delray Beach, FL		—		N/A			N/A		10,632,014		2/1/2009		10,632,014
Circuit City Kennesaw, GA		—		N/A			N/A		14,176,019		2/1/2009		14,176,019
Mustang Engineering Houston, TX		—		N/A			N/A		13,467,218		2/1/2009		13,467,218
Office Depot Alcoa, TN		—		N/A			N/A		2,888,364		2/1/2009		2,888,364
Arby’s New Castle, PA		—		N/A			N/A		1,063,201		2/1/2009		1,063,201
CarMax Raleigh, NC		—		N/A			N/A		6,520,969		2/1/2009		6,520,969
CarMax Pineville, NC		—		N/A			N/A		7,017,129		2/1/2009		7,017,129
Pep Boys Portfolio I		—		N/A			N/A		16,000,000		3/31/2009		16,000,000
Pep Boys Portfolio II		—		N/A			N/A		16,000,000		3/31/2009		16,000,000
Walgreens Bastesville, MS		—		N/A			N/A		—		N/A		—
Tractor Supply Clovis, NM		—		N/A			N/A		—		N/A		—
BJ’s Wholesale Club Haverhill, NM		—		N/A			N/A		—		N/A		—

		950,581,863							203,380,995				1,153,706,636


(1)		Mortgage note is cross-collateralized and cross-secured with the LO Midland Property, LO Lubbock Property, KO Wichita Property and OT Oxford Property.

(2)		Mortgage note is cross-collateralized and cross-secured with the CV Clinton Property, WG Picayune Property and GG O’Fallon Property.

(3)		Mortgage note is cross-collateralized and cross-secured with the TS La Grange Property, TS Crockett Property, TS Livingston Property and TS New Braunfels Property.

(4)		Mortgage note is cross-collateralized and cross-secured with the NT Blaine Property and the WG Cincinnati Property.

(5)		The loan was used to fund eight single-tenant restaurants, which are subject to a master loan agreement. The properties are located in New Mexico, Georgia, Oregon, Washington, and Colorado.

(6)		The loan was used to fund seven single-tenant restaurants, which are subject to a master loan agreement. The properties are located in New Mexico, Georgia, Washington, and Colorado.

(7)		The loan was used to fund seven single-tenant restaurants, which are subject to a master loan agreement. The properties are located in New Mexico, Georgia, Washington, and Colorado.

The fixed rate debt mortgage notes mature on various dates from July 2012 to January 2018, as set forth above. The mortgage notes are generally non-recourse to us and Cole OP II, but both are liable for customary non-recourse carveouts.

The fixed rate mortgage notes generally may not be prepaid, in whole or in part, except under the following circumstances: (i) full prepayment may be made on any of the three (3) monthly payment dates occurring immediately prior to the maturity date, and (ii) partial prepayments resulting from the application of insurance or condemnation proceeds to reduce the outstanding principal balance of the mortgage notes. Notwithstanding the

116

prepayment limitations, we may sell the property to a buyer that assumes the respective mortgage loan. The transfer would be subject to the conditions set forth in the individual property’s mortgage note document, including without limitation, the lender’s approval of the proposed buyer and the payment of the lender’s fees, costs and expenses associated with the sale of the property and the assumption of the loan.

In the event a mortgage note is not paid off on the maturity date, the mortgage loans include default provisions. Upon the occurrence of an event of default, interest on the mortgage notes will accrue at an annual default interest rate equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) 4% above the fixed interest rate. In addition, we will be required to pay a prepayment consideration in an amount equal to the greater of 1.0% of the outstanding principal balance of the mortgage note, or the present value of the remaining scheduled payments of principal and interest from the date such payment is received through the maturity date at the time any payment is received by the lender.

The variable rate mortgage notes require monthly interest-only payments. As of April 25, 2008, we had repaid approximately $4.7 million of the variable rate mortgage notes set forth above. The remaining $124.0 million matures on various dates from February 2009 to August 2009, as set forth above. The mortgage notes are generally non-recourse to us and Cole OP II, but both are liable for customary non-recourse carveouts.

The variable rate mortgage notes, related to the Pep Boys Portfolio I and Pep Boys Portfolio II properties, were obtained from Series B, LLC and Series C, LLC, each an affiliate of our advisor. The variable rate mortgage notes are secured by the limited partnership interests held by Cole OP II in Cole PB Portfolio I, LP, and Cole PB Portfolio II, LP, respectively. All of the members of our board of directors, including all of our independent board members, not otherwise interested in such transaction approved the transaction as being fair, competitive and commercially reasonable and no less favorable to us than loans from unaffiliated parties under the same circumstances.

The variable rate mortgages may be prepaid at any time without premium or penalty. In the event the variable rate mortgages are not paid off on the maturity date, the variable rate mortgage notes include default provisions. Upon the occurrence of an event of default, interest on the mortgage notes will accrue at 4% above the variable interest rate and all interest and principal will become immediately due and payable.

For federal income tax purposes, the depreciable basis in the properties noted above is approximately $2.5 billion in total. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 years, respectively. The depreciable basis in the properties noted above are detailed as follows:


	Depreciable
Property	Tax Basis

Tractor Supply Parkersburg, WV	$	2,419,149
Walgreens Brainerd, MN		3,455,534
Rite Aid Alliance, OH		1,721,992
La-Z-Boy Glendale, AZ		3,308,706
Walgreens Florissant, MO		3,798,660
Walgreens Saint Louis, MO (Gravois)		4,041,203
Walgreens Saint Louis, MO (Telegraph)		3,405,433
Walgreens Columbia, MO		4,066,885
Walgreens Olivette, MO		4,920,452
CVS Alpharetta, GA		1,974,033
Lowe’s Enterprise, AL		6,620,785
CVS Richland Hills, TX		2,617,497
FedEx Rockford, IL		4,810,302
Plastech Auburn Hills, MI		20,812,140
Academy Sports Macon, GA		4,546,122
David’s Bridal Lenexa, KS		2,588,991
Rite Aid Enterprise, AL		2,892,211
Rite Aid Wauseon, OH		2,920,310
Staples Crossville, TN		2,421,793

117


	Depreciable
Property	Tax Basis

Rite Aid Saco, ME	$	2,188,010
Wadsworth Boulevard Denver, CO		14,190,910
Mountainside Fitness Chandler, AZ		4,818,016
Drexel Heritage Hickory, NC		3,958,998
Rayford Square Spring, TX		7,936,443
CVS Portsmouth, OH		1,667,154
Wawa Hockessin, DE		3,087,470
Wawa Manahawkin, NJ		2,821,552
Wawa Narbeth, PA		2,688,592
CVS Lakewood, OH		1,973,647
Rite Aid Cleveland, OH		2,070,669
Rite Aid Fremont, OH		1,728,442
Walgreens Knoxville, TN		3,068,515
CVS Madison, MS		3,368,662
Rite Aid Defiance, OH		3,126,556
Conns San Antonio, TX		3,562,750
Dollar General Crossville, TN		2,435,881
Dollar General Ardmore, TN		2,114,108
Dollar General Livingston, TN		2,033,053
Wehrenberg Arnold, MO		5,698,096
Sportmans Warehouse Wichita, KS		6,843,371
CVS Portsmouth, OH		1,770,141
Advance Auto Greenfield, IN		755,462
Advance Auto Trenton, OH		772,177
Rite Aid Lansing, MI		1,547,295
Advance Auto Columbia Heights, MN		1,236,120
Advance Auto Fergus Falls, MN		1,058,994
CVS Okeechobee, FL		4,812,804
Office Depot Dayton, OH		2,583,810
Advance Auto Holland, MI		1,432,089
Advance Auto Holland Township, MI		1,463,900
Advance Auto Zeeland, MI		1,384,950
CVS Orlando, FL		2,807,200
Office Depot Greenville, MS		2,583,810
Office Depot Warrensburg, MO		1,829,024
CVS Gulfport, MS		3,032,978
Advance Auto Grand Forks, ND		1,070,994
CVS Clinton, NY		2,462,819
Oxford Theatre Oxford, MS		9,636,227
Advance Auto Duluth, MN		1,190,975
Walgreens Picayune, MS		3,153,167
Kohl’s Wichita, KS		6,289,365
Staples Greenville, SC		4,545,000
Lowe’s Lubbock, TX		7,247,827
Lowe’s Midland, TX		7,883,933
Advance Auto Grand Bay, AL		905,396
Advance Auto Hurley, MS		952,326
Advance Auto Rainsville, AL		991,239
Gold’s Gym O’Fallon, IL		6,060,922
Rite Aid Glassport, PA		3,268,815
David’s Bridal/Radio Shack Topeka, KS		2,535,491

118


	Depreciable
Property	Tax Basis

Rite Aid Hanover, PA	$	4,638,296
American TV & Appliance Peoria, IL		9,573,469
Tractor Supply La Grange, TX		2,402,825
Staples Peru, IL		2,024,975
Fedex Council Bluffs, IA		2,932,591
Fedex Edwardsville, KS		18,589,934
CVS Glenville Scotia, NY		3,796,109
Advance Auto Ashland, KY		1,096,360
Advance Auto Jackson, OH		952,219
Advance Auto New Boston, OH		1,092,304
Advance Auto Scottsburg, IN		1,054,818
Tractor Supply Livingston, TN		2,761,104
Tractor Supply New Braunfels, TX		2,733,111
Office Depot Benton, AR		2,803,944
Old Time Pottery Fairview Heights, IL		3,338,050
Infiniti Davie, FL		6,661,739
Office Depot Oxford, MS		2,666,293
Tractor Supply Crockett, TX		2,236,043
Mercedes Benz Atlanta, GA		9,401,653
Dick’s Sporting Goods Amherst, NY		6,873,019
Chili’s Paris, TX		2,234,337
Staples Clarksville, IN		3,595,974
HOM Fargo, ND		11,133,123
La-Z-Boy Newington, CT		5,598,393
Advance Auto Maryland Heights, MO		1,218,676
Victoria Crossing Victoria, TX		10,421,408
Academy Sports Katy, TX		96,108,815
Gordmans Peoria, IL		7,635,360
One Pacific Place Omaha, NE		20,033,912
Sack n’ Save/O’Reilly Auto Garland, TX		3,203,422
Tractor Supply Ankeny, IA		2,362,924
ABX Air Coventry, RI		2,261,338
Office Depot Enterprise, AL		2,085,763
Northern Tool Blaine, MN		2,794,139
Office Max Orangeburg, SC		2,624,618
Walgreens Cincinnati, OH		3,947,186
Walgreens Madeira, OH		3,491,063
Walgreens Sharonville, OH		3,004,123
AT&T Beaumont, TX		12,043,930
Walgreens Shreveport, LA		3,789,514
Cost-U-Less, St. Crois, USVI		5,912,063
Gallina Centro Collierville, TN		12,535,873
Apria Healthcare St. John, MO		4,992,618
Logan’s Roadhouse Fairfax, VA		1,776,432
Logan’s Roadhouse Johnson City, TN		2,918,164
Center at 7500 Cottonwood Jenison, MI		4,344,581
Eckerd Lincolnton, NC		2,262,000
Tractor Supply Greenfield, MN		4,050,000
Lincoln Place Fairview Heights, IL		44,000,000
Ashley Furniture Amarillo, TX		5,920,000
Pocatello Square Pocatello, ID		23,000,000

119


	Depreciable
Property	Tax Basis

Tractor Supply Paw Paw, MI	$	3,095,000
Tractor Supply Marinette, MI		2,950,000
Big 5 Center Aurora, CO		4,290,000
Rite Aid Plains, PA		5,200,000
Tractor Supply Navasota, TX		3,015,000
Sportsman’s Warehouse De Pere, WI		6,010,000
Eckerd Easton, PA		5,970,000
Applebee’s Portfolio Various		65,000,000
Walgreens Bridgetown, OH		4,475,000
Rite Aid Fredericksburg, VA		5,415,000
Sam’s Club Anderson, SC		12,000,000
Tractor Supply Fredericksburg, TX		3,125,000
Walgreens Dallas, TX		3,150,000
Wal-Mart New London, WI		2,614,000
Rite Aid Lima, OH (Bellefontaine)		4,745,962
Rite Aid Allentown, PA		5,561,112
CVS Florence, SC		1,939,879
Eckerd Spartanburg (Main), SC		2,206,496
Staples Warsaw, IN		2,975,976
Walgreens Bryan, TX		5,688,753
Walgreens Harris County, TX		4,130,920
Tractor Supply Fairview, TN		2,616,643
Borders Rapid City, SD		5,028,711
Borders Reading, PA		4,289,688
Walgreens Gainesville, FL		2,668,219
Chili’s Fredericksburg, TX		1,917,255
Tractor Supply Baytown, TX		2,582,105
Winco Eureka, CA		12,402,598
Eckerd Vineland, NJ		2,849,536
Eckerd Mantua, NJ		1,213,686
Best Buy (Super Value) Warwick, RI		3,435,067
Best Buy Evanston, IL		4,638,272
Academy Sports Houston, TX		1,590,469
Starbucks Covington, TN		1,009,060
Starbucks Sedalia, MO		1,026,547
Kroger La Grange, GA		6,397,575
La-Z-Boy Kentwood, MI		3,876,176
Circuit City Mesquite, TX		6,928,335
Tractor Supply Prior Lake, MN		3,437,491
Circuit City Distribution Center Groveland, FL		22,039,048
Walgreens Fort Worth, TX		3,884,122
Kohl’s Lake Zurich, IL		10,170,184
EDS Salt Lake City, UT		18,259,859
Lowe’s Cincinnati, OH		16,446,786
Walgreens Kansas City (Linwood), MO		3,000,000
Walgreens Kansas City (Troost), MO		3,942,400
Walgreens Kansas City (63rd St), MO		3,468,000
Walgreens Kansas City (Independence), MO		3,678,400
Walgreens Topeka, KS		2,497,560
CVS Amarillo, TX		2,232,854
Taco Bell Brazil, IN		1,575,724

120


	Depreciable
Property	Tax Basis

Taco Bell Henderson, KY	$	1,242,086
Academy Baton Rouge, LA		5,554,226
Taco Bell Washington, IN		1,004,436
Taco Bell Robinson, IL		1,240,538
Taco Bell Princeton, IN		1,139,462
Eckerd Mableton, GA		1,480,510
Taco Bell/KFC Spencer, IN		771,892
CVS Del City, OK		3,343,602
Taco Bell Anderson, IN		1,380,411
Academy N Richland Hills, TX		5,033,977
Dave and Buster’s Addison, IL		11,142,857
Academy Houston (Southwest), TX		5,711,057
Academy Houston (Breton), TX		3,779,654
Eckerd Chattanooga, TN		2,238,115
Taco Bell/KFC Vinceness, IN		1,182,952
Taco Bell Martinsville, IN		1,578,842
LJS/A & W Houston, TX		963,857
Dickinson Theatre Yukon, OK		3,640,000
Circuit City Taunton, MA		6,288,000
Telerx Kings Mountain, NC		6,952,000
Staples Guntersville, AL		2,660,000
Federal Express Peoria, IL		2,560,000
Wal-Mart Spencer, IN		1,796,169
Gold’s Gym St. Peters, MO		6,000,000
Fed Ex Walker, MI		5,859,113
Wal-Mart Bay City, TX		3,004,000
Walgreens Richmond, VA		3,395,239
Circuit City Aurora, CO		5,609,992
Home Depot Bedford Park, IL		20,962,397
24 Hr Fitness Olathe, KS		6,302,395
Walgreens Dallas, TX (De Soto)		3,084,049
Gold’s Gym O Fallon, MO		4,830,249
Wal-Mart Washington, IL		2,862,400
Wal-Mart Borger, TX		2,564,000
Broadview Village Square Chicago, IL		46,400,000
Chambers Corners Wayland, MI		7,058,482
Ashley Furniture Anderson, SC		3,730,530
Best Buy Fayetteville, NC		4,802,602
Massard Farms Fort Smith, AR		12,600,000
Wal-Mart Whiteville, NC		2,133,600
Staples Moraine, OH		3,040,000
Wickes Furniture Chicago, IL		18,752,000
Walgreens Brentwood, TN		4,512,000
Starbucks Bowling Green, KY		1,325,600
Walgreens Harriman, TN		4,021,456
Starbucks Shawnee, OK		877,527
Station Casino Headquarters Las Vegas, NV		56,000,000
Starbucks Oklahoma City, OK		891,352
Starbucks Chattanooga, TN		935,699
Starbucks Maryville, TN		877,181
Starbucks Powell, TN		854,534

121


	Depreciable
Property	Tax Basis

Starbucks Seymour, TN	$	809,925
Walgreens Beverly Hills, TX		2,880,000
Walgreens Waco, TX		2,880,000
Allstate Insurance Contact Center Cross Plains, WI		4,576,000
Mealey’s Furniture Maple Shade, NJ		4,280,000
Circle K Albuquerque, NM		1,020,575
Circle K Baton Rouge (Burbank), LA		761,382
Circle K Baton Rouge (Floynell), LA		1,125,873
Circle K Baton Rouge (Jefferson), LA		866,679
Circle K Beaufort, SC		1,312,168
Circle K Bluffton, SC		2,073,550
Circle K Bossier City, LA		1,223,070
Circle K Charleston, SC		2,081,649
Circle K Charlotte (Independence), NC		1,506,563
Circle K Charlotte (Sharon), NC		1,563,262
Circle K Charlotte (Sugar Creek), NC		1,611,861
Circle K Columbia (Garners), SC		1,692,858
Circle K Columbia (Hardscrabble), SC		1,401,266
Circle K El Paso (Americas), TX		1,773,854
Circle K El Paso (Mesa), TX		915,278
Circle K El Paso (Zaragosa), TX		1,652,360
Circle K Fort Mill, SC		1,887,254
Circle K Goose Creek, SC		1,093,474
Circle K Huntersville, NC		1,611,861
Circle K Mount Pleasant, SC		1,231,170
Circle K Port Wentworth, GA		1,860,525
Circle K Savannah (Johnny Mercer), GA		1,287,869
Circle K Savannah (King George), GA		1,287,869
Circle K Shreveport, LA		971,976
Circle K Springdale, SC		1,393,166
Exxon West Monroe (503 Thomas), LA		1,174,471
Holland Oil Akron (940 Arlington), OH		907,178
Holland Oil Akron (1178 Arlington), OH		1,133,972
Holland Oil Akron (1559 E. Market), OH		1,166,371
Holland Oil Akron (1693 West Market), OH		1,279,769
Holland Oil Akron (Albrecht), OH		890,978
Holland Oil Akron (Brittain), OH		996,276
Holland Oil Akron (Brown), OH		1,044,874
Holland Oil Akron (Cuyahoga), OH		1,304,068
Holland Oil Akron (Darrow), OH		971,976
Holland Oil Akron (Exchange), OH		1,174,471
Holland Oil Akron (Main St.), OH		947,677
Holland Oil Akron (Manchester), OH		1,312,168
Holland Oil Akron (Ridgewood), OH		1,044,874
Holland Oil Akron (Waterloo), OH		947,677
Holland Oil Barberton (5 th St.), OH		988,176
Holland Oil Barberton (31 st St.), OH		777,581
Holland Oil Barberton (Wooster), OH		1,798,156
Holland Oil Bedford, OH		1,020,575
Holland Oil Brookpark, OH		1,085,374
Holland Oil Canton (12 th Street), OH		931,478

122


	Depreciable
Property	Tax Basis

Holland Oil Canton (Tuscarawas), OH	$	1,757,657
Holland Oil Cleveland, OH		1,271,669
Holland Oil Copley, OH		923,378
Holland Oil Cuyahoga Falls (Bath), OH		1,619,961
Holland Oil Cuyahoga Falls (Port), OH		1,109,673
Holland Oil Cuyahoga Falls (State), OH		826,180
Holland Oil Fairlawn, OH		1,287,869
Holland Oil Kent, OH		793,781
Holland Oil Maple Heights, OH		1,190,671
Holland Oil Northfield, OH		1,555,162
Holland Oil Norton, OH		1,150,172
Holland Oil Parma, OH		1,004,375
Holland Oil Seville, OH		1,960,152
Holland Oil Twinsburg, OH		1,085,374
Holland Oil Willoughby, OH		955,777
Shell Monroe, LA		1,223,070
Spectrum Auburn, AL		1,385,066
Spectrum Augusta, GA		882,878
Spectrum Columbus (Airport), GA		1,231,170
Spectrum Columbus (Beaver Run), GA		2,008,751
Spectrum Columbus (Bradley), GA		2,672,934
Spectrum Columbus (Buena Vista), GA		1,287,869
Spectrum Columbus (Lumpkin), GA		1,336,467
Spectrum Columbus (Warm Springs), GA		1,571,362
Spectrum Lanett, AL		680,383
Spectrum Macon (Arkwright), GA		915,278
Spectrum Macon (Riverside), GA		1,004,375
Spectrum Martinez, GA		1,020,575
Spectrum Mobile (Airport), AL		1,457,964
Spectrum Mobile (Moffett), AL		1,247,370
Spectrum North Augusta, GA		955,777
Spectrum Opelika (2 nd Ave), AL		1,044,874
Spectrum Opelika (Columbus), AL		1,879,154
Spectrum Phenix City, AL		1,279,769
Spectrum Pine Mountain, GA		915,278
Spectrum Valley, AL		1,247,370
Spirit West Monroe (1602 Thomas), LA		1,336,467
Hilltop Plaza Bridgeton, MO		18,556,000
Academy Sports Lufkin, TX		4,160,000
Best Buy Wichita, KS		9,056,800
Bridgestone Tire Atlanta, GA		1,945,600
Boscov’s Voorhees, NJ		3,272,000
CVS Indianapolis, IN		2,952,000
FedEx Mishawaka, IN		3,145,600
Marsh Supermarket Indianapolis, IN		11,452,800
Starbucks Stillwater, OK		1,042,758
Walgreens Oneida, TN		4,018,321
Starbucks Memphis, TN		1,093,600
Walgreens Cincinnati (Seymour), OH		3,912,000
Tractor Supply Rome, NY		2,520,000
HH Gregg Greensboro, NC		5,440,000

123


	Depreciable
Property	Tax Basis

Starbucks Altus, OK	$	937,931
Milford Commons Milford, NH		6,360,000
CarMax Greenville, SC		17,600,000
Bank of America Delray Beach, FL		12,000,000
Circuit City Kennesaw, GA		15,872,000
Mustang Engineering Houston, TX		15,200,000
Office Depot Alcoa, TN		2,926,400
Arby’s New Castle, PA		1,216,000
CarMax Raleigh, NC		7,316,000
CarMax Pineville, NC		7,910,400
Starbucks Ponca City, OK		849,402
Starbucks Kingsport, TN		1,062,400
Pep Boys Albuquerque, NM		3,018,400
Pep Boys Arlington Heights, IL		4,911,200
Pep Boys Clarksville, IN		2,013,600
Pep Boys Colorado Springs, CO		2,132,000
Pep Boys El Centro, CA		1,940,800
Pep Boys Fort Myers, FL		2,438,400
Pep Boys Frederick, MD		3,773,600
Pep Boys Hampton, VA		3,198,400
Pep Boys Lakeland, FL		2,173,600
Pep Boys Nashua, NH		3,500,000
Pep Boys New Hartford, NY		1,895,200
Pep Boys Orem, UT		2,438,400
Pep Boys Pasadena, TX		3,990,400
Pep Boys Redlands, CA		3,696,000
Pep Boys San Antonio, TX		1,968,000
Pep Boys Tamarac, FL		3,268,000
Pep Boys West Warwick, RI		2,961,600
Pep Boys Tampa, FL		1,540,000
Walgreens Batesville, MS		4,256,800
Tractor Supply Clovis, NM		2,448,000
BJ’s Wholesale Club Haverhill, NM		15,520,000

	$	1,625,056,397

124

Tenant Lease Expirations

The following table sets forth, as of April 25, 2008, lease expirations of our properties, including the properties described above, for each of the next ten years assuming no renewal options are exercised. For purposes of the table, the total annual base rent” column represents annualized base rent, based on rent in effect on January 1 of the respective year, for each lease that expires during the respective year.


	Number of						% of Total
	Leases		Approx. Square		Total Annual		Annual
Year Ending December 31,	Expiring		Feet Expiring		Base Rent		Base Rent

2008		11		53,937	$	438,659		>0	%
2009		15		107,463		1,150,045		1	%
2010		15		128,264		1,459,966		1	%
2011		13		51,260		874,728		1	%
2012		15		142,434		1,735,177		1	%
2013		19		364,674		3,601,910		2	%
2014		14		275,736		3,366,274		2	%
2015		17		1,188,626		8,630,538		6	%
2016		30		1,566,823		13,313,229		9	%
2017		36		1,366,010		13,425,130		9	%
2018		26		621,086		6,902,209		5	%

		211		5,866,312	$	54,897,917		37	%

Mortgage Notes

On September 28, 2007, CCPT II Finance, LLC, an Arizona limited liability company (“CCPT Finance”), which is a wholly-owned subsidiary of Cole OP II, acquired a portfolio of 23 mortgage notes with an aggregate face amount of $45,265,849 secured by 23 Cracker Barrel Old Country Store restaurants (the “Cracker Barrel Properties”) located in 16 states (the “CB Mortgage Notes”). The CB Mortgage Notes were purchased from GE Capital Franchise Finance Corporation, which is not affiliated with us, our subsidiaries or affiliates.

The purchase price of the CB Mortgage Notes was approximately $48.4 million, exclusive of closing costs, resulting in a premium of 6.9%. The acquisition was funded by net proceeds from our ongoing public offering and an approximately $36.3 million loan from General Electric Capital Corporation secured by the CB Mortgage Notes (the “Cracker Barrel Loan”). In connection with the acquisition, we paid an affiliate of our advisor an acquisition fee of approximately $968,000 and our advisor a finance coordination fee of approximately $363,000.

The borrower under the CB Mortgage Notes is Country Stores Property II, LLC (the “CB Borrower”). The CB Borrower is a subsidiary of U.S. Realty Advisors, who utilized the CB Mortgage Notes in part to fund the purchase of the Cracker Barrel Properties in July 2000. The CB Mortgage Notes have an unpaid principal balance of approximately $45.3 million and a fixed interest rate of 9.84% with aggregate annual fixed payments of principal and interest $5,375,280 per year, which is payable monthly. The CB Mortgage Notes are non-recourse to the CB Borrower and may be prepaid in full, but not in part, by the CB Borrower, subject to a yield maintenance premium. Failure to make any required payments under the CB Mortgage Notes by the CB Borrower in a timely manner will cause an event of default, which will result in an 18.0% default interest rate, late charges equal to 5.0% of the amount of such overdue payment, and all interest and principal may become immediately due and payable in full. The maturity date of the CB Mortgage Notes is August 1, 2020.

The Cracker Barrel Properties are 100% leased to Cracker Barrel Old Country Store, Inc. (the “Tenant”), a wholly-owned subsidiary of CBRL Group, Inc. (“Cracker Barrel”), which guarantees the lease. Cracker Barrel engages in the operation and development of restaurants and retail concepts in the United States. It operates restaurants under the Cracker Barrel Old Country Store name at 564 locations in 41 states. Cracker Barrel has a Standard & Poor’s credit rating of BB- and its stock is publicly traded on the Nasdaq Global Select Market under the symbol “CBRL.”

125

The Cracker Barrel Loan has a variable interest rate based on the one-month LIBOR rate plus 200 basis points with monthly interest-only payments and the outstanding principal and any accrued and unpaid interest due on March 31, 2008. The Cracker Barrel Loan, of approximately $36.3 million, was repaid in full in March 2008.

On December 27, 2007, CCPT II Finance, acquired a portfolio of 46 mortgage notes with an aggregate face amount of approximately $33.3 million secured by 20 KFC restaurants (the “KFC Properties”) located in nine states and 26 O’Reilly Auto Parts stores (the “O’Reilly Properties”) located in two states (collectively, the “KFC/OAP Mortgage Notes”). The KFC/OAP Mortgage Notes were purchased from GE Capital Franchise Finance Corporation, which is not affiliated with us, our subsidiaries or affiliates.

The purchase price of the KFC/OAP Mortgage Notes was approximately $37.1 million, exclusive of closing costs, resulting in a premium of 11.4%. The acquisition was funded by net proceeds from our ongoing public offering and an approximately $35.0 million loan from Wachovia Bank secured by a portfolio of 23 commercial loans owned by CCPT Finance (the “Wachovia Loan”). In connection with the acquisition, we paid an affiliate of our advisor an acquisition fee of approximately $743,000 and our advisor a finance coordination fee of approximately $350,000.

The borrowers under the KFC/OAP Mortgage Notes are LoJon Property II, LLC and CarPar Property II, LLC (collectively, the “KFC/OAP Borrowers”). The KFC/OAP Borrowers are each a subsidiary of U.S. Realty Advisors, who utilized the KFC/OAP Mortgage Notes in part to fund the purchase of the KFC Properties (the “KFC Notes”) in August 2003 and the O’Reilly Properties (the “O’Reilly Notes”) in December 2000. The Mortgage Notes have an unpaid principal balance of approximately $33.3 million and a fixed interest rate of 10.47% for all of the KFC Notes, a fixed interest rate of 8.60% for 10 of the O’Reilly Notes, and 9.35% for the remaining 16 O’Reilly Notes. The current aggregate annual fixed payments of principal and interest is $3,902,790 per year, which is payable monthly. The KFC Notes have an escalation in principal and interest payments of 4.04% every two years, with the next escalation date on October 1, 2008, continuing through the maturity date.

The KFC/OAP Mortgage Notes are non-recourse to the KFC/OAP Borrowers and may be prepaid in full, but not in part, by the KFC/OAP Borrowers, subject to a yield maintenance premium. Failure to make any required payments under the Mortgage Notes by the Borrowers in a timely manner will cause an event of default, which will result in a 13.0% default interest rate, late charges equal to 5.0% of the amount of such overdue payment, and all interest and principal may become immediately due and payable in full. The maturity date of the mortgage notes associated with the O’Reilly Properties and the KFC Properties is January 1, 2021 and October 1, 2020, respectively.

The KFC Properties are 100% leased to KFC U.S. Properties, Inc., which is a wholly-owned subsidiary of Yum! Brands, Inc. In determining the creditworthiness of KFC we considered a variety of factors, including historical financial information and financial performance, and regional market position.

The O’Reilly Properties are 100% leased to O’Reilly Automotive, Inc. (“O’Reilly”). O’Reilly operates specialty retail stores that sell new and used automotive parts. O’Reilly operates over 1,744 stores in the United States and its stock is publicly traded on the Nasdaq Global Select Market under the symbol “ORLY.” In determining the creditworthiness of O’Reilly we considered a variety of factors, including historical financial information and financial performance, and regional market position.

The Wachovia Loan has a variable interest rate based on the one-month LIBOR rate plus 275 basis points with monthly interest-only payments and the outstanding principal and any accrued and unpaid interest due on March 27, 2008. The loan, of approximately $35 million, was repaid in full in March 2008.

126

SELECTED FINANCIAL DATA

The following data should be read in conjunction with our consolidated financial statements and the notes thereto and the section of this prospectus captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected financial data presented below has been derived from our audited consolidated financial statements.


										From Inception
										(September 29,
	Year Ended			Year Ended			Year Ended			2004) through
	December 31,			December 31,			December 31,			December 31,
Balance Sheet Data:	2007			2006			2005			2004

Total investment in real estate assets, net	$	1,794,352,512		$	446,544,041		$	91,618,285		$	—
Investment in mortgages receivable, net	$	87,099,624		$	—		$	—		$	—
Cash and cash equivalents	$	43,517,178		$	37,566,490		$	4,575,144		$	200,000
Restricted cash	$	14,032,616		$	5,839,733		$	1,813,804		$
Total assets	$	1,967,697,834		$	500,420,792		$	98,809,838		$	—
Mortgage notes payable	$	1,055,681,538		$	218,265,916		$	66,804,041		$	—
Notes payable to affiliates	$	—		$	—		$	4,453,000		$	—
Escrowed investor proceeds	$	12,737,969		$	5,710,730		$	1,813,804		$	—
Stockholders’ equity	$	781,086,865		$	266,236,497		$	25,204,966		$	200,000
Operating Data:
Total revenue	$	89,842,150		$	19,519,507		$	741,669		$	—
General and administrative	$	2,011,322		$	952,789		$	156,252		$	—
Property operating expenses	$	6,466,677		$	1,416,745		$	—		$	—
Property and asset management fees	$	4,184,271		$	936,977		$	38,768		$	—
Depreciation and amortization	$	30,482,273		$	6,469,366		$	221,411		$	—
Impairment of real estate assets	$	5,400,000		$	—		$	—		$	—
Operating Income	$	41,297,607		$	9,743,630		$	325,238		$	—
Interest expense	$	39,075,748		$	8,901,113		$	467,386		$	—
Net income (loss)	$	4,480,017		$	1,345,996		$	(114,591	)	$	—
Funds from operations(1)	$	40,362,290		$	7,815,362		$	106,820		$	—
Cash Flow Data:
Cash flows provided by operations	$	43,366,041		$	7,861,475		$	397,741		$	—
Cash flows used in investing activities	$	(1,364,777,444	)	$	(320,176,509	)	$	(93,640,753	)	$	—
Cash flows provided by financing activities	$	1,327,362,091		$	345,306,380		$	97,618,156		$	200,000
Per share data:
Net income (loss) — basic and diluted	$	0.07		$	0.10		$	(0.28	)	$	—
Weighted average dividends declared	$	0.68		$	0.64		$	0.47		$	—
Weighted average shares outstanding — basic		60,929,996			13,275,635			411,909			—
Weighted average shares outstanding — diluted		60,931,316			13,275,635			411,909			—


(1)		See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds From Operations” for information regarding why we present funds from operations and for a reconciliation of this non-GAAP financial measure to net income (loss).

127

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto.

Forward-Looking Statements

This section contains forward-looking statements, including discussion and analysis of the financial condition of us and our subsidiaries, our anticipated capital expenditures, amounts of anticipated cash distributions to our stockholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on their knowledge and understanding of our business and industry. Words such as “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. Investors are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view as of March 31, 2008. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this prospectus supplement include changes in general economic conditions, changes in real estate conditions, construction costs that may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flows. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2007 and the “Risk Factors” section of the registration statement relating to this offering (SEC File No. 333-138444), each as filed with the Securities and Exchange Commission.

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Overview

We were formed on September 29, 2004 to acquire and operate commercial real estate primarily consisting of freestanding, single-tenant, retail properties net leased to investment grade and other creditworthy tenants located throughout the United States. We commenced our principal operations on September 23, 2005, when we issued the initial 486,000 shares of our common stock in our initial public offering. Prior to such date, we were considered a development stage company. We acquired our first real estate property on September 26, 2005. We have no paid employees and are externally advised and managed by Cole Advisors II, one of our affiliates. We intend to qualify, and currently qualify, as a real estate investment trust for federal income tax purposes.

Our operating results and cash flows are primarily influenced by rental income from our commercial properties and interest expense on our property acquisition indebtedness. Rental income accounted for approximately 92% and approximately 94% of total revenue during the years ended December 31, 2007 and 2006, respectively. As approximately 99% of our properties are under lease, with an average remaining lease term of approximately 14.6 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated. Our advisor regularly monitors the creditworthiness of our tenants by reviewing the tenant’s financial results, credit rating agency reports (if any) on the tenant or guarantor, the operating history of the property with such tenant, the

128

tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment, and other information for changes and possible trends. If our advisor identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property, or identifying a possible replacement tenant should the current tenant fail to perform on the lease. As of December 31, 2007, the debt leverage ratio of our portfolio, which is the ratio of total gross real estate assets to mortgage notes payable, was approximately 52%, with approximately 11% of the debt, or approximately $114.8 million, subject to variable interest rates. As of March 31, 2008, we had repaid approximately $93.5 million of the debt subject to variable interest rates. The repayments of the debt subject to variable interest rates were made with proceeds from our Follow-on Offering. As we continue to raise capital under our follow-on offering and invest the proceeds in commercial real estate, we will be subject to changes in real estate prices and changes in interest rates on new indebtedness used to acquire the properties. We may manage our risk of changes in real estate prices on future property acquisitions by entering into purchase agreements and loan commitments simultaneously so that our operating yield is determinable, by contracting with developers for future delivery of properties, or by entering into sale-leaseback transactions. We expect to manage our interest rate risk by monitoring the interest rate environment in connection with our planned property acquisitions to determine the appropriate acquisition financing, which may include fixed rate loans, variable rate loans or interest rate hedges. If we are unable to acquire suitable properties or obtain suitable financing for future acquisitions, our results of operations may be adversely affected.

As of December 31, 2007, we owned 250 freestanding single-tenant retail properties, 69 freestanding single-tenant commercial properties, and 14 multi-tenant retail properties, which were approximately 99% leased. Of the leases related to these properties, 13 were classified as direct financing leases, as discussed in Note 3 to our consolidated financial statements. During the years ended December 31, 2007 and 2006, we acquired 242 and 77 properties, respectively. During the year ended December 31, 2007, we also purchased two portfolios of mortgage notes receivable for an aggregate price of approximately $87.4 million, consisting of 69 mortgage notes receivable secured by 43 restaurant properties and 26 single-tenant retail properties, each of which is subject to a net lease. See Note 6 to our consolidated financial statements. Our results of operations are not indicative of those expected in future periods as we expect that rental income, operating expenses, asset management fees, depreciation expense, interest expense, and net income will each increase in the future as we acquire additional properties and as our current properties are owned for an entire period.

