CCPT 9.30.13 10Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨



	September 30, 2013			December 31, 2012
ASSETS
Investment in real estate assets:
Land	$	43,175		$	42,017
Buildings and improvements, less accumulated depreciation of $25,005 and $22,684, respectively	79,651			76,943
Acquired intangible lease assets, less accumulated amortization of $12,454 and $11,342, respectively	8,532			8,795
Total investment in real estate assets, net	131,358			127,755
Cash and cash equivalents	151			7,788
Restricted cash	2,409			2,073
Rents and tenant receivables, prepaid expenses and other assets	1,542			1,402
Deferred financing costs, less accumulated amortization of $2,078 and $1,662, respectively	951			1,367
Total assets	$	136,411		$	140,385

LIABILITIES AND STOCKHOLDERS’ EQUITY
Notes payable	$	85,791		$	86,322
Line of credit with affiliate	300			—
Accounts payable and accrued expenses	766			769
Due to affiliates	33			32
Acquired below market lease intangibles, less accumulated amortization of $1,753 and $1,604, respectively	444			593
Distributions payable	415			427
Deferred rent	294			592
Total liabilities	88,043			88,735
Commitments and contingencies
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding	—			—
Common stock, $0.01 par value; 90,000,000 shares authorized, 10,090,951 shares issued and outstanding	101			101
Capital in excess of par value	90,424			90,424
Accumulated distributions in excess of earnings	(42,157		)	(38,875		)
Total stockholders’ equity	48,368			51,650
Total liabilities and stockholders’ equity	$	136,411		$	140,385



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenues:
Rental and other property income	$	3,259		$	3,094		$	9,690		$	9,334
Tenant reimbursement income	112			94			312			300
Total revenue	3,371			3,188			10,002			9,634

Expenses:
General and administrative expenses	168			195			591			562
Property operating expenses	173			182			477			495
Property management expenses	99			90			299			286
Acquisition related expenses	—			—			324			—
Depreciation	768			759			2,321			2,274
Amortization	355			369			1,105			1,108
Total operating expenses	1,563			1,595			5,117			4,725
Operating income	1,808			1,593			4,885			4,909

Other income (expense):
Other income	132			2			138			4
Interest expense	(1,524		)	(1,545		)	(4,531		)	(4,753		)
Total other expense	(1,392		)	(1,543		)	(4,393		)	(4,749		)

Income from continuing operations	416			50			492			160

Income from discontinued operations	—			3,721			—			3,787

Net income	$	416		$	3,771		$	492		$	3,947

Weighted average number of common shares outstanding:
Basic and diluted	10,090,951			10,090,951			10,090,951			10,090,951

Income from continuing operations per common share:
Basic and diluted	$	0.04		$	0.01		$	0.05		$	0.02

Income from discontinued operations per common share:
Basic and diluted	$	—		$	0.37		$	—		$	0.38

Net income per common share:
Basic and diluted	$	0.04		$	0.37		$	0.05		$	0.39

Distributions declared per common share	$	0.13		$	0.13		$	0.37		$	0.37



	Common Stock			Capital in Excess of Par Value		Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
	Number of Shares	Par Value		Capital in Excess of Par Value		Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
Balance, January 1, 2013	10,090,951	$	101	$	90,424	$	(38,875	)	$	51,650
Distributions	—	—		—		(3,774		)	(3,774		)
Net income	—	—		—		492			492
Balance, September 30, 2013	10,090,951	$	101	$	90,424	$	(42,157	)	$	48,368



	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	492		$	3,947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,321			2,481
Amortization of intangible lease assets and below market lease intangibles, net	963			1,123
Amortization of deferred financing costs	416			388
Gain on sale of real estate assets	—			(3,715		)
Changes in assets and liabilities:
Rents and tenant receivables, prepaid expenses and other assets	(140		)	(195		)
Accounts payable and accrued expenses	(30		)	(128		)
Deferred rent	(298		)	(564		)
Due to affiliates	1			(17		)
Net cash provided by operating activities	3,725			3,320
Cash flows from investing activities:
Investment in real estate assets and other capital expenditures	(7,009		)	(19		)
Proceeds from sale of real estate assets	—			7,377
Change in restricted cash	(336		)	(270		)
Net cash (used in) provided by investing activities	(7,345		)	7,088
Cash flows from financing activities:
Distributions to investors	(3,786		)	(3,792		)
Repayment of notes payable	(531		)	(8,079		)
Proceeds from line of credit with affiliate	300			—
Repayment of line of credit with affiliate	—			(1,935		)
Deferred financing costs paid	—			(21		)
Net cash used in financing activities	(4,017		)	(13,827		)
Net decrease in cash and cash equivalents	(7,637		)	(3,419		)
Cash and cash equivalents, beginning of period	7,788			5,481
Cash and cash equivalents, end of period	$	151		$	2,062