The current mortgage lending and interest rate environment for real estate in general is uncertain. We may experience more stringent lending criteria, which may limit our ability to finance certain property acquisitions. Additionally, for properties in which we are able to obtain acquisition financing, the interest rates on such loans may not meet our underwriting criteria. We expect to manage the current mortgage lending environment by utilizing fixed rate loans if the terms are acceptable, utilizing short-term variable rate loans, assuming existing mortgage loans in connection with property acquisitions, entering into interest rate lock agreements, or any combination of those measures. We also may acquire a much larger percentage of our properties for cash without financing. If we are unable to obtain suitable financing for future acquisitions or we acquire a larger percentage of our properties for cash without financing, our results of operations may be adversely affected. Additionally, if we are unable to identify suitable properties at appropriate prices in the current credit environment, we may have a larger amount of uninvested cash, which may adversely affect our results of operations. We will continue to evaluate alternatives in the current market, including purchasing or originating debt backed by real estate, which could produce attractive yields in the current market environment. Our management is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and operations of real properties and mortgage loans, other than those discussed above or referred to in our annual report on Form 10-K.

With our objectives of providing current income to our stockholders and preserving their capital, we view our most significant challenges as:


	•	continuing to raise sufficient amounts of equity capital in order to acquire a large, diversified portfolio while maintaining a moderate leverage ratio; and

129


	•	investing net offering proceeds in properties that are accretive to our stockholders distributions at a time when the demand for high-quality, income-producing properties is high and the market competitive.

Application of Critical Accounting Policies

Our accounting policies have been established to conform with generally accepted accounting principles in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.

The critical accounting policies outlined below have been discussed with members of the audit committee of our board of directors.

Investment in Real Estate Assets

We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful life of each asset. Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to real estate assets consist of the cost of acquisition or construction and any tenant improvements or major improvements and betterments that extend the useful life of the related asset. All repairs and maintenance are expensed as incurred.

All assets are depreciated on a straight line basis. The estimated useful lives of our assets by class generally are as follows:


Building		40 years
Tenant improvements		Lesser of useful life or lease term
Intangible lease assets		Lesser of useful life or lease term

Impairment losses are recorded on long-lived assets used in operations, which includes the operating property, when indicators of impairment are present and the assets’ carrying amount is greater than the sum of the future undiscounted cash flows, excluding interest, estimated to be generated by those assets. We have identified one property with impairment indicators for which the undiscounted future cash flows expected from the use of the property and related intangible assets and their eventual disposition was less than the carrying value of the assets. As a result, we reduced the carrying value of the real estate and related intangible assets to their estimated fair value and recorded an impairment loss of $5.4 million during the year ended December 31, 2007. No impairment losses were recorded for the year ended December 31, 2006.

Projections of expected future cash flows require us to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income.

When a real estate asset is identified by management as held for sale, we cease depreciation of the asset and estimate the sales price, net of selling costs. If, in management’s opinion, the net sales price of the asset is less than the net book value of the asset, an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property.

130

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based in each case on their fair values. We utilize independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building).

The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which is generally obtained from independent appraisals, measured over a period equal to the non-cancelable term of the lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and amortized as an adjustment of rental income over the lesser of the useful life or the remaining terms of the respective leases.

The fair values of in-place leases include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining term of the respective leases.

The determination of the fair values of the assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocations, which could impact the amount of our reported net income.

Investment in Direct Financing Leases

We evaluate the leases associated with our real estate properties in accordance with SFAS No. 13, “Accounting for Leases” (“SFAS 13”). For the real estate property leases classified as direct financing leases, we account for the building portion of the property leases as direct financing leases and the land portion of these leases as operating leases. For the direct financing leases, we record an asset (net investment) representing the aggregate future minimum lease payments, estimated residual value of the leased property and deferred incremental direct costs less unearned income. We recognize income over the life of the lease to approximate a level rate of return on the net investment. We value residual values, which are reviewed quarterly, as estimated amounts we expect to receive at lease termination from the disposition of leased property. Actual residual values realized could differ from these estimates. We recognize write-downs of estimated residual value as permanent impairments in the current period.

Investment in Mortgage Notes Receivable

Mortgage notes receivable consist of loans we acquired, which are secured by real estate properties. Mortgage notes receivable are recorded at stated principal amounts net of any discount or premium or deferred loan origination costs or fees. The related discounts or premiums on mortgage notes receivable purchased are amortized or accreted over the life of the related mortgage receivable. We defer certain loan origination and commitment fees, net of certain origination costs, and amortize them as an adjustment of the mortgage notes receivable’s yield over the term of the related mortgage receivable. We evaluate the collectibility of both interest and principal on each mortgage note receivable to determine whether it is impaired. A mortgage note receivable is considered to be impaired, when based upon current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a mortgage note receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by

131

discounting the expected future cash flows at the mortgage note receivable’s effective interest rate or to the value of the underlying collateral if the mortgage note receivable is collateralized. Interest income on performing mortgage note receivable is accrued as earned. Interest income on impaired mortgage notes receivable is recognized on a cash basis. No impairment losses were recorded related to mortgage notes receivable for either of the years ended December 31, 2007 and 2006.

Revenue Recognition

Upon the acquisition of real estate, certain properties have leases where minimum rent payments increase during the term of the lease. We record rental revenue for the full term of each lease on a straight-line basis. When we acquire a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. We defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Reimbursements from tenants for recoverable real estate taxes and operating expenses are included in rental income in the period the related costs are incurred.

Income Taxes

We are taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We generally will not be subject to federal corporate income tax to the extent we distribute our REIT taxable income to our stockholders, and so long as we distribute at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

Results of Operations

We commenced our principal operations on September 23, 2005, when we issued the initial 486,000 shares of our common stock in our initial public offering. Prior to such date, we were considered a development stage company. We acquired our first real estate property on September 26, 2005.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

As of December 31, 2007, we owned 333 commercial properties, of which approximately 99% of the rentable space was leased, compared to 91 commercial properties at December 31, 2006. We also owned a portfolio of 69 mortgage notes receivable at December 31, 2007. We had no mortgage notes receivable at December 31, 2006. Accordingly, our results of operations for the year ended December 31, 2007, as compared to the year ended December 31, 2006, reflect significant increases in all categories.

Revenue. Revenue increased approximately $70.3 million, or approximately 360%, to approximately $89.8 million for the year ended December 31, 2007, compared to approximately $19.5 million for the year ended December 31, 2006. Our revenue primarily consists of rental income from net leased commercial properties, which accounted for approximately 92% and 94% of total revenues during the years ended December 31, 2007 and 2006, respectively.

Rental income increased approximately $64.1 million, or approximately 349%, to approximately $82.5 million for the year ended December 31, 2007, compared to approximately $18.4 million for the year ended December 31, 2006. The increase was primarily due to the acquisition of 242 new properties during the year ended December 31, 2007 and the ownership of the 77 properties acquired during the year ended December 31, 2006 for the full year in 2007. During the year ended December 31, 2007, we acquired 242 additional properties for which we pay certain operating expenses subject to reimbursement by the tenant, which resulted in approximately $5.2 million of tenant reimbursement income in 2007 compared to approximately $1.2 million in 2006.

During the year ended December 31, 2007, we acquired 13 properties that we accounted for as direct financing leases. We had no properties accounted for as direct financing leases at December 31, 2006. Earned income from direct financing leases was approximately $1.1 million for the year ended December 31, 2007, with no earned

132

income from direct financing leases recorded for year ended December 31, 2006. See Note 3 to our consolidated audited financial statements accompanying our annual report on Form 10-K.

Interest income on mortgages receivable was approximately $1.1 million for the year ended December 31, 2007, with no mortgages receivable interest income recorded for the year ended December 31, 2006. We purchased approximately $87.4 million of mortgage notes receivable during the year ended December 31, 2007. We had no mortgage notes receivable at December 31, 2006. See Note 6 to our consolidated audited financial statements accompanying our annual report on Form 10-K.

General and Administrative Expenses. General and administrative expenses increased approximately $1.0 million, or approximately 111%, to approximately $2.0 million for the year ended December 31, 2007, compared to approximately $953,000 for the year ended December 31, 2006. The increase was primarily due to increases in state franchise and income taxes due to the increase in the number of properties owned from 91 properties at December 31, 2006 to 333 properties at December 31, 2007. The primary general and administrative expense items are legal and accounting fees, state franchise and income taxes, organizational costs, and other licenses and fees.

Property Operating Expenses. Property operating expenses increased approximately $5.1 million, or approximately 356%, to approximately $6.5 million for the year ended December 31, 2007, compared to approximately $1.4 million for the year ended December 31, 2006. The increase was primarily due to the ownership of more properties during the year ended December 31, 2007 than in the year ended December 31, 2006, for which we initially pay certain operating expenses and are reimbursed by the tenant in accordance with the respective lease agreements, including 10 additional multi-tenant shopping centers. At December 31, 2007, we owned 14 multi-tenant shopping centers compared to four at December 31, 2006. The primary property operating expense items are repairs and maintenance, property taxes, bad debt expense and insurance.

Property and Asset Management Fees. Pursuant to the advisory agreement with our advisor, we are required to pay to our advisor a monthly asset management fee equal to one-twelfth of 0.25% of the aggregate asset value of our properties determined in accordance with the advisory agreement as of the last day of the preceding month. Pursuant to the property management agreement with our affiliated property manager, during the year ended December 31, 2007, we paid to our property manager a property management and leasing fee in an amount equal to 2% of gross revenues. In accordance with the property management agreement, we may pay Cole Realty Advisors (i) up to 2% of gross revenues from our single-tenant properties and (ii) up to 4% of gross revenues from our multi-tenant properties, as determined pursuant to the agreement, less all payments to third-party management subcontractors.

Property and asset management fees increased approximately $3.2 million, or approximately 347%, to approximately $4.2 million for the year ended December 31, 2007, compared to approximately $937,000 for the year ended December 31, 2006. Property management fees increased approximately $1.2 million to approximately $1.6 million for the year ended December 31, 2007 from approximately $350,000 for the year ended December 31, 2006. The increase in property management fees was primarily due to an increase in rental income to approximately $82.5 million for the year ended December 31, 2007, from approximately $18.4 million for the year ended December 31, 2006, due to the acquisition of 242 new properties during the year ended December 31, 2007. Asset management fees increased approximately $2.0 million to approximately $2.6 million for the year ended December 31, 2007 from approximately $587,000 for the year ended December 31, 2006. The increase in asset management fees was primarily due to an increase in the average aggregate book value of properties owned to approximately $1.2 billion during the year ended December 31, 2007 from approximately $272.5 million during the year ended December 31, 2006. The increase in aggregate book value is due to the acquisition of 242 new properties during the year ended December 31, 2007.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased approximately $24.0 million, or approximately 371%, to approximately $30.5 million for the year ended December 31, 2007, compared to approximately $6.5 million for the year ended December 31, 2006. The increase was primarily due to an increase in the average aggregate book value of properties owned to approximately $1.2 billion at December 31, 2007 from approximately $272.5 million at December 31, 2006. The increase in aggregate book value was primarily due to the acquisition of 242 new properties during the year ended December 31, 2007.

133

Impairment of Real Estate Assets. Impairment on real estate assets was approximately $5.4 million for the year ended December 31, 2007, with no impairment loss recorded for the year ended December 31, 2006. The impairment was due to impairment losses recorded on one property during the year ended December 31, 2007, as discussed in Note 2 to our consolidated audited financial statements beginning on page F-1.

Interest and Other Income. Interest and other income increased approximately $1.8 million, or approximately 349%, to approximately $2.3 million for the year ended December 31, 2007, compared to approximately $503,000 for the year ended December 31, 2006. Interest income increased approximately $1.3 million, or approximately 253%, to approximately $1.8 million for the year ended December 31, 2007, compared to approximately $503,000 for the year ended December 31, 2006. The increase was primarily due to higher uninvested cash during the year ended December 31, 2007, compared to the year ended December 31, 2006 due to increased proceeds from our initial public offering and follow-on offering. Cash and cash equivalents was approximately $43.5 million at December 31, 2007 compared to approximately $37.6 million at December 31, 2006. Other income consists of the net gain on disposal of rate locks of approximately $478,000 for the year ended December 31, 2007. On August 10, 2007, we elected to terminate our rate lock agreements, as discussed in Note 9 to our consolidated audited financial statements beginning on page F-1. No other income was recorded for the year ended December 31, 2006.

Interest Expense. Interest expense increased approximately $30.2 million, or approximately 339%, to approximately $39.1 million for the year ended December 31, 2007, compared to approximately $8.9 million for the year ended December 31, 2006. The increase was primarily due to an increase in the average mortgage notes payable outstanding during the year ended December 31, 2007 to approximately $637.0 million from approximately $142.5 million during the year ended December 31, 2006. The increase in average mortgage notes payable was due to our acquisition of 105 new debt agreements during the year ended December 31, 2007.

Our property acquisitions during the year ended December 31, 2007, were financed in part with short-term and long-term notes payable as discussed in Note 6 to our consolidated audited financial statements beginning on page F-1. We expect that our interest expense in future periods will vary based on our level of future borrowings, which will depend on the level of proceeds raised in our follow-on offering, the cost of our borrowings, and the opportunity to acquire real estate assets that meet our investment objectives.

Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

As of December 31, 2006, we owned 91 commercial properties compared to 14 commercial properties at December 31, 2005, all of which were 100% leased. Accordingly, our results of operations for the year ended December 31, 2006 as compared to the year ended December 31, 2005 reflect significant increases in all categories.

Revenue. Rental income increased approximately $17.6 million, or approximately 2,375%, to approximately $18.4 million for the year ended December 31, 2006 compared to approximately $742,000 for the year ended December 31, 2005. The increase was primarily due to our acquisition of 77 new properties during the year ended December 31, 2006 and the recording of rental income for the 14 properties acquired during 2005 for 12 months during the year ended December 31, 2006, compared to three months, or less, during the year ended December 31, 2005. Our revenue primarily consists of rental income from net leased commercial properties, which accounted for approximately 94% and approximately 100% of total revenues during the years ended December 31, 2006 and 2005, respectively. During 2006, we acquired certain properties for which we pay certain operating expenses subject to reimbursement by the tenant, which resulted in approximately $1.2 million of tenant reimbursement income for the year ended December 31, 2006 compared to no amounts for the year ended December 31, 2005.

General and Administrative Expenses. General and administrative expenses increased approximately $797,000, or approximately 510%, to approximately $953,000 for the year ended December 31, 2006, compared to approximately $156,000 for the year ended December 31, 2005. The increase was primarily due to increases in legal and accounting fees, primarily due to our increase in assets and operations and a full year of Securities and Exchange Commission reporting obligations in the year ended December 31, 2006, compared to six months in the year ended December 31, 2005, and increases in state franchise and income taxes due to the increase in the number of properties owned from 14 properties at December 31, 2005 to 91 properties at December 31, 2006. The primary

134

general and administrative expense items are legal and accounting fees, organizational costs, state franchise and income taxes, and other licenses and fees.

Property Operating Expenses. Property operating expenses were approximately $1.4 million for the year ended December 31, 2006, with no property operating expenses recorded for the year ended December 31, 2005. The increase was primarily due to the acquisition of certain properties subsequent to December 31, 2005, for which we initially paid certain operating expenses and are reimbursed by the tenant in accordance with the respective lease agreements. At December 31, 2005, our portfolio consisted solely of properties in which each tenant paid substantially all expenses directly. The primary property operating expense items are repairs and maintenance, property taxes, and insurance.

Property and Asset Management Fees. Pursuant to the advisory agreement with our advisor, we are required to pay to our advisor a monthly asset management fee equal to 1/12 of 0.25% of the aggregate asset value of our properties determined in accordance with the advisory agreement as of the last day of the preceding month. Pursuant to the property management agreement with our advisor, we are required to pay to our advisor a property management and leasing fee in an amount equal to 2.0% of gross revenues for determined pursuant to the agreement, less all payments to third-party management subcontractors.

Property and asset management fees increased approximately $898,000, or approximately 2,317% to approximately $937,000 for the year ended December 31, 2006 compared to approximately $39,000 for the year ended December 31, 2005. Property management fees increased approximately $336,000 to approximately $350,000 for the year ended December 31, 2006 from approximately $14,000 for the year ended December 31, 2005. The increase in property management fees was primarily due to an increase in rental income to approximately $18.4 million for the year ended December 31, 2006 from approximately $742,000 for the year ended December 31, 2005. Asset management fees increased approximately $562,000 to approximately $587,000 for the year ended December 31, 2006 from approximately $25,000 for the year ended December 31, 2005. The increase in asset management fees was primarily due to an increase in the aggregate book value of properties owned to approximately $272.5 million at December 31, 2006 from approximately $45.8 million at December 31, 2005.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased approximately $6.3 million, or approximately 2,822%, to approximately $6.5 million for the year ended December 31, 2006 compared to approximately $221,000 for the year ended December 31, 2005. The increase was primarily due to an increase in the average aggregate book value of properties owned to approximately $272.5 million at December 31, 2006 from approximately $45.8 million at December 31, 2005 and the recording of depreciation and amortization for 12 months during the year ended December 31, 2006 compared to three months during the year ended December 31, 2005. The increase in aggregate book value is due to the acquisition of 77 new properties during the year ended December 31, 2006 and the ownership of the 14 properties acquired during the year ended December 31, 2005 for a full year in the year ended December 31, 2006.

Interest and Other Income. Interest income increased approximately $475,000, or approximately 1,727%, to approximately $503,000 for the year ended December 31, 2006 compared to approximately $28,000 for the year ended December 31, 2005. The increase was primarily due to having higher uninvested cash throughout the year due to proceeds from our initial public offering. Cash and cash equivalents was approximately $37.6 million at December 31, 2006 compared to approximately $4.6 million at December 31, 2005.

Interest Expense. Interest expense increased approximately $8.4 million, or approximately 1,804%, to approximately $8.9 million for the year ended December 31, 2006 compared to approximately $467,000 for the year ended December 31, 2005. The increase was primarily due to an increase in the average mortgage notes payable outstanding during 2006 to approximately $142.5 million from approximately $33.4 million during 2005 and the recording of interest expense for 12 months during the year ended December 31, 2006 compared to four months during the year ended December 31, 2005. The increase in average mortgage notes payable was primarily due to the acquisition of 77 new properties during the year ended December 31, 2006 and the ownership of the 14 properties acquired during the year ended December 31, 2005 for a full year in the year ended December 31, 2006.

135

Portfolio Information

Real Estate Portfolio

As of December 31, 2007, we owned 333 properties located in 43 states and the U.S. Virgin Islands, the gross rentable space of which was approximately 99% leased with an average lease term remaining of approximately 14.6 years. Of the leases related to these properties, 13 were classified as direct financing leases, as discussed in Note 3 to our consolidated audited financial statements beginning on page F-1.

As of December 31, 2007, our five highest geographic concentrations were as follows:


							Percentage of 2007
	Total Number		Rentable		2007 Annualized		Annualized Gross
Location	of Properties		Square Feet		Gross Base Rent		Base Rent

Texas		37		2,971,410	$	21,478,871		16	%
Illinois		15		1,561,408		17,668,130		13	%
Ohio		55		485,004		10,343,761		8	%
Georgia		27		285,079		6,174,133		5	%
Nevada		1		138,558		5,921,959		5	%

		135		5,441,459	$	61,586,854		47	%

As of December 31, 2007, our five highest tenant industry concentrations were as follows:


							Percentage of 2007
	Total Number		Rentable		2007 Annualized		Annualized Gross
Industry	of Leases		Square Feet		Gross Base Rent		Base Rent

Drugstore		67		879,666	$	20,129,282		15	%
Specialty retail		101		1,648,755		18,212,397		14	%
Sporting goods		14		2,144,776		14,287,476		11	%
Convenience stores		84		277,478		11,832,533		9	%
Restaurant		59		313,569		10,215,372		8	%

		325		5,264,244	$	74,677,060		57	%

As of December 31, 2007, our five highest tenant concentrations were as follows:


					Percentage of 2007
	Total Number		2007 Annualized		Annualized Gross
Tenant	of Leases		Gross Base Rent		Base Rent

Academy Sports — sporting goods		8	$	11,231,925		8	%
Circle K — convenience store		83		10,819,415		8	%
Walgreens — drug store		31		10,227,145		8	%
Station Casinos — gaming		1		5,921,959		4	%
Applebee’s — restaurant		22		5,323,351		4	%

		145	$	43,523,795		32	%

Mortgage Notes Receivable Portfolio

During the year ended December 31, 2007, we acquired two portfolios of mortgage notes receivable for an aggregate purchase price of approximately $87.4 million consisting of 69 mortgage notes receivable, secured by 23 restaurant properties leased to Cracker Barrel Old Country Store, 20 restaurant properties leased to KFC, and 26 retail properties leased to O’Reilly Auto Parts.

136

Funds From Operations

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales or impairment of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that accounting for real estate assets in accordance with generally accepted accounting principles in the United States (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictability over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. Other REITs may not define FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition or may interpret the current NAREIT definition differently than we do.

FFO is a non-GAAP financial measure and does not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO includes adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative to net income as an indicator of our operating performance.

Our calculation of FFO is presented in the following table for the period ended as indicated:


	Year Ended
	December 31,		December 31,		December 31,
	2007		2006		2005

Net income (loss)	$	4,480,017	$	1,345,996	$	(114,591	)
Add:
Depreciation of real estate assets		20,460,219		4,396,460		151,472
Amortization of lease related costs		10,022,054		2,072,906		69,939
Impairment on real estate assets		5,400,000		—		—

FFO	$	40,362,290	$	7,815,362	$	106,820

Set forth below is additional information (often considered in conjunction with FFO) that may be helpful in assessing our operating results:


	•	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 $4.4 million, approximately $790,000, and approximately $34,000 during the years ended December 31, 2007, 2006 and 2005, respectively.

	•	Net income includes a net gain on disposal of rate lock of approximately $478,000 for the year ended December 31, 2007. No gain on disposal of rate lock was recorded for the years ended December 31, 2006 and 2005. See Note 9 to our consolidated audited financial statements accompanying our annual report on Form 10-K.

	•	Amortization of deferred financing costs totaled approximately $1.9 million, approximately $548,000 and approximately $18,000 during the years ended December 31, 2007 and 2006, respectively.

Liquidity and Capital Resources

We expect to continue to raise capital through the sale of our common stock and to utilize the net proceeds from the sale of our common stock and proceeds from secured or unsecured financings to complete future property acquisitions. As of December 31, 2007, we had received and accepted subscriptions for 93,828,038 shares of

137

common stock in our initial public offering and follow-on offering for gross proceeds of approximately $936.5 million.

Short-term Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements through net cash provided by property operations and proceeds from the Offering, as well as, secured or unsecured borrowings from banks and other lenders to finance our expected future acquisitions. In addition, we may obtain a secured or unsecured revolving line of credit. We expect our operating cash flows to increase as additional properties are added to our portfolio. We expect that approximately 88.6% of the gross proceeds from the sale of our common stock will be invested in real estate, approximately 9.2% will be used to pay sales commissions, dealer manager fees and offering and organizational costs, with the remaining 2.2% used to pay acquisition and advisory fees and acquisition expenses. Our advisor pays the offering and organizational costs associated with the sale of our common stock, which we reimburse up to 1.5% of the capital raised by us in connection with our offering of shares of common stock. As of December 31, 2007, Cole Advisors II had paid approximately $8.4 million of offering and organization costs since the inception of our initial public offering and we had reimbursed our advisor for all such costs, of which approximately $59,000 was expensed as organizational costs.

During the period from January 1, 2008 to March 31, 2008, we completed the acquisition of 41 single-tenant properties and two multi-tenant properties in separate transactions for an aggregate purchase price of approximately $261.0 million, exclusive of closing costs. The acquisitions were funded with proceeds from our initial public offering and follow-on offering and approximately $144.9 million in aggregate proceeds from six loans.

On January 8, 2008, our board of directors declared a daily distribution of $0.00191781 per share for stockholders of record as of the close of business on each day of the period commencing on January 1, 2008 and ending on March 31, 2008. The distributions for the period commencing on January 1, 2008 and ending on January 31, 2008 were paid in February 2008 and totaled approximately $5.8 million, of which approximately $3.2 million was reinvested in shares through our distribution reinvestment program. The distributions for the period commencing on February 1, 2008 and ending on February 29, 2008 were paid in March 2008 and totaled approximately $5.8 million, of which approximately $3.2 million was reinvested in shares through our distribution reinvestment program.

Long-term Liquidity and Capital Resources

We expect to meet our long-term liquidity requirements through proceeds from the sale of our common stock, proceeds from secured or unsecured financings from banks and other lenders, the selective and strategic sale of properties and net cash flows from operations. We expect that our primary uses of capital will be for property acquisitions, for the payment of tenant improvements, for the payment of offering-related costs, for the payment of operating expenses, including interest expense on any outstanding indebtedness, and for the payment of distributions to our stockholders.

We expect that substantially all net cash generated from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are paid at the properties; however, we may use other sources to fund distributions as necessary. To the extent that cash flows from operations are lower due to fewer properties being acquired or lower returns on the properties, distributions paid to our stockholders may be lower. We expect that substantially all net cash resulting from equity or debt financing will be used to fund acquisitions, certain capital expenditures identified at acquisition, repayments of outstanding debt, or distributions to our stockholders.

As of December 31, 2007, we had cash and cash equivalents of approximately $43.5 million, which we expect to be used primarily to invest in additional real estate, pay operating expenses and pay stockholder distributions.

As of December 31, 2007, we had approximately $1.1 billion of debt outstanding, consisting of approximately $940.9 million in fixed rate, term mortgage loans, approximately $43.5 million in variable rate term mortgage loans, and approximately $71.3 million in variable rate loans secured by our mortgage notes receivable. The weighted average interest rate at December 31, 2007, under the fixed rate term mortgage loans was approximately 5.85%, the

138

variable rate term mortgage interest rate is stated at LIBOR plus 1.5% to 2.0%, and the variable rate loans secured by mortgage notes receivable interest rate is stated at LIBOR plus 2.0% to 2.75%. Additionally the ratio of debt to total gross assets was approximately 52% and the weighted average years to maturity was approximately 7.34 years.

Our contractual obligations as of December 31, 2007 were as follows:


			Payments Due by Period(2)
			Less Than 1		1-3		4-5		More Than 5
Contractual Obligations	Total		Year		Years		Years		Years

Principal payments — fixed rate debt	$	940,914,150	$	10,529,965	$	59,140,128	$	47,207,063	$	824,036,994
Interest payments — fixed rate debt		481,745,169		56,353,808		162,688,293		99,649,042		163,054,026
Principal payments — variable rate debt		114,767,388		114,767,388		—		—		—
Interest payments — variable rate debt(1)		2,508,224		2,508,224		—		—		—

Total	$	1,539,934,931	$	184,159,385	$	221,828,421	$	146,856,105	$	987,091,020


(1)		Rates ranging from 6.84% to 8.09% were used to calculate the variable debt payment obligations in future periods. These were the rates effective as of December 31, 2007.

(2)		Principal paydown amounts are included in payments due by period amounts.

Our charter prohibits us from incurring debt that would cause our borrowings to exceed the greater of 60% of our gross assets, valued at the greater of the aggregate cost (before depreciation and other non-cash reserves) or fair market value of all assets owned by us, unless approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report. During the quarter ended March 31, 2006, the independent directors approved borrowings that caused our leverage ratio at certain times to exceed the 60% limitation. The independent directors believed such borrowing levels were justified for the following reasons:


	•	the borrowings enabled us to purchase the properties and earn rental income more quickly;

	•	the property acquisitions were likely to increase the net offering proceeds from our initial public offering by allowing us to show potential investors actual acquisitions, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital; and

	•	based on expected equity sales at the time and scheduled maturities of our short-term variable rate debt, leverage was likely to exceed the charter’s guidelines only for a limited period of time.

Cash Flow Analysis

Year ended December 31, 2007 Compared to the Year ended December 31, 2006

Operating Activities

Net cash provided by operating activities increased approximately $35.5 million, or approximately 452%, to approximately $43.4 million for the year ended December 31, 2007, compared to net cash provided by operating activities of approximately $7.9 million for the year ended December 31, 2006. The increase was primarily due to an increase in net income of approximately $3.1 million, increases in depreciation and amortization expenses totaling approximately $24.5 million, an impairment of real estate assets of approximately $5.4 million and an increase in accounts payable and accrued expenses of approximately $4.0 million, offset by an increase in rents and tenant receivables of approximately $3.3 million for the year ended December 31, 2007. See “Results of Operations” for a more complete discussion of the factors impacting our operating performance.

139

Investing Activities

Net cash used in investing activities increased approximately $1.0 billion, or approximately 326%, to approximately $1.4 billion for the year ended December 31, 2007, compared to net cash used in investing activities of approximately $320.2 million for the year ended December 31, 2006. The increase was primarily due to the acquisition of 242 real estate properties during the year ended December 31, 2007 compared to the acquisition of 77 properties during the year ended December 31, 2006, and we acquired approximately $87.4 million of mortgage notes receivable using cash of approximately $51.1 million and mortgage notes payable obtained from the seller of approximately $36.3 million.

Financing Activities

Net cash provided by financing activities increased approximately $982.1 million, or approximately 284%, to approximately $1.3 billion for the year ended December 31, 2007, compared to net cash provided by financing activities of approximately $345.3 million for the year ended December 31, 2006. The increase was primarily due to an increase in aggregate net proceeds from the issuance of common stock in our initial public offering and the follow-on offering of approximately $335.1 million, an increase in proceeds from the issuance of mortgage and affiliate notes of approximately $686.3 million, and a decrease in repayments of mortgage and affiliate notes payable of approximately $10.5 million, offset by an increase in distributions to investors of approximately $13.9 million, an increase in offering costs on issuance of common stock of approximately $31.4 million and an increase in deferred financing costs paid of approximately $15.6 million. The increase in proceeds from issuance of mortgage and affiliate notes payable was due to our issuance of 105 new mortgages during the year ended December 31, 2007, compared to 46 new mortgages during the year ended December 31, 2006. Also, we borrowed approximately $72.2 million from our revolving mortgage notes payable.

Year ended December 31, 2006 Compared to the Year ended December 31, 2005

Operating Activities

Net cash provided by operating activities increased approximately $7.5 million, or approximately 1,877%, to approximately $7.9 million for the year ended December 31, 2006, compared to net cash provided by operating activities of approximately $398,000 for the year ended December 31, 2005. The increase was primarily due to net income for the period of approximately $1.3 million and depreciation and amortization expenses totaling approximately $7.0 million offset by increases in rents and tenant receivables of approximately $2.4 million. See “Results of Operations” for a more complete discussion of the factors impacting our operating performance.

Investing Activities

Net cash used in investing activities increased approximately $226.6 million, or approximately 242%, to approximately $320.2 million for the year ended December 31, 2006, compared to net cash used in investing activities of approximately $93.6 million for the year ended December 31, 2005. The increase was primarily due to the acquisition of 77 real estate properties during the year ended December 31, 2006 compared to the acquisition of 14 properties during the year ended December 31, 2005, and an approximately $2.2 million increase in restricted cash, due to an increase cash held in escrow pending the issuance of shares to investors.

Financing Activities

Net cash provided by financing activities increased approximately $247.7 million, or approximately 254%, to approximately $345.3 million for the year ended December 31, 2006, compared to net cash provided by financing activities of approximately $97.6 million for the year ended December 31, 2005. The increase was primarily due to an increase in net proceeds from the issuance of common stock in the Initial Offering of approximately $222.8 million and an increase in proceeds from the issuance of mortgage and affiliate notes of approximately $93.9 million, offset by an increase in repayments of mortgage and affiliate notes payable of approximately $63.5 million. The increase in proceeds from issuance of mortgage and affiliate notes payable was due to the issuance of 59 new mortgages during the year ended December 31, 2006 compared to nine new mortgages during the year ended December 31, 2005. The increase in repayments of mortgage and affiliate notes payable was due to

140

the repayment of short-term variable rate debt at its maturity during the year ended December 31, 2006 and the repayment of approximately $4.5 million of affiliate notes payable during the year ended December 31, 2006.

Election as a REIT

We are taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income for four years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying consolidated financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying financial statements.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. However, in the event inflation does become a factor, the leases on the real estate we may acquire may not include provisions that would protect us from the impact of inflation.

We have entered into agreements with Cole Advisors II and its affiliates, whereby we pay certain fees to, or reimburse certain expenses of, Cole Advisors II or its affiliates for acquisition and advisory fees and expenses, organization and offering costs, sales commissions, dealer manager fees, asset and property management fees and reimbursement of operating costs. See Note 11 to our consolidated financial statements beginning on page F-1 for a discussion of the various related-party transactions, agreements and fees.

Conflicts of Interest

Affiliates of Cole Advisors II act as sponsor, general partner or advisor to various private real estate limited partnerships and a REIT that offered its shares pursuant to an exemption from registration. As such, there are conflicts of interest where Cole Advisors II or its affiliates, while serving in the capacity as sponsor, general partner or advisor for another Cole sponsored program, may be in competition with us in connection with property acquisitions, property dispositions, and property management. The compensation arrangements between affiliates of Cole Advisors II and these other Cole sponsored programs could influence its advice to us.

Subsequent Events

Certain events subsequent to December 31, 2007 through March 31, 2008, including the sale of shares of common stock, the acquisition of 43 properties and the attainment of additional mortgage financing are discussed in Note 18 to the consolidated financial statements beginning on page F-1.

Impact of Recent Accounting Pronouncements

Reference is made to Note 2 to the consolidated financial statements beginning on page F-1 regarding the impact of recent accounting pronouncements.

141

PRIOR PERFORMANCE SUMMARY

Prior Investment Programs

The information presented in this section represents the historical experience of certain real estate programs managed over the last ten years by Cole Capital Advisors, Cole Capital Partners and other affiliates of our advisor, including certain officers and directors of our advisor. Investors should not assume that they will experience returns, if any, comparable to those experienced by investors in such prior real estate programs.

During the period from January 1, 1998 to December 31, 2007, affiliates of our advisor sponsored 68 privately offered prior programs, including 10 limited partnerships, a real estate investment trust (Cole REIT I), four debt offerings, 27 Delaware Statutory Trust programs and 26 tenant-in-common programs. As of December 31, 2007, such prior programs had raised approximately $665.1 million from approximately 6,300 investors. Each of the 10 limited partnerships, the real estate investment trust, four of the debt offerings, the 27 Delaware Statutory Trust programs and the 26 tenant-in-common programs have investment objectives and policies similar to those of this program. See Tables I and II of the Prior Performance Tables for more detailed information about the experience of our affiliates in raising and investing funds for offerings initiated over the last four years and compensation paid to the sponsors of these programs.

We intend to conduct this offering in conjunction with future offerings by one or more public and/or private real estate entities sponsored by Cole Capital Advisors, Cole Capital Partners and their affiliates. To the extent that such entities have the same or similar objectives as ours or involve similar or nearby properties, such entities may be in competition with the properties acquired by us. See the “Conflicts of Interest” section of this prospectus for additional information.

The information in this section and in the Prior Performance Tables attached to this prospectus as Appendix A provides relevant summary information concerning real estate programs sponsored by our affiliates. The Prior Performance Tables set forth information as of the dates indicated regarding certain of these prior programs as to (1) experience in raising and investing funds (Table I); (2) compensation to the sponsor and its affiliates (Table II); (3) annual operating results of prior real estate programs (Table III); (4) results of completed programs (Table IV); and (5) results of sales or disposals of properties (Table V). Additionally, Table VI, which is contained in Part II of the registration statement for this offering and which is not part of the prospectus, contains certain additional information relating to properties acquired by the prior real estate programs.

We will furnish copies of such table to any prospective investor upon request and without charge. The purpose of this prior performance information is to enable you to evaluate accurately the experience of our advisor and its affiliates in sponsoring like programs. The following discussion is intended to summarize briefly the objectives and performance of the prior real estate programs and to disclose any material adverse business developments sustained by them.

Upon written request, any potential investor may obtain, without charge, the most recent annual report on Form 10-K or Form 10-KSB filed with the SEC by any public program sponsored by our advisor or its affiliates that has reported to the SEC within the last 24 months. For a reasonable fee, those programs will provide copies of any exhibits to such Form 10-K or Form 10-KSB.

Summary Information

During the period from January 1, 1998 to December 31, 2007, affiliates of our advisor were general partners in 10 limited partnerships with similar investment objectives to our program, involving the sale of limited partnership interests to 2,231 investors, raising approximately $104.0 million of capital. The foregoing partnerships purchased in the aggregate 33 properties for an approximate acquisition cost of $225.8 million, of which approximately 52.1% is attributable to 23 single-tenant commercial properties, 45.5% is attributable to seven shopping centers, 1.2% is attributable to one data center and 1.2% is attributable to two unimproved or partially-improved land parcels intended for high-rise/data center development. Seven of the properties are located in the Phoenix metropolitan area, one is located in northern Arizona and 25 are located in the following states: three in Tennessee; three in Oklahoma; two in California; two in Florida; two in Ohio; and one each in Alabama, Indiana, Iowa, Kentucky,

142

Michigan, Mississippi, Nevada, New Mexico, New York, South Carolina, Texas, Virginia and Washington. The properties were purchased on terms varying from all cash to market rate financing. To date, 11 of the properties were sold.

Of the above, two real estate investment programs that acquired retail shopping centers and two limited partnerships that acquired single-tenant commercial properties, were sponsored since January 1, 2003. Cole Capital Partners, through wholly owned subsidiaries, serves as the general partner of Cole Credit Property Fund Limited Partnership (CCPF) and Cole Credit Property Fund II Limited Partnership (CCPF II). As of December 31, 2007, CCPF had raised $25.0 million and acquired 14 single-tenant commercial properties or an interest therein (including one property co-owned with CCPF II) in 12 states across the U.S. for an aggregate acquisition cost of approximately $56.1 million. As of December 31, 2007, CCPF II had raised approximately $24.5 million and had acquired ten single-tenant commercial properties or an interest therein (including one property co-owned with CCPF) in seven states for an aggregate acquisition cost of approximately $61.5 million. All of the properties acquired by CCPF and CCPF II were net leased to investment grade tenants, which are companies that have a debt rating by Moody’s of Baa3 or better or a credit rating by Standard & Poor’s of BBB- or better, or are guaranteed by a company with such rating, at the time of acquisition. Subsequent to the acquisition by CCPF, the tenants at two properties representing less than 7.5% of the fund’s invested equity have been downgraded below investment grade, one of which has filed for Chapter 11 bankruptcy protection and CCPF wrote off its approximately $1.5 million investment in such property.

In addition to the partnerships described above, as of December 31, 2007, affiliates of our advisor had issued an aggregate of approximately $114.1 million in collateralized senior notes through four debt offerings and had acquired an aggregate of 159 single-tenant retail properties in 37 states for an aggregate acquisition cost of approximately $953.5 million. As of December 31, 2007, 145 of the properties had been sold, of which 26 were sold as part of Cole Capital Partners’ tenant-in-common program, 45 were sold as part of Cole Capital Partners’ Delaware Statutory Trust Program, eight were sold to Cole REIT I and 16 were sold to us. On April 28, 2006, an affiliate of our advisor redeemed at par all of the approximately $28.0 million in collateralized senior notes issued under the first debt offering.

In addition, as of December 31, 2007, Cole REIT I, had raised approximately $100.3 million, and had acquired 42 single-tenant retail properties in 19 states for an aggregate acquisition cost of approximately $199.1 million.

In addition, the Cole Exchange Entities offer properties to Section 1031 exchange investors in the form of the sale of tenant-in-common ownership interests in such properties. As of December 31, 2007, aggregate ownership interests of $171.4 million had been sold in 26 private offerings of properties located in 14 states. In addition, the Cole Exchange Entities offer properties through the Deleware Statutory Trust Program whereby beneficial interests are offered in trusts that acquire real property. As of December 31, 2007, aggregate ownership interests of approximately $175.2 were sold in 27 private offerings of properties located in 21 states. See the Prior Performance Tables attached to this memorandum as Appendix A for additional information regarding the foregoing programs.

The following table shows a breakdown of the aggregate amount of the acquisition and development costs of the properties purchased by the prior real estate programs of our affiliates as of December 31, 2007:


Type of Property	New			Used			Construction

Retail		7.2	%		92.8	%		—
Office buildings		—			100	%		—
Land		—			100	%		—
Data Center		—			—			100	%

These programs have sold 132 of the total of 281 properties, or 47.0% of such properties. The original purchase price of the properties that were sold was approximately $890.5 million, and the aggregate sales price of such properties was approximately $954.6 million. See Tables III, IV and V of the Prior Performance Tables for more detailed information as to the operating results of such programs whose offerings closed in the last five years, results of such programs that have completed their operations over the last five years and the sales or other disposals of properties with investment objectives similar to ours over the last three years.

143

An entity affiliated with the officers of Cole Partnerships, Inc. raised $5 million in a debt offering for general corporate purposes, including investments in joint ventures with affiliates, which has been repaid.

During the three years ended December 31, 2007, the prior real estate programs had purchased 134 properties located in 33 states. Based on the aggregate purchase price of the 134 properties, approximately, 17.6% of the properties were located in Missouri, approximately, 11.9% of the properties were located in Texas, approximately, 8.9% of the properties were located in Florida, approximately 6.4% of the properties were located in Illinois and 5.5% of the properties were located in Washington. The remaining 49.7% of the properties purchased were located in 28 states, with no individual state concentration greater than 5%. Based on the aggregate purchase price of the 134 properties, 80.6% were single-tenant retail properties, 3.9% were single-tenant commercial properties and 15.5% were multi-tenant retail properties. A total of 121 of the properties were purchased with a combination of offering proceeds and mortgage notes payable and the remaining 13 of properties were purchased solely using offering proceeds.

The prior programs sponsored by our affiliates have occasionally been adversely affected by the cyclical nature of the real estate market. They have experienced, and may in the future experience, decreases in net income when economic conditions decline. One of these programs, Cole Santa Fe Investors, LP owned an approximately 263,000 square foot shopping center. Distributions to investors in that program were suspended indefinitely due to a tenant bankruptcy beginning with the quarter ended December 31, 2003. On November 30, 2007, the property was sold for approximately $26.3 million which resulted in a return to investors of 100% of their original investment plus a return of approximately 13.5% per year. In addition, Cole Southwest Opportunity Fund, LP completed development of a data facility in Phoenix, Arizona in August 2001 through a joint venture and was unable to lease the facility as a result of the severe downturn in the telecommunications industry. On April 6, 2005, the Phoenix facility was sold for $16.3 million, which along with the previous sale of vacant land parcels in Las Vegas, Nevada, formerly owned by a wholly owned subsidiary of Cole Southwest Opportunity Fund, LP, resulted in a return to investors of approximately 83% of their original investment upon liquidation of the limited partnership. See “Prior Performance Tables — Table III.”

144

FEDERAL INCOME TAX CONSIDERATIONS

Requirements for Qualification as a REIT

The following is a summary of material federal income tax considerations associated with an investment in shares of our common stock. This summary does not address all possible tax considerations that may be material to an investor and does not constitute tax advice. Moreover, this summary does not deal with all tax aspects that might be relevant to you, as a prospective stockholder, in light of your personal circumstances, nor does it deal with particular types of stockholders that are subject to special treatment under the Internal Revenue Code, such as insurance companies, tax-exempt organizations or financial institutions or broker-dealers.

The Internal Revenue Code provisions governing the federal income tax treatment of REITs are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Internal Revenue Code provisions, treasury regulations promulgated thereunder (Treasury Regulations) and administrative and judicial interpretations thereof.

We urge you, as a prospective investor, to consult your own tax advisor regarding the specific tax consequences to you of a purchase of shares, ownership and sale of the shares and of our election to be taxed as a REIT. These consequences include the federal, state, local, foreign and other tax consequences of such purchase, ownership, sale and election.

Opinion of Counsel

Morris, Manning & Martin, LLP acts as our counsel, has reviewed this summary and is of the opinion that it fairly summarizes the federal income tax considerations addressed that are material to our stockholders. It is also the opinion of our counsel that we qualify to be taxed as a REIT under the Internal Revenue Code for our taxable year ended December 31, 2007, provided that we have operated and will continue to operate in accordance with various assumptions and the factual representations we made to counsel concerning our business, properties and operations. We must emphasize that all opinions issued by Morris, Manning & Martin, LLP are based on various assumptions and are conditioned upon the assumptions and representations we made concerning certain factual matters related to our business and properties. Moreover, our qualification for taxation as a REIT depends on our ability to meet the various qualification tests imposed under the Internal Revenue Code discussed below, the results of which will not be reviewed by Morris, Manning & Martin, LLP. Accordingly, we cannot assure you that the actual results of our operations for any one taxable year will satisfy these requirements. See “Risk Factors — Federal Income Tax Risks.” The statements made in this section of the prospectus and in the opinion of Morris, Manning & Martin, LLP are based upon existing law and Treasury Regulations, as currently applicable, currently published administrative positions of the Internal Revenue Service and judicial decisions, all of which are subject to change, either prospectively or retroactively. We cannot assure you that any changes will not modify the conclusions expressed in counsel’s opinion. Moreover, an opinion of counsel is not binding on the Internal Revenue Service, and we cannot assure you that the Internal Revenue Service will not successfully challenge our status as a REIT.

Taxation of the Company

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, effective for our taxable year ended December 31, 2005. We believe that, commencing with such taxable year, we were organized and operated in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code. We believe that we have operated, and we intend to continue to operate, in such a manner to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Pursuant to our charter, our board of directors has the authority to make any tax elections on our behalf that, in their sole judgment, are in our best interest. This authority includes the ability to elect not to qualify as a REIT for federal income tax purposes or, after qualifying as a REIT to revoke or otherwise terminate our status as a REIT. Our board of directors has the authority under our charter to make these elections without the necessity of obtaining the approval of our stockholders. In addition, our board of directors has the authority to waive any restrictions and limitations contained in our charter that are intended to preserve our status as a REIT during any period in which our board of directors has determined not to pursue or preserve our status as a REIT.

145

Although REITs continue to receive substantially better tax treatment than entities taxed as corporations, it is possible that future legislation would cause a REIT to be a less advantageous tax status for companies that invest in real estate, and it could become more advantageous for such companies to elect to be taxed for federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the ability, under certain circumstances, to elect not to qualify us as a REIT or, after we have qualified as a REIT, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and to all investors and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

As a REIT, we generally will not be subject to federal corporate income taxes on that portion of our ordinary income or capital gain that we distribute currently to our stockholders, because the REIT provisions of the Internal Revenue Code generally allow a REIT to deduct distributions paid to its stockholders. This substantially eliminates the federal “double taxation” on earnings (taxation at both the corporate level and stockholder level) that usually results from an investment in a corporation.

As a REIT we are subject to federal income taxation as follows:


	•	we are taxed at regular corporate rates on our undistributed REIT taxable income, including undistributed net capital gains;

	•	under some circumstances, we will be subject to alternative minimum tax;

	•	if we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on that income;

	•	if we have net income from prohibited transactions (which are, in general, sales or other dispositions of property other than foreclosure property held primarily for sale to customers in the ordinary course of business), our income from such prohibited transaction will be subject to a 100% tax;

	•	if we fail to satisfy either of the 75% or 95% gross income tests (discussed below) but have nonetheless maintained our qualification as a REIT because applicable conditions have been met, we will be subject to a 100% tax on an amount equal to the greater of the amount by which we fail the 75% or 95% test multiplied by a fraction calculated to reflect our profitability;

	•	if we fail to distribute during each year at least the sum of (i) 85% of our REIT ordinary income for the year, (ii) 95% of our REIT capital gain net income for such year and (iii) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the amounts actually distributed; and

	•	if we acquire any asset from a C corporation (i.e., a corporation generally subject to corporate-level tax) in a carryover-basis transaction and we subsequently recognize gain on the disposition of the asset during the ten-year period beginning on the date on which we acquired the asset, then a portion of the gains may be subject to tax at the highest regular corporate rate, pursuant to guidelines issued by the Internal Revenue Service.

In order for us to continue to qualify as a REIT, we must meet, and we must continue to meet, the requirements discussed below relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping.

Organizational Requirements

In order to qualify for taxation as a REIT under the Internal Revenue Code, we must:


	•	be a domestic corporation;

	•	elect to be taxed as a REIT and satisfy relevant filing and other administrative requirements;

146


	•	be managed by one or more trustees or directors;

	•	have transferable shares;

	•	not be a financial institution or an insurance company;

	•	use a calendar year for federal income tax purposes;

	•	have at least 100 stockholders for at least 335 days of each taxable year of twelve months; and

	•	not be closely held.

As a Maryland corporation, we satisfy the first requirement, and we elected to be taxed as a REIT when we filed our 2005 federal income tax return with the Internal Revenue Service. In addition, we are managed by a board of directors, we have transferable shares and we do not intend to operate as a financial institution or insurance company. We utilize the calendar year for federal income tax purposes. We would be treated as closely held only if five or fewer individuals or certain tax-exempt entities own, directly or indirectly, more than 50% (by value) of our shares at any time during the last half of our taxable year. For purposes of the closely held test, the Internal Revenue Code generally permits a look-through for pension funds and certain other tax-exempt entities to the beneficiaries of the entity to determine if the REIT is closely held. We currently meet the requirement of having more than 100 stockholders. In addition, our charter provides for restrictions regarding transfer of shares that are intended to assist us in continuing to satisfy these share ownership requirements. Such transfer restrictions are described in “Description of Shares — Restrictions on Ownership and Transfer.” These provisions permit us to refuse to recognize certain transfers of shares that would tend to violate these REIT provisions. We can offer no assurance that our refusal to recognize a transfer will be effective. However, based on the foregoing, we should currently satisfy the organizational requirements, including the share ownership requirements, required for qualifying as a REIT under the Internal Revenue Code. Notwithstanding compliance with the share ownership requirements outlined above, tax-exempt stockholders may be required to treat all or a portion of their distributions from us as UBTI if tax-exempt stockholders, in the aggregate, exceed certain ownership thresholds set forth in the Internal Revenue Code. See “ — Treatment of Tax-Exempt Stockholders” below.

Ownership of Interests in Partnerships and Qualified REIT Subsidiaries

In the case of a REIT that is a partner in a partnership, Treasury Regulations provide that the REIT is deemed to own its proportionate share, based on its interest in partnership capital, of the assets of the partnership and is deemed to have earned its allocable share of partnership income. Also, if a REIT owns a qualified REIT subsidiary, which is defined as a corporation wholly-owned by a REIT that does not elect to be taxed as a taxable REIT subsidiary under the Internal Revenue Code, the REIT will be deemed to own all of the subsidiary’s assets and liabilities and it will be deemed to be entitled to treat the income of that subsidiary as its own. In addition, the character of the assets and gross income of the partnership or qualified REIT subsidiary shall retain the same character in the hands of the REIT for purposes of satisfying the gross income tests and asset tests set forth in the Internal Revenue Code.

Operational Requirements — Gross Income Tests

To maintain our qualification as a REIT, we must, on an annual basis, satisfy the following gross income requirements:


	•	At least 75% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property. Gross income includes “rents from real property” and, in some circumstances, interest, but excludes gross income from dispositions of property held primarily for sale to customers in the ordinary course of a trade or business. Such dispositions are referred to as “prohibited transactions.” This is known as the 75% Income Test.

	•	At least 95% of our gross income, excluding gross income from prohibited transactions, for each taxable year must be derived from the real property investments described above and from distributions, interest and gains from the sale or disposition of stock or securities or from any combination of the foregoing. This is known as the 95% Income Test.

147

The rents we receive, or that we are deemed to receive, qualify as “rents from real property” for purposes of satisfying the gross income requirements for a REIT only if the following conditions are met:


	•	the amount of rent received from a tenant generally must not be based in whole or in part on the income or profits of any person; however, an amount received or accrued generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage or percentages of gross receipts or sales;

	•	rents received from a tenant will not qualify as “rents from real property” if an owner of 10% or more of the REIT directly or constructively owns 10% or more of the tenant or a subtenant of the tenant (in which case only rent attributable to the subtenant is disqualified);

	•	if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as “rents from real property”; and

	•	the REIT must not operate or manage the property or furnish or render services to tenants, other than through an “independent contractor” who is adequately compensated and from whom the REIT does not derive any income. However, a REIT may provide services with respect to its properties, and the income derived therefrom will qualify as “rents from real property,” if the services are “usually or customarily rendered” in connection with the rental of space only and are not otherwise considered “rendered to the occupant.” Even if the services with respect to a property are impermissible tenant services, the income derived therefrom will qualify as “rents from real property” if such income does not exceed 1% of all amounts received or accrued with respect to that property.

We will be paid interest on the mortgage loans that we make or acquire. All interest qualifies under the 95% gross income test. If a mortgage loan is secured exclusively by real property, all of such interest will also qualify for the 75% income test. If both real property and other property secure the mortgage loan, then all of the interest on such mortgage loan will also qualify for the 75% gross income test if the amount of the loan did not exceed the fair market value of the real property at the time of the loan commitment.

If we acquire ownership of property by reason of the default of a borrower on a loan or possession of property by reason of a tenant default, if the property qualifies and we elect to treat it as foreclosure property, the income from the property will qualify under the 75% Income Test and the 95% Income Test notwithstanding its failure to satisfy these requirements for three years, or if extended for good cause, up to a total of six years. In that event, we must satisfy a number of complex rules, one of which is a requirement that we operate the property through an independent contractor. We will be subject to tax on that portion of our net income from foreclosure property that does not otherwise qualify under the 75% Income Test.

Prior to investing the offering proceeds in properties, we may satisfy the 75% Income Test and the 95% Income Test by investing in liquid assets such as government securities or certificates of deposit, but earnings from those types of assets are qualifying income under the 75% Income Test only for one year from the receipt of proceeds. Accordingly, to the extent that offering proceeds have not been invested in properties prior to the expiration of this one-year period, in order to satisfy the 75% Income Test, we may invest the offering proceeds in less liquid investments such as mortgage-backed securities, maturing mortgage loans purchased from mortgage lenders or shares in other REITs. We expect to receive proceeds from the offering in a series of closings and to trace those proceeds for purposes of determining the one-year period for “new capital investments.” No rulings or regulations have been issued under the provisions of the Internal Revenue Code governing “new capital investments,” however, so there can be no assurance that the Internal Revenue Service will agree with this method of calculation.

Except for amounts received with respect to certain investments of cash reserves, we anticipate that substantially all of our gross income will be derived from sources that will allow us to satisfy the income tests described above. We can give no assurance in this regard, however. Notwithstanding our failure to satisfy one or both of the 75% Income and the 95% Income Tests for any taxable year, we may still qualify as a REIT for that year

148

if we are eligible for relief under specific provisions of the Internal Revenue Code. These relief provisions generally will be available if:


	•	our failure to meet these tests was due to reasonable cause and not due to willful neglect;

	•	we attach a schedule of our income sources to our federal income tax return; and

	•	any incorrect information on the schedule is not due to fraud with intent to evade tax.

It is not possible, however, to state whether, in all circumstances, we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally earn exceeds the limits on this income, the Internal Revenue Service could conclude that our failure to satisfy the tests was not due to reasonable cause. As discussed above in “— Taxation of the Company,” even if these relief provisions apply, a tax would be imposed with respect to the excess net income.

Operational Requirements — Asset Tests

At the close of each quarter of our taxable year, we also must satisfy the following three tests relating to the nature and diversification of our assets:


	•	First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and government securities. The term “real estate assets” includes real property, mortgages on real property, shares in other qualified REITs and a proportionate share of any real estate assets owned by a partnership in which we are a partner or of any qualified REIT subsidiary of ours.

	•	Second, no more than 25% of our total assets may be represented by securities other than those in the 75% asset class.

	•	Third, of the investments included in the 25% asset class, the value of any one issuer’s securities that we own may not exceed 5% of the value of our total assets. Additionally, we may not own more than 10% of any one issuer’s outstanding voting securities.

The 5% test must generally be met for any quarter in which we acquire securities. Further, if we meet the asset tests at the close of any quarter, we will not lose our REIT status for a failure to satisfy the asset tests at the end of a later quarter if such failure occurs solely because of changes in asset values. If our failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, we can cure the failure by disposing of a sufficient amount of nonqualifying assets within 30 days after the close of that quarter. We maintain, and will continue to maintain, adequate records of the value of our assets to ensure compliance with the asset tests and will take other action within 30 days after the close of any quarter as may be required to cure any noncompliance.

Operational Requirements — Annual Distribution Requirement

In order to be taxed as a REIT, we are required to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our REIT taxable income, which is computed without regard to the distributions paid deduction and our capital gain and subject to certain other potential adjustments.

While we must generally make distributions in the taxable year to which they relate, we may also pay distributions in the following taxable year if (1) they are declared before we timely file our federal income tax return for the taxable year in question, and (2) they are made on or before the first regular distribution payment date after the declaration.

Even if we satisfy the foregoing distribution requirement and, accordingly, continue to qualify as a REIT for tax purposes, we will still be subject to tax on the excess of our net capital gain and our REIT taxable income, as adjusted, over the amount of distributions made to stockholders.

In addition, if we fail to distribute during each calendar year at least the sum of:


	•	85% of our ordinary income for that year;

149


	•	95% of our capital gain net income other than the capital gain net income that we elect to retain and pay tax on for that year; and

	•	any undistributed taxable income from prior periods,

we will be subject to a 4% excise tax on the excess of the amount of such required distributions over amounts actually distributed during such year.

We intend to make timely distributions sufficient to satisfy this requirement; however, it is possible that we may experience timing differences between (1) the actual receipt of income and payment of deductible expenses, and (2) the inclusion of that income. It is also possible that we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale.

In such circumstances, we may have less cash than is necessary to meet our annual distribution requirement or to avoid income or excise taxation on certain undistributed income. We may find it necessary in such circumstances to arrange for financing or raise funds through the issuance of additional shares in order to meet our distribution requirements, or we may pay taxable stock distributions to meet the distribution requirement.

If we fail to satisfy the distribution requirement for any taxable year by reason of a later adjustment to our taxable income made by the Internal Revenue Service, we may be able to pay “deficiency distributions” in a later year and include such distributions in our deductions for distributions paid for the earlier year. In such event, we may be able to avoid being taxed on amounts distributed as deficiency distributions, but we would be required in such circumstances to pay interest to the Internal Revenue Service based upon the amount of any deduction taken for deficiency distributions for the earlier year.

We may also elect to retain, rather than distribute, our net long-term capital gains. The effect of such an election would be as follows:


	•	we would be required to pay the tax on these gains;

	•	our stockholders, while required to include their proportionate share of the undistributed long-term capital gains in income, would receive a credit or refund for their share of the tax paid by us; and

	•	the basis of a stockholder’s shares would be increased by the difference between the designated amount included in the stockholder’s long-term capital gains and the tax deemed paid with respect to such shares.

In computing our REIT taxable income, we will use the accrual method of accounting and depreciate depreciable property under the alternative depreciation system. We are required to file an annual federal income tax return, which, like other corporate returns, is subject to examination by the Internal Revenue Service. Because the tax law requires us to make many judgments regarding the proper treatment of a transaction or an item of income or deduction, it is possible that the Internal Revenue Service will challenge positions we take in computing our REIT taxable income and our distributions. Issues could arise, for example, with respect to the allocation of the purchase price of properties between depreciable or amortizable assets and non-depreciable or non-amortizable assets such as land and the current deductibility of fees paid to Cole Advisors or its affiliates. Were the Internal Revenue Service successfully to challenge our characterization of a transaction or determination of our REIT taxable income, we could be found to have failed to satisfy a requirement for qualification as a REIT. If, as a result of a challenge, we are determined to have failed to satisfy the distribution requirements for a taxable year, we would be disqualified as a REIT unless we were permitted to pay a deficiency distribution to our stockholders and pay interest thereon to the Internal Revenue Service, as provided by the Internal Revenue Code. A deficiency distribution cannot be used to satisfy the distribution requirement, however, if the failure to meet the requirement is not due to a later adjustment to our income by the Internal Revenue Service.

Operational Requirements — Recordkeeping

In order to continue to qualify as a REIT, we must maintain records as specified in applicable Treasury Regulations. Further, we must request, on an annual basis, information designed to disclose the ownership of our outstanding shares. We intend to comply with such requirements.

150

Failure to Qualify as a REIT

If we fail to qualify as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. See “Risk Factors — Federal Income Tax Risks.”

Sale-Leaseback Transactions

Some of our investments may be in the form of sale-leaseback transactions. In most instances, depending on the economic terms of the transaction, we will be treated for federal income tax purposes as either the owner of the property or the holder of a debt secured by the property. We do not expect to request an opinion of counsel concerning the status of any leases of properties as true leases for federal income tax purposes.

The Internal Revenue Service may take the position that a specific sale-leaseback transaction that we treat as a true lease is not a true lease for federal income tax purposes but is, instead, a financing arrangement or loan. We may also structure some sale-leaseback transactions as loans. In this event, for purposes of the asset tests and the 75% Income Test, each such loan likely would be viewed as secured by real property to the extent of the fair market value of the underlying property. We expect that, for this purpose, the fair market value of the underlying property would be determined without taking into account our lease. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the asset tests or the income tests and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated, which might also cause us to fail to meet the distribution requirement for a taxable year.

Taxation of U.S. Stockholders

Definition

In this section, the phrase “U.S. stockholder” means a holder of shares that for federal income tax purposes:


	•	is a citizen or resident of the United States;

	•	is a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof;

	•	is an estate or trust, the income of which is subject to U.S. federal income taxation regardless of its source; or

	•	a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

For any taxable year for which we qualify for taxation as a REIT, amounts distributed to taxable U.S. stockholders will be taxed as described below.

Distributions Generally

Distributions to U.S. stockholders, other than capital gain distributions discussed below, will constitute distributions up to the amount of our current or accumulated earnings and profits and will be taxable to the stockholders as ordinary income. Individuals receiving “qualified dividends,” distributions from domestic and certain qualifying foreign subchapter C corporations, may be entitled to lower rates on distributions (at rates applicable to long-term capital gains, currently at a maximum rate of 15%) provided certain holding period requirements are met. However, individuals receiving distributions from us, a REIT, will generally not be eligible for the lower rates on distributions except with respect to the portion of any distribution which (a) represents distributions being passed through to us from a corporation in which we own shares (but only if such distributions would be eligible for the new lower rates on distributions if paid by the corporation to its individual stockholders), (b) is equal to our REIT taxable income (taking into account the distributions paid deduction available to us) less any taxes paid by us on these items during our previous taxable year, or (c) is attributable to built-in gains realized and recognized by us from disposition of properties acquired by us in non-recognition transaction, less any taxes

151

paid by us on these items during our previous taxable year. These distributions are not eligible for the distributions received deduction generally available to corporations. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the amount of each distribution in excess of a U.S. stockholder’s tax basis in its shares will be taxable as gain realized from the sale of its shares. Distributions that we declare in October, November or December of any year payable to a stockholder of record on a specified date in any of these months will be treated as both paid by us and received by the stockholder on December 31 of the year, provided that we actually pay the distribution during January of the following calendar year. U.S. stockholders may not include any of our losses on their own federal income tax returns.

We will be treated as having sufficient earnings and profits to treat as a distribution any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed above. Moreover, any “deficiency dividend” will be treated as an ordinary or capital gain distribution, as the case may be, regardless of our earnings and profits. As a result, stockholders may be required to treat as taxable some distributions that would otherwise result in a tax-free return of capital.

Capital Gain Distributions

Distributions to U.S. stockholders that we properly designate as capital gain distributions will be treated as long-term capital gains, to the extent they do not exceed our actual net capital gain, for the taxable year without regard to the period for which the U.S. stockholder has held his or her shares.

Passive Activity Loss and Investment Interest Limitations

Our distributions and any gain you realize from a disposition of shares will not be treated as passive activity income, and stockholders may not be able to utilize any of their “passive losses” to offset this income on their personal tax returns. Our distributions (to the extent they do not constitute a return of capital) will generally be treated as investment income for purposes of the limitations on the deduction of investment interest. Net capital gain from a disposition of shares and capital gain distributions generally will be included in investment income for purposes of the investment interest deduction limitations only if, and to the extent, you so elect, in which case any such capital gains will be taxed as ordinary income.

Certain Dispositions of the Shares

In general, any gain or loss realized upon a taxable disposition of shares by a U.S. stockholder who is not a dealer in securities, including any disposition pursuant to our proposed share redemption program, will be treated as long-term capital gain or loss if the shares have been held for more than twelve months and as short-term capital gain or loss if the shares have been held for twelve months or less. If, however, a U.S. stockholder has received any capital gains distributions with respect to his shares, any loss realized upon a taxable disposition of shares held for six months or less, to the extent of the capital gains distributions received with respect to his shares, will be treated as long-term capital loss. Also, the Internal Revenue Service is authorized to issue Treasury Regulations that would subject a portion of the capital gain a U.S. stockholder recognizes from selling his shares or from a capital gain distribution to a tax at a 25% rate, to the extent the capital gain is attributable to depreciation previously deducted.

Information Reporting Requirements and Backup Withholding for U.S. Stockholders

Under some circumstances, U.S. stockholders may be subject to backup withholding at a rate of 30% on payments made with respect to, or cash proceeds of a sale or exchange of, our shares. Backup withholding will apply only if the stockholder:


	•	fails to furnish his or her taxpayer identification number, which, for an individual, would be his or her Social Security Number;

	•	furnishes an incorrect tax identification number;

	•	is notified by the Internal Revenue Service that he or she has failed properly to report payments of interest and distributions or is otherwise subject to backup withholding; or

152


	•	under some circumstances, fails to certify, under penalties of perjury, that he or she has furnished a correct tax identification number and that (a) he or she has not been notified by the Internal Revenue Service that he or she is subject to backup withholding for failure to report interest and distribution payments or (b) he or she has been notified by the Internal Revenue Service that he or she is no longer subject to backup withholding.

Backup withholding will not apply with respect to payments made to some stockholders, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. stockholder will be allowed as a credit against the U.S. stockholder’s U.S. federal income tax liability and may entitle the U.S. stockholder to a refund, provided that the required information is furnished to the Internal Revenue Service. U.S. stockholders should consult their own tax advisors regarding their qualifications for exemption from backup withholding and the procedure for obtaining an exemption.

Treatment of Tax-Exempt Stockholders

Tax-exempt entities such as employee pension benefit trusts, individual retirement accounts and charitable remainder trusts generally are exempt from federal income taxation. Such entities are subject to taxation, however, on any UBTI. Our payment of distributions to a tax-exempt employee pension benefit trust or other domestic tax-exempt stockholder generally will not constitute UBTI to such stockholder unless such stockholder has borrowed to acquire or carry its shares.

In the event that we were deemed to be “predominately held” by qualified employee pension benefit trusts that each hold more than 10% (in value) of our shares, such trusts would be required to treat a certain percentage of the distributions paid to them as UBTI. We would be deemed to be “predominately held” by such trusts if either (i) one employee pension benefit trust owns more than 25% in value of our shares, or (ii) any group of employee pension benefit trusts, each owning more than 10% in value of our shares, holds in the aggregate more than 50% in value of our shares. If either of these ownership thresholds were ever exceeded, any qualified employee pension benefit trust holding more than 10% in value of our shares would be subject to tax on that portion of our distributions made to it which is equal to the percentage of our income that would be UBTI if we were a qualified trust, rather than a REIT. We will attempt to monitor the concentration of ownership of employee pension benefit trusts in our shares, and we do not expect our shares to be deemed to be “predominately held” by qualified employee pension benefit trusts, as defined in the Internal Revenue Code, to the extent required to trigger the treatment of our income as to such trusts.

For social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, income from an investment in our shares will constitute UBTI unless the stockholder in question is able to deduct amounts “set aside” or placed in reserve for certain purposes so as to offset the UBTI generated. Any such organization that is a prospective stockholder should consult its own tax advisor concerning these “set aside” and reserve requirements.

Special Tax Considerations for Non-U.S. Stockholders

The rules governing U.S. income taxation of non-resident alien individuals, foreign corporations, foreign partnerships and foreign trusts and estates (non-U.S. stockholders) are complex. The following discussion is intended only as a summary of these rules. Non-U.S. stockholders should consult with their own tax advisors to determine the impact of federal, state and local income tax laws on an investment in our shares, including any reporting requirements.

Income Effectively Connected with a U.S. Trade or Business

In general, non-U.S. stockholders will be subject to regular U.S. federal income taxation with respect to their investment in our shares if the income derived therefrom is “effectively connected” with the non-U.S. stockholder’s conduct of a trade or business in the United States. A corporate non-U.S. stockholder that receives income that is (or is treated as) effectively connected with a U.S. trade or business also may be subject to a branch profits tax under Section 884 of the Internal Revenue Code, which is payable in addition to the regular U.S. federal corporate income tax.

153

The following discussion will apply to non-U.S. stockholders whose income derived from ownership of our shares is deemed to be not “effectively connected” with a U.S. trade or business.

Distributions Not Attributable to Gain from the Sale or Exchange of a United States Real Property Interest

A distribution to a non-U.S. stockholder that is not attributable to gain realized by us from the sale or exchange of a “United States real property interest” within the meaning of the Foreign Investment in Real Property Tax Act of 1980, as amended (FIRPTA), and that we do not designate as a capital gain distribution will be treated as an ordinary income distribution to the extent that it is made out of current or accumulated earnings and profits. Generally, any ordinary income distribution will be subject to a U.S. federal income tax equal to 30% of the gross amount of the distribution unless this tax is reduced by the provisions of an applicable tax treaty. Any such distribution in excess of our earnings and profits will be treated first as a return of capital that will reduce each non-U.S. stockholder’s basis in its shares (but not below zero) and then as gain from the disposition of those shares, the tax treatment of which is described under the rules discussed below with respect to dispositions of shares.

Distributions Attributable to Gain from the Sale or Exchange of a United States Real Property Interest

Distributions to a non-U.S. stockholder that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to a non-U.S. stockholder under Internal Revenue Code provisions enacted by FIRPTA. Under FIRPTA, such distributions are taxed to a non-U.S. stockholder as if the distributions were gains “effectively connected” with a U.S. trade or business. Accordingly, a non-U.S. stockholder will be taxed at the normal capital gain rates applicable to a U.S. stockholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals). Distributions subject to FIRPTA also may be subject to a 30% branch profits tax when made to a corporate non-U.S. stockholder that is not entitled to a treaty exemption. Capital gain distributions generally will be treated as subject to FIRPTA.

Withholding Obligations With Respect to Distributions to Non-U.S. Stockholders

Although tax treaties may reduce our withholding obligations, based on current law, we will generally be required to withhold from distributions to non-U.S. stockholders, and remit to the Internal Revenue Service:


	•	35% of designated capital gain distributions or, if greater, 35% of the amount of any distributions that could be designated as capital gain distributions; and

	•	30% of ordinary income distributions (i.e., distributions paid out of our earnings and profits).

In addition, if we designate prior distributions as capital gain distributions, subsequent distributions, up to the amount of the prior distributions, will be treated as capital gain distributions for purposes of withholding. A distribution in excess of our earnings and profits will be subject to 30% withholding if at the time of the distribution it cannot be determined whether the distribution will be in an amount in excess of our current or accumulated earnings and profits. If the amount of tax we withhold with respect to a distribution to a non-U.S. stockholder exceeds the stockholder’s U.S. tax liability with respect to that distribution, the non-U.S. stockholder may file a claim with the Internal Revenue Service for a refund of the excess.

Sale of Our Shares by a Non-U.S. Stockholder

A sale of our shares by a non-U.S. stockholder will generally not be subject to U.S. federal income taxation unless our shares constitute a United States real property interest. Our shares will not constitute a United States real property interest if we are a “domestically controlled REIT.” A “domestically controlled REIT” is a REIT that at all times during a specified testing period has less than 50% in value of its shares held directly or indirectly by non-U.S. stockholders. We currently anticipate that we will be a domestically controlled REIT. Therefore, sales of our shares should not be subject to taxation under FIRPTA. However, we do expect to sell our shares to non-U.S. stockholders and we cannot assure you that we will continue to be a domestically controlled REIT. If we were not a domestically controlled REIT, whether a non-U.S. stockholder’s sale of our shares would be subject to tax under FIRPTA as a sale of a United States real property interest would depend on whether our shares were

154

“regularly traded” on an established securities market and on the size of the selling stockholder’s interest in us. Our shares currently are not “regularly traded” on an established securities market.

If the gain on the sale of shares were subject to taxation under FIRPTA, a non-U.S. stockholder would be subject to the same treatment as a U.S. stockholder with respect to the gain, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals. In addition, distributions that are treated as gain from the disposition of shares and are subject to tax under FIRPTA also may be subject to a 30% branch profits tax when made to a corporate non-U.S. stockholder that is not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares may be required to withhold 10% of the purchase price and remit this amount to the Internal Revenue Service.

Even if not subject to FIRPTA, capital gains will be taxable to a non-U.S. stockholder if the non-U.S. stockholder is a non-resident alien individual who is present in the United States for 183 days or more during the taxable year and some other conditions apply, in which case the non-resident alien individual will be subject to a 30% tax on his or her U.S. source capital gains.

Information Reporting Requirements and Backup Withholding for Non-U.S. Stockholders

Additional issues may arise for information reporting and backup withholding for non-U.S. stockholders. Non-U.S. stockholders should consult their tax advisors with regard to U.S. information reporting and backup withholding requirements under the Internal Revenue Code.

Statement of Stock Ownership

We are required to demand annual written statements from the record holders of designated percentages of our shares disclosing the actual owners of the shares. Any record stockholder who, upon our request, does not provide us with required information concerning actual ownership of the shares is required to include specified information relating to his or her shares in his or her federal income tax return. We also must maintain, within the Internal Revenue District in which we are required to file, our federal income tax return, permanent records showing the information we have received about the actual ownership of shares and a list of those persons failing or refusing to comply with our demand.

State and Local Taxation

We and any operating subsidiaries that we may form may be subject to state and local tax in states and localities in which they or we do business or own property. The tax treatment of us, Cole OP II, any operating subsidiaries we may form and the holders of our shares in local jurisdictions may differ from the federal income tax treatment described above.

Tax Aspects of Our Operating Partnership

The following discussion summarizes certain federal income tax considerations applicable to our investment in Cole OP II, our operating partnership. The discussion does not cover state or local tax laws or any federal tax laws other than income tax laws.

Classification as a Partnership

We will be entitled to include in our income a distributive share of Cole OP II’s income and to deduct our distributive share of Cole OP II’s losses only if Cole OP II is classified for federal income tax purposes as a partnership, rather than as an association taxable as a corporation. Under applicable Treasury Regulations known as Check-the-Box-Regulations, an unincorporated entity with at least two members may elect to be classified either as an association taxable as a corporation or as a partnership. If such an entity fails to make an election, it generally will be treated as a partnership for federal income tax purposes. Cole OP II intends to be classified as a partnership for federal income tax purposes and will not elect to be treated as an association taxable as a corporation under the Check-the-Box-Regulations.

155

Even though Cole OP II will be treated as a partnership for federal income tax purposes, it may be taxed as a corporation if it is deemed to be a “publicly traded partnership.” A publicly traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable on a secondary market, or the substantial equivalent thereof. However, even if the foregoing requirements are met, a publicly traded partnership will not be treated as a corporation for federal income tax purposes if at least 90% of such partnership’s gross income for a taxable year consists of “qualifying income” under Section 7704(d) of the Internal Revenue Code. Qualifying income generally includes any income that is qualifying income for purposes of the 95% Income Test applicable to REITs (90% Passive-Type Income Exception). See “— Requirements for Qualification as a REIT — Operational Requirements — Gross Income Tests” above.

Under applicable Treasury Regulations known as the PTP Regulations, limited safe harbors from the definition of a publicly traded partnership are provided. Pursuant to one of those safe harbors (the Private Placement Exclusion), interests in a partnership will not be treated as readily tradable on a secondary market or the substantial equivalent thereof if (i) all interests in the partnership were issued in a transaction (or transactions) that was not required to be registered under the Securities Act, and (ii) the partnership does not have more than 100 partners at any time during the partnership’s taxable year. In determining the number of partners in a partnership, a person owning an interest in a flow-through entity, such as a partnership, grantor trust or S corporation, that owns an interest in the partnership is treated as a partner in such partnership only if (a) substantially all of the value of the owner’s interest in the flow-through is attributable to the flow-through entity’s interest, direct or indirect, in the partnership and (b) a principal purpose of the use of the flow-through entity is to permit the partnership to satisfy the 100 partner limitation. Cole OP II qualifies for the Private Placement Exclusion. Moreover, even if Cole OP II were considered a publicly traded partnership under the PTP Regulations because it is deemed to have more than 100 partners, we believe Cole OP II should not be treated as a corporation because it is eligible for the 90% Passive-Type Income Exception described above.