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Distributions declared and unpaid	$	415		$	414
Accrued capital expenditures	$	27		$	—
Notes payable assumed by buyer in real estate disposition	$	—		$	14,933
Supplemental Cash Flow Disclosures:
Interest paid	$	4,131		$	5,063

Cole Credit Property Trust, Inc. (the “Company”) is a Maryland corporation that was formed on March 29, 2004, which has elected to be taxed, and currently qualifies, 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 I, LP (“Cole OP I”), a Delaware limited partnership. The Company is the sole general partner of and owns a 99.99% partnership interest in Cole OP I. Cole REIT Advisors, LLC (“Cole Advisors”), the advisor to the Company, is the sole limited partner and owner of an insignificant noncontrolling partnership interest of less than 0.01% of Cole OP I. The Company is externally managed by Cole Advisors, which is indirectly owned by Cole Real Estate Investments, Inc. (NYSE: COLE) (“Cole”, formerly known as “Cole Credit Property Trust III, Inc.”), as a result of Cole acquiring Cole Holdings Corporation (“CHC”) on April 5, 2013 pursuant to a transaction whereby CHC merged with and into CREInvestments, LLC (“CREI”), a wholly-owned subsidiary of Cole. As a result of the merger, Cole Advisors is wholly-owned by CREI. On October 22, 2013, Cole entered into an Agreement and Plan of Merger (the “Merger Agreement”) with American Realty Capital Properties, Inc. (“ARCP”) and Clark Acquisition Company, LLC, a direct wholly owned subsidiary of ARCP (“Merger Sub”), as discussed in Note 10 to these condensed consolidated unaudited financial statements.

The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its shares of common stock for trading on a national securities exchange only if the board of directors of the Company believes listing would be in the best interest of its stockholders. The Company does not anticipate that there would be any market for its common stock until its shares are listed on a national securities exchange; however, the Company does not intend to list its shares of common stock at this time. In the event the Company does not obtain listing prior to February 1, 2016, 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.

The condensed consolidated unaudited financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting, including the instructions to Form 10-Q and Article 8 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2012 and related notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated unaudited financial statements should also be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q.

The preparation of financial statements in conformity with GAAP 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. As of September 30, 2013, the Company did not identify any impairment indicators, and no impairment losses were recorded during the nine months ended September 30, 2013 or 2012.

When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in estimating expected future cash flows could result in a different determination of the property’s expected future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the fair value of the real estate assets.

When a real estate asset is identified by the Company as held for sale, the Company ceases depreciation and amortization of the assets related to the property and estimates the fair value, net of selling costs. If, in management’s opinion, the fair value of the asset, net of selling costs, is less than the carrying amount of the asset, an adjustment to the carrying amount would be recorded to reflect the estimated fair value of the property. There were no assets identified as held for sale as of September 30, 2013 or December 31, 2012.

Upon the acquisition of real properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, 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 respective fair values. Acquisition related expenses are expensed as incurred. 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 Company obtains an independent appraisal for each real property acquisition. The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.

The fair values of above market and below market lease intangibles are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) 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 remaining non-cancelable term of the lease including any bargain renewal periods, with respect to a below market lease. The above market and below market lease intangibles are capitalized as intangible lease assets or liabilities, respectively. Above market leases are amortized as a reduction to rental income over the remaining terms of the respective leases. Below market leases are amortized as an increase to rental income over the remaining terms of the respective leases, including any bargain renewal periods. In considering whether or not the Company expects a tenant to execute a bargain renewal option, the Company evaluates economic factors and certain qualitative factors at the time of acquisition, such as the financial strength of the tenant, remaining lease term, the tenant mix of the leased property, the Company’s relationship with the tenant and the availability of competing tenant space. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of above market or below market lease intangibles relating to that lease would be recorded as an adjustment to rental income.

The fair values of in-place leases include estimates of direct costs associated with obtaining a new tenant and opportunity costs associated with lost rental and other property income, which are avoided by acquiring a property with an in-place lease. Direct costs associated with obtaining a new tenant include commissions 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. The intangible values of opportunity costs, which are calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease, are capitalized as intangible lease assets and are amortized to expense over the remaining term of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts of in-place lease assets relating to that lease would be expensed.

The determination of the fair values of the real estate assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could impact the Company’s results of operations.

Upon the disposal of a real estate asset or the determination of a real estate asset as being held for sale, the Company determines if the asset is considered a component of the Company. A component is comprised of operations and cash flows that can clearly be distinguished, operationally and for financial reporting purposes, from the rest of the Company. If the asset is considered a component of the Company, the results of operations and gains or losses on the sale of the component are required to be presented in discontinued operations if both of the following criteria are met: (1) the operations and cash flows of the asset have been (or will be) eliminated from the ongoing operations of the Company as a result of the disposal transaction and (2) the Company will not have any significant continuing involvement in the operations of the asset after the disposal transaction. Also, the prior period results of operations for the asset are reclassified and presented in discontinued operations in the prior condensed consolidated unaudited statements of operations.