We have not requested, and do not intend to request, a ruling from the Internal Revenue Service that Cole OP II will be classified as a partnership for federal income tax purposes. Morris, Manning & Martin, LLP is of the opinion, however, that based on certain factual assumptions and representations, Cole OP II will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation, or as a publicly traded partnership. Unlike a tax ruling, however, an opinion of counsel is not binding upon the Internal Revenue Service, and we can offer no assurance that the Internal Revenue Service will not challenge the status of Cole OP II as a partnership for federal income tax purposes. If such challenge were sustained by a court, Cole OP II would be treated as a corporation for federal income tax purposes, as described below. In addition, the opinion of Morris, Manning & Martin, LLP is based on existing law, which is to a great extent the result of administrative and judicial interpretation. No assurance can be given that administrative or judicial changes would not modify the conclusions expressed in the opinion.

If for any reason Cole OP II were taxable as a corporation, rather than a partnership, for federal income tax purposes, we would not be able to qualify as a REIT. See “— Requirements for Qualification as a REIT — Operational Requirements — Gross Income Tests” and “— Operational Requirements — Asset Tests” above. In addition, any change in Cole OP II’s status for tax purposes might be treated as a taxable event, in which case we might incur a tax liability without any related cash distribution. Further, items of income and deduction of Cole OP II would not pass through to its partners, and its partners would be treated as stockholders for tax purposes. Consequently, Cole OP II would be required to pay income tax at corporate tax rates on its net income, and distributions to its partners would not be deductible in computing Cole OP II’s taxable income.

Income Taxation of the Operating Partnership and Its Partners

Partners, Not a Partnership, Subject to Tax

A partnership is not a taxable entity for federal income tax purposes. As a partner in Cole OP II, we will be required to take into account our allocable share of Cole OP II’s income, gains, losses, deductions and credits for any taxable year of Cole OP II ending within or with our taxable year, without regard to whether we have received or will receive any distribution from Cole OP II.

156

Partnership Allocations

Although a partnership agreement generally determines the allocation of income and losses among partners, such allocations will be disregarded for tax purposes under Section 704(b) of the Internal Revenue Code if they do not comply with the provisions of Section 704(b) of the Internal Revenue Code and the Treasury Regulations promulgated thereunder. If an allocation is not recognized for federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partner’s interests in the partnership, which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. Cole OP II’s allocations of taxable income and loss are intended to comply with the requirements of Section 704(b) of the Internal Revenue Code and the Treasury Regulations promulgated thereunder.

Tax Allocations With Respect to Contributed Properties

Pursuant to Section 704(c) of the Internal Revenue Code, income, gain, loss and deductions attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for federal income tax purposes in a manner such that the contributor is charged with, or benefits from, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at the time of contribution. Under applicable Treasury Regulations, partnerships are required to use a “reasonable method” for allocating items subject to Section 704(c) of the Internal Revenue Code, and several reasonable allocation methods are described therein.

Under the partnership agreement for Cole OP II, depreciation or amortization deductions of Cole OP II generally will be allocated among the partners in accordance with their respective interests in Cole OP II, except to the extent that Cole OP II is required under Section 704(c) of the Internal Revenue Code to use a method for allocating depreciation deductions attributable to its properties that results in us receiving a disproportionately large share of such deductions. We may possibly be allocated lower amounts of depreciation deductions for tax purposes with respect to contributed properties than would be allocated to us if each such property were to have a tax basis equal to its fair market value at the time of contribution. These allocations may cause us to recognize taxable income in excess of cash proceeds received by us, which might adversely affect our ability to comply with the REIT distribution requirements, although we do not anticipate that this event will occur. The foregoing principles also will affect the calculation of our earnings and profits for purposes of determining which portion of our distributions is taxable as a distribution. The allocations described in this paragraph may result in a higher portion of our distributions being taxed as a distribution if we acquire properties in exchange for units of the Cole OP II than would have occurred had we purchased such properties for cash.

Basis in Operating Partnership Interest

The adjusted tax basis of our partnership interest in Cole OP II generally is equal to (1) the amount of cash and the basis of any other property contributed to Cole OP II by us, (2) increased by (a) our allocable share of Cole OP II’s income and (b) our allocable share of indebtedness of Cole OP II, and (3) reduced, but not below zero, by (a) our allocable share of Cole OP II’s loss and (b) the amount of cash distributed to us, including constructive cash distributions resulting from a reduction in our share of indebtedness of Cole OP II.

If the allocation of our distributive share of Cole OP II’s loss would reduce the adjusted tax basis of our partnership interest in Cole OP II below zero, the recognition of such loss will be deferred until such time as the recognition of such loss would not reduce our adjusted tax basis below zero. If a distribution from Cole OP II or a reduction in our share of Cole OP II’s liabilities (which is treated as a constructive distribution for tax purposes) would reduce our adjusted tax basis below zero, any such distribution, including a constructive distribution, would constitute taxable income to us. The gain realized by us upon the receipt of any such distribution or constructive distribution would normally be characterized as capital gain, and if our partnership interest in Cole OP II has been held for longer than the required long-term capital gain holding period (currently one year), the distribution would constitute long-term capital gain.

157

Depreciation Deductions Available to the Operating Partnership

Cole OP II will use a portion of contributions made by us from offering proceeds to acquire interests in properties. To the extent that Cole OP II acquires properties for cash, Cole OP II’s initial basis in such properties for federal income tax purposes generally will be equal to the purchase price paid by Cole OP II. Cole OP II plans to depreciate each such depreciable property for federal income tax purposes under the alternative depreciation system of depreciation. Under this system, Cole OP II generally will depreciate such buildings and improvements over a 40-year recovery period using a straight-line method and a mid-month convention and will depreciate furnishings and equipment over a twelve-year recovery period. To the extent that Cole OP II acquires properties in exchange for units of Cole OP II, Cole OP II’s initial basis in each such property for federal income tax purposes should be the same as the transferor’s basis in that property on the date of acquisition by Cole OP II. Although the law is not entirely clear, Cole OP II generally intends to depreciate such depreciable property for federal income tax purposes over the same remaining useful lives and under the same methods used by the transferors.

Sale of the Operating Partnership’s Property

Generally, any gain realized by Cole OP II on the sale of property held for more than one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. Any gain recognized by Cole OP II upon the disposition of a property acquired by Cole OP II for cash will be allocated among the partners in accordance with their respective interests in Cole OP II.

Our share of any gain realized by Cole OP II on the sale of any property held by Cole OP II as inventory or other property held primarily for sale to customers in the ordinary course of Cole OP II’s trade or business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. We, however, do not currently intend to acquire or hold or allow Cole OP II to acquire or hold any property that represents inventory or other property held primarily for sale to customers in the ordinary course of our or Cole OP II’s trade or business.

Tenant-In-Common Program

Each of the properties (Section 1031 Program properties) that are the subject of the Section 1031 Program will initially be purchased by a single member limited liability company or Delaware statutory trust, referred to in this prospectus as a Cole Exchange Entity. Each Cole Exchange Entity will initially be owned by our affiliate, Cole Capital Partners or its affiliate. Cole Capital Partners will then market co-ownership interests in these properties to those Section 1031 Participants who wish to re-invest proceeds arising from dispositions of their real estate assets owned by the Section 1031 Participants. The Section 1031 Participants will be able to defer the recognition of taxable gain arising from the sale of their real estate assets by investing proceeds into the co-ownership interests that qualify for purposes of Section 1031 of the Internal Revenue Code as replacement real estate assets. We anticipate that the Cole Exchange Entity will obtain a legal opinion in connection with each Section 1031 Program to the effect that the program will qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code. However, the Internal Revenue Service may not take a position contrary to such an opinion.

As Cole Capital Partners successfully markets co-ownership interests in the Section 1031 Program properties, these will be sold to the Section 1031 Participants. Cole Capital Partners will recognize gain or loss arising from such sales measured by the difference between the sum of its cost basis and costs of closing and the price at which it sells such interests to the Section 1031 Participants. Cole Capital Partners will be responsible for reporting such income to the extent of any net gains and will be liable for any resulting tax. This will have no impact on our tax liability.

If Cole OP II purchases interests in the Section 1031 Program Properties, the tax treatment will be the same as it would with respect to other acquisitions of real property. Cole OP II will become the owner of an interest in real estate, it will have a basis in the real estate equal to its cost, and its holding period for such real estate will begin on the day of the acquisition. Upon subsequent sale of such interest, it will recognize gain or loss in the same fashion it would with any other real estate investments. Any fees that a Cole Exchange Entity pays to Cole OP II for participating in a Section 1031 Program will be taxable as ordinary income to Cole OP II.

158

INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS

Minimum and Other Distribution Requirements — Plan Liquidity

The following is a summary of some non-tax considerations associated with an investment in our shares by tax-qualified pension, stock bonus or profit-sharing plans, employee benefit plans described in Section 3(3) of ERISA, annuities described in Section 403(a) or (b) of the Internal Revenue Code, an individual retirement account or annuity described in Sections 408 or 408A of the Internal Revenue Code, an Archer MSA described in Section 220(d) of the Internal Revenue Code, a health savings account described in Section 223(d) of the Internal Revenue Code, or a Coverdell education savings account described in Section 530 of the Internal Revenue Code, which are referred to as Plans and IRAs, as applicable. This summary is based on provisions of ERISA and the Internal Revenue Code, including amendments thereto through the date of this prospectus, and relevant regulations and opinions issued by the Department of Labor and the Internal Revenue Service through the date of this prospectus. We cannot assure you that adverse tax decisions or legislative, regulatory or administrative changes that would significantly modify the statements expressed herein will not occur. Any such changes may or may not apply to transactions entered into prior to the date of their enactment.

Our management has attempted to structure us in such a manner that we will be an attractive investment vehicle for Plans and IRAs. However, in considering an investment in our shares, those involved with making such an investment decision should consider applicable provisions of the Internal Revenue Code and ERISA. While each of the ERISA and Internal Revenue Code issues discussed below may not apply to all Plans and IRAs, individuals involved with making investment decisions with respect to Plans and IRAs should carefully review the rules and exceptions described below, and determine their applicability to their situation.

In general, individuals making investment decisions with respect to Plans and IRAs should, at a minimum, consider:


	•	whether the investment is in accordance with the documents and instruments governing such Plan or IRA;

	•	whether the investment satisfies the prudence and diversification and other fiduciary requirements of ERISA, if applicable;

	•	whether the investment will result in UBTI to the Plan or IRA (see “Federal Income Tax Considerations — Treatment of Tax-Exempt Stockholders”);

	•	whether there is sufficient liquidity for the Plan or IRA, considering the minimum and other distribution requirements under the Internal Revenue Code and the liquidity needs of such Plan or IRA, after taking this investment into account;

	•	the need to value the assets of the Plan or IRA annually or more frequently; and

	•	whether the investment would constitute or give rise to a prohibited transaction under ERISA or the Internal Revenue Code, if applicable.

Additionally, individuals making investment decisions with respect to Plans and IRAs must remember that ERISA requires that the assets of an employee benefit plan must generally be held in trust, and that the trustee, or a duly authorized named fiduciary or investment manager, must have authority and discretion to manage and control the assets of an employee benefit plan.

Potential Plan or IRA investors who intend to purchase our shares should consider the limited liquidity of an investment in our shares as it relates to the minimum distribution requirements under the Internal Revenue Code, if applicable, and as it relates to other distributions (such as, for example, cash out distributions) that may be required under the terms of the Plan or IRA from time to time. If the shares are held in an IRA or Plan and, before we sell our properties, mandatory or other distributions are required to be made to the participant or beneficiary of such IRA or Plan, pursuant to the Internal Revenue Code, then this would require that a distribution of the shares be made in kind to such participant or beneficiary or that a rollover of such shares be made to an IRA or other plan, which may not be

159

permissible making the distribution or rollover of the IRA or Plan receiving the rollover under the terms and provisions of IRA or Plan. Even if permissible, a distribution of shares in kind to a participant or beneficiary of an IRA or Plan must be included in the taxable income of the recipient for the year in which the shares are received at the then current fair market value of the shares, even though there would be no corresponding cash distribution with which to pay the income tax liability arising because of the distribution of shares. See “Risk Factors — Federal Income Tax Risks.” The fair market value of any such distribution-in-kind can be only an estimated value per share because no public market for our shares exists or is likely to develop. See “Annual Valuation Requirement” below. Further, there can be no assurance that such estimated value could actually be realized by a stockholder because estimates do not necessarily indicate the price at which our shares could be sold. Also, for distributions subject to mandatory income tax withholding under Section 3405 or other tax withholding provisions of the Internal Revenue Code, the trustee of a Plan may have an obligation, even in situations involving in-kind distributions of shares, to liquidate a portion of the in-kind shares distributed in order to satisfy such withholding obligations, although there might be no market for such shares. There may also be similar state and/or local tax withholding or other tax obligations that should be considered.

Annual or More Frequent Valuation Requirement

Fiduciaries of Plans may be required to determine the fair market value of the assets of such Plans on at least an annual basis and, sometimes, as frequently as quarterly. If the fair market value of any particular asset is not readily available, the fiduciary is required to make a good faith determination of that asset’s value. Also, a trustee or custodian of an IRA must provide an IRA participant and the Internal Revenue Service with a statement of the value of the IRA each year. However, currently, neither the Internal Revenue Service nor the Department of Labor has promulgated regulations specifying how “fair market value” should be determined.

Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for our shares will develop. To assist fiduciaries of Plans subject to the annual reporting requirements of ERISA and IRA trustees or custodians to prepare reports relating to an investment in our shares, we intend to provide reports of our quarterly and annual determinations of the current estimated share value to those fiduciaries (including IRA trustees and custodians) who identify themselves to us and request the reports. Until two full fiscal years after the termination of this offering or the termination of any subsequent offering of our shares, we intend to use the offering price of shares in our most recent offering as the per share value (unless we have made a special distribution to stockholders of net sales proceeds from the sale of one or more properties prior to the date of determination of the per share value, in which case we will use the offering price less the per share amount of the special distribution). Beginning two full fiscal years after the last offering of our shares, our board of directors will determine the value of our properties and other assets based on such information as our board determines appropriate, which may include independent valuations of our properties or of our enterprise as a whole.

We anticipate that we will provide annual reports of our determination of value (1) to IRA trustees and custodians not later than January 15 of each year, and (2) to other Plan fiduciaries within 75 days after the end of each calendar year. Each determination may be based upon valuation information available as of October 31 of the preceding year, updated, however, for any material changes occurring between October 31 and December 31.

There can be no assurance, however, with respect to any estimate of value that we prepare, that:


	•	the estimated value per share would actually be realized by our stockholders upon liquidation, because these estimates do not necessarily indicate the price at which properties can be sold;

	•	our stockholders would be able to realize estimated net asset values if they were to attempt to sell their shares, because no public market for our shares exists or is likely to develop; or

	•	that the value, or method used to establish value, would comply with ERISA or Internal Revenue Code requirements described above.

Fiduciary Obligations — Prohibited Transactions

Any person identified as a “fiduciary” with respect to a Plan incurs duties and obligations under ERISA as discussed herein. For purposes of ERISA, any person who exercises any authority or control with respect to the

160

management or disposition of the assets of a Plan is considered to be a fiduciary of such Plan. Further, many transactions between a Plan or an IRA and a “party-in-interest” or a “disqualified person” with respect to such Plan or IRA are prohibited by ERISA and/or the Internal Revenue Code. ERISA also requires generally that the assets of Plans be held in trust and that the trustee, or a duly authorized investment manager, have exclusive authority and discretion to manage and control the assets of the Plan.

In the event that our properties and other assets were deemed to be assets of a Plan or IRA, referred to herein as “plan assets,” our directors would, and employees of our affiliates might be deemed fiduciaries of any Plans or IRAs investing as stockholders. If this were to occur, certain contemplated transactions between us and our directors and employees of our affiliates could be deemed to be “prohibited transactions.” Additionally, ERISA’s fiduciary standards applicable to investments by Plans would extend to our directors and possibly employees of our affiliates as Plan fiduciaries with respect to investments made by us, and the requirement that Plan Assets be held in trust could be deemed to be violated.

Plan Assets — Definition

Prior to the passage of the Pension Protection Act of 2006 (the “PPA”), neither ERISA nor the Internal Revenue Code contained a definition of Plan Assets. After the passage of the PPA, new Section 3(42) of ERISA now defines “plan assets” in accordance with Department of Labor regulations with certain express exceptions. A Department of Labor regulation, referred to in this discussion as the Plan Asset Regulation, as modified by the express exceptions noted in the PPA, provides guidelines as to whether, and under what circumstances, the underlying assets of an entity will be deemed to constitute Plan Assets. Under the Plan Asset Regulation, the assets of an entity in which a Plan or IRA makes an equity investment will generally be deemed to be assets of such Plan or IRA unless the entity satisfies one of the exceptions to this general rule. Generally, the exceptions require that the investment in the entity be one of the following:


	•	in securities issued by an investment company registered under the Investment Company Act;

	•	in “publicly offered securities,” defined generally as interests that are “freely transferable,” “widely held” and registered with the Securities and Exchange Commission;

	•	in an “operating company,” which includes “venture capital operating companies” and “real estate operating companies;” or

	•	in which equity participation by “benefit plan investors” is not significant.

Plan Assets — Registered Investment Company Exception

The shares we are offering will not be issued by a registered investment company. Therefore we do not anticipate that we will qualify for the exception for investments issued by a registered investment company.

Publicly Offered Securities Exemption

As noted above, if a Plan acquires “publicly offered securities,” the assets of the issuer of the securities will not be deemed to be Plan Assets under the Plan Asset Regulation. The definition of publicly offered securities requires that such securities be “widely held,” “freely transferable” and satisfy registration requirements under federal securities laws.

Under the Plan Asset Regulation, a class of securities will meet the registration requirements under federal securities laws if they are (i) part of a class of securities registered under section 12(b) or 12(g) of the Exchange Act, or (ii) part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act and the class of securities of which such security is a part is registered under the Exchange Act within 120 days (or such later time as may be allowed by the Securities and Exchange Commission) after the end of the fiscal year of the issuer during which the offering of such securities to the public occurred. We anticipate that we will meet the registration requirements under the Plan Asset Regulation. Also under the Plan Asset Regulation, a class of securities will be “widely held” if it is held by 100 or more persons independent of the issuer. We anticipate that this requirement will be easily met. Although our shares are intended to satisfy the registration requirements under this

161

definition, and we expect that our securities will be “widely-held”, the “freely transferable” requirement must also be satisfied in order for us to qualify for the “publicly offered securities” exception.

The Plan Asset Regulation provides that “whether a security is ’freely transferable’ is a factual question to be determined on the basis of all relevant facts and circumstances.” Our shares are subject to certain restrictions on transferability typically found in REITs, and are intended to ensure that we continue to qualify for federal income tax treatment as a REIT. The Plan Asset Regulation provides, however, that where the minimum investment in a public offering of securities is $10,000 or less, the presence of a restriction on transferability intended to prohibit transfers that would result in a termination or reclassification of the entity for state or federal tax purposes will not ordinarily affect a determination that such securities are “freely transferable.” The minimum investment in our shares is less than $10,000. Thus, the restrictions imposed in order to maintain our status as a REIT should not prevent the shares from being deemed “freely transferable.” Therefore, we anticipate that we will meet the “publicly offered securities” exception, although there are no assurances that we will qualify for this exception.

Plan Assets — Operating Company Exception

If we are deemed not to qualify for the “publicly offered securities” exemption, the Plan Asset Regulation also provides an exception with respect to securities issued by an “operating company,” which includes “venture capital operating companies” and “real estate operating companies.” To constitute a venture capital operating company, 50% of more of the assets of the entity must be invested in “venture capital investments.” A venture capital investment is an investment in an operating company (other than a venture capital operating company) as to which the entity has or obtains direct management rights. To constitute a real estate operating company, 50% or more of the assets of an entity must be invested in real estate which is managed or developed and with respect to which such entity has the right to substantially participate directly in the management or development activities.

While the Plan Asset Regulation and relevant opinions issued by the Department of Labor regarding real estate operating companies are not entirely clear as to whether an investment in real estate must be “direct”, it is common practice to insure that an investment is made either (i) “directly” into real estate, (ii) through wholly-owned subsidiaries, or (iii) through entities in which all but a de minimis interest is separately held by an affiliate solely to comply with the minimum safe harbor requirements established by the Internal Revenue Service for classification as a partnership for federal tax purposes. We have structured ourselves, and our operating partnership, in this manner in order to enable us to meet the real estate operating company exception. To the extent interests in our operating partnership are obtained by third-party investors, it is possible that the real estate operating company exception will cease to apply to us. However, in such an event we believe that we are structured in a manner which would allow us to meet the venture capital operating company exception because our investment in our operating partnership, an entity investing directly in real estate over which we maintain substantially all of the control over the management and development activities, would constitute a venture capital investment.

Notwithstanding the foregoing, 50% of our, or our operating partnership’s, investment, as the case may be, must be in real estate over which we maintain the right to substantially participate in the management and development activities. An example in the Plan Asset Regulation indicates that if 50% or more of an entity’s properties are subject to long-term leases under which substantially all management and maintenance activities with respect to the properties are the responsibility of the lessee, such that the entity merely assumes the risk of ownership of income-producing real property, then the entity may not be eligible for the “real estate operating company” exception. By contrast, a second example in the Plan Asset Regulation indicates that if 50% or more of an entity’s investments are in shopping centers in which individual stores are leased for relatively short periods to various merchants, as opposed to long-term leases where substantially all management and maintenance activities are the responsibility of the lessee, then the entity will likely qualify as a real estate operating company. The second example further provides that the entity may retain contractors, including affiliates, to conduct the management of the properties so long as the entity has the responsibility to supervise and the authority to terminate the contractors. We intend to use contractors over which we have the right to supervise and the authority to terminate. Due to the uncertainty of the application of the standards set forth in the Plan Asset Regulation, there can be no assurance as to our ability to structure our operations, or the operations of our operating partnership, as the case may be, to qualify for the “real estate operating company” exception.

162

Plan Assets — Not Significant Investment Exception

The Plan Asset Regulation provides that equity participation in an entity by benefit plan investors is “significant” if at any time 25% or more of the value of any class of equity interests is held by benefit plan investors. As modified by the PPA, a “benefit plan investor” is now defined to mean an employee benefit plan subject to Part 4 of Title I of ERISA, any plan to which Section 4975 of the Internal Revenue Code applies and any entity whose underlying assets include plan assets by reason of a plan’s investment in such entity. In the event we determine that we fail to meet the “publicly offered securities” exception, as a result of a failure to sell an adequate number of shares or otherwise, and we cannot ultimately establish that we are an operating company, we intend to restrict ownership of each class of equity interests held by benefit plan investors to an aggregate value of less than 25% and thus qualify for the exception for investments in which equity participation by benefit plan investors is not significant.

Consequences of Holding Plan Assets

In the event that our underlying assets were treated by the Department of Labor as Plan Assets, our management would be treated as fiduciaries with respect to each Plan or IRA stockholder, and an investment in our shares might expose the fiduciaries of the Plan or IRA to co-fiduciary liability under ERISA for any breach by our management of the fiduciary duties mandated under ERISA. Further, if our assets are deemed to be Plan Assets, an investment by a Plan or IRA in our shares might be deemed to result in an impermissible commingling of Plan Assets with other property.

If our management or affiliates were treated as fiduciaries with respect to Plan or IRA stockholders, the prohibited transaction restrictions of ERISA would apply to any transaction involving our assets. These restrictions could, for example, require that we avoid transactions with entities that are affiliated with our affiliates or us or restructure our activities in order to obtain an administrative exemption from the prohibited transaction restrictions. Alternatively, we might have to provide Plan or IRA stockholders with the opportunity to sell their shares to us or we might dissolve or terminate.

Prohibited Transactions

Generally, both ERISA and the Internal Revenue Code prohibit Plans and IRAs from engaging in certain transactions involving Plan Assets with specified parties, such as sales or exchanges or leasing of property, loans or other extensions of credit, furnishing goods or services, or transfers to, or use of, Plan Assets. The specified parties are referred to as “parties-in-interest” under ERISA and as “disqualified persons” under the Internal Revenue Code. These definitions generally include both parties owning threshold percentage interests in an investment entity and “persons providing services” to the Plan or IRA, as well as employer sponsors of the Plan or IRA, fiduciaries and other individuals or entities affiliated with the foregoing.

A person generally is a fiduciary with respect to a Plan or IRA for these purposes if, among other things, the person has discretionary authority or control with respect to Plan Assets or provides investment advice for a fee with respect to Plan Assets. Under Department of Labor regulations, a person will be deemed to be providing investment advice if that person renders advice as to the advisability of investing in our shares, and that person regularly provides investment advice to the Plan or IRA pursuant to a mutual agreement or understanding that such advice will serve as the primary basis for investment decisions, and that the advice will be individualized for the Plan or IRA based on its particular needs. Thus, if we are deemed to hold Plan Assets, our management could be characterized as fiduciaries with respect to such assets, and each would be deemed to be a party-in-interest under ERISA and a disqualified person under the Internal Revenue Code with respect to investing Plans and IRAs. Whether or not we are deemed to hold Plan Assets, if we or our affiliates are affiliated with a Plan or IRA investor, we might be a disqualified person or party-in-interest with respect to such Plan or IRA investor, resulting in a prohibited transaction merely upon investment by such Plan or IRA in our shares.

Prohibited Transactions — Consequences

ERISA forbids Plans from engaging in prohibited transactions. Fiduciaries of a Plan that allow a prohibited transaction to occur will breach their fiduciary responsibilities under ERISA, and may be liable for any damage

163

sustained by the Plan, as well as civil (and criminal, if the violation was willful) penalties. If it is determined by the Department of Labor or the Internal Revenue Service that a prohibited transaction has occurred, any disqualified person or party-in-interest involved with the prohibited transaction would be required to reverse or unwind the transaction and, for a Plan, compensate the Plan for any loss resulting therefrom. Additionally, the Internal Revenue Code requires that a disqualified person involved with a prohibited transaction must pay an excise tax equal to a percentage of the “amount involved” in the transaction for each year in which the transaction remains uncorrected. The percentage is generally 15%, but is increased to 100% if the prohibited transaction is not corrected promptly. For IRAs, if an IRA engages in a prohibited transaction, the tax-exempt status of the IRA may be lost.

164

DESCRIPTION OF SHARES

We were formed under the laws of the state of Maryland. The rights of our stockholders are governed by Maryland law as well as our charter and bylaws. The following summary of the terms of our common stock is only a summary, and you should refer to the Maryland General Corporation Law and our charter and bylaws for a full description. The following summary is qualified in its entirety by the more detailed information contained in our charter and bylaws. Copies of our charter and bylaws are available upon request.

Our charter authorizes us to issue up to 250,000,000 shares of stock, of which 240,000,000 shares are designated as common stock at $0.01 par value per share and 10,000,000 shares are designated as preferred stock at $0.01 par value per share. As of April 25, 2008, approximately 124,100,000 shares of our common stock were issued and outstanding, held by approximately 26,000 stockholders, and no shares of preferred stock were issued and outstanding. Our board of directors may amend our charter to increase or decrease the aggregate number of our authorized shares or the number of shares of any class or series that we have authority to issue without any action by our stockholders.

Our charter also contains a provision permitting our board of directors, including at least a majority of the independent directors who do not have an interest in the transaction and without any action by our stockholders, to classify or reclassify any unissued common stock or preferred stock into one or more classes or series by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions or other distributions, qualifications, or terms or conditions of redemption of any new class or series of stock, subject to certain restrictions, including the express terms of any class or series of stock outstanding at the time. We believe that the power to classify or reclassify unissued shares of stock and thereafter issue the classified or reclassified shares provides us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise.

Our charter and bylaws contain certain provisions that could make it more difficult to acquire control of our company by means of a tender offer, a proxy contest or otherwise. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to negotiate first with our board of directors. We believe that these provisions increase the likelihood that proposals initially will be on more attractive terms than would be the case in their absence and facilitate negotiations that may result in improvement of the terms of an initial offer that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. See “Risk Factors — Risks Related to an Investment in Cole REIT II.”

To the extent that the Maryland General Corporation Law conflicts with the provisions set forth in the NASAA REIT Guidelines, the NASAA REIT Guidelines will control, unless the provisions of the Maryland General Corporations Law are mandatory under Maryland law.

Common Stock

Subject to any preferential rights of any other class or series of stock and to the provisions of our charter regarding the restriction on the transfer of common stock, the holders of common stock are entitled to such distributions as may be authorized from time to time by our board of directors out of legally available funds and declared by us and, upon our liquidation, are entitled to receive all assets available for distribution to our stockholders. Upon issuance for full payment in accordance with the terms of this offering, all common stock issued in the offering will be fully paid and non-assessable. Holders of common stock will not have preemptive rights, which means that they will not have an automatic option to purchase any new shares that we issue, or preference, conversion, exchange, sinking fund, redemption or appraisal rights. Shares of our common stock have equal distribution, liquidation and other rights.

Preferred Stock

Our charter authorizes our board of directors to designate and issue one or more classes or series of preferred stock without stockholder approval and to fix the voting rights, liquidation preferences, distribution rates, conversion rights, redemption rights and terms, including sinking fund provisions, and certain other rights and

165

preferences with respect to such preferred stock. Because our board of directors has the power to establish the preferences and rights of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers, and rights senior to the rights of holders of common stock. If we ever created and issued preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on the common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve, or wind up before any payment is made to the common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock may delay, prevent, render more difficult or tend to discourage the following:


	•	a merger, offer, or proxy contest;

	•	the assumption of control by a holder of a large block of our securities; or

	•	the removal of incumbent management.

Also, our board of directors, without stockholder approval, may issue preferred stock with voting and conversion rights that could adversely affect the holders of common stock.

We currently have no preferred stock issued or outstanding. Our board of directors has no present plans to issue shares of preferred stock, but it may do so at any time in the future without stockholder approval.

Meetings and Special Voting Requirements

Subject to our charter restrictions on transfer of our stock, each holder of common stock is entitled at each meeting of stockholders to one vote per share owned by such stockholder on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of our board of directors, which means that the holders of a majority of shares of our outstanding common stock can elect all of the directors then standing for election and the holders of the remaining shares of common stock will not be able to elect any directors.

Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter provides for approval of these matters by the affirmative vote of a majority of the votes entitled to be cast.

However, under the Maryland General Corporation Law and our charter, the following events do not require stockholder approval:


	•	stock exchanges in which we are the successor; and

	•	transfers of less than substantially all of our assets.

Also, because our operating assets are held by our subsidiaries, these subsidiaries may be able to merge or sell all or substantially all of their assets without the approval of our stockholders.

An annual meeting of our stockholders will be held each year, at least 30 days after delivery of our annual report to our stockholders. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of the independent directors, the president, the chief executive officer or upon the written request of stockholders holding at least 10% of our outstanding shares. Upon receipt of a written request of stockholders holding at least 10% of our outstanding shares stating the purpose of the special meeting, our secretary will provide all of our stockholders written notice of the meeting and the purpose of such meeting. The meeting must be held not less than 15 nor more than 60 days after the distribution of the notice of meeting. The presence of holders of a majority of our outstanding shares, either in person or by proxy, will constitute a quorum.

166

Our stockholders are entitled to receive a copy of our stockholder list upon request. The list provided by us will include each stockholder’s name, address and telephone number, if available, and the number of shares owned by each stockholder and will be sent within ten days of the receipt by us of the request. A stockholder requesting a list will be required to pay reasonable costs of postage and duplication. Stockholders and their representatives shall also be given access to our corporate records at reasonable times. We have the right to request that a requesting stockholder represent to us that the list and records will not be used to pursue commercial interests.

If we do not list our shares of common stock on a national securities exchange by the tenth anniversary of the completion or termination of our initial public offering, our charter requires that we either (i) seek stockholder approval of an extension or amendment of this listing deadline, or (ii) seek stockholder approval of the liquidation of the corporation. If we sought and did not obtain stockholder approval of an extension or amendment to the listing deadline, we would then be required to seek stockholder approval of our liquidation. If we sought and failed to obtain stockholder approval of our liquidation, our charter would not require us to list or liquidate and we could continue to operate as before. In such event, there will be no public market for shares of our common stock and you may be required to hold the shares indefinitely. If we sought and obtained stockholder approval of our liquidation, we would begin an orderly sale of our properties and distribute our net proceeds to you. In the event that the listing of our stock on a national securities exchange occurs on or before the tenth anniversary of the termination of our initial public offering, the corporation shall continue perpetually unless dissolved pursuant to any applicable provision of the Maryland General Corporation Law.

Restrictions on Ownership and Transfer

In order for us to qualify as a REIT under the Internal Revenue Code, we must meet the following criteria regarding our stockholders’ ownership of our shares:


	•	five or fewer individuals (as defined in the Internal Revenue Code to include certain tax exempt organizations and trusts) may not own, directly or indirectly, more than 50% in value of our outstanding shares during the last half of a taxable year; and

	•	100 or more persons must beneficially own our shares during at least 335 days of a taxable year of twelve months or during a proportionate part of a shorter taxable year.

See “Federal Income Tax Considerations” for further discussion of this topic. We may prohibit certain acquisitions and transfers of shares so as to ensure our initial and continued qualification as a REIT under the Internal Revenue Code. However, there can be no assurance that this prohibition will be effective. Because we believe it is essential for us to qualify as a REIT, and, once qualified, to continue to qualify, our charter provides (subject to certain exceptions) that no stockholder may own, or be deemed to own by virtue of the attribution provisions of the Internal Revenue Code, more than 9.8% in value of our outstanding shares of stock or more than 9.8% of the number or value (in either case as determined in good faith by our board of directors) of any class or series of our outstanding shares of common stock. The 9.8% ownership limit must be measured in terms of the more restrictive of value or number of shares.

Our board of directors, in its sole discretion, may waive this ownership limit if evidence satisfactory to our directors is presented that such ownership will not then or in the future jeopardize our status as a REIT. Also, these restrictions on transferability and ownership will not apply if our directors determine that it is no longer in our best interests to continue to qualify as a REIT.

Additionally, our charter further prohibits the transfer or issuance of our stock if such transfer or issuance:


	•	with respect to transfers only, results in our common stock being owned by fewer than 100 persons;

	•	results in our being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code;

	•	results in our owning, directly or indirectly, more than 9.8% of the ownership interests in any tenant or subtenant; or

	•	otherwise results in our disqualification as a REIT.

167

Any attempted transfer of our stock which, if effective, would result in our stock being owned by fewer than 100 persons will be null and void. In the event of any attempted transfer of our stock which, if effective, would result in (i) violation of the ownership limit discussed above, (ii) in our being “closely held” under Section 856(h) of the Internal Revenue Code, (iii) our owning (directly or indirectly) more than 9.8% of the ownership interests in any tenant or subtenant or (iv) our otherwise failing to qualify as a REIT, then the number of shares causing the violation (rounded to the nearest whole share) will be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares. To avoid confusion, these shares so transferred to a beneficial trust will be referred to in this prospectus as “Excess Securities.” Excess Securities will remain issued and outstanding shares and will be entitled to the same rights and privileges as all other shares of the same class or series. The trustee of the beneficial trust, as holder of the Excess Securities, will be entitled to receive all distributions authorized by the board of directors on such securities for the benefit of the charitable beneficiary. Our charter further entitles the trustee of the beneficial trust to vote all Excess Securities.

The trustee of the beneficial trust may select a transferee to whom the Excess Securities may be sold as long as such sale does not violate the 9.8% ownership limit or the other restrictions on transfer. Upon sale of the Excess Securities, the intended transferee (the transferee of the Excess Securities whose ownership would violate the 9.8% ownership limit or the other restrictions on transfer) will receive from the trustee of the beneficial trust the lesser of such sale proceeds, or the price per share the intended transferee paid for the Excess Securities (or, in the case of a gift or devise to the intended transferee, the price per share equal to the market value per share on the date of the transfer to the intended transferee). The trustee of the beneficial trust will distribute to the charitable beneficiary any amount the trustee receives in excess of the amount to be paid to the intended transferee.

In addition, we have the right to purchase any Excess Securities at the lesser of (i) the price per share paid in the transfer that created the Excess Securities, or (ii) the current market price, until the Excess Securities are sold by the trustee of the beneficial trust. An intended transferee must pay, upon demand, to the trustee of the beneficial trust (for the benefit of the beneficial trust) the amount of any distribution we pay to an intended transferee on Excess Securities prior to our discovery that such Excess Securities have been transferred in violation of the provisions of the charter. If any legal decision, statute, rule, or regulation deems or declares the transfer restrictions included in our charter to be void or invalid, then we may, at our option, deem the intended transferee of any Excess Securities to have acted as an agent on our behalf in acquiring such Excess Securities and to hold such Excess Securities on our behalf.

Any person who (i) acquires or attempts to acquire shares in violation of the foregoing ownership restriction, transfers or receives shares subject to such limitations, or would have owned shares that resulted in a transfer to a charitable trust, or (ii) proposes or attempts any of the transactions in clause (i), is required to give us 15 days’ written notice prior to such transaction. In both cases, such persons must provide to us such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT. The foregoing restrictions will continue to apply until our board of directors determines it is no longer in our best interest to continue to qualify as a REIT.

The ownership restriction does not apply to the underwriter in a public offering of shares or to a person or persons so exempted from the ownership limit by our board of directors based upon appropriate assurances that our qualification as a REIT is not jeopardized. Any person who owns 5% or more of the outstanding shares during any taxable year will be asked to deliver a statement or affidavit setting forth the number of shares beneficially owned, directly or indirectly.

Distribution Policy and Distributions

We currently pay distributions to our stockholders and we intend to continue to pay regular distributions to our stockholders. We currently calculate our monthly distributions on a daily record and declaration date. Therefore, new investors will be entitled to distributions immediately upon the purchase of their shares. Because substantially all of our operations will be performed indirectly through Cole OP II, our operating partnership, our ability to pay distributions depends in large part on Cole OP II’s ability to pay distributions to its partners, including to us. In the event we do not have enough cash from operations to fund the distribution, we may borrow, issue additional

168

securities or sell assets in order to fund the distributions or make the distributions out of net proceeds from this offering.

Historically, we have primarily declared distributions to stockholders as of daily record dates and aggregated and paid such distributions monthly. Our board of directors declared distributions equal to $0.05 per share for stockholders of record as of the close of business on the seventh day of each month during the period from October 2005 through February 2006 and $0.0521 per share for stockholders of record on March 7, 2006. During the period from April 1, 2006 through June 30, 2006, our board of directors declared daily distributions of $0.0017123 per share for stockholders of record as of the close of business on each day during the period. During the period from July 1, 2006 through June 30, 2007, our board of directors declared daily distributions of $0.0017808 per share for stockholders of record as of the close of business on each day during the period. During the period from July 1, 2007 through March 31, 2008, our board of directors declared daily distributions of $0.00191781 per share for stockholders of record as of the close of business on each day during the period. During the period from April 1, 2008 through June 30, 2008, our board of directors declared daily distributions of $0.00191257 per share for stockholders of record as of the close of business on each day during the period.

Our board of directors began declaring distributions in October 2005, after we commenced business operations. We have primarily declared distributions on a quarterly basis, with daily record dates. These distributions generally are aggregated and paid monthly. Our board of directors intends to continue this distribution policy for so long as it decides this policy is in the best interests of our stockholders.

169

We have made the following distributions to our stockholders:


Period Ended	Date Paid		Distribution

12/31/2005(1)		1/3/2006	$	195,209
3/31/2006(1)		4/3/2006		621,070
4/30/2006		5/26/2006		368,157
5/31/2006		6/15/2006		462,055
6/30/2006		7/15/2006		536,858
7/31/2006		8/15/2006		688,819
8/30/2006		9/15/2006		830,693
9/30/2006		10/15/2006		940,028
10/31/2006		11/15/2006		1,123,576
11/30/2006		12/15/2006		1,308,857
12/31/2006		1/15/2007		1,612,094
1/31/2007		2/15/2007		1,803,080
2/28/2007		3/15/2007		1,835,149
3/31/2007		4/15/2007		2,255,892
4/30/2007		5/15/2007		2,499,612
5/31/2007		6/15/2007		2,931,586
6/30/2007		7/15/2007		3,064,592
7/31/2007		8/15/2007		3,697,846
8/31/2007		9/15/2007		4,080,423
9/30/2007		10/15/2007		4,272,729
10/31/2007		11/15/2007		4,755,120
11/30/2007		12/15/2007		4,920,565
12/31/2007		1/15/2008		5,434,275
1/31/2008		2/15/2008		5,749,193
2/29/2008		3/15/2008		5,782,451
3/31/2008		4/15/2008		6,662,473

			$	68,432,402


(1)		Distribution was paid on a quarterly basis.

Distributions to stockholders are characterized for federal income tax purposes as ordinary income, capital gains, non-taxable return of capital or a combination of the three. Distributions that exceed our current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital for tax purposes rather than a distribution and reduce the shareholders’ basis in our common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholders’ basis in the common shares, it will generally be treated as a capital gain. We annually notify stockholders of the taxability of distributions paid during the preceding year.

For the years ended December 31, 2007 and December 31, 2006, approximately 41% and 42%, respectively of the distributions paid were taxable to the investor as ordinary taxable income and approximately 59% and 58%, respectively, were treated as return of capital for federal income tax purposes. No distributions were paid during the year ended December 31, 2005. The amount of distributions paid and taxable portion in this period are not indicative or predictive of amounts anticipated in future periods.

We expect to continue to regularly pay distributions on a monthly basis, unless our results of operations, our general financial condition, general economic conditions, or other factors inhibit us from doing so. Distributions

170

will be authorized at the discretion of our board of directors, which will be directed, in substantial part, by its obligation to cause us to comply with the REIT requirements of the Internal Revenue Code. The funds we receive from operations that are available for distribution may be affected by a number of factors, including the following:


	•	the amount of time required for us to invest the funds received in the offering;

	•	our operating and interest expenses;

	•	the ability of tenants to meet their obligations under the leases associated with our properties;

	•	the amount of distributions or dividends received by us from our indirect real estate investments;

	•	our ability to keep our properties occupied;

	•	our ability to maintain or increase rental rates when renewing or replacing current leases;

	•	capital expenditures and reserves for such expenditures;

	•	the issuance of additional shares; and

	•	financings and refinancings.

We must distribute to our stockholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Internal Revenue Code. This requirement is described in greater detail in the “Federal Income Tax Considerations — Requirements For Qualification as a REIT — Operational Requirements — Annual Distribution Requirements” section of this prospectus. Our directors may authorize distributions in excess of this percentage as they deem appropriate. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period, but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. To allow for such differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, among other things, could require us to borrow funds from third parties on a short-term basis, issue new securities, or sell assets to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. These methods of obtaining funding could affect future distributions by increasing operating costs and decreasing available cash. In addition, such distributions may constitute a return of capital. See “Federal Income Tax Considerations — Requirements for Qualification as a REIT.”

Stockholder Liability

The Maryland General Corporation Law provides that our stockholders:


	•	are not liable personally or individually in any manner whatsoever for any debt, act, omission or obligation incurred by us or our board of directors; and

	•	are under no obligation to us or our creditors with respect to their shares other than the obligation to pay to us the full amount of the consideration for which their shares were issued.

Business Combinations

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:


	•	any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or

	•	an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

171

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.


	•	80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

	•	two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination with Cole Advisors II or any affiliate of Cole Advisors II. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and Cole Advisors II or any affiliate of Cole Advisors II. As a result, Cole Advisors II or any affiliate of Cole Advisors II may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute.

The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Control Share Acquisitions

With some exceptions, Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of stockholders holding two-thirds of the votes entitled to be cast on the matter, excluding “control shares”:


	•	owned by the acquiring person;

	•	owned by our officers; and

	•	owned by our employees who are also directors.

“Control shares” mean voting shares which, if aggregated with all other voting shares owned by an acquiring person or shares for which the acquiring person can exercise or direct the exercise of voting power, would entitle the acquiring person to exercise voting power in electing directors within one of the following ranges of voting power:


	•	one-tenth or more but less than one-third;

	•	one-third or more but less than a majority; or

	•	a majority or more of all voting power.

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition occurs when, subject to some exceptions, a person directly or indirectly acquires ownership or the power to direct the exercise of voting power (except solely by virtue of a revocable proxy) of issued and outstanding control shares. A person who has made or proposes to make a control share acquisition, upon satisfaction of some specific conditions, including an undertaking to pay expenses, may compel our board of directors to call a special meeting of our stockholders to be held within 50 days of a

172

demand to consider the voting rights of the control shares. If no request for a meeting is made, we may present the question at any stockholders’ meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to some conditions and limitations, we may redeem any or all of the control shares (except those for which voting rights have been previously approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation, or share exchange if we are a party to the transaction or to acquisitions approved or exempted by our charter or bylaws.

As permitted by Maryland General Corporation Law, our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions of our common stock by Cole Advisors II or any affiliate of Cole Advisors II.

Subtitle 8

Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:


	•	a classified board,

	•	a two-thirds vote requirement for removing a director,

	•	a requirement that the number of directors be fixed only by vote of the directors,

	•	a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred, and

	•	a majority requirement for the calling of a special meeting of stockholders.

Pursuant to Subtitle 8, we have elected to provide that vacancies on our board of directors may be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already vest in the board the exclusive power to fix the number of directorships.

Advance Notice of Director Nominations and New Business

Our bylaws provide that with respect to an annual meeting of stockholders, nominations of individuals for election to the board of directors and the proposal of business to be considered by stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by the board of directors or (iii) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of individuals for election to the board of directors at a special meeting may be made only (i) pursuant to our notice of the meeting, (ii) by the board of directors, or (iii) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.

173

Share Redemption Program

Our common stock is currently not listed on a national securities exchange and we will not seek to list our stock until such time as our independent directors believe that the listing of our stock would be in the best interest of our stockholders. In order to provide stockholders with the benefit of interim liquidity, stockholders who have held their shares for at least one year may present all or a portion consisting of at least 25%, of the holder’s shares to us for redemption at any time in accordance with the procedures outlined below. At that time, we may, subject to the conditions and limitations described below, redeem the shares presented for redemption for cash to the extent that we have sufficient funds available to us to fund such redemption. We will not pay to our board of directors, advisor or its affiliates any fees to complete any transactions under our share redemption program.

During the term of this offering and any subsequent public offering of our shares, the redemption price per share will depend on the length of time you have held such shares as follows: after one year from the purchase date — 92.5% of the amount you paid for each share; after two years from the purchase date — 95% of the amount you paid for each share; after three years from the purchase date — 97.5% of the amount you paid for each share; and after four years from the purchase date — 100% of the amount you paid for each share (in each case, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). At any time we are engaged in an offering of shares, the per share price for shares purchased under our redemption plan will always be equal to or lower than the applicable per share offering price. Thereafter, the per share redemption price will be based on the then-current net asset value of the shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock). Our board of directors will announce any redemption price adjustment and the time period of its effectiveness as a part of its regular communications with our stockholders. At any time the redemption price is determined by any method other than the net asset value of the shares, if we have sold property and have made one or more special distributions to our stockholders of all or a portion of the net proceeds from such sales, the per share redemption price will be reduced by the net sale proceeds per share distributed to investors prior to the redemption date as a result of the sale of such property in the special distribution. Our board of directors will, in its sole discretion, determine which distributions, if any, constitute a special distribution. While our board of directors does not have specific criteria for determining a special distribution, we expect that a special distribution will only occur upon the sale of a property and the subsequent distribution of the net sale proceeds. Upon receipt of a request for redemption, we will conduct a Uniform Commercial Code search to ensure that no liens are held against the shares. We will bear any costs in conducting the Uniform Commercial Code search. We will not redeem any shares that are subject to a lien. In addition, upon the death of a stockholder, upon request, we will waive the one-year holding requirement. Shares redeemed in connection with the death of a stockholder will be redeemed at a purchase price equal to the price actually paid for the shares (except for redemption requests submitted within twelve months from the date of purchase on behalf of stockholders who originally purchased shares through a family member registered representative, which shall be redeemed at $9.30 per share). In addition, we may waive the holding period in the event of a stockholder’s bankruptcy or other exigent circumstances.

During any calendar year, we will not redeem in excess of 3% of the weighted average number of shares outstanding during the prior calendar year; provided, however, that shares subject to a redemption requested upon the death of a stockholder will not be subject to this cap. The cash available for redemption will be limited to the proceeds from the sale of shares pursuant to our distribution reinvestment plan.

We will redeem our shares on the last business day of the month following the end of each quarter. Requests for redemption would have to be received on or prior to the end of the quarter in order for us to repurchase the shares as of the end of the next month. You may withdraw your request to have your shares redeemed at any time prior to the last day of the applicable quarter.

If we could not purchase all shares presented for redemption in any quarter, based upon insufficient cash available and the limit on the number of shares we may redeem during any calendar year, we would attempt to honor redemption requests on a pro rata basis; provided, however, that we may give priority to the redemption of a

174

deceased stockholder’s shares. We would treat the unsatisfied portion of the redemption request as a request for redemption the following quarter. At such time, you may then (1) withdraw your request for redemption at any time prior to the last day of the new quarter or (2) ask that we honor your request at such time, if, any, when sufficient funds become available. Such pending requests will generally be honored on a pro rata basis. We will determine whether we have sufficient funds available as soon as practicable after the end of each quarter, but in any event prior to the applicable payment date.

Our board of directors may choose to amend, suspend or terminate our share redemption program upon 30 days notice at any time. Additionally we will be required to discontinue sales of shares under the distribution reinvestment plan on the earlier of May 11, 2009, which is two years from the effective date of this offering, unless the offering is extended, or the date we sell all of the shares registered for sale under the distribution reinvestment plan, unless we file a new registration statement with the Securities and Exchange Commission and applicable states. Because the redemption of shares will be funded with the net proceeds we receive from the sale of shares under the distribution reinvestment plan, the discontinuance or termination of the distribution reinvestment plan will adversely affect our ability to redeem shares under the share redemption program. We would notify you of such developments (i) in the annual or quarterly reports mentioned above or (ii) by means of a separate mailing to you, accompanied by disclosure in a current or periodic report under the Exchange Act. During this offering, we would also include this information in a prospectus supplement or post-effective amendment to the registration statement, as then required under federal securities laws.

Our share redemption program is only intended to provide interim liquidity for stockholders until a liquidity event occurs, such as listing of the shares on a national securities exchange or our merger with a listed company. The share redemption program will be terminated if the shares become listed on a national securities exchange. We cannot guarantee that a liquidity event will occur.

The shares we redeem under our share redemption program will be cancelled and return to the status of unauthorized but unissued shares. We do not intend to resell such shares to the public unless they are first registered with the Securities and Exchange Commission under the Securities Act and under appropriate state securities laws or otherwise sold in compliance with such laws.

Restrictions on Roll-up Transactions

A Roll-up Transaction is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of us and the issuance of securities of an entity (Roll-up Entity) that is created or would survive after the successful completion of a Roll-up Transaction. This term does not include:


	•	a transaction involving our securities that have been listed on a national securities exchange for at least 12 months; or

	•	a transaction involving our conversion to trust, or association form if, as a consequence of the transaction, there will be no significant adverse change in stockholder voting rights, the term of our existence, compensation to Cole Advisors II or our investment objectives.

In connection with any Roll-up Transaction involving the issuance of securities of a Roll-up Entity, an appraisal of all of our assets shall be obtained from a competent independent appraiser. The assets shall be appraised on a consistent basis, and the appraisal will be based on the evaluation of all relevant information and will indicate the value of the assets as of a date immediately prior to the announcement of the proposed Roll-up Transaction. The appraisal shall assume an orderly liquidation of assets over a 12-month period. The terms of the engagement of the independent appraiser shall clearly state that the engagement is for the benefit of us and our stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to stockholders in connection with any proposed Roll-up Transaction.

In connection with a proposed Roll-up Transaction, the sponsor of the Roll-up Transaction must offer to stockholders who vote “no” on the proposal the choice of:

(1) accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or

175

(2) one of the following:

(a) remaining as holders of our common stock and preserving their interests therein on the same terms and conditions as existed previously, or

(b) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.

We are prohibited from participating in any Roll-up Transaction:


	•	that includes provisions that would materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or which would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor;

	•	in which our investor’s rights to access of records of the Roll-up Entity will be less than those provided in the section of this prospectus entitled “— Meetings and Special Voting Requirements” above; or

	•	in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by the stockholders.

176

SUMMARY OF AMENDED AND RESTATED DISTRIBUTION REINVESTMENT PLAN

We have adopted an amended and restated distribution reinvestment plan. The amended and restated reinvestment plan allows you to have distributions otherwise payable to you in cash reinvested in additional shares of our common stock. We are offering up to 25,000,000 shares for sale purchase to our distribution reinvestment plan at a purchase price equal to the higher of $9.50 per share or 95% of the estimated value of a share of our common stock. Following is a summary of our distribution reinvestment plan. A complete copy of our amended and restated distribution reinvestment plan is included in this prospectus as Appendix D.

Investment of Distributions

The amended and restated distribution reinvestment plan allows our stockholders, and, subject to certain conditions set forth in the plan, any stockholder or partner of any other publicly offered limited partnership, real estate investment trust or other real estate program sponsored by our advisor or its affiliates, to elect to purchase shares of our common stock with our distributions or distributions from such other programs. We have the discretion to extend the offering period for the shares being offered pursuant to this prospectus under our distribution reinvestment plan beyond the termination of this offering until we have sold all of the shares allocated to the plan through the reinvestment of distributions. We may also offer shares pursuant to a new registration statement.

No dealer manager fees or sales commissions will be paid with respect to shares purchased pursuant to the distribution reinvestment plan, therefore, we will retain all of the proceeds from the reinvestment of distributions. Accordingly, substantially all the economic benefits resulting from distribution reinvestment purchases by stockholders from the elimination of the dealer manager fee and selling commissions will inure to the benefit of the participant through the reduced purchase price.

Pursuant to the terms of our distribution reinvestment plan the reinvestment agent, which currently is us, will act on behalf of participants to reinvest the cash distributions they receive from us. Stockholders participating in the distribution reinvestment plan may purchase fractional shares. If sufficient shares are not available for issuance under our distribution reinvestment plan, the reinvestment agent will remit excess cash distributions to the participants. Participants purchasing shares pursuant to our distribution reinvestment plan will have the same rights as stockholders with respect to shares purchased under the plan and will be treated in the same manner as if such shares were issued pursuant to our offering.

After the termination of the offering of our shares registered for sale pursuant to the distribution reinvestment plan under the this prospectus and any subsequent offering, we may determine to allow participants to reinvest cash distributions from us in shares issued by another Cole-sponsored program only if all of the following conditions are satisfied:


	•	prior to the time of such reinvestment, the participant has received the final prospectus and any supplements thereto offering interests in the subsequent Cole-sponsored program and such prospectus allows investments pursuant to a distribution reinvestment plan;

	•	a registration statement covering the interests in the subsequent Cole-sponsored program has been declared effective under the Securities Act;

	•	the offer and sale of such interests are qualified for sale under applicable state securities laws;

	•	the participant executes the subscription agreement included with the prospectus for the subsequent Cole-sponsored program; and

	•	the participant qualifies under applicable investor suitability standards as contained in the prospectus for the subsequent Cole-sponsored program.

Stockholders who invest in subsequent Cole-sponsored programs pursuant to our distribution reinvestment plan will become investors in such subsequent Cole-sponsored program and, as such, will receive the same reports as other investors in the subsequent Cole-sponsored program.

177

Election to Participate or Terminate Participation

A stockholder may become a participant in our distribution reinvestment plan by making a written election to participate on his or her subscription agreement at the time he or she subscribes for shares. Any stockholder who has not previously elected to participate in the distribution reinvestment plan may so elect at any time by delivering to the reinvestment agent a completed enrollment form or other written authorization required by the reinvestment agent. Participation in our distribution reinvestment plan will commence with the next distribution payable after receipt of the participant’s notice, provided it is received at least ten days prior to the last day of the fiscal quarter, month or other period to which the distribution relates.

Some brokers may determine not to offer their clients the opportunity to participate in our distribution reinvestment plan. Any prospective investor who wishes to participate in our distribution reinvestment plan should consult with his or her broker as to the broker’s position regarding participation in the distribution reinvestment plan.

We reserve the right to prohibit qualified retirement plans from participating in our distribution reinvestment plan if such participation would cause our underlying assets to constitute “plan assets” of qualified retirement plans. See “Investment by Tax-Exempt Entities and ERISA Considerations.”

Each stockholder electing to participate in our distribution reinvestment plan agrees that, if at any time he or she fails to meet the applicable investor suitability standards or cannot make the other investor representations or warranties set forth in the then current prospectus or subscription agreement relating to such investment, he or she will promptly notify the reinvestment agent in writing of that fact.

Subscribers should note that affirmative action in the form of written notice to the reinvestment agent must be taken to withdraw from participation in our distribution reinvestment plan. A withdrawal from participation in our distribution reinvestment plan will be effective with respect to distributions for a quarterly or monthly distribution period, as applicable, only if written notice of termination is received at least ten days prior to the end of such distribution period. In addition, a transfer of shares prior to the date our shares are listed for trading on a national securities exchange, which we have no intent to do at this time and which may never occur will terminate participation in the distribution reinvestment plan with respect to such transferred shares as of the first day of the distribution period in which the transfer is effective, unless the transferee demonstrates to the reinvestment agent that the transferee meets the requirements for participation in the plan and affirmatively elects to participate in the plan by providing to the reinvestment agent an executed enrollment form or other written authorization required by the reinvestment agent.

Offers and sales of shares pursuant to the distribution reinvestment plan must be registered in every state in which such offers and sales are made. Generally, such registrations are for a period of one year. Thus, we may have to stop selling shares pursuant to the distribution reinvestment plan in any states in which our registration is not renewed or extended.

Reports to Participants

Within 90 days after the end of each calendar year, the reinvestment agent will mail to each participant a statement of account describing, as to such participant, the distributions received, the number of shares purchased, the purchase price for such shares and the total shares purchased on behalf of the participant during the prior year pursuant to our distribution reinvestment plan.

Excluded Distributions

Our board of directors may designate that certain cash or other distributions attributable to net sales proceeds will be excluded from distributions that may be reinvested in shares under our distribution reinvestment plan (Excluded Distributions). Accordingly, in the event that proceeds attributable to the potential sale transaction described above are distributed to stockholders as an Excluded Distribution, such amounts may not be reinvested in our shares pursuant to our distribution reinvestment plan. The determination of whether all or part of a distribution will be deemed to be an Excluded Distribution is separate and unrelated to our requirement to distribute 90% of our taxable REIT income. In its initial determination of whether to make a distribution and the amount of the

178

distribution, our board of directors will consider, among other factors, our cash position and our distribution requirements as a REIT. Once our board of directors determines to make the distribution, it will then consider whether all or part of the distribution will be deemed to be an Excluded Distribution. In most instances, we expect that our board of directors would not deem any of the distribution to be an Excluded Distribution. In that event, the amount distributed to participants in our distribution reinvestment plan will be reinvested in additional shares of our common stock. If all or a portion of the distribution is deemed to be an Excluded Distribution, the distribution will be made to all stockholders, however, the excluded portion will not be reinvested. As a result, we would not be able to use any of the Excluded Distribution to assist in meeting future distributions and the stockholders would not be able to use the distribution to purchase additional shares of our common stock through our distribution reinvestment plan. We currently do not have any planned Excluded Distributions, which will only be made, if at all, in addition to, not in lieu of, regular distributions.

Federal Income Tax Considerations

Taxable participants will incur tax liability for partnership income allocated to them even though they have elected not to receive their distributions in cash but rather to have their distributions reinvested under our distributions reinvestment plan. See “Risk Factors — Federal Income Tax Risks.” In addition, to the extent you purchase shares through our distribution reinvestment plan at a discount to their fair market value, you will be treated for tax purposes as receiving an additional distribution equal to the amount of the discount. At least until our offering stage is complete, we expect that (i) we will sell shares under the distribution reinvestment plan at $9.50 per share, (ii) no secondary trading market for our shares will develop and (iii) our advisor will estimate the fair market value of a share to be $10.00. Therefore, at least until our offering stage is complete, participants in our distribution reinvestment plan will be treated as having received a distribution of $10.00 for each $9.50 reinvested by them under our distribution reinvestment plan. You will be taxed on the amount of such distribution as a dividend to the extent such distribution is from current or accumulated earnings and profits, unless we have designated all or a portion of the dividend as a capital gain dividend. Tax information regarding each participant’s participation in the plan will be provided to each participant at least annually.

Amendment and Termination

We reserve the right to amend any aspect of our distribution reinvestment plan with ten days’ notice to participants. The reinvestment agent also reserves the right to terminate a participant’s individual participation in the plan, and we reserve the right to terminate our distribution reinvestment plan itself in our sole discretion at any time, by sending ten days’ prior written notice of termination to the terminated participant or, upon termination of the plan, to all participants.

179

OUR OPERATING PARTNERSHIP AGREEMENT

Amendments to the Partnership Agreement

Cole OP II was formed in September, 2004 to acquire, own and operate properties on our behalf. It is an Umbrella Partnership Real Estate Investment Trust, or UPREIT, which structure is utilized generally to provide for the acquisition of real property from owners who desire to defer taxable gain that would otherwise be recognized by them upon the disposition of their property. These owners may also desire to achieve diversity in their investment and other benefits afforded to owners of stock in a REIT. For purposes of satisfying the asset and income tests for qualification as a REIT for tax purposes, the REIT’s proportionate share of the assets and income of an UPREIT, such as Cole OP II, are deemed to be assets and income of the REIT.

A property owner may contribute property to an UPREIT in exchange for limited partnership units on a tax-free basis. In addition, Cole OP II is structured to make distributions with respect to limited partnership units that will be equivalent to the distributions made to holders of our common stock. Finally, a limited partner in Cole OP II may later exchange his or her limited partnership units in Cole OP II for shares of our common stock in a taxable transaction.

The partnership agreement for Cole OP II contains provisions that would allow, under certain circumstances, other entities, including other Cole-sponsored programs, to merge into or cause the exchange or conversion of their interests for interests of Cole OP II. In the event of such a merger, exchange or conversion, Cole OP II would issue additional limited partnership interests, which would be entitled to the same exchange rights as other limited partnership interests of Cole OP II. As a result, any such merger, exchange or conversion ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders.

We hold substantially all of our assets through Cole OP II. We are the sole general partner of Cole OP II, and our advisor, Cole Advisors II, is the only limited partner of Cole OP II. As the sole general partner of Cole OP II, we have the exclusive power to manage and conduct the business of Cole OP II.

The following is a summary of certain provisions of the partnership agreement of Cole OP II. This summary is not complete and is qualified by the specific language in the partnership agreement. You should refer to the partnership agreement, itself, which we have filed as an exhibit to the registration statement, for more detail.

Capital Contributions

As we accept subscriptions for shares, we will transfer substantially all of the net proceeds of the offering to Cole OP II as a capital contribution. However, we will be deemed to have made capital contributions in the amount of the gross offering proceeds received from investors. Cole OP II will be deemed to have simultaneously paid the selling commissions and other costs associated with the offering. If Cole OP II requires additional funds at any time in excess of capital contributions made by our advisor and us (which are minimal in amount), or from borrowings, we may borrow funds from a financial institution or other lender and lend such funds to Cole OP II on the same terms and conditions as are applicable to our borrowing of such funds. In addition, we are authorized to cause Cole OP II to issue partnership interests for less than fair market value if we conclude in good faith that such issuance is in the best interests of Cole OP II and us.

Operations

The partnership agreement requires that Cole OP II be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that Cole OP II will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code, which classification could result in Cole OP II being taxed as a corporation, rather than as a partnership. See “Federal Income Tax Considerations — Tax Aspects of Our Operating Partnership — Classification as a Partnership.”

180

The partnership agreement provides that Cole OP II will distribute cash flow from operations as follows:


	•	first, to us until we have received aggregate distributions with respect to the current fiscal year equal to the minimum amount necessary for us to distribute to our stockholders to enable us to maintain our status as a REIT under the Internal Revenue Code with respect to such fiscal year;

	•	next, to the limited partners until our limited partners have received aggregate distributions equal to the amount that would have been distributed to them with respect to all prior fiscal years had all Cole OP II income for all such prior fiscal years been allocated to us, each limited partner held a number of our common shares equal to the number of Cole OP II units that it holds and the REIT had distributed all such amounts to our stockholders (including the limited partners);

	•	next, to us and to the limited partners until each partner has received aggregate distributions with respect to the current fiscal year and all fiscal years had all Cole OP II income for the current fiscal year and all such prior fiscal years been allocated to us, our income with respect to the current fiscal year and each such prior fiscal year equaled the minimum amount necessary to maintain our status as a REIT under the Internal Revenue Code, each limited partner held a number of common shares equal to the number of Cole OP II units that we hold and we had distributed all such amounts to its stockholders (including the limited partners); and

	•	finally, to us and the limited partners in accordance with the partners’ percentage interests in Cole OP II.

Similarly, the partnership agreement of Cole OP II provides that taxable income is allocated to the limited partners of Cole OP II in accordance with their relative percentage interests such that a holder of one unit of limited partnership interest in Cole OP II will be allocated taxable income for each taxable year in an amount equal to the amount of taxable income to be recognized by a holder of one of our shares, subject to compliance with the provisions of Sections 704(b) and 704(c) of the Internal Revenue Code and corresponding Treasury Regulations. Losses, if any, generally will be allocated among the partners in accordance with their respective percentage interests in Cole OP II.

Upon the liquidation of Cole OP II, after payment of debts and obligations, any remaining assets of Cole OP II will be distributed to partners with positive capital accounts in accordance with their respective positive capital account balances. If we were to have a negative balance in our capital account following a liquidation, we would be obligated to contribute cash to Cole OP II equal to such negative balance for distribution to other partners, if any, having positive balances in such capital accounts.

In addition to the administrative and operating costs and expenses incurred by Cole OP II in acquiring and operating real properties, Cole OP II will pay all of our administrative costs and expenses, and such expenses will be treated as expenses of Cole OP II. Such expenses will include:


	•	all expenses relating to the formation and continuity of our existence;

	•	all expenses relating to the public offering and registration of securities by us;

	•	all expenses associated with the preparation and filing of any periodic reports by us under federal, state or local laws or regulations;

	•	all expenses associated with compliance by us with applicable laws, rules and regulations;

	•	all costs and expenses relating to any issuance or redemption of partnership interests or shares of our common stock; and

	•	all our other operating or administrative costs incurred in the ordinary course of our business on behalf of Cole OP II.

All claims between the partners of Cole OP II arising out of the partnership agreement are subject to binding arbitration.

181

Exchange Rights

The limited partners of Cole OP II, including Cole Advisors II, have the right to cause their limited partnership units to be redeemed by Cole OP II or purchased by us for cash. In either event, the cash amount to be paid will be equal to the cash value of the number of our shares that would be issuable if the limited partnership units were exchanged for our shares on a one-for-one basis. Alternatively, we may elect to purchase the limited partnership units by issuing one share of our common stock for each limited partnership unit exchanged. As of December 31, 2007, there were 9,009 partnership units outstanding. These exchange rights may not be exercised, however, if and to the extent that the delivery of shares upon exercise would (1) result in any person owning shares in excess of our ownership limits, (2) result in shares being owned by fewer than 100 persons, (3) cause us to be “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, (4) cause us to own 10% or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed limited partner to be “integrated” with any other distribution of our shares for purposes of complying with the Securities Act.

Subject to the foregoing, limited partners of Cole OP II may exercise their exchange rights at any time after one year following the date of issuance of their limited partnership units. However, a limited partner may not deliver more than two exchange notices each calendar year and may not exercise an exchange right for less than 1,000 limited partnership units, unless such limited partner holds less than 1,000 units, in which case, it must exercise his exchange right for all of his units. We do not expect to issue any of the shares of common stock offered hereby to limited partners of Cole OP II in exchange for their limited partnership units. Rather, in the event a limited partner of Cole OP II exercises its exchange rights, and we elect to purchase the limited partnership units with shares of our common stock, we expect to issue unregistered shares of common stock, or subsequently registered shares of common stock, in connection with such transaction.

Our consent, as the general partner of Cole OP II, is required for any amendment to the partnership agreement. We, as the general partner of Cole OP II, and without the consent of any limited partner, may amend the partnership agreement in any manner, provided, however, that the consent of limited partners holding more than 50% of the interests of the limited partners is required for the following:


	•	any amendment affecting the conversion factor or the exchange right in a manner adverse to the limited partners;

	•	any amendment that would adversely affect the rights of the limited partners to receive the distributions payable to them pursuant to the partnership agreement (other than the issuance of additional limited partnership interests);

	•	any amendment that would alter the allocations of Cole OP II’s profit and loss to the limited partners (other than the issuance of additional limited partnership interests);

	•	any amendment that would impose on the limited partners any obligation to make additional capital contributions to Cole OP II; and

	•	any amendment pursuant to a plan of merger, plan of exchange or plan of conversion, unless the partnership agreement of the surviving limited partnership does not materially differ from the partnership agreement of Cole OP II immediately before the transaction.

Termination of the Partnership

Cole OP II will have perpetual duration, unless it is dissolved earlier upon the first to occur of the following:


	•	we declare for bankruptcy or withdraw from the partnership, provided, however, that the remaining partners may decide to continue the business;

	•	ninety days after the sale or other disposition of all or substantially all of the assets of the partnership;

	•	the exchange of all limited partnership interests (other than such interests we, or are affiliates, hold); or

	•	we elect, as the general partner, to dissolve the partnership.

182

Transferability of Interests

We may not (1) voluntarily withdraw as the general partner of Cole OP II, (2) engage in any merger, consolidation or other business combination, or (3) transfer our general partnership interest in Cole OP II (except to a wholly-owned subsidiary), unless the transaction in which such withdrawal, business combination or transfer occurs results in the limited partners receiving or having the right to receive an amount of cash, securities or other property equal in value to the amount they would have received if they had exercised their exchange rights immediately prior to such transaction or unless, in the case of a merger or other business combination, the successor entity contributes substantially all of its assets to Cole OP II in return for an interest in Cole OP II and agrees to assume all obligations of the general partner of Cole OP II. We may also enter into a business combination or transfer our general partnership interest upon the receipt of the consent of a majority-in-interest of the limited partners of Cole OP II, other than Cole Advisors II and other affiliates of Christopher H. Cole. With certain exceptions, a limited partner may not transfer its interests in Cole OP II, in whole or in part, without our written consent as general partner.

183

PLAN OF DISTRIBUTION

The Offering

We are offering a maximum of 150,000,000 shares of our common stock to the public through Cole Capital Corporation, our dealer manager, a registered broker-dealer affiliated with our advisor. Of this amount, we are offering 125,000,000 shares in our primary offering at a price of $10.00 per share, except as provided below. The shares are being offered on a “best efforts” basis, which means generally that the dealer manager is required to use only its best efforts to sell the shares and it has no firm commitment or obligation to purchase any of the shares. We also are offering up to 25,000,000 shares for sale pursuant to our distribution reinvestment plan. The purchase price for shares sold under our distribution reinvestment plan will be equal to the higher of 95% of the estimated value of a share of common stock, as estimated by our board of directors, and $9.50 per share. The reduced purchase price for shares purchased pursuant to our distribution reinvestment plan reflects that there will be no fees, commissions or expenses paid with respect to these shares. We reserve the right to reallocate the shares of our common stock we are offering between the primary offering and the distribution reinvestment plan. The offering of shares of our common stock will terminate on or before May 11, 2009, which is two years after the effective date of this offering, unless the offering is extended. In addition, at the discretion of our board of directors, we may elect to extend the termination date of our offering of shares reserved for issuance pursuant to our distribution reinvestment plan until we have sold all shares allocated to such plan through the reinvestment of distributions, in which case participants in the plan will be notified. This offering must be registered in every state in which we offer or sell shares. Generally, such registrations are for a period of one year. Thus, we may have to stop selling shares in any state in which our registration is not renewed or otherwise extended annually. We reserve the right to terminate this offering at any time prior to the stated termination date.

Cole Capital Corporation

Cole Capital Corporation, our dealer manager, was organized in 1992 for the purpose of participating in and facilitating the distribution of securities in programs sponsored by Cole Capital Partners, its affiliates and its predecessors. For additional information about Cole Capital Corporation, including information relating to Cole Capital Corporation’s affiliation with us, please refer to the section of this prospectus captioned “Management — Affiliated Companies — Dealer Manager.”

Compensation We Will Pay for the Sale of Our Shares

Except as provided below, we will pay our dealer manager selling commissions of 7% of the gross offering proceeds. We also will pay the dealer manager a fee in the amount of 2% of the gross offering proceeds as compensation for acting as the dealer manager and for expenses incurred in connection with marketing and due diligence expense reimbursement. No sales commissions or dealer manager fees will be paid with respect to shares purchased pursuant to the distribution reinvestment plan. We will not pay referral or similar fees to any accountants, attorneys or other persons in connection with the distribution of the shares. See the “Summary of Amended and Restated Distribution Reinvestment Plan — Investment of Distributions” section of this prospectus.

We expect our dealer manager to utilize two distribution channels to sell our shares, which have different selling commissions, and consequently, a different purchase price for the shares. In the event of the sale of shares in our primary offering by other broker-dealers that are members of FINRA, the purchase price will be $10.00 per share. In the event of the sale of shares in our primary offering to an investment advisory representative, the purchase price for such shares will be $9.30 per share, reflecting the fact that our dealer manager will waive the 7% selling commission on such shares. We will not pay selling commissions or a dealer manager fee in connection with the sale of shares under our distribution reinvestment plan. The dealer manager may reallow to each of the participating broker dealers a portion of its dealer manager fee earned on the proceeds raised by the participating broker-dealer. This reallowance would be in the form of a non-accountable marketing allowance and due diligence expense reimbursement. The amount of the reallowance will be determined by the dealer manager based upon

184

factors including the participating broker-dealer’s level of marketing support, level of due diligence review and success of its sales efforts, each as compared to those of the other participating broker-dealers.


	Per Share		Total Maximum

Primary Offering
Price to Public	$	10.00	$	1,250,000,000
Selling Commissions		0.70		87,500,000
Dealer Manager Fees		0.20		25,000,000

Proceeds to Cole REIT II	$	9.10	$	1,137,500,000

Distribution Reinvestment Plan
Price to Public	$	9.50	$	237,500,000
Distribution Selling Commissions		—		—
Dealer Manager Fees		—		—

Proceeds to Cole REIT II	$	9.50	$	237,500,000

We may sell shares in our primary offering to retirement plans of broker-dealers participating in the offering, to broker-dealers in their individual capacities, to IRAs and qualified plans of their registered representatives or to any one of their registered representatives in their individual capacities (and their spouses, parents and minor children) at a discount. The purchase price for such shares shall be $9.30 per share, reflecting the fact that selling commissions in the amount of $0.70 per share will not be payable in connection with such sales. The net proceeds to us from such sales will not be affected by such sales of shares at a discount.

We or our affiliates also may provide permissible forms of non-cash compensation to registered representatives of our dealer manager and the participating broker-dealers, such as golf shirts, fruit baskets, cakes, chocolates, a bottle of wine or tickets to a sporting event. In no event shall such items exceed an aggregate value of $100 per annum per participating salesperson, or be pre-conditioned on achievement of a sales target. The value of such items will be considered underwriting compensation in connection with this offering.

We have agreed to indemnify the participating broker-dealers, including our dealer manager and selected registered investment advisors, against certain liabilities arising under the Securities Act. However, the Securities and Exchange Commission takes the position that indemnification against liabilities arising under the Securities Act is against public policy and is unenforceable.

In addition to the compensation described above, our sponsor may pay certain costs associated with the sale and distribution of our shares. We will not reimburse our sponsor for such payments. Nonetheless, such payments will be deemed to be “underwriting compensation” by FINRA. In accordance with the rules of FINRA, the table below sets forth the nature and estimated amount of all items that will be viewed as “underwriting compensation” by FINRA that are anticipated to be paid by us and our sponsor in connection with the offering. The amounts shown assume we sell all of the shares offered hereby and that all shares are sold in our primary offering through participating broker-dealers, which is the distribution channel with the highest possible selling commissions and dealer manager fees.


	Total Maximum

Selling commissions	$	87,500,000
Dealer manager fee reallowance to participating broker-dealers		8,750,000
Dealer manager wholesaling compensation		20,723,000
Expense reimbursements for wholesaling travel and expenses		4,030,000
Broker-dealer conference fees and training and education meetings		2,800,000
Due diligence allowance		160,000
Legal fees of the dealer manager		120,000

Total(1)	$	124,083,000

185


(1)		Of this amount, $87,500,000 and $25,000,000 will be paid by us from the proceeds of this offering in the form of selling commissions and dealer manager fees, respectively. The remaining $11,583,000 will be paid by our sponsor without reimbursement by us.

The total amount of underwriting compensation, including selling commissions, dealer manager fees and other expenses paid or reimbursed by us, our sponsor or any other source in connection with the offering, will not exceed 10% of the gross proceeds of this offering, plus up to an additional 0.5% of gross proceeds ($500,000 if the maximum offering amount is sold) for reimbursement of bona fide due diligence expenses.

Shares Purchased by Affiliates

Our executive officers and directors, as well as officers and employees of Cole Advisors II and their family members (including spouses, parents, grandparents, children and siblings) or other affiliates, may purchase shares offered in this offering at a discount. The purchase price for such shares shall be $9.10 per share, reflecting the fact that selling commissions in the amount of $0.70 per share and a dealer manager fee in the amount of $0.20 per share will not be payable in connection with such sales. The net offering proceeds we receive will not be affected by such sales of shares at a discount. Our executive officers, directors and other affiliates will be expected to hold their shares purchased as stockholders for investment and not with a view towards resale. In addition, shares purchased by Cole Advisors II or its affiliates will not be entitled to vote on any matter presented to the stockholders for a vote. With the exception of the 20,000 shares initially sold to Cole Holdings Corporation in connection with our organization, no director, officer, advisor or any affiliate may own more than 9.8% in value or number of our outstanding common stock.

Volume Discounts

Volume discounts based on reduced sales commissions are available for “purchasers” of certain minimum numbers of shares, as defined below, volume discounts resulting in reductions in selling commissions payable with respect to such sales are available. In such event, any such reduction will be credited to the investor by reducing the purchase price per share. The following table illustrates the various discount levels available:


						Purchase Price per
	Sales					Incremental Share		Dealer
Dollar Volume	Commission			Per		in Volume		Manager Fees		Net Proceeds
Shares Purchased	Percent			Share		Discount Range		per Share		per Share

$250,000 or less		7.0	%	$	0.70	$	10.00	$	0.20	$	9.10
$250,001-$500,000		6.0	%		0.60		9.90		0.20		9.10
$500,001-$1,000,000		5.0	%		0.50		9.80		0.20		9.10
$1,000,001-$2,000,000		4.0	%		0.40		9.70		0.20		9.10
$2,000,001-$5,000,000		3.0	%		0.30		9.60		0.20		9.10
$5,000,001-$10,000,000		2.0	%		0.20		9.50		0.20		9.10
Over $10,000,001		1.0	%		0.10		9.40		0.20		9.10

For example, if an investor purchases 60,000 shares, the investor would pay (1) $250,000 for the first 25,000 shares, (2) $247,500 for the next 25,000 shares ($9.90 per share), and (3) $98,000 for the next 10,000 shares ($9.80 per share), for a total purchase price of $595,500 (approximately $9.925 per share) rather than $600,000 for the shares. After the payment of sales commissions of $37,500 (approximately $0.625 per share) and payment of the dealer manager fee, we would receive net proceeds of $546,000 ($9.10 per share). The net proceeds to us will not be affected by volume discounts. All investors will be deemed to have contributed the same amount per share to us for purposes of declaring and paying distributions. Therefore, an investor who has received a volume discount will realize a better return on his or her investment in our shares than investors who do not qualify for a discount.

Subscriptions may be combined for the purpose of determining the volume discounts in the case of subscriptions made by any “purchaser,” as that term is defined below, provided all such shares are purchased through the same broker-dealer (unless agreed to in writing by us and the respective broker-dealers). The volume discount is prorated among the separate subscribers considered to be a single “purchaser.” Any request to combine

186

more than one subscription must be made in writing, submitted simultaneously with the subscription for shares, and must set forth the basis for such request. Any request for volume discounts will be subject to our verification that all of the combined subscriptions were made by a single “purchaser.”

For the purposes of such volume discounts, the term “purchaser” includes:


	•	an individual, his or her spouse and their children under the age of 21 who purchase the shares for his, her or their own account;

	•	a corporation, partnership, association, joint-stock company, trust fund or any organized group of persons, whether incorporated or not;

	•	an employees’ trust, pension, profit-sharing or other employee benefit plan qualified under Section 401(a) of the Internal Revenue Code; and

	•	all commingled trust funds maintained by a given bank.

In addition, investors may request in writing to aggregate subscriptions as part of a combined order for purposes of determining the number of shares purchased, provided that any aggregate group of subscriptions must be received from the same broker-dealer (unless agreed to in writing by us and the respective broker-dealers), including our dealer manager.

In order to encourage purchases of 1,000,000 or more shares, a potential purchaser who proposes to purchase at least 1,000,000 shares may agree with Cole Advisors II and Cole Capital Corporation to have the dealer manager fee with respect to the sale of such shares reduced or eliminated, and, with the agreement of the participating broker, to have the selling commission payable with respect to the sale of such shares reduced or eliminated. The aggregate fees payable with respect to the sale of such shares would be reduced by as much as $0.90 per share, resulting in a purchase price of $9.10 per share, rather than $10.00 per share.

Because all investors will be deemed to have contributed the same amount per share to us for purposes of declaring and paying distributions, investors who pay a reduced or no commission will receive a higher return on their investment than investors who do not qualify for such discount.

Subscription Process

To purchase shares in this offering, you must complete and sign a subscription agreement, like the one contained in this prospectus as Appendix B, or, if you already are a stockholder, you must complete and sign an additional subscription agreement, like the one contained in this prospectus as Appendix C. You should pay for your shares by delivering a check for the full purchase price of the shares, payable to “Wells Fargo Bank, N.A., Escrow Agent for Cole Credit Property Trust II, Inc.” You should exercise care to ensure that the applicable subscription agreement is filled out correctly and completely. By executing the subscription agreement, you will attest that you meet the suitability standards described in this prospectus and agree to be bound by all of the terms of the subscription agreement.

Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. We may not accept a subscription for shares until at least five business days after the date you receive this prospectus. Subject to compliance with Rule 15c2-4 of the Exchange Act, our dealer manager and/or the broker-dealers participating in the offering will promptly submit a subscriber’s check on the business day following receipt of the subscriber’s subscription documents and check. In certain circumstances where the suitability review procedures are more lengthy than customary, a subscriber’s check will be promptly deposited in compliance with Exchange Act Rule 15c2-4. The proceeds from your subscription will be deposited in a segregated escrow account and will be held in trust for your benefit, pending our acceptance of your subscription.

We accept or reject subscriptions within 35 days after we receive them. If your subscription agreement is rejected, your funds, without interest, or reductions for offering expenses, commissions or fees will be returned to you within ten business days after the date of such rejection. If your subscription is accepted, we will send you a confirmation of your purchase after you have been admitted as an investor. We admit new investors at least monthly and we may admit new investors more frequently.

187

Investments by IRAs and Qualified Plans

Sterling Trust Company has agreed to act as an IRA custodian for purchasers of our common stock who desire to establish an IRA, SEP or certain other tax-deferred accounts or transfer or rollover existing accounts. Sterling Trust Company has agreed to provide this service to our stockholders with annual maintenance fees charged at a discounted rate. Further information as to custodial services is available through your broker or may be requested from us.

HOW TO SUBSCRIBE

Investors who meet the applicable suitability standards and minimum purchase requirements described in the “Suitability Standards” section of this prospectus may purchase shares of common stock. If you want to purchase shares, you must proceed as follows:

(1) Read the entire prospectus and the current supplement(s), if any, accompanying this prospectus.

(2) Complete the execution copy of the applicable subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, for new investors is included in this prospectus as Appendix B. A specimen copy of the subscription agreement for current stockholders is included in this prospectus as Appendix C.

(3) Deliver a check to Cole Capital Corporation, or its designated agent, for the full purchase price of the shares being subscribed for, payable to “Wells Fargo Bank, N.A., Escrow Agent for Cole Credit Property Trust II, Inc.” along with the completed subscription agreement. Certain dealers who have “net capital,” as defined in the applicable federal securities regulations, of $250,000 or more may instruct their customers to make their checks payable directly to the dealer. In such case, the dealer will issue a check made payable to us for the purchase price of your subscription. The name of the dealer appears on the subscription agreement.

(4) By executing the subscription agreement and paying the full purchase price for the shares subscribed for, you will attest that you meet the suitability standards as provided in the “Suitability Standards” section of this prospectus and as stated in the subscription agreement and agree to be bound by the terms of the subscription agreement.

An approved trustee must process through us and forward us subscriptions made through IRAs, Keogh plans, 401(k) plans and other tax-deferred plans. If you want to purchase shares through an IRA, SEP or other tax-deferred account, Sterling Trust Company has agreed to serve as IRA custodian for such purpose. Sterling Trust Company has agreed to provide this service to our stockholders with annual maintenance fees charged at a discounted rate.

SUPPLEMENTAL SALES MATERIAL

In addition to this prospectus, we may utilize certain sales material in connection with the offering of the shares, although only when accompanied by or preceded by the delivery of this prospectus. The sales materials may include information relating to this offering, the past performance of Cole Advisors II, our advisor, and its affiliates, property brochures and articles and publications concerning real estate. In certain jurisdictions, some or all of our sales material may not be permitted and will not be used in those jurisdictions.

The offering of shares is made only by means of this prospectus. Although the information contained in our supplemental sales material will not conflict with any of the information contained in this prospectus, the supplemental materials do not purport to be complete, and should not be considered a part of this prospectus or the registration statement of which this prospectus is a part.

LEGAL MATTERS

Venable LLP, Baltimore, Maryland, will pass upon the legality of the common stock and Morris, Manning & Martin, LLP, Atlanta, Georgia, will pass upon legal matters in connection with our status as a REIT for federal income tax purposes. Morris, Manning & Martin, LLP will rely on the opinion of Venable LLP as to all matters of

188

Maryland law. Neither Venable LLP nor Morris, Manning & Martin, LLP purport to represent our stockholders or potential investors, who should consult their own counsel. Morris, Manning & Martin, LLP also provides legal services to Cole Advisors II, our advisor, as well as affiliates of Cole Advisors II, and may continue to do so in the future.

EXPERTS

The financial statements included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and have been included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

Also, the statements of revenues and certain operating expenses for the MT Omaha property for the year ended June 30, 2006, the AS Katy property, the MT Fairview Heights property, the CNL Portfolio Properties, the MT Broadview property for the year ended December 31, 2006 and the Millstein Audit Properties for the year ended December 31, 2007, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein (which reports on the statements of revenues and certain operating expenses express unqualified opinions and include explanatory paragraphs referring to the purpose of the statements), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-11 with the Securities and Exchange Commission in connection with our initial public offering. We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission.

You may request and obtain a copy of these filings, at no cost to you, by writing or telephoning us at the following address:

Cole Credit Property Trust II, Inc.

Attn: Investor Relations

2555 East Camelback Road, Suite 400

Phoenix, Arizona 85016

(866) 341-2653

One of our affiliates maintains an Internet site at http://www.colecapital.com, at which there is additional information about us. The contents of that site are not incorporated by reference in, or otherwise a part of, this prospectus.

This prospectus does not contain all of the information set forth in the registration statement and the exhibits related thereto as filed with the Securities and Exchange Commission, reference to which is hereby made.

You can read our registration statement and the exhibits thereto and our future Securities and Exchange Commission filings over the Internet at www.sec.gov. You may also read and copy any document we file with the Securities and Exchange Commission at its Public Reference Room at 100 F Street, N.W., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the Securities and Exchange Commission at 100 F Street, N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 or e-mail at publicinfo@sec.gov for further information on the operation of the public reference facilities.

189

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page

Audited Financial Statements of Cole Credit Property Trust II, Inc.
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements		F-4
Consolidated Balance Sheets as of December 31, 2007 and 2006		F-5
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005		F-6
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005		F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005		F-8
Notes to Consolidated Financial Statements		F-9
Summary Financial Information of Properties Acquired and Probable Properties to be Acquired
Academy Sports Headquarters and Distribution Facility — Katy, Texas (AS Katy Property)
Overview		F-31
Independent Auditors’ Report		F-32
Audited Financial Statements of Property Acquired
Statement of Revenues and Certain Operating Expenses for the Year Ended December 31, 2006		F-33
Notes to the Statement of Revenues and Certain Operating Expenses		F-34
One Pacific Place — Omaha, Nebraska (MT Omaha Property)
Overview		F-36
Independent Auditors’ Report		F-37
Audited Financial Statements of Property Acquired
Statement of Revenues and Certain Operating Expenses for the Year Ended June 30, 2006 and The Six Months Ended December 31, 2006		F-38
Notes to the Statement of Revenues and Certain Operating Expenses		F-39
Lincoln Place — Fairview Heights, Illinois (MT Fairview Heights Property)
Overview		F-40
Independent Auditors’ Report		F-41
Audited Financial Statements of Property Acquired
Statement of Revenues and Certain Operating Expenses for the Year Ended December 31, 2006		F-42
Notes to the Statement of Revenues and Certain Operating Expenses		F-43
CNL Portfolio Properties — Various Cities (CNL Properties)
Overview		F-45
Independent Auditors’ Report		F-46
Audited Financial Statements of Portfolio Acquired
Statement of Revenues and Certain Operating Expenses for the Year Ended December 31, 2006		F-47
Notes to the Statement of Revenues and Certain Operating Expenses		F-48
Broadview Village Square Property — Broadview, Illinois (MT Broadview Property)
Overview		F-51
Independent Auditors’ Report		F-52
Audited Financial Statements of Property Acquired
Statement of Revenues and Certain Operating Expenses for the Year Ended December 31, 2006 and the Six Months Ended June 30, 2007 (Unaudited)		F-53

F-1


		Page

Notes to the Statement of Revenues and Certain Operating Expenses		F-54
Millstein Portfolio Properties
Overview		F-56
Independent Auditors’ Report		F-58
Audited Financial Statements of Properties Acquired
Statement of Revenues and Certain Operating Expenses for the Year Ended December 31, 2007		F-59
Notes to the Statement of Revenues and Certain Operating Expenses		F-60
Tractor Supply — Various Properties Summary Financial Data Regarding Tractor Supply		F-62
Office Max — Orangeburg, South Carolina (OM Orangeburg Property) Summary Financial Data Regarding Office Max		F-64
Walgreens — Various Properties Summary Financial Data Regarding Walgreens		F-65
Office Depot — Various Properties Summary Financial Data Regarding Office Depot		F-67
Apria Healthcare — St. John, Missouri (AH St. John Property) Summary Financial Data Regarding Apria Healthcare		F-68
FedEx — Various Properties Summary Financial Data Regarding FedEx		F-69
Rite Aid — Various Properties Summary Financial Data Regarding Rite Aid		F-70
Wal-Mart — Various Properties Summary Financial Data Regarding Wal Mart		F-71
Staples — Various Properties Summary Financial Data Regarding Staples		F-72
Borders — Various Properties Summary Financial Data Regarding Borders		F-73
Starbucks — Various Properties Summary Financial Data Regarding Starbucks		F-74
Kroger — La Grange, GA (KG La Grange Property) Summary Financial Data Regarding Kroger		F-76
Circuit City — Various Properties Summary Financial Data Regarding Circuit City		F-77
Kohl’s — Various Properties Summary Financial Data Regarding Kohls		F-78
Electronic Data Systems — Various Properties Summary Financial Data Regarding Electronic Data Systems		F-79
Lowe’s — Various Properties Summary Financial Data Regarding Lowes		F-80
Home Depot — Various Properties Summary Financial Data Regarding Home Depot		F-81
Best Buy — Various Properties Summary Financial Data Regarding Best Buy		F-82

F-2


		Page

CarMax — Various Properties Summary Financial Data Regarding CarMax		F-83
BJ’s Wholesale Club — Haverhill, MA (BJ Haverhill Property) Summary Financial Data Regarding BJ’s Wholesale Club		F-84
Station Casino — Las Vegas, NV Overview		F-85
Circle K — Various Properties Overview		F-85
Pep Boys — Various Properties Overview		F-85
Unaudited Pro Forma Financial Statements of Cole Credit Property Trust II, Inc.
Pro Forma Consolidated Balance Sheet as of December 31, 2007 (Unaudited)		F-86
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2007 (Unaudited)		F-88
Notes to Pro Forma Consolidated Financial Statements (Unaudited)		F-89

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cole Credit Property Trust II, Inc.

Phoenix, Arizona

We have audited the accompanying consolidated balance sheets of Cole Credit Property Trust II, Inc. and subsidiaries (“the Company”) as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

March 31, 2008

F-4

CONSOLIDATED BALANCE SHEETS


	December 31,			December 31,
	2007			2006

ASSETS:
Investment in real estate assets:
Land	$	412,947,887		$	109,506,269
Buildings and improvements, less accumulated depreciation of $24,075,228 and $4,547,932 at December 31, 2007 and 2006, respectively		1,090,362,000			282,468,749
Real estate assets under direct financing leases, less unearned income of $17,297,642 at December 31, 2007		39,260,183			—
Acquired intangible lease assets, less accumulated amortization of $12,925,668 and $2,251,172 at December 31, 2007 and 2006, respectively		228,790,968			54,569,023
Real estate assets held for sale, less accumulated depreciation and accumulated amortization of $1,103,519 at December 31, 2007		22,991,474			—

Total investment in real estate assets		1,794,352,512			446,544,041
Investment in mortgage notes receivable, less accumulated amortization of $78,916 at December 31, 2007		87,099,624			—
Cash and cash equivalents		43,517,178			37,566,490
Restricted cash		14,032,616			5,839,733
Rents and tenant receivables, less allowance for doubtful accounts of $521,615 and $75,000 at December 31, 2007 and 2006, respectively		8,098,152			2,432,536
Prepaid expenses, mortgage loan deposits and other assets		1,144,864			4,248,973
Deferred financing costs, less accumulated amortization of $2,163,027 and $565,946 at December 31, 2007 and 2006, respectively		19,452,888			3,789,019

Total assets	$	1,967,697,834		$	500,420,792


LIABILITIES AND STOCKHOLDERS’ EQUITY:
Mortgage notes payable	$	1,037,981,538		$	218,265,916
Mortgage notes payable associated with assets held for sale		17,700,000			—
Accounts payable and accrued expenses		7,776,943			2,016,343
Escrowed investor proceeds		12,737,969			5,710,730
Due to affiliates		1,504,849			67,608
Acquired below market lease intangibles, less accumulated amortization of $2,083,475 and $96,484 at December 31, 2007 and 2006, respectively		80,031,916			2,649,374
Distributions payable		5,434,275			1,612,094
Deferred rent and other liabilities		1,783,620			340,974

Total liabilities		1,164,951,110			230,663,039

Redeemable common stock		21,659,859			3,521,256

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding at December 31, 2007 and 2006		—			—
Common stock, $.01 par value; 240,000,000 shares authorized, 93,621,094 and 30,691,204 shares issued and outstanding at December 31, 2007 and 2006, respectively		936,211			306,912
Capital in excess of par value		824,676,200			273,385,603
Accumulated distributions in excess of earnings		(44,525,546	)		(7,456,018	)

Total stockholders’ equity		781,086,865			266,236,497

Total liabilities and stockholders’ equity	$	1,967,697,834		$	500,420,792

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2007			2006			2005

Revenues:
Rental and other income	$	82,491,639		$	18,357,174		$	741,669
Tenant reimbursement income		5,161,162			1,162,333			—
Earned income from direct financing leases		1,075,412			—			—
Interest income on mortgages receivable		1,113,937			—			—

Total revenue		89,842,150			19,519,507			741,669

Expenses:
General and administrative		2,011,322			952,789			156,252
Property operating expenses		6,466,677			1,416,745			—
Property and asset management fees		4,184,271			936,977			38,768
Depreciation		20,460,219			4,396,460			151,472
Amortization		10,022,054			2,072,906			69,939
Impairment of real estate assets		5,400,000			—			—

Total operating expenses		48,544,543			9,775,877			416,431

Operating income		41,297,607			9,743,630			325,238

Other income (expense):
Interest and other income		2,258,158			503,479			27,557
Interest expense		(39,075,748	)		(8,901,113	)		(467,386	)

Total other expense		(36,817,590	)		(8,397,634	)		(439,829	)

Net income (loss)	$	4,480,017		$	1,345,996		$	(114,591	)

Net income (loss) per common share:
Basic and diluted	$	0.07		$	0.10		$	(0.28	)

Weighted average number of common shares outstanding:
Basic		60,929,996			13,275,635			411,909

Diluted		60,931,316			13,275,635			411,909

The accompanying notes are an integral part of these consolidated financial statements.

F-6

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock									Accumulated			Total
	Number of						Capital in Excess			Distributions in			Stockholders’
	Shares			Par Value			of Par Value			Excess of Earnings			Equity

Balance, December 31, 2004		20,000		$	200		$	199,800		$	—		$	200,000
Issuance of common stock		2,812,387			28,124			28,080,997			—			28,109,121
Distributions		—			—			—			(195,209	)		(195,209	)
Commissions on stock sales and related dealer manager fees		—			—			(2,375,780	)		—			(2,375,780	)
Other offering costs		—			—			(418,575	)		—			(418,575	)
Net loss		—			—			—			(114,591	)		(114,591	)

Balance, December 31, 2005		2,832,387			28,324			25,486,442			(309,800	)		25,204,966
Issuance of common stock		27,858,817			278,588			277,953,219			—			278,231,807
Distributions		—			—			—			(8,492,214	)		(8,492,214	)
Commissions on stock sales and related dealer manager fees		—			—			(23,254,138	)		—			(23,254,138	)
Other offering costs		—			—			(3,332,577	)		—			(3,332,577	)
Stock compensation expense		—						53,913						53,913
Redeemable common stock		—			—			(3,521,256	)		—			(3,521,256	)
Net income		—			—			—			1,345,996			1,345,996

Balance, December 31, 2006		30,691,204			306,912			273,385,603			(7,456,018	)		266,236,497
Issuance of common stock		63,156,834			631,568			629,526,228			—			630,157,796
Distributions		—			—			—			(41,549,545	)		(41,549,545	)
Commissions on stock sales and related dealer manager fees		—			—			(53,346,277	)		—			(53,346,277	)
Other offering costs		—			—			(4,599,965	)		—			(4,599,965	)
Redemptions of common stock		(226,944	)		(2,269	)		(2,176,280	)		—			(2,178,549	)
Stock compensation expense		—			—			25,494			—			25,494
Redeemable common stock		—			—			(18,138,603	)		—			(18,138,603	)
Net income		—			—			—			4,480,017			4,480,017

Balance, December 31, 2007		93,621,094		$	936,211		$	824,676,200		$	(44,525,546	)	$	781,086,865

The accompanying notes are an integral part of these consolidated financial statements.

F-7

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2007			2006			2005

Cash flows from operating activities:
Net income (loss)	$	4,480,017		$	1,345,996		$	(114,591	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		20,460,219			4,396,460			151,472
Amortization		11,000,568			2,630,841			89,793
Amortization of premiums on mortgage notes receivable		78,916			—			—
Stock compensation expense		25,494			53,913			—
Impairment of real estate assets		5,400,000			—			—
Net gain on disposal of rate lock deposits		(478,397	)		—			—
Changes in assets and liabilities:
Decrease in investment in real estate under direct financing leases		267,344			—			—
Rents and tenant receivables, net of allowance		(5,665,616	)		(2,396,534	)		(36,001	)
Prepaid expenses and other assets		(842,991	)		(269,945	)		(11,928	)
Accounts payable and accrued expenses		5,760,600			1,733,546			282,797
Deferred rent and other liabilities		2,879,887			367,198			36,199

Net cash provided by operating activities		43,366,041			7,861,475			397,741

Cash flows from investing activities:
Investment in real estate and related assets		(1,155,146,198	)		(278,576,503	)		(81,344,139	)
Investment in real estate under direct financing leases		(39,527,527	)		—			—
Acquired intangible lease assets		(190,400,789	)		(40,305,246	)		(10,497,499	)
Acquired below market lease intangibles		79,378,155			2,731,169			14,689
Investment in mortgage notes receivable		(51,120,374	)		—			—
Collection of mortgage loans receivable		232,172			—			—
Restricted cash		(8,192,883	)		(4,025,929	)		(1,813,804	)

Net cash used in investing activities		(1,364,777,444	)		(320,176,509	)		(93,640,753	)

Cash flows from financing activities:
Proceeds from issuance of common stock		609,840,644			274,710,551			28,109,121
Offering costs on issuance of common stock		(57,946,242	)		(26,586,715	)		(2,789,170	)
Redemptions of common stock		(2,178,549	)		—			—
Distributions to investors		(17,410,212	)		(3,554,073	)		—
Proceeds from mortgage and affiliate notes payable		855,019,450			168,764,469			72,084,404
Repayment of mortgage and affiliate notes payable		(53,894,166	)		(64,375,352	)		(827,363	)
Refund of loan deposits		16,333,592			1,936,000			—
Payment of loan deposits		(12,386,492	)		(5,903,100	)		—
Proceeds from rate lock termination		2,162,197			—			—
Escrowed investor proceeds liability		7,027,239			3,896,925			1,813,804
Deferred financing costs paid		(19,205,370	)		(3,582,325	)		(772,640	)

Net cash provided by financing activities		1,327,362,091			345,306,380			97,618,156

Net increase in cash and cash equivalents		5,950,688			32,991,346			4,375,144
Cash and cash equivalents, beginning of year		37,566,490			4,575,144			200,000

Cash and cash equivalents, end of year	$	43,517,178		$	37,566,490		$	4,575,144

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Dividends declared and unpaid	$	5,434,275		$	1,612,094		$	195,209

Mortgage notes assumed in real estate acquisitions	$	—		$	42,619,758		$	—

Mortgage notes payable from seller of mortgages receivable	$	36,290,338		$	—		$	—

Common stock issued through distribution reinvestment plan	$	20,317,152		$	3,521,256		$	—

Commissions and dealer manager fees due to affiliate	$	—		$	—		$	5,185

Supplemental Cash Flow Disclosures:
Interest paid	$	34,319,865		$	7,981,952		$	223,183

The accompanying notes are an integral part of these consolidated financial statements.

F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BUSINESS

Cole Credit Property Trust II, Inc. (the “Company”) is a Maryland corporation that was formed on September 29, 2004 to operate as a real estate investment trust (“REIT”) for federal income tax purposes. Substantially all of the Company’s business is conducted through Cole Operating Partnership II, LP (“Cole OP II”), a Delaware limited partnership. The Company is the sole general partner of and owns an approximately 99.99% partnership interest in Cole OP II. Cole REIT Advisors II, LLC (“Cole Advisors II”), the affiliate advisor to the Company, is the sole limited partner and owner of an approximately 0.01% (minority interest) of the partnership interests of Cole OP II.

At December 31, 2007, the Company owned 333 properties comprising approximately 11.3 million square feet of single and multi-tenant commercial space located in 43 states and the U.S. Virgin Islands. At December 31, 2007, the rentable space at these properties was approximately 99% leased. As of December 31, 2007, the Company also owned 69 mortgage notes receivable, aggregating approximately $87.1 million, secured by 43 restaurant properties and 26 single-tenant retail properties, each of which is subject to a net lease.

On June 27, 2005, the Company commenced an initial public offering on a “best efforts” basis of up to 45,000,000 shares of common stock offered at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to a Registration Statement on Form S-11 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Initial Offering”). The Registration Statement also covered up to 5,000,000 shares available pursuant to a distribution reinvestment plan (the “DRIP”) under which our stockholders may elect to have their distributions reinvested in additional shares of the Company’s common stock at the greater of $9.50 per share or 95% of the estimated value of a share of common stock. On November 13, 2006, the Company increased the aggregate amount of the public offering to 49,390,000 shares for the primary offering and 5,952,000 shares pursuant to the DRIP in a related Registration Statement on Form S-11. Subsequently, the Company reallocated the shares of common stock available such that a maximum of 54,140,000 shares of common stock was available under the primary offering for an aggregate offering price of approximately $541.4 million and a maximum of 1,202,000 shares was available under the DRIP for an aggregate offering price of approximately $11.4 million.

The Company commenced its principal operations on September 23, 2005, when it issued the initial 486,000 shares of its common stock in the Initial Offering. Prior to such date, the Company was considered a development stage company. The Company terminated the Initial Offering on May 22, 2007. As of the close of business on May 22, 2007, the Company had issued a total of 54,838,315 shares in the Initial Offering, including 53,909,877 shares sold in the primary offering and 928,438 shares sold pursuant to the DRIP, resulting in gross offering proceeds to the Company of approximately $547.4 million. At the completion of the Initial Offering, a total of 503,685 shares of common stock remained unsold, including 230,123 shares that remained unsold in the primary offering and 273,562 shares of common stock that remained unsold pursuant to the DRIP. All unsold shares in Initial Offering have been deregistered.

On May 23, 2007, the Company commenced its follow-on public offering of up to 150,000,000 shares of common stock (the “Follow-on Offering”) (collectively with the Initial Offering, the “Offerings”). The Follow-on Offering includes up to 125,000,000 shares to be offered for sale at $10.00 per share in the primary offering and up to 25,000,000 shares to be offered for sale pursuant to the Company’s DRIP. As of December 31, 2007, the Company had accepted subscriptions for 38,989,723 shares of its common stock in the Follow-on Offering, resulting in gross proceeds to the Company of approximately $389.1 million. Combined with the gross proceeds from the Initial Offering, the Company had aggregate gross proceeds from its offerings of approximately $936.5 million as of December 31, 2007, before offering costs, selling commissions, and dealer management fees of approximately $87.3 million. As of December 31, 2007, the Company was authorized to issue 10,000,000 shares of preferred stock, but had none issued or outstanding.

As of March 31, 2008, the Company had received approximately $1.2 billion in gross offering proceeds through the issuance of 116,473,675 shares of its common stock in its offerings. As of March 31, 2008,

F-9

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

approximately $659.3 million in shares (65.9 million shares) remained available for sale to the public, exclusive of shares available under the DRIP.

The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its common stock until its shares are listed for trading. In the event it does not obtain listing prior to May 22, 2017, its charter requires that it either: (1) seek stockholder approval of an extension or amendment of this listing deadline; or (2) seek stockholder approval to adopt a plan of liquidation of the corporation.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. These accounting policies conform to generally accepted accounting principles in the United States (“GAAP”), in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment in Real Estate Assets

Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to real estate assets consist of the cost of acquisition or construction and any tenant improvements or major improvements and betterments that extend the useful life of the related asset. All repairs and maintenance are expensed as incurred.

All assets are depreciated on a straight line basis. The estimate useful lives of our assets by class are generally as follows:


Building		40 years
Tenant improvements		Lesser of useful life or lease term
Intangible lease assets		Lesser of useful life or lease term

Impairment losses are recorded on long-lived assets used in operations, which includes the operating property, when indicators of impairment are present and the assets’ carrying amount is greater than the sum of the future undiscounted cash flows, excluding interest, estimated to be generated by those assets. The Company has identified one property with impairment indicators for which the undiscounted future cash flows expected from the use of the property and related intangible assets and their eventual disposition was less than the carrying value of the assets. As a result, the Company reduced the carrying value of the real estate and related intangible assets to their estimated fair value and recorded an impairment loss of $5.4 million during the year ended December 31, 2007. No impairment losses were recorded for the year ended December 31, 2006.

When a real estate asset is identified by management as held for sale, the Company ceases depreciation of the asset and estimates the sales price, net of selling costs. If, in management’s opinion, the net sales price of the asset is

F-10

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

less than the net book value of the asset, an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property.

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, the Company allocates the purchase price of such properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based in each case on their fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building).

The fair values of in-place leases include direct costs associated with obtaining a new tenant and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining term of the respective leases.

The determination of the fair values of the assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the Company’s purchase price allocations, which could impact the amount of its reported net income.

Real Estate Assets Held for Sale

As of December 31, 2007, the Company had one single-tenant commercial property classified as held for sale. The Company continually monitors the performance of its properties, including their demographics, potential current capital appreciation, and tenants and may identify properties to dispose based on such performance characteristics. During the quarter ended September 30, 2007, the Company identified one property based on such performance characteristics that it elected to market for sale. Therefore, as of September 30, 2007, the Company reclassified its consolidated statements of operations to reflect income and expenses for the property held for sale as discontinued operations and reclassified its consolidated balance sheets to reflect assets related to such property as held for sale.

On February 1, 2008, the property’s tenant filed for Chapter 11 bankruptcy protection and, as a result, the Company elected to no longer market the property for sale. Accordingly, the Company no longer classified the property as a discontinued operation within its consolidated statements of operations or its consolidated balance sheets at December 31, 2007. At December 31, 2007, no adjustment of the property’s carrying value has been recorded as the book value of the property held for sale did not exceed its estimated fair value. The Company

F-11

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

continues to evaluate the potential impact of the tenant’s bankruptcy on the property’s future operating results and its carrying value.

Investment in Direct Financing Leases

The Company evaluates the leases associated with its real estate properties in accordance with SFAS No. 13, “Accounting for Leases” (“SFAS 13”). For the real estate property leases classified as direct financing leases, the building portion of the property leases are accounted for as direct financing leases while the land portion of these leases are accounted for as operating leases. For the direct financing leases, we record an asset (net investment) representing the aggregate future minimum lease payments, estimated residual value of the leased property and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment. Residual values, which are reviewed quarterly, represent the estimated amount we expect to receive at lease termination from the disposition of leased property. Actual residual values realized could differ from these estimates. Write-downs of estimated residual value are recognized as permanent impairments in the current period.

Investment in Mortgage Notes Receivable

Mortgage notes receivable consist of loans acquired by the Company, which are secured by real estate properties. Mortgage notes receivable are recorded at stated principal amounts net of any discount or premium or deferred loan origination costs or fees. The related discounts or premiums on mortgage notes receivable purchased are amortized or accreted over the life of the related mortgage receivable. The Company defers certain loan origination and commitment fees, net of certain origination costs, and amortizes them as an adjustment of the mortgage notes receivable’s yield over the term of the related mortgage receivable. The Company evaluates the collectibility of both interest and principal on each mortgage note receivable to determine whether it is collectible. A mortgage note receivable is considered to be impaired, when based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a mortgage note receivable is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the mortgage note receivable’s effective interest rate or to the value of the underlying collateral if the mortgage note receivable is collateralized. Interest income on performing mortgage note receivable is accrued as earned. Interest income on impaired mortgage notes receivable is recognized on a cash basis. No impairment losses were recorded related to mortgage notes receivable for either of the years ended December 31, 2007 and 2006.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents.

Restricted Cash and Escrowed Investor Proceeds

The Company is currently engaged in a public offering of its common stock. Included in restricted cash is escrowed investor proceeds of approximately $12.7 million and approximately $5.7 million of offering proceeds for which shares of common stock had not been issued as of December 31, 2007 and 2006, respectively. Restricted cash also includes approximately $728,000 and $0 as of December 31, 2007 and 2006, which is restricted to fund capital expenditures for the Company’s real estate investment properties.

Rents and Tenant Receivables

Rents and tenant receivables primarily includes amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries from tenants. See “Revenue Recognition” below. The Company makes estimates of the uncollectability of its accounts receivable

F-12

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company’s reported net income is directly affected by management’s estimate of the collectability of accounts receivable. The Company records allowances for those balances that the Company deems to be uncollectible, including any amounts relating to straight-line rent receivables.

Prepaid Expenses and Other Assets

Prepaid expenses and other assets includes expenses incurred as of the balance sheet date that relate to future periods and will be expensed or reclassified to another account during the period to which the costs relate. Any amounts with no future economic benefit are charged to earnings when identified.

Deferred Financing Costs

Deferred financing costs are capitalized and amortized on a straight-line basis over the term of the related financing arrangement. Amortization of deferred financing costs for the years ended December 31, 2007, 2006 and 2005, was approximately $1.9 million, approximately $548,000 and approximately $18,000, respectively, and was recorded in interest expense in the consolidated statements of operations.

Revenue Recognition

Upon the acquisition of real estate, certain properties have leases where minimum rent payments increase during the term of the lease. The Company records rental revenue for the full term of each lease on a straight-line basis. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. The Company defers the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in tenant reimbursement income in the period the related costs are incurred.

Income Taxes

The Company is taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. The Company generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, and so long as it distributes at least 90% of its REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.

Concentration of Credit Risk

As of December 31, 2007, the Company had cash on deposit in three financial institutions, which was approximately $43.3 million, approximately $12.6 million and approximately $33,000, respectively, in excess of federally insured levels; however, the Company has not experienced any losses in such account. The Company limits investment of cash investments to financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk on cash.

As of December 31, 2007, no single tenant accounted for more than 10% of the Company’s gross annualized base rental revenues. Tenants in the drugstore, specialty retail, and sporting goods industries comprise approximately 15%, approximately 14%, and approximately 11%, respectively, of the Company’s gross annualized base rental revenues for the year ended December 31, 2007. As of December 31, 2006, no single tenant accounted for

F-13

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

more than 10% of the Company’s gross annualized base rental revenues. Tenants in the drugstore, specialty retail and automotive supply industries comprise approximately 25%, approximately 12% and approximately 11%, respectively, of the Company’s gross annualized base rental revenues for the year ended December 31, 2006. Additionally, the Company has certain geographic concentration in our property holdings. In particular, as of December 31, 2007, 37 of the Company’s properties were located in Texas and 15 of the Company’s properties were located in Illinois, accounting for approximately 16% and approximately 13% of Company’s 2007 gross annualized base rental revenues, respectively. As of December 31, 2006, nine of the Company’s properties were located in Texas and five of the Company’s properties were located in Kansas, accounting for approximately 11% and approximately 9% of the Company’s 2006 gross annualized base rental revenues, respectively.

Offering and Related Costs

Cole Advisors II funds all of the organization and offering costs on the Company’s behalf and is reimbursed for such costs up to 1.5% of gross proceeds from the Offerings, excluding selling commissions and the dealer-manager fee. As of December 31, 2007 and 2006, Cole Advisors II had incurred organization and offering costs of approximately $4.6 million and approximately $3.8 million, respectively, on behalf of the Company, of which, all were reimbursable by the Company. The offering costs, which include items such as legal and accounting fees, marketing, and promotional printing costs, are recorded as a reduction of capital in excess of par value along with sales commissions and dealer manager fees of 7% and 2%, respectively. Organization costs are expensed as incurred. No organization costs were expensed during the year ended December 31, 2007 and approximately $57,000 of organization costs was expensed during the year ended December 31, 2006.

Due to Affiliates

As of December 31, 2007, the amount due to affiliates primarily consisted of approximately $743,000 due to Cole Realty Advisors for acquisition fees incurred, approximately $350,000 due to Cole Advisors II for finance coordination fees incurred, and approximately $383,000 due to Cole Advisors II for offering costs incurred. As of December 31, 2006, due to affiliates consisted of approximately $47,000 due to Cole Advisors II for reimbursement of organization and offering costs and approximately $20,000 due to an affiliate of Cole Advisors II for reimbursement of certain loan costs.

Stockholders’ Equity

As of each of December 31, 2007 and 2006 the Company was authorized to issue 240,000,000 shares of common stock and 10,000,000 shares of preferred stock. All shares of such stock have a par value of $.01 per share. The Company’s board of directors may authorize additional shares of capital stock and amend its terms without obtaining stockholder approval.

The par value of investor proceeds raised from the Offerings is classified as common stock, with the remainder allocated to capital in excess of par value. The Company’s share redemption program provides that all redemptions during any calendar year, including those upon death or qualifying disability, are limited to those that can be funded with proceeds raised from the DRIP. In accordance with Accounting Series Release No. 268, “Presentation in Financial Statements of Redeemable Preferred Stock,” the Company accounts for the proceeds received from its DRIP outside of permanent equity for future redemption of shares. During the years ended December 31, 2007 and 2006, proceeds of approximately $20.3 million and approximately $3.5 million were received from the DRIP, respectively, were recorded as redeemable common stock in the respective consolidated balance sheets. As of December 31, 2007, the Company had redeemed 226,944 shares under its share redemption program. As of December 31, 2006, the Company had redeemed no shares under its share redemption program.

F-14

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Earnings Per Share

Earnings per share are calculated based on the weighted average number of common shares outstanding during each period. Diluted income per share considers the effect of all potentially dilutive share equivalents, including outstanding employee stock options. See Note 13.

Stock Options

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options related to the 2004 Independent Directors Stock Option Plan (“IDSOP”) (see Note 13), based on estimated fair values. The Company adopted SFAS 123R using the modified prospective application. Accordingly, prior period amounts were not restated. As of December 31, 2007, there were 30,000 stock options outstanding under the IDSOP at a weighted average exercise price of $9.13 per share. As of December 31, 2006, there were 20,000 stock options outstanding under the IDSOP at a weighted average exercise price of $9.15 per share

Reportable Segments

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” which establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company determined that it has two operating segments, (i) commercial properties and (ii) mortgage notes receivable. Commercial properties consist of activities related to investing in real estate including retail, office, and distribution properties. The Company’s commercial properties generate rental revenue and other income through the leasing of the properties, which comprised 98.7%, 100% and 100% of the Company’s total consolidated revenues the years ended December 31, 2007, 2006 and 2005, respectively. Although the Company’s commercial properties are geographically diversified throughout the United States, management evaluates operating performance on an individual property level, therefore the Company’s properties have been aggregated into one reportable segment. In addition, the Company has not presented separate financial information for the investment in mortgages receivable because its results of operations are not material to the Company’s consolidated financial statements as a whole. For the year ended December 31, 2007, the interest income from investment in mortgage notes receivable accounted for 1.2% of the consolidated revenue. For the year ended December 31, 2007, net income from investment in mortgage notes receivable accounted for 3.8% of consolidated net income. Mortgage notes receivable, net of related notes payable accounted for less than 1% of consolidated assets as of December 31, 2007. There were no mortgages receivable, or related interest income, recorded during the year ended December 31, 2006.

Interest

Interest is charged to interest expense as it accrues. No interest costs were capitalized during the years ended December 31, 2007 and 2006.

Distributions Payable and Distribution Policy

In order to maintain its status as a REIT, the Company is required to make distributions each taxable year equal to at least 90% of its REIT taxable income excluding capital gains. To the extent funds are available, the Company intends to pay regular quarterly distributions to stockholders. Distributions are paid to those stockholders who are stockholders of record as of applicable record dates.

During January 2008, our board of directors declared a daily distribution of $0.00191781 per share for stockholders of record as of the close of business on each day of the period commencing on January 1, 2008 and ending on March 31, 2008. The monthly distributions were calculated to be equivalent to an annualized distribution

F-15

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of seven percent (7.0%) per share, assuming a purchase price of $10.00 per share. As of December 31, 2007, the Company had distributions payable of approximately $5.4 million. The distributions were paid in January 2007, of which approximately $3.0 million was reinvested in shares through our distribution reinvestment program.

Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 became effective for the Company on January 1, 2007 and its adoption did not have a material impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. During February 2008, the FASB issued a Staff Position that will (i) partially defer the effective date of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancial liabilities and (ii) remove certain leasing transactions from the scope of SFAS No. 157. The Company has not determined what impact, if any, the adoption of SFAS No. 157 will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows entities to choose to measure eligible financial instruments at fair value with changes in fair value recognized in earnings of each subsequent reporting date. The fair value election is available for most financial assets and liabilities on an instrument-by-instrument basis and is to be elected on the date of the financial instrument is initially recognized. SFAS 159 is effective for all entities as of the beginning of a reporting entity’s first fiscal year that begins after November 15, 2007 (with earlier application permitted under certain circumstances). The Company did not choose to take the fair value election allowed by the standard.

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Guide”). Entities that are within the scope of the Guide are required, among other things, to carry their investments at fair value, with changes in fair value include in earnings. In October 2007, the FASB indefinitely deferred the provisions of SOP 07-1.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB 51” (“SFAS No. 160”). This statement amends ARB 51 and revises accounting and reporting requirements for noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of a subsidiary. Upon its adoption, January 1, 2009 for the Company, noncontrolling interest will be classified as equity, and income attributed to the noncontrolling interest will be included in the Company’s income. The provisions of this standard are applied retrospectively upon adoption. The Company is currently evaluating the impact of adopting SFAS No. 160 on the consolidated financial statements; however, the Company does not expect it to have a material impact on the consolidated results.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) clarifies and amends the accounting guidance for how an acquirer in

F-16

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

a business combination recognizes and measurers the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree. The provisions of SFAS No. 141(R) are effective for the Company for any business combinations occurring on or after December 15, 2008. The Company has not determined what impact, if any, the adoption of SFAS No. 141 (R) will have on its consolidated financial statements.

NOTE 3 — INVESTMENT IN DIRECT FINANCING LEASES

The Company evaluates the leases associated with its real estate properties in accordance with SFAS 13. For the real estate property leases classified as direct financing leases, the building portion of the property leases are accounted for as direct financing leases while the land portion of these leases are accounted for as operating leases. For the direct financing leases, we record an asset (net investment) representing the aggregate future minimum lease payments, estimated residual value of the leased property and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment. Residual values, which are reviewed quarterly, represent the estimated amount we expect to receive at lease termination from the disposition of leased property. Actual residual values realized could differ from these estimates. Write-downs of estimated residual value are recognized as permanent impairments in the current period. There were no write-downs recognized during the years ended December 31, 2007 and 2006.

The components of investment in direct financing leases as of December 31, 2007 and 2006 were as follows:


	December 31,
	2007			2006

Minimum lease payments receivable	$	26,862,088		$	—
Estimated residual value of leased assets		29,695,737			—
Deferred incremental direct costs		—			—
Unearned income		(17,297,642	)		—

Total	$	39,260,183		$	—

A summary of minimum lease future rentals, exclusive of any renewals, under the non-cancelable direct financing leases in existence at December 31, 2007 is as follows:


	Amount

Year ending December 31:
2008	$	2,814,172
2009		2,821,326
2010		2,847,953
2011		2,885,052
2012		2,936,275
Thereafter		12,557,310

Total	$	26,862,088

NOTE 4 — REAL ESTATE ACQUISITIONS

During the year ended December 31, 2007, the Company acquired a 100% interest in 242 commercial properties for an aggregate purchase price of approximately $1.3 billion, including acquisition costs of approximately $32.5 million. The Company financed the acquisitions through the issuance and assumption of approximately $820.0 million of mortgage loans generally secured by the individual properties. The Company allocated the purchase price of these properties, including aggregate acquisition costs, to the fair value of the assets acquired and liabilities assumed. The Company allocated approximately $306.7 million to land, approximately

F-17

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$848.2 million to building and improvements, approximately $158.6 million to acquired in-place leases, approximately $39.5 million to investment in direct financing leases, approximately $79.4 million to acquired below-market leases and approximately $31.8 million to acquired above-market leases during the year ended December 31, 2007. Additionally, during the year ended December 31, 2007 the Company capitalized approximately $232,000 of expenditures relating to building and improvements, which will be depreciated over the estimated useful life of each asset.

During the year ended December 31, 2006, the Company acquired a 100% interest in 77 commercial properties for an aggregate purchase price of approximately $358.8 million, including acquisition costs of approximately $7.9 million. The Company financed the acquisitions through the issuance and assumption of approximately $213.2 million of mortgage loans generally secured by the individual properties. The Company allocated the purchase price of these properties, including aggregate acquisition costs, to the fair value of the assets acquired and liabilities assumed. The Company allocated approximately $85.7 million to land, approximately $229.5 million to building and improvements, approximately $46.3 million to acquired in-place leases, approximately $2.7 million to acquired below-market leases and approximately $42.6 million related to debt assumed on properties acquired during the year ended December 31, 2006.

NOTE 5 — INTANGIBLE LEASE ASSETS

Identified intangible lease assets consisted of the following:


	December 31,
	2007		2006

Acquired in place leases, net of accumulated amortization of $11,737,401 and $2,142,845 at December 31, 2007 and 2006, respectively (with a weighted average life of 185 and 159 months for in-place leases, respectively)	$	196,320,176	$	51,939,520
Acquired above market leases, net of accumulated amortization of $1,188,267 and $108,327 at December 31, 2007 and 2006, respectively (with a weighted average life of 183 and 162 months for acquired above market leases, respectively)		32,470,792		2,629,503

	$	228,790,968	$	54,569,023

Amortization expense recorded on the identified intangible assets, for each of fiscal years ended December 31, 2007, 2006 and 2005, was approximately $11.0 million, approximately $2.2 million, and approximately $72,000, respectively.

Estimated amortization expense of the respective intangible lease assets as of December 31, 2007 for each of the five succeeding fiscal years is as follows:


	Amount
Year	Lease In-Place		Above Market Lease

2008	$	16,624,480	$	2,589,037
2009	$	16,139,689	$	2,544,663
2010	$	15,573,587	$	2,464,677
2011	$	15,325,819	$	2,427,407
2012	$	15,087,176	$	2,404,833

NOTE 6 — MORTGAGE NOTES RECEIVABLE ACQUISITIONS

During the year ended December 31, 2007, the Company acquired a portfolio of 23 mortgage notes receivable with an aggregate face value of approximately $45.0 million, which are secured by 23 restaurant properties, and a

F-18

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

portfolio of 46 mortgage notes receivable with an aggregate face amount of approximately $33.3 million secured by 20 restaurant properties and 26 retail properties (collectively, the “Mortgage Notes”). The receivable balance of approximately $87.1 million as of December 31, 2007 consists of the face value of the notes of approximately $78.3 million, an approximately $6.9 million premium, and approximately $1.9 million of acquisition costs, net of accumulated amortization of approximately $79,000. The premium and acquisition costs will be amortized over the terms of the respective mortgage notes using the effective interest rate method. The Mortgage Notes mature on various dates from August 1, 2020 to January 1, 2021. Interest and principal is due each month at interest rates ranging from 8.60% to 10.47% per annum.

NOTE 7 — MORTGAGE NOTES PAYABLE

As of December 31, 2007, the Company had 171 mortgage notes payable totaling approximately $1.1 billion. As of December 31, 2007, the Company had 166 mortgage notes payable totaling approximately $940.9 million, in connection with real estate assets, with interest rates ranging from 5.15% to 6.88% with a weighted average interest rate of approximately 5.85% (the “Fixed Rate Debt”). The Fixed Rate Debt matures on various dates from July 2008 through October 2018. Each of the mortgage notes are secured by the respective property. The mortgage notes are generally non-recourse to the Company and Cole Op II, but both are liable for customary non-recourse carveouts.

As of December 31, 2007, the Company had approximately $43.5 million outstanding under three revolving lines of credit. During the year ended December 31, 2007, the Company borrowed an aggregate of approximately $72.2 million and subsequently repaid approximately $28.7 million on the revolving lines of credit to partially fund certain of the real estate acquisitions described in Note 4. The revolving lines of credit bear interest at variable rates equal to the one-month LIBOR plus 150 to 200 basis points and mature on various dates from January 2008 to September 2008. As of December 31, 2007, no amounts were available under the three revolving lines of credit. The Company repaid approximately $22.2 million on two revolving lines of credit in January 2008.

As of December 31, 2007, the Company had approximately $71.3 million of short-term variable rate debt, which bears interest at variable rates equal to the one-month LIBOR rate plus 200 to 275 basis points. Approximately $36.3 million was secured by certain real estate properties and approximately $35.0 million was secured by certain mortgage notes receivable. Both notes matured and were repaid in March 2008.

On March 2, 2007, the Company repaid a fixed rate mortgage note of approximately $5.2 million that was due on October 1, 2016. As a result, approximately $113,000 of unamortized deferred financing costs was expensed and included in interest expense in the consolidated financial statements for year ended December 31, 2007.

As of December 31, 2006, the Company had 71 mortgage notes payable totaling approximately $218.3 million, of which approximately $215.6 million was fixed rate debt with interest rates ranging from 5.15% to 6.31% with a weighted average interest rate of approximately 5.72%. The Company also had approximately $2.7 million of short-term variable rate debt outstanding at December 31, 2006.

Generally, the Fixed Rate Debt may not be prepaid, in whole or in part, except under the following circumstances: (i) full prepayment may be made on any of the three (3) monthly payment dates occurring immediately prior to the maturity date, and (ii) partial prepayments resulting from the application of insurance or condemnation proceeds to reduce the outstanding principal balance of the mortgage notes. Notwithstanding the prepayment limitations, the Company may sell the properties to a buyer that assumes the respective mortgage loan. The transfer would be subject to the conditions set forth in the individual property’s mortgage note document, including without limitation, the lender’s approval of the proposed buyer and the payment of the lender’s fees, costs and expenses associated with the sale of the property and the assumption of the loan.

In the event that a mortgage note is not paid off on the respective maturity date, most mortgage note includes hyperamortization provisions. The interest rate during the hyperamortization period shall be the fixed interest rate as stated on the respective mortgage note agreement plus two percent (2.0%). The individual mortgage note maturity date, under the hyperamortization provisions, will be extended by twenty (20) years. During such period,

F-19

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the lender will apply 100% of the rents collected to (i) all payments for escrow or reserve accounts, (ii) payment of interest at the original fixed interest rate, (iii) payments for the replacement reserve account, (iv) any other amounts due in accordance with the mortgage note agreement other than any additional interest expense, (v) any operating expenses of the property pursuant to an approved annual budget, (vi) any extraordinary expenses, (vii) payments to be applied to the reduction of the principal balance of the mortgage note, and (viii) any additional interest expense, which is not paid will be added to the principal balance of the mortgage note.

The following table summarizes the scheduled aggregate principal repayments for the five years subsequent to December 31, 2007:


	Principal
	Repayments

For the year ending December 31:
2008	$	125,297,353
2009		1,069,917
2010		17,808,720
2011		40,261,492
2012		45,286,607
Thereafter		825,957,449

Total	$	1,055,681,538

The variable rate mortgages approximate fair market value. The fair value of our fixed rate mortgage notes payable at December 31, 2007 approximates $1.0 billion.

Related party notes

On February 10, 2006, Cole OP II borrowed approximately $4.7 million from Series B, LLC (“Series B”), an affiliate of the Company and the Company’s advisor, by executing a promissory note which was secured by membership interest held by Cole OP II in a wholly-owned subsidiary. The loan proceeds were used to acquire a property with a purchase price of approximately $5.9 million, exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate plus 200 basis points with monthly interest-only payments, and the outstanding principal and accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally non-recourse to Cole OP II and could be prepaid at any time without penalty or premium. The Company’s board of directors, including all of the independent directors, approved the loan and determined that its terms were no less favorable to the Company than loans between unaffiliated third parties under the same circumstances. Cole OP II repaid the note in full in May 2006.

On February 6, 2006, Cole OP II borrowed approximately $2.3 million from Series C by executing a promissory note which was secured by membership interest held by Cole OP II in a wholly-owned subsidiary. The loan proceeds were used to acquire a property with a purchase price of approximately $18.5 million, exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate plus 200 basis points with monthly interest-only payments, and the outstanding principal and accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally non recourse to Cole OP II and could be prepaid at any time without penalty or premium. The Company’s board of directors, including all of the independent directors, approved the loan and determined that its terms were no less favorable to the Company than loans between unaffiliated third parties under the same circumstances. Cole OP II repaid the note in full in April 2006.

On December 15, 2005, Cole OP II borrowed approximately $2.5 million and approximately $2.0 million from Series C, LLC (“Series C”), which is an affiliate of the Company and the Company’s advisor, by executing two promissory notes which were secured by membership interests held by Cole OP II in two wholly-owned subsidiaries. Each of the loans had a variable interest rate based on the one-month LIBOR rate plus 200 basis

F-20

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

points with monthly interest-only payments, and the outstanding principal and accrued and unpaid interest payable in full on June 30, 2006. Each of the loans was generally non recourse to Cole OP II and could be prepaid at any time without penalty or premium. The Company’s board of directors, including a majority of its independent directors, approved the loans and determined that the terms of the loans were no less favorable to the Company than loans between unaffiliated third parties under the same circumstances. Cole OP II repaid the notes in full in April 2006.

During the year ended December 31, 2007, no interest expense was incurred for related party transactions. During the years ended December 31, 2006 and 2005 Cole OP II incurred approximately $210,000 and approximately $13,000, respectively, in interest expense to affiliates under the aforementioned loans.

NOTE 8 — INTANGIBLE LEASE LIABILITY

Identified intangible liability relating to the real estate acquisitions discussed in Note 4 consisted of the following:


	December 31,
	2007		2006

Acquired below — market leases, net of accumulated amortization of $2,083,475 and $96,484 at December 31, 2007 and 2006, respectively (with a weighted average life of 199 and 144 months, respectively)	$	80,031,916	$	2,649,374

Amortization income recorded on the identified intangible liability, for each of fiscal years ended December 31, 2007, 2006 and 2005 was $2.0 million, $96,000 and $52, respectively.

Estimated amortization income of the respective intangible lease liability as of December 31, 2007 for each of the five succeeding fiscal years is as follows:


	Amount
	Below
Year	Market Lease

2008	$	5,897,599
2009	$	5,835,949
2010	$	5,681,524
2011	$	5,584,089
2012	$	5,499,927

NOTE 9 — EXTENDED RATE LOCK AGREEMENTS

The Company entered into Extended Rate Lock Agreements with Bear Stearns Commercial Mortgage, Inc. (“Bear Stearns”), JP Morgan Chase Bank, N.A. (“JP Morgan”), Wachovia Bank, and Wells Fargo Bank, N.A. (“Wells Fargo”) (the “Rate Locks”) to lock interest rates ranging from 5.49% to 6.69% for up to approximately $647.8 million in borrowings. Under the terms of Rate Locks, the Company made rate lock deposits totaling approximately $12.4 million to Bear Stearns, JP Morgan, Wachovia and Wells Fargo. As of December 31, 2007, the Company had no available borrowings under the Rate Locks and no rate lock deposits outstanding.

The Company had approximately $3.9 million in rate lock deposits outstanding at December 31, 2006, which are reflected as Mortgage Loan Deposits and recorded in “Prepaid Expenses, Mortgage Loan Deposits, and Other Assets” on the Company’s consolidated balance sheet and statement of cash flows.

The rate lock deposits are refundable to the Company on an allocable basis with respect to any loans funded under the agreements. The Rate Locks expire 60 days from execution. The agreements may be extended by intervals of 30 days, up to 180 days, for a rate lock fee of 0.25% of the loan amount or, at the Company’s election, by converting the fee into interest rate spread. Either party may terminate the agreement upon notice to the other party

F-21

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

at any time prior to the determination of the rate and the rate locked amount in accordance with the terms of the agreement. In the event the Company wishes to terminate and cancel a Rate Locks agreement, subsequent to the determination of the rate and the rate locked amount, and the Company has satisfied all of the obligations set forth in the agreement, including the payment of any and all hedge breakage costs, and Bear Stearns, JP Morgan, or Wachovia (the “Lenders”) has realized a net gain on any hedges entered into by the Lenders relating to the Rate Lock, then Lenders will remit one-half of such net gain to the Company. The Company will be liable to the Lenders for 100% of any net hedge break loss incurred by the Lenders on terminated rate locks. Wells Fargo will retain the rate lock deposit as consideration for locking the rate on terminated rate locks.

On August 10, 2007, the Company terminated its rate lock agreement with Bear Stearns, which fixed interest rates for the remaining unallocated borrowings of up to approximately $275.8 million. As a result, approximately $5.7 million in rate lock deposits was refunded to the Company. In accordance with the terms of the rate lock agreements, the Company earned a rate lock breakage gain of approximately $2.2 million. In addition, the Company expensed previously deferred financing costs of approximately $1.7 million relating to the remaining unallocated borrowings. The net gain of approximately $478,000 is included in interest and other income on the condensed consolidated statements of operations.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. There are no material pending legal proceedings known to be contemplated against us.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may be potentially liable for costs and damages related to environmental matters. During the year ended December 31, 2007, the Company acquired certain properties which are subject to environmental remediation. In each case, the seller, the tenant and/or another third party has been identified as the responsible party for environmental remediation costs related to the property. Additionally, in connection with the purchase of certain of the properties, the respective sellers and/or tenants have indemnified the Company against future remediation costs. The Company does not believe that the environmental matters identified at such properties will have a material adverse effect on its consolidated results of operations, nor is it aware of any environmental matters at other properties which it believes will have a material adverse effect on its consolidated results of operations.


NOTE 11 —	RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Certain affiliates of the Company receive, and will continue to receive fees and compensation in connection with the Offerings, and the acquisition, management and sale of the assets of the Company. Cole Capital receives, and will continue to receive, a selling commission of up to 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. Cole Capital reallows, and intends to continue to reallow 100% of commissions earned to participating broker-dealers. In addition, Cole Capital will receive up to 1.5% of gross proceeds from the Offerings, excluding selling commissions and the dealer manager fee. Cole Capital, in its sole discretion, may reallow all or a portion of its dealer-manager fee to such participating broker-dealers as a marketing and due diligence expense reimbursement, based on such factors as the volume of shares sold by such participating broker-dealers and marketing support incurred as compared to those of other participating broker-dealers. No selling commissions or dealer-manager fees are paid to Cole Capital in respect to shares sold under the DRIP. During the years ended December 31, 2007, 2006 and 2005, the Company paid approximately $53.3 million, approximately $23.3 million and approximately $2.4 million to Cole Capital for commissions and dealer manager fees, of which approximately $45.4 million, approximately $20.0 million and approximately $2.0 million was reallowed to participating broker-dealers.

F-22

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All organization and offering expenses associated with the sale of the Company’s common stock (excluding selling commissions and the dealer-manager fee) are paid for by Cole Advisors II or its affiliates and are reimbursed by the Company up to 1.5% of gross offering proceeds. Cole Advisors II or its affiliates also receive acquisition and advisory fees of up to 2% of the contract purchase price of each asset for the acquisition, development or construction of real property and will be reimbursed for acquisition costs incurred in the process of acquiring properties, but not to exceed 4.0% of the contract purchase price. The Company expects the acquisition expenses to be approximately 0.5% of the purchase price of each property. During the years ended December 31, 2007, 2006 and 2005, the Company reimbursed the Advisor approximately $4.6 million, approximately $3.4 million and approximately $421,000, respectively, for organizational and offering expenses in the Offerings, of which $0, approximately $57,000 and approximately $2,000, respectively, was expensed as organization costs. During the years ended December 31, 2007, 2006 and 2005, the Company paid Cole Realty Advisors approximately $26.9 million, approximately $5.8 million and approximately $1.7 million, respectively, for acquisition fees.

If Cole Advisors II provides services, as determined by the independent directors, in connection with the origination or refinancing of any debt financing obtained by the Company that is used to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay Cole Advisors II or its affiliates a financing coordination fee equal to 1% of the amount available under such financing; provided however, that Cole Advisors II or its affiliates shall not be entitled to a financing coordination fee in connection with the refinancing of any loan secured by any particular property that was previously subject to a refinancing in which Cole Advisors II or its affiliates received such a fee. Financing coordination fees payable from loan proceeds from permanent financing will be paid to Cole Advisors II or its affiliates as the Company acquires such permanent financing. However, no acquisition fees will be paid on loan proceeds from any line of credit until such time as all net offering proceeds have been invested by the Company. During the years ended December 31, 2007, 2006 and 2005, the Company paid Cole Advisors II or its affiliates approximately $8.0 million, approximately $1.8 million and approximately $320,000, respectively, for finance coordination fees.

The Company pays, and expects to continue to pay, Cole Realty Advisors, its affiliated property manager, fees for the management and leasing of the Company’s properties. Such fees currently equal, and are expected to continue to equal (i) 2.0% of gross revenues from its single tenant properties and (ii) 4.0% of gross revenues from its multi-tenant properties, plus leasing commissions at prevailing market rates; provided however, that the aggregate of all property management and leasing fees paid to affiliates plus all payments to third parties will not exceed the amount that other nonaffiliated management and leasing companies generally charge for similar services in the same geographic location. Cole Realty Advisors may subcontract its duties for a fee that may be less than the fee provided for in the property management agreement. During the years ended December 31, 2007, 2006 and 2005, the Company paid Cole Realty Advisors approximately $1.6 million, approximately $350,000 and approximately $14,000, respectively, for property management fees.

The Company pays Cole Advisors II an annualized asset management fee of 0.25% of the aggregate asset value of the Company’s assets (the “Asset Management Fee”). The fee is payable monthly in an amount equal to 0.02083% of aggregate asset value as of the last day of the immediately preceding month. During the years ended December 31, 2007, 2006 and 2005, the Company paid asset management fees to Cole Advisors II of approximately $2.6 million, approximately $587,000 and approximately $25,000, respectively.

If Cole Advisors II or its affiliates provides a substantial amount of services, as determined by the Company’s independent directors, in connection with the sale of one or more properties, the Company will pay Cole Advisors II up to one-half of the brokerage commission paid, but in no event to exceed an amount equal to 2% of the sales price of each property sold. In no event will the combined real estate commission paid to Cole Advisors II, its affiliates and unaffiliated third parties exceed 6% of the contract sales price. In addition, after investors have received a return of their net capital contributions and an 8% annual cumulative, non-compounded return, then Cole Advisors II is

F-23

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

entitled to receive 10% of the remaining net sale proceeds. During the years ended December 31, 2007, 2006 and 2005, the Company did not pay any fees or amounts to Cole Advisors II relating to the sale of properties.

Upon listing of the Company’s common stock on a national securities exchange, a fee equal to 10% of the amount by which the market value of the Company’s outstanding stock plus all distributions paid by the Company prior to listing, exceeds the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 8% annual cumulative, non-compounded return to investors will be paid to Cole Advisors II (the “Subordinated Incentive Listing Fee”).

Upon termination of the advisory agreement with Cole Advisors II, other than termination by the Company because of a material breach of the advisory agreement by Cole Advisors II, a performance fee of 10% of the amount, if any, by which (i) the appraised asset value at the time of such termination plus total distributions paid to stockholders through the termination date exceeds (ii) the aggregate capital contribution contributed by investors less distributions from sale proceeds plus payment to investors of an 8% annual, cumulative, non-compounded return on capital. No subordinated performance fee will be paid if the Company has already paid or become obligated to pay Cole Advisors II a Subordinated Incentive Listing Fee.

The Company will reimburse Cole Advisors II for all expenses it paid or incurred in connection with the services provided to the Company, subject to the limitation that the Company will not reimburse for any amount by which it’s operating expenses (including the Asset Management Fee) at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of average invested assets, or (ii) 25% of net income other than any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of assets for that period. The Company will not reimburse for personnel costs in connection with services for which Cole Advisors II receives acquisition fees or real estate commissions. During the year ended December 31, 2007, the Company reimbursed approximately $672,000 to Cole Advisors II. During the years ended December 31, 2006, and 2005, the Company did not reimburse Cole Advisors II for any such costs.

On February 10, 2006, Cole OP II borrowed approximately $4.7 million from Series B, an affiliate of the Company and the Company’s advisor, by executing a promissory note which was secured by the membership interest held by Cole OP II in a wholly-owned subsidiary. The loan proceeds were used to acquire a property with a purchase price of approximately $5.9 million, exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate plus 200 basis points with monthly interest-only payments, and the outstanding principal and accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally non-recourse to Cole OP II and could be prepaid at any time without penalty or premium. The Company’s board of directors, including all of the independent directors, approved the loan and determined that its terms were no less favorable to the Company than loans between unaffiliated third parties under the same circumstances. Cole OP II repaid the note in full in May 2006.

On February 6, 2006, Cole OP II borrowed approximately $2.3 million from Series C, an affiliate of the Company and the Company’s advisor, by executing a promissory note which was secured by the membership interest held by Cole OP II in a wholly-owned subsidiary. The loan proceeds were used to acquire a property with a purchase price of approximately $18.5 million, exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate plus 200 basis points with monthly interest-only payments, and the outstanding principal and accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally non recourse to Cole OP II and could be prepaid at any time without penalty or premium. The Company’s board of directors, including all of the independent directors, approved the loan and determined that its terms were no less favorable to the Company than loans between unaffiliated third parties under the same circumstances. Cole OP II repaid the note in full in April 2006.

On December 15, 2005, Cole OP II borrowed approximately $2.5 million and approximately $2.0 million from Series C by executing two promissory notes which are secured by the membership interests held by Cole OP II in two wholly-owned subsidiaries, respectively. Each of the loans has a variable interest rate based on the one-month

F-24

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

LIBOR rate plus 200 basis points with monthly interest-only payments, and the outstanding principal and accrued and unpaid interest payable in full on June 30, 2006. Each of the loans is generally non recourse to Cole OP II and may be prepaid at any time without penalty or premium. The Company’s board of directors, including a majority of its independent directors, approved the loans and determined that the terms of the loans are no less favorable to the Company than loans between unaffiliated third parties under the same circumstances. Cole OP II repaid the notes in full in April 2006.

Cole OP II incurred no interest expense to affiliates during the year ended December 31, 2007. During the years ended December 31, 2006 and 2005 Cole OP II incurred approximately $210,000 and approximately $13,000, respectively, in interest expense to affiliates under the aforementioned loans.

During the year ended December 31, 2007, Cole OP II acquired no properties from affiliates of the Company or the Company’s advisor. During the year ended December 31, 2006, Cole OP II acquired the following properties from various affiliates of the Company and the Company’s advisor. The acquisitions were funded by net proceeds from the Company’s Offering and the assumption of loans secured by the respective properties.

Acquisition

Purchase

Loan

Property Description

Date

Location

Seller

Price

Assumed

Wawa — convenience store

March 29, 2006

Hockessin, DE

Series A, LLC

4,830,000

(1)

2,598,068

Wawa — convenience store

March 29, 2006

Manahawkin, NJ

Series A, LLC

4,414,000

(1)

2,374,301

Wawa — convenience store

March 29, 2006

Narberth, PA

Series A, LLC

4,206,000

(1)

2,262,417

Conns — appliance retailer

May 26, 2006

San Antonio, TX

Series D, LLC

4,624,619

(2)

3,580,000

Rite Aid — drugstore

May 26, 2006

Defiance, OH

Cole Acquisitions I, LLC

4,326,165

(2)

2,321,000

CVS — drugstore

May 26, 2006

Madison, MS

Cole Acquisitions I, LLC

4,463,088

(2)

2,809,000

CVS — drugstore

June 28, 2006

Portsmouth, OH

Cole Acquisitions I, LLC

2,101,708

(2)

1,753,000

CVS — drugstore

July 7, 2006

Okeechobee, FL

Cole Acquisitions I, LLC

6,459,262

(2)

4,076,000

Office Depot — office supply

July 7, 2006

Dayton, OH

Cole Acquisitions I, LLC

3,416,526

(2)

2,130,000

Advance Auto — specialty retailer

July 12, 2006

Holland, MI

Cole Acquisitions I, LLC

2,071,843

(2)

1,193,000

Advance Auto — specialty retailer

July 12, 2006

Holland Township, MI

Cole Acquisitions I, LLC

2,137,244

(2)

1,231,000

Advance Auto — specialty retailer

July 12, 2006

Zeeland, MI

Cole Acquisitions I, LLC

1,840,715

(2)

1,057,000

CVS — drugstore

July 12, 2006

Orlando, FL

Series D, LLC

4,956,763

(2)

3,016,000

Office Depot — office supply

July 12, 2006

Greenville, MS

Cole Acquisitions I, LLC

3,491,470

(2)

2,192,000

Office Depot — office supply

July 19, 2006

Warrensburg, MO

Series D, LLC

2,880,552

(2)

1,810,000

CVS — drugstore

August 10, 2006

Gulfport, MS

Cole Acquisitions I, LLC

4,414,117

(2)

2,611,000

60,634,072

37,013,786


(1)		The Company’s board of directors, including all of the independent directors, approved the transaction as being fair and reasonable to the Company, at a price in excess of the cost to Series A, LLC, but substantial justification exists for such excess, such excess is reasonable and the costs of the interest did exceed its current fair market value as determined by an independent expert selected by the Company’s independent directors.

(2)		The Company’s board of directors, including all of the independent directors, approved the transactions above as being fair and reasonable to the Company, at a price no greater than the cost to the affiliated entity, and at a cost that did not exceed its current fair market value as determined by an independent expert.

F-25

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 12 — ECONOMIC DEPENDENCY

Under various agreements, the Company has engaged or will engage Cole Advisors II and its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon Cole Advisors II and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

NOTE 13 — INDEPENDENT DIRECTOR’S STOCK OPTION PLAN

The Company has a stock option plan, the IDSOP, which authorizes the grant of non-qualified stock options to the Company’s independent directors, subject to the absolute discretion of the board of directors and the applicable limitations of the plan. The Company intends to grant options under the IDSOP to each qualifying director annually. The exercise price for the options granted under the IDSOP initially will be $9.15 per share. The options contractual life will be ten years from date of grant. It is intended that the exercise price for future options granted under the IDSOP will be at least 100% of the fair market value of the Company’s common stock as of the date the option is granted. The exercise price for the options granted under the IDSOP was $9.15 per share for 2005 and 2006 and $9.10 per share for 2007. As of December 31, 2007 and 2006, the Company had granted options to purchase 30,000, and 20,000 shares, respectively. The 10,000 options granted during the year ended December 31, 2007 have a vesting period of approximately nine months. The remaining 20,000 options have a one year vesting period. A total of 1,000,000 shares have been authorized and reserved for issuance under the IDSOP. On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options related to the IDSOP, based on estimated fair values. The Company adopted SFAS 123R using the modified prospective application. Accordingly, prior period amounts were not restated.

During the year ended December 31, 2007, the Company recorded stock-based compensation charges of approximately $25,000. During the year ended December 31, 2006, the adoption of SFAS 123R resulted in stock-based compensation charges of approximately $54,000. Stock-based compensation expense recognized in the years ended December 31, 2007 and 2006 was based on awards ultimately expected to vest, and has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s calculations do not assume any forfeitures.

A summary of the Company’s stock option activity under its Independent Director Plan during the years ended December 31, 2007 and 2006 is as follows:


			Weighted
			Average
			Exercise
	Number		Price		Exercisable

Outstanding at December 31, 2005		10,000	$	9.15		—
Granted in 2006		10,000	$	9.15

Outstanding at December 31, 2006		20,000	$	9.15		10,000
Granted in 2007		10,000	$	9.10

Outstanding at December 31, 2007		30,000	$	9.13		20,000

As of December 31, 2007 and 2006, options to purchase 10,000 shares were unvested with a weighted average contractual remaining life of approximately 8.4 and approximately 9.3 years, respectively.

F-26

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted average fair value of options granted were $0.70 in 2007 and $5.55 in 2006. As of December 31, 2007 the number of options that were currently vested and expected to become vested was 30,000 shares which had an intrinsic value of $26,000.

In accordance with SFAS 123R, the fair value of each stock option granted was estimated as of the date of the grant using the Black-Scholes method based on the following assumptions: a weighted average risk-free interest rate from 4.69% to 5.07%, a projected future dividend yield from 6.25% to 7.00%, expected volatility from 0% to 15.35%, and an expected life of an option of 10 years. Based on these assumptions, the fair value of the options granted during the years ended December 31, 2007 and 2006 were approximately $7,000 and $55,000, respectively. As of December 31, 2007, there was approximately $4,000 of total unrecognized compensation cost related to unvested share-based compensation awards granted under the IDSOP. That cost is expected to be recognized during 2008.

NOTE 14 — STOCKHOLDERS EQUITY

Distribution Reinvestment Plan

The Company maintains a distribution reinvestment plan that allows common stockholders (the “Stockholders”) to elect to have the distributions the Stockholders receive reinvested in additional shares of the Company’s common stock. The purchase price per share under the distribution reinvestment plan will be the higher of 95% of the fair market value per share as determined by the Company’s board of directors and $9.50 per share. No sales commissions or dealer manager fees will be paid on shares sold under the distribution reinvestment plan. The Company may terminate or amend the distribution reinvestment plan at the Company’s discretion at any time upon ten days prior written notice to the Stockholders. Additionally, the Company will be required to discontinue sales of shares under the distribution reinvestment plan on the earlier of May 11, 2009, which is two years from the effective date of the Follow-on Offering, unless the Follow-on Offering is extended, or the date the Company sells 25,000,000 shares under the Follow-on Offering, unless the Company files a new registration statement with the Securities and Exchange Commission and applicable states. During the years ended December 31, 2007 and 2006, approximately 2.1 million and approximately 371,000 shares were purchased under the distribution reinvestment plan, for approximately $20.3 million and approximately $3.5 million, respectively, which were recorded as redeemable common stock on the consolidated balance sheets.

Share Redemption Program

The Company’s share redemption program permits its stockholders to sell their shares back to the Company after they have held them for at least one year, subject to the significant conditions and limitations described below.

There are several restrictions on the stockholder’s ability to sell their shares to the Company under the program. The stockholders generally have to hold their shares for one year before selling the shares to the Company under the plan; however, the Company may waive the one-year holding period in the event of the death or bankruptcy of a Stockholder. In addition, the Company will limit the number of shares redeemed pursuant to the Company’s share redemption program as follows: (1) during any calendar year, the Company will not redeem in excess of 3.0% of the weighted average number of shares outstanding during the prior calendar year; and (2) funding for the redemption of shares will be limited to the amount of net proceeds the Company receives from the sale of shares under the Company’s distribution reinvestment plan. These limits may prevent the Company from accommodating all requests made in any year. During the term of the Offering, and subject to certain provisions the redemption price per share will depend on the length of time the stockholder has held such shares as follows: after one year from the purchase date — 92.5% of the amount the stockholder paid for each share; after two years from the purchase date — 95.0% of the amount the stockholder paid for each share; after three years from the purchase date — 97.5% of the amount the stockholder paid for each share; and after four years from the purchase date — 100.0% of the amount the stockholder paid for each share.

F-27

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Upon receipt of a request for redemption, the Company will conduct a Uniform Commercial Code search to ensure that no liens are held against the shares. Repurchases will be made quarterly. If funds are not available to redeem all requested redemptions at the end of each quarter, the shares will be purchased on a pro rata basis and the unfulfilled requests will be held until the next quarter, unless withdrawn. The Company’s board of directors may amend, suspend or terminate the share redemption program at any time upon 30 days prior written notice to the stockholders. The Company redeemed approximately 227,000 shares under the share redemption program during the year ended December 31, 2007 for approximately $2.2 million. No shares were redeemed under the share redemption program during the year ended December 31, 2006.

NOTE 15 — INCOME TAXES

For income tax purposes, dividends to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder’s invested capital. The following table represents the character of distributions to stockholder for the years ended December 31, 2007, 2006 and 2005.


Character of Distributions:	2007			2006			2005

Ordinary income		41	%		42	%		0	%
Return of capital		59	%		58	%		0	%

Total		100	%		100	%		0	%

At December 31, 2007, 2006 and 2005, the tax basis carrying value of the Company’s total assets was approximately $1.7 billion, approximately $500.5 million and approximately $98.8 million, respectively. During the years ended December 31, 2007, 2006 and 2005, the Company had state income taxes of approximately $158,000, approximately $24,000 and approximately $3,000, respectively, which were recorded in general and administrative expenses in the consolidated statements of operations.

NOTE 16 — OPERATING LEASES

The Company’s operating leases’ terms and expirations vary. The leases frequently have provisions to extend the lease agreement and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants.

The future minimum rental income from the Company’s investment in real estate assets under non-cancelable operating leases, at December 31, 2007, is as follows:


	Amount

Year ending December 31:
2008	$	113,711,614
2009		113,905,344
2010		112,407,413
2011		111,406,202
2012		110,264,602
Thereafter		962,046,560

Total	$	1,523,741,735

NOTE 17 — QUARTERLY RESULTS (Unaudited)

Presented below is a summary of the unaudited quarterly financial information for the years ended December 31, 2007, 2006 and 2005. The Company believes that all necessary adjustments, consisting only of normal

F-28

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the selected quarterly information.


	2007
	First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter

Revenues	$	12,597,351		$	18,821,384		$	26,538,544	$	31,884,871
Operating income		6,442,770			4,068,448			13,512,244		17,274,145
Net income (loss)		1,684,727			(3,366,779	)		2,997,849		3,164,220
Basic and diluted net income (loss) per share		0.05			(0.06	)		0.04		0.04
Dividends per share	$	0.16		$	0.16		$	0.18	$	0.18


	2006
	First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter

Revenues	$	2,571,786		$	3,715,493		$	5,392,741	$	7,839,487
Operating income		1,262,699			1,779,812			2,748,315		3,952,804
Net income (loss)		(182,588	)		(181,847	)		548,942		1,161,489
Basic and diluted net income (loss) per share		(0.04	)		(0.02	)		0.04		0.12
Dividends per share	$	0.15		$	0.15		$	0.16	$	0.16


	2005(1)
	Third			Fourth
	Quarter			Quarter

Revenues	$	2,761		$	738,908
Operating income (loss)		(27,679	)		352,917
Net loss		(29,543	)		(85,048	)
Basic and diluted net loss per share(2)		(0.46	)		(0.05	)
Dividends per share	$	—		$	0.15


(1)		No quarterly financial information is presented for the first two quarters of 2005 as the Company was a development stage company during those quarters and had no operations.

(2)		The total of the two quarterly amounts for the year ended December 31, 2005, does not equal the total for the year then ended. This difference results from the increase in shares outstanding over the year.

NOTE 18 — SUBSEQUENT EVENTS

Sale of Shares of Common Stock

As of March 24, 2008, the Company had raised approximately $1.1 billion of gross proceeds through the issuance of approximately 114.4 million shares of its common stock in its offerings (including shares sold under the DRIP). As of March 24, 2008, approximately $679.8 million (68.0 million shares) remained available for sale to the public in the Follow-on Offering, exclusive of shares available under the DRIP. As of March 24, 2008, 59.6 million shares had been sold in the Follow-on Offering (including shares sold under the DRIP).

Property Acquisitions

Subsequent to December 31, 2007, the Company acquired a 100% interest in 44 commercial properties for an aggregate purchase price of approximately $266.3 million, excluding closing costs. The Company financed the

F-29

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

acquisitions through the issuance and assumption of approximately $144.9 million of mortgage loans generally secured by the individual property on which each loan was made. The Company allocated the purchase price of these properties, including aggregate acquisitions costs, to the fair market value of the assets acquired and liabilities assumed.

Mortgage Notes Payable

Subsequent to December 31, 2007, the Company obtained six mortgage notes payable in connection with the real estate acquisitions described above, totaling approximately $144.9 million. The Company obtained $20.9 million of fixed rate debt which bears interest at rates ranging from 5.593% to 5.900% and a weighted average interest rate of 5.815% (the “Fixed Rate Debt”). The Fixed Rate Debt matures on various dates during 2016. The Company obtained $124.0 million of variable rate debt which bears interest at rates ranging from one-month LIBOR plus 1.5% to 2.0% (the “Variable Rate Debt”). The Variable Rate Debt matures on various dates during 2009. Of the Variable Rate Debt, $16.0 million was borrowed from Series B and $16.0 million was borrowed from Series C, each of which are affiliates of the Company and the Company’s advisor, by executing two promissory notes that were secured by the membership interest held by Cole OP II in certain wholly-owned subsidiaries of Cole OP II.

In addition, subsequent to December 31, 2007, the Company repaid an aggregate of approximately $71.3 million of variable rate debt related to two mortgage notes payable and repaid approximately $22.2 million on two of its revolving lines of credit.

F-30

SUMMARY FINANCIAL INFORMATION OF BUSINESSES ACQUIRED AND
PROBABLE BUSINESSES TO BE ACQUIRED

AS Katy Property

INDEPENDENT AUDITORS’ REPORT

On January 18, 2007, we acquired an approximately 1.5 million square foot single-tenant corporate headquarters and distribution facility on an approximately 93.8 acre site located in Katy, Texas (the “AS Katy Property”), which was constructed in four phases between 1976 and 2006. The AS Katy Property is 100% leased to Academy, Ltd. (“Academy”). The AS Katy Property is subject to a net lease pursuant to which the tenant is required to pay substantially all operating expenses and capital expenditures in addition to base rent.

The purchase price of the AS Katy Property was $102.0 million, exclusive of closing costs. The acquisition was funded by net proceeds from our ongoing public offering and an approximately $68.3 million loan secured by the AS Katy Property.

Academy is a sporting goods retailer, operating over 80 stores across the southeastern United States. In determining the creditworthiness of Academy we considered a variety of factors, including historical financial information and financial performance and regional market position.

After reasonable inquiry, we are not aware of any material factors relating to the AS Katy Property, other than those discussed above, that would cause the reported financial information not to be necessarily indicative of future operating results.

F-31

To the Board of Directors and Stockholders of

Cole Credit Property Trust II, Inc.

Phoenix, AZ

We have audited the accompanying statement of revenues and certain operating expenses (the “Historical Summary”) of the AS Katy Property (the “Property”) for the year ended December 31, 2006. This Historical Summary is the responsibility of Cole Credit Property Trust II, Inc. management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in Supplements to the original Prospectus of Cole Credit Property Trust II, Inc.) as described in Note 1 to the Historical Summary and is not intended to be a complete presentation of the Property’s revenues and expenses. In our opinion, such Historical Summary presents fairly, in all material respects, the revenue and certain operating expenses described in Note 1 to the Historical Summary of the AS Katy Property for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE, LLP

Phoenix, Arizona

March 9, 2007

F-32

AS KATY PROPERTY

STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES

FOR THE YEAR ENDED DECEMBER 31, 2006


Revenues:
Rental revenue	$	4,935,604

Total revenues		4,935,604

Certain Operating Expenses:
Total certain operating expenses		—

Revenues in excess of certain operating expenses	$	4,935,604

See accompanying notes to statement of revenues and certain operating expenses.

F-33

AS KATY PROPERTY

NOTES TO THE STATEMENT OF REVENUES
AND CERTAIN OPERATING EXPENSES
For the Year Ended December 31, 2006


1.	Basis of Presentation

On January 18, 2007, Cole Credit Property Trust II, Inc. (the “Company”) acquired a single-tenant corporate headquarters and distribution facility containing approximately 1.5 million square feet of rentable space located on an approximately 93.8 acre site located in Katy, Texas (the “AS Katy Property”). The AS Katy property is 100% leased to Academy, Ltd., pursuant to a net lease. The statement of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. These Historical Summaries include the historical revenues and certain operating expenses of the AS Katy Property, exclusive of items which may not be comparable to the proposed future operations of the AS Katy Property. Material amounts that would not be directly attributable to future operating results of the AS Katy Property are excluded, and the financial statements are not intended to be a complete presentation of the AS Katy Property’s revenues and expenses. Items excluded consist of depreciation, amortization, bank service charges, fees relating to a letter of credit, interest expense and professional expenses.


2.	Significant Accounting Policies

Revenue Recognition

The lease is accounted for as an operating lease and minimum rental income is recognized on a straight-line basis over the remaining term of the lease.

Repairs and Maintenance

Expenditures for repairs and maintenance are expensed as incurred.

Use of Estimates

The preparation of historical summaries in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of revenues and certain operating expenses during the reporting period. Actual results could differ from those estimates.


3.	Lease

The aggregate annual minimum future rental payments on the non-cancelable operating lease in effect as of December 31, 2006 are as follows:


Year Ending December 31:

2007	$	6,059,154
2008		6,157,764
2009		6,259,051
2010		6,362,042
2011		6,466,767
Thereafter		63,235,212

Total	$	94,539,990

The minimum future rental payments represents the base rent required to be paid under the terms of the lease exclusive of charges for contingent rents, electrical services, real estate taxes, and operating cost escalations.

F-34

AS KATY PROPERTY

NOTES TO THE STATEMENT OF REVENUES

AND CERTAIN OPERATING EXPENSES — (Continued)


4.	Tenant Concentration

For the year ended December 31, 2006, the sole tenant, Academy, Ltd. accounted for 100% of the annual rental income for the AS Katy Property. If the tenant were to default on their lease, future revenue of the AS Katy Property would be materially and adversely impacted.


5.	Commitments and Contingencies

Litigation

The AS Katy Property may be subject to legal claims in the ordinary course of business. The Company believes that the ultimate settlement of any potential claims will not have a material impact on the AS Katy Property’s results of operations.

Environmental Matters

In connection with the ownership and operation of real estate, the AS Katy Property may be potentially liable for costs and damages related to environmental matters. The AS Katy Property has not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company is not aware of any other environmental condition that they believe will have a material adverse effect on the AS Katy Property’s results of operations.

F-35

MT Omaha Property

INDEPENDENT AUDITORS’ REPORT

On February 6, 2007, we acquired an approximately 92,000 square foot multi-tenant retail shopping center on an approximately 10.5 acre site located in Omaha, Nebraska (the “MT Omaha Property”), which was constructed in 1988 and most recently renovated in 2005. The MT Omaha Property is approximately 95% leased to 24 tenants. Major tenants include Abercrombie & Fitch, Inc. d/b/a Abercrombie & Fitch, Banana Republic, Inc. d/b/a Banana Republic, R.A. Popp Enterprises, Inc. d/b/a Wheatfields and Sur La Table, Inc. d/b/a Sur La Table, however, no single tenant accounts for more than 10.0% of the rentable square feet of the MT Omaha Property. The MT Omaha Property is subject to 24 net leases (the “MT Omaha Leases”), pursuant to which each tenant is required to pay substantially all operating expenses, capital expenditures and a proportionate amount of common area maintenance charges in addition to base rent.

The purchase price of the MT Omaha Property was approximately $36.0 million, exclusive of closing costs. The acquisition was funded by net proceeds from our ongoing public offering and an approximately $23.8 million loan secured by the MT Omaha Property.

After reasonable inquiry, we are not aware of any material factors relating to the MT Omaha Property, other than those discussed above, that would cause the reported financial information not to be necessarily indicative of future operating results.

F-36

To the Board of Directors and Stockholders of

Cole Credit Property Trust II, Inc.

Phoenix, AZ

We have audited the accompanying statement of revenues and certain operating expenses (the “Historical Summary”) of the MT Omaha Property (the “Property”) for the year ended June 30, 2006. This Historical Summary is the responsibility of Cole Credit Property Trust II, Inc. management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

The accompanying Historical Summary was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 1 to the Historical Summary and is not intended to be a complete presentation of the Property’s revenues and expenses. In our opinion, such Historical Summary presents fairly, in all material respects, the revenue and certain operating expenses described in Note 1 to the Historical Summary of the MT Omaha Property for the year ended June 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE, LLP

Phoenix, Arizona

March 9, 2007

F-37

MT OMAHA PROPERTY

STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended June 30, 2006 and
the Six Month Period ended December 31, 2006 (unaudited)


	Year Ended		Six Months Ended
	June 30,		December 31,
	2006		2006
			(Unaudited)

Revenues:
Rental revenue	$	2,583,418	$	1,339,612
Tenant reimbursement and other		1,056,952		554,155

Total revenues		3,640,370		1,893,767

Certain Operating Expenses:
Operations and maintenance		331,318		153,900
Real estate taxes		345,385		171,972
Marketing		160,029		101,840
Professional and administrative expenses		108,525		63,301
Management fees		108,352		60,591
Utilities		80,045		34,469

Total certain operating expenses		1,133,654		586,073

Revenues in excess of certain operating expenses	$	2,506,716	$	1,307,694

See accompanying notes to statement of revenues and certain operating expenses.

F-38

MT OMAHA PROPERTY

NOTES TO THE STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
For the Year Ended June 30, 2006
and the Six Month Period ended December 31, 2006
(unaudited)


1.	Basis of Presentation

On February 6, 2007, Cole Credit Property Trust II, Inc. (the “Company”) acquired a multi-tenant commercial retail shopping center containing approximately 92,000 square feet of rentable space located on an approximately 10.5 acre site in Omaha, Nebraska (the “MT Omaha Property”). The MT Omaha Property is approximately 95% leased to 24 tenants, pursuant to net leases.

The statement of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. These Historical Summaries include the historical revenues and certain operating expenses of the MT Omaha Property, exclusive of items which may not be comparable to the proposed future operations of the MT Omaha Property. Material amounts that would not be directly attributable to future operating results of the MT Omaha Property are excluded, and the financial statements are not intended to be a complete presentation of the MT Omaha Property’s revenues and expenses. Items excluded consist of accounting and professional fees.


2.	Significant Accounting Policies

Revenue Recognition

The leases are accounted for as operating leases and minimum rental income is recognized on a straight-line basis over the remaining term of each lease. Tenant reimbursement revenue is recognized in the same periods in which the related expenses are incurred. Tenant reimbursement revenue includes payments from tenants as reimbursements for property taxes, utilities, and other property operating expenses.

Repairs and Maintenance

Expenditures for repairs and maintenance are expensed as incurred.

Use of Estimates


3.	Leases

The aggregate annual minimum future rental payments on the non-cancelable operating leases in effect as of June 30, 2006 are as follows:


Year Ending June 30:

2007	$	2,617,725
2008		2,441,213
2009		2,112,608
2010		1,649,869
2011		1,492,371
Thereafter		3,809,809

Total	$	14,123,955

F-39

MT Fairview Heights Property

INDEPENDENT AUDITORS’ REPORT

On April 5, 2007, we acquired an approximately 273,000 square foot multi-tenant retail shopping center on an approximately 30.4 acre site located in Fairview Heights, Illinois (the “MT Fairview Heights Property”), which was constructed in phases in 1998 and 2002. The MT Fairview Heights Property is 100% leased to 19 tenants. Major tenants include Kohl’s Department Stores, Inc., d/b/a Kohl’s, Ultimate Electronics, Inc., d/b/a Ultimate Electronics, Marshalls of IL, LLC, d/b/a Marshall’s and LNT, Inc. d/b/a Marshall’s. The MT Fairview Heights Property is subject to 19 net leases (the “MT Fairview Heights Leases”), pursuant to which each tenant is required to pay substantially all operating expenses, capital expenditures and a proportionate amount of common area maintenance charges in addition to base rent.

The purchase price of the MT Fairview Heights Property was approximately $44.0 million, exclusive of closing costs. The acquisition was funded by net proceeds from our ongoing public offering and an approximately $35.4 million loan secured by the MT Fairview Heights Property.

After reasonable inquiry, we are not aware of any material factors relating to the MT Fairview Heights Property, other than those discussed above, that would cause the reported financial information not to be necessarily indicative of future operating results.

F-40

To the Board of Directors and Stockholders of

Cole Credit Property Trust II, Inc.

Phoenix, AZ

We have audited the accompanying statement of revenues and certain operating expenses (the “Historical Summary”) of the MT Fairview Heights Property (the “Property”) for the year ended December 31, 2006. This Historical Summary is the responsibility of Cole Credit Property Trust II, Inc. management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

In our opinion, such Historical Summary presents fairly, in all material respects, the revenue and certain operating expenses described in Note 1 to the Historical Summary of the MT Fairview Heights Property for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE, LLP

Phoenix, Arizona

April 10, 2007

F-41

MT FAIRVIEW HEIGHTS PROPERTY

STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES

For the Year Ended December 31, 2006


Revenues:
Rental revenue	$	3,236,104
Tenant reimbursement and other		505,823

Total revenues		3,741,927

Certain Operating Expenses:
Operations and maintenance		10,475
Parking and security		121,156
Insurance		20,125
Taxes		364,228

Total certain operating expenses		515,984

Revenues in excess of certain operating expenses	$	3,225,943

See accompanying notes to statement of revenues and certain operating expenses.

F-42

MT FAIRVIEW HEIGHTS PROPERTY

NOTES TO THE STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES

For the Year Ended December 31, 2006


1.	Basis of Presentation

On April 5, 2007, Cole Credit Property Trust II, Inc. (the “Company”) acquired a multi-tenant commercial retail shopping center containing approximately 273,000 square feet of rentable space located on an approximately 30.4 acre site in Fairview Heights, Illinois (the “MT Fairview Heights Property”). The MT Fairview Heights Property is approximately 100% leased to 19 tenants, pursuant to net leases.

The statement of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. These Historical Summaries include the historical revenues and certain operating expenses of the MT Fairview Heights Property, exclusive of items which may not be comparable to the proposed future operations of the MT Fairview Heights Property. Material amounts that would not be directly attributable to future operating results of the MT Fairview Heights Property are excluded, and the financial statements are not intended to be a complete presentation of the MT Fairview Heights Property’s revenues and expenses. Items excluded consist of management fees, broker fees, depreciation, amortization, miscellaneous fees, and accretion of below market leases.


2.	Significant Accounting Policies

Revenue Recognition

Repairs and Maintenance

Expenditures for repairs and maintenance are expensed as incurred.

Use of Estimates


3.	Leases

The aggregate annual minimum future rental payments on the non-cancelable operating leases in effect as of December 31, 2006 are as follows:


Year Ending December 31:

2007	$	3,093,165
2008		3,059,464
2009		3,004,160
2010		2,915,047
2011		2,750,544
Thereafter		10,202,109

Total	$	25,024,488

The minimum future rental income represents the base rent required to be paid under the terms of the lease exclusive of charges for contingent rents, electrical services, real estate taxes, and operating cost escalations.

F-43

MT FAIRVIEW HEIGHTS PROPERTY

NOTES TO THE STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES — (Continued)


4.	Tenant Concentration

For the year ended December 31, 2006, the following tenants accounted for 10% or more of the annual rental income for the MT Fairview Heights Property.


	Aggregate Annual		% Aggregate Annual
Tenant Name	Rental Income		Rental Income

Ultimate Electronics, Inc.	$	424,639		13	%
Kohl’s Illinois, Inc.		530,760		16	%
LNT, Inc.		318,667		10	%

If these tenants were to default on their leases, future revenue of the MT Fairview Heights Property would be materially and adversely impacted.


5.	Commitments and Contingencies

Litigation

The MT Fairview Heights Property may be subject to legal claims in the ordinary course of business as a property owner. The Company believes that the ultimate settlement of any potential claims will not have a material impact on the MT Fairview Heights Property’s results of operations.

Environmental Matters

In connection with the ownership and operation of real estate, the MT Fairview Heights Property may be potentially liable for costs and damages related to environmental matters. The MT Fairview Heights Property has not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company is not aware of any other environmental condition that they believe will have a material adverse effect on the MT Fairview Heights Property’s results of operations.

F-44

CNL Portfolio Properties

Independent Auditors’ Report

On June 22, 2007 and July 19, 2007, we acquired two portfolios consisting of a total of 25 single-tenant commercial retail and restaurant properties containing approximately 3.0 million square feet of rentable space located in ten states (the “CNL Portfolio Properties”). The CNL Portfolio Properties were constructed between 1960 and 2006. The CNL Portfolio Properties are 100% leased to nine tenants. Pursuant to 25 net leases, the tenants are required to pay substantially all operating expenses and capital expenditures in addition to base rent.

The total purchase price of the CNL Portfolio Properties was approximately $107.6 million, exclusive of closing costs. The acquisitions were funded by net proceeds from our ongoing public offering and approximately $61.0 million in mortgage notes payable secured by the CNL Portfolio Properties.

After reasonable inquiry, we are not aware of any material factors relating to the CNL Portfolio Properties, other than those discussed above, that would cause the reported financial information to be necessarily indicative of future operating results.

In evaluating the properties as acquisitions and determining the appropriate amount of consideration to be paid for our interests therein, a variety of factors were considered, including our consideration of property condition reports; unit-level store performance; property location, visibility and access; age of the property, physical condition and curb appeal; neighboring property uses; local market conditions, including vacancy rates; area demographic, including trade area population and average household income; neighborhood growth patterns and economic conditions; and the presence of demand generators.

F-45

To the Board of Directors and Stockholders of

Cole Credit Properties Trust II, Inc.

Phoenix, AZ

We have audited the accompanying combined statement of revenues and certain operating expenses (the “Historical Summary”) of the CNL Portfolio Properties (the “CNL Portfolio”) for the year ended December 31, 2006. This Historical Summary is the responsibility of Cole Credit Properties Trust II, Inc. management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

In our opinion, such Historical Summary presents fairly, in all material respects, the combined revenues and certain operating expenses described in Note 1 to the Historical Summary of the CNL Portfolio for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Phoenix, Arizona

July 30, 2007

F-46

CNL Portfolio Properties

Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 2006 and
the Three Months Ended March 31, 2007 (Unaudited)


	Year Ended		Three Months Ended
	December 31,		March 31,
	2006		2007
			(Unaudited)

Revenues:
Rental income from operating leases	$	3,493,577	$	1,241,384
Earned income from direct financing leases		2,177,625		531,588

Total revenues		5,671,202		1,772,972

Certain Operating Expenses:
Operations		—		—

Total certain operating expenses		—		—
Revenues in excess of certain operating expenses	$	5,671,202	$	1,772,972

See accompanying notes to statement of revenues and certain operating expenses.

F-47

CNL Portfolio Properties

Notes to the Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 2006 and
the Three Months Ended March 31, 2007 (Unaudited)


1.	Basis of Presentation

On June 22, 2007 and July 19, 2007, Cole Credit Properties Trust II, Inc. (the “Company”) acquired two portfolios consisting of multiple single-tenant commercial retail and restaurant properties containing approximately 3.0 million square feet of rentable space located in multiple states (the “CNL Portfolio”). The CNL Portfolio is approximately 100% leased to nine tenants, pursuant 25 to net leases. The CNL Portfolio consists of the following properties and associated tenants:


Property	Tenant	Location	Sq Ft

LJ Houston	LJs Restaurants, Inc.	Houston, TX		34,094
TB Princeton	Southern Bells, Inc.	Princeton, IN		2,436
TB Robinson	Southern Bells, Inc.	Robinson, IL		1,944
TB Brazil	Southern Bells, Inc.	Brazil, IN		1,993
TB Washington	Southern Bells, Inc.	Washington, IN		2,093
TB Vincennes	Southern Bells, Inc.	Vincennes, IN		2,691
TB Henderson	Southern Bells, Inc.	Henderson, KY		2,320
TB Martinsville	Southern Bells, Inc.	Martinsville, IN		2,057
TB Anderson	Southern Bells, Inc.	Anderson, IN		2,166
TB Spencer	Southern Bells, Inc.	Spencer, IN		2,296
DB Addison	Dave & Busters, Inc.	Addison, IL		50,000
AS Baton Rouge	Academy Louisiana Co.	Baton Rouge, LA		52,500
AS Houston (Breton)	Academy Corp.	Houston, TX		53,381
AS Houston (SW FW)	Academy Corp.	Houston, TX		52,548
AS Richland Hills	Academy Corp.	Richland Hills, TX		52,500
CV Amarillo	Eckerd Inc.	Amarillo, TX		9,504
CV Del City	Eckerd Inc.	Del City, OK		10,906
EK Chattanooga	Eckerd Inc.	Chattanooga, TN		10,909
EK Mableton	Eckerd Inc.	Mableton, GA		8,996
BB Evanston	Best Buy Stores, LP	Evanston, IL		45,397
AS Houston (Westheimer)	Academy Corp.	Houston, TX		53,381
EK Mantua	Eckerd Inc.	Mantua, NJ		8,710
EK Vineland	Eckerd Inc.	Vineland, NJ		14,910
MT Warwick	Super Valu, Inc.	Warwick, RI		64,514
WA Eureka	Winer Foods, LLC	Eureka, CA		82,490

The statement of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Article 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. These Historical Summaries include the historical revenues and certain operating expenses of the CNL Portfolio, exclusive of items which may not be comparable to the proposed future operations of the CNL Portfolio. Material amounts that would not be directly attributable to future operating results of the CNL Portfolio are excluded, and the financial statements are not intended to be a complete presentation of the CNL Portfolio’s revenues and expenses. Items excluded consist of management fees, broker fees, depreciation, amortization, miscellaneous fees, and accretion of below market leases.

F-48

CNL Portfolio Properties

Notes to the Statement of Revenues and Certain Operating Expenses — (Continued)


2.	Significant Accounting Policies

Revenue Recognition

Operating leases — Rental income is recognized on a straight-line basis over the remaining term of each lease.

Direct financing leases — Unearned income is deferred and amortized into income over the lease terms so as to produce a constant periodic rate of return on the net investment in the leases.

Use of Estimates

The preparation of historical summaries in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and certain operating expenses during the reporting period. Actual results could differ from those estimates.


3.	Leases

As of December 31, 2006, 12 of the 25 leases have both building and land classified as operating leases and for the remaining 13 leases, the land is classified as operating leases and the buildings as direct financing leases.

The leases have initial terms of ten to 20 years (expiring between 2012 and 2024) and provide for minimum rentals. In addition, the tenant leases generally provide for limited increases in rent as a result of fixed increases, these amounts are recognized on a straight-line bases over the terms of the leases.

The aggregate annual minimum future rental payments on the non-cancelable operating leases in effect as of December 31, 2006 are as follows:


Year Ending December 31:

2007	$	4,776,728
2008		4,811,829
2009		4,836,572
2010		4,881,741
2011		4,402,532
Thereafter		33,081,489

Total	$	56,790,891

The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 2006:


Year Ending December 31:

2007	$	2,885,510
2008		2,909,353
2009		2,916,475
2010		2,950,719
2011		2,991,913
Thereafter		14,180,802

Total	$	28,834,772

The above tables do not include future minimum lease payments for renewal periods or rent increases that are based on the Consumer Price Index (“CPI”) or future contingent rents. Payments are also exclusive of potential charges related to real estate taxes and operating cost escalations.

F-49

CNL Portfolio Properties

Notes to the Statement of Revenues and Certain Operating Expenses — (Continued)


4.	Tenant Concentration

For the year ended December 31, 2006, the following tenants accounted for 10% or more of the annual rental income for the CNL Portfolio Properties.


	Aggregate Annual		% Aggregate Annual
Tenant Name	Rental Income		Rental Income

Academy, Ltd.	$	2,069,546		32	%
Winco		1,011,573		16	%
Eckerd Corporation		848,559		13	%
Southern Bells, Inc.		716,493		11	%

If these tenants were to default on their leases, future revenue of the CNL Portfolio Properties would be materially and adversely impacted.


5.	Commitments and Contingencies

Litigation

The CNL Portfolio Properties may be subject to legal claims in the ordinary course of business as a property owner. The Company believes that the ultimate settlement of any potential claims will not have a material impact on the CNL Portfolio Properties’ results of operations.

Environmental Matters

In connection with the ownership and operation of real estate, the CNL Portfolio Properties may be potentially liable for costs and damages related to environmental matters. The Company, as owner of the CNL Portfolio Properties, has not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company is not aware of any other environmental condition that they believe will have a material adverse effect on the CNL Portfolio Properties’ results of operations.

F-50

MT Broadview Property

Independent Auditors’ Report

On September 14, 2007, we acquired an approximately 329,000 square foot multi-tenant retail shopping center (the “MT Broadview Property”) on an approximately 15.84 acre site located in Chicago, Illinois, which was constructed in 1994. The MT Broadview Property is approximately 96% leased to 25 tenants. Major tenants include Home Depot USA, Inc. d/b/a Home Depot and The Sports Authority, Inc. d/b/a Sports Authority. The MT Broadview Property is subject to 25 separate net leases, pursuant to which each tenant is required to pay substantially all operating expenses, capital expenditures and a proportionate amount of common area maintenance charges in addition to base rent.

The purchase price of the MT Broadview Property was approximately $58.0 million, exclusive of closing costs. The acquisition was funded by net proceeds from our ongoing public offering and an approximately $31.5 million loan secured by the MT Broadview Property.

After reasonable inquiry, we are not aware of any material factors relating to the MT Broadview Property, other than those discussed above, which would cause the reported financial information to be necessarily indicative of future operating results.

F-51

To the Board of Directors and Stockholders of

Cole Credit Property Trust II, Inc.

Phoenix, AZ

We have audited the accompanying combined statement of revenues and certain operating expenses (the “Historical Summary”) of the Broadview Village Square Property (the “Property”) for the year ended December 31, 2006. This Historical Summary is the responsibility of Cole Credit Property Trust II, Inc. management. Our responsibility is to express an opinion on the Historical Summary based on our audit.

In our opinion, such Historical Summary presents fairly, in all material respects, the combined revenues and certain operating expenses described in Note 1 to the Historical Summary of the Property for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Phoenix, Arizona

October 22, 2007

F-52

MT Broadview Property

Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 2006 and
the Six Months Ended June 30, 2007 (Unaudited)


	Six Months Ended		Year Ended
	June 30, 2007		December 31, 2006
	(Unaudited)

Revenues:
Rental income from operating leases	$	2,113,940	$	4,278,868
Tenant reimbursement revenue		527,645		921,942

Total revenues		2,641,585		5,200,810

Certain Operating Expenses:
Repairs, maintenance and cleaning		109,888		263,589
Utilities		23,823		50,060
Real estate taxes		368,634		715,802
Insurance		22,345		42,092

Total certain operating expenses		524,690		1,071,543

Revenues in excess of certain operating expenses	$	2,116,895	$	4,129,267

See accompanying notes to statement of revenues and certain operating expenses.

F-53

MT Broadview Property

Notes to the Statement of Revenues and Certain Operating Expenses
For the Year Ended December 31, 2006 and
the Six Months Ended June 30, 2007 (Unaudited)


1.	Basis of Presentation

On September 14, 2007, Cole Credit Property Trust II, Inc. (the “Company”) acquired a multi-tenant commercial retail shopping center containing approximately 329,161 square feet of rentable space located on an approximately 15.84 acre site in Broadview, Illinois (the “MT Broadview Property”). The MT Broadview Property is approximately 96.3% leased to 25 tenants, pursuant to net leases.

The statement of revenues and certain operating expenses (the “Historical Summary”) has been prepared for the purpose of complying with the provisions of Rule 3-14 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”), which requires certain information with respect to real estate operations to be included with certain filings with the SEC. The Historical Summary includes the historical revenues and certain operating expenses of the Property, exclusive of items which may not be comparable to the proposed future operations of the Property. Material amounts that would not be directly attributable to future operating results of the Property are excluded, and the financial statements are not intended to be a complete presentation of the Property’s revenues and expenses. Items excluded consist of management and asset fees, depreciation, amortization, other non-operating expenses, and interest expense.


2.	Significant Accounting Policies

Revenue Recognition

The leases are accounted for as operating leases and minimum rental income is recognized on a straight-line basis over the remaining term of each lease. Contingent rental income, such as percentage rents, is recognized when the specific target which triggers the contingent rental income is achieved. Tenant reimbursement revenue is recognized in the same periods in which the related expenses are incurred. Tenant reimbursement revenue includes payments from tenants as reimbursements for property taxes, utilities, and other property operating expenses.

Repairs and Maintenance

Expenditures for repairs and maintenance are expensed as incurred.

Use of Estimates


3.	Leases

The leases have initial terms of 5 to 20 years (expiring between 2009 and 2019) and provide for minimum rentals. In addition, the tenant leases generally provide for limited increases in rent as a result of fixed increases, these amounts are recognized on a straight-line basis over the terms of the leases.

F-54

MT Broadview Property

Notes to the Statement of Revenues and Certain Operating Expenses — (Continued)

The aggregate annual minimum future rental payments on the non-cancelable operating leases in effect as of December 31, 2006 are as follows:


Year Ending December 31:

2007	$	4,157,739
2008		4,007,178
2009		3,901,593
2010		1,926,959
2011		1,703,798
Thereafter		6,416,504

Total	$	22,013,771

The table above does not include future minimum lease payments for renewal periods or rent increases that are based on the Consumer Price Index or future contingent rents. Payments are also exclusive of potential charges related to real estate taxes and operating cost escalations.


4.	Tenant Concentration

For the year ended December 31, 2006, the following tenant accounted for 10% or more of the annual rental income for the MT Broadview Property.


	Aggregate		% Aggregate
	Annual		Annual
Tenant Name	Rental Income		Rental Income

Home Depot USA, Inc.	$	1,458,703		35	%

If this tenant were to default on their lease, future revenue of the Property would be materially and adversely impacted.


5.	Commitments and Contingencies

Litigation

The MT Broadview Property may be subject to legal claims in the ordinary course of business as a property owner. The Company believes that the ultimate settlement of any potential claims will not have a material impact on the MT Broadview Property’s results of operations.

Environmental Matters

In connection with the ownership and operation of real estate, the MT Broadview Property may be potentially liable for costs and damages related to environmental matters. The MT Broadview Property has not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company is not aware of any other environmental condition that they believe will have a material adverse effect on the MT Broadview Property’s results of operations.

F-55

Millstein Portfolio Properties