As of September 30, 2013, $2.2 million was included in restricted cash, which was held by lenders in escrow accounts primarily for tenant and capital improvements, leasing commissions and repairs and maintenance for certain properties, in accordance with the respective lender’s loan agreement. In addition, as of September 30, 2013, the Company had $166,000 in restricted cash held by lenders in a lockbox account. As part of certain debt agreements, rents from the encumbered properties are deposited directly into a lockbox account, from which the monthly debt service payment is disbursed to the lender and the excess funds are disbursed to the Company.

In February 2013, the U.S. Financial Accounting Standards Board issued Accounting Standards Update, 2013-02 Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which amends the reporting requirements for comprehensive income pertaining to the reclassification of items out of accumulated other comprehensive income. ASU 2013-02 was effective for the Company beginning January 1, 2013. The adoption of ASU 2013-02 did not have a material impact on the Company’s condensed consolidated unaudited financial statements because the Company did not have items of other comprehensive income.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:

Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

Notes payable and lines of credit – The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. The estimated fair value of the Company’s debt was $89.3 million and $89.6 million as of September 30, 2013 and December 31, 2012, respectively, compared to the carrying value of $86.1 million and $86.3 million as of September 30, 2013 and December 31, 2012, respectively. The fair value of the Company’s notes payable and Lines of Credit (as defined in Note 6) is estimated using Level 2 inputs.

Considerable judgment is necessary to develop estimated fair values of financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize, or be liable for, on disposition of the financial assets and liabilities. As of September 30, 2013, there have been no transfers of financial assets or liabilities between levels.

During the nine months ended September 30, 2013, the Company acquired a 100% interest in three commercial properties for an aggregate purchase price of $6.7 million (the “2013 Acquisitions”). The Company purchased the 2013 Acquisitions with net cash proceeds from the sale of five properties during the year ended December 31, 2012. The Company allocated the purchase price of the 2013 Acquisitions to the fair value of the assets acquired. The following table summarizes the purchase price allocations (in thousands):

The Company recorded revenue for the three and nine months ended September 30, 2013 of $144,000 and $277,000, respectively, related to the 2013 Acquisitions. The Company recorded net income of $84,000 and a net loss of $137,000 for the three and nine months ended September 30, 2013, respectively, related to the 2013 Acquisitions. In addition, the Company recorded $324,000 of acquisition related expenses for the nine months ended September 30, 2013. There were no acquisition expenses recorded for the three months ended September 30, 2013.

The pro forma information for the three and nine months ended September 30, 2013 was adjusted to exclude acquisition related expenses recorded during such period relating to the 2013 Acquisitions. These expenses were recognized in the pro forma information for the nine months ended September 30, 2012. The pro forma revenue presented for the three and nine months ended September 30, 2012 includes revenue related to properties sold in 2012, as discussed in Note 5 below. The pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of 2012, nor does it purport to represent the results of future operations.

During the year ended December 31, 2012, the Company sold five properties (the “2012 Sold Properties”) for an aggregate sales price of $23.0 million. Upon completion of the sales, $14.9 million in loans collateralized by these properties were assumed by the respective buyers. No disposition fees were paid to Cole Advisors or its affiliates in connection with the 2012 Sold Properties.

The 2012 Sold Properties resulted in net cash proceeds of $7.4 million and a gain of $3.7 million. Revenue related to the 2012 Sold Properties was $177,000 and $997,000, respectively, for the three and nine months ended September 30, 2012. Results of the 2012 Sold Properties have been presented as discontinued operations in the Company’s condensed consolidated unaudited statements of operations for the three and nine months ended September 30, 2012. Subsequent to the sales, the Company had no continuing involvement with the properties.

As of September 30, 2013, the Company had $86.1 million of debt outstanding, consisting of $79.8 million of fixed rate mortgage loans (the “Fixed Rate Notes”), a $6.0 million variable rate mortgage loan (the “Variable Rate Note”) and $300,000 of borrowings on one of the Company’s two revolving Lines of Credit with an affiliate of Cole Advisors (the “Lines of Credit”). The Fixed Rate Notes have interest rates ranging from 5.27% to 6.96%, with a weighted average interest rate of 6.58%, and mature on various dates from March 2014 through September 2017, with a weighted average remaining term of 1.8 years. The Variable Rate Note had an interest rate of 2.54% at September 30, 2013 and matures in December 2015. The Lines of Credit provide for total borrowings of up to $2.9 million and both mature on March 31, 2014. The Lines of Credit bear interest at 5.75%. During the nine months ended September 30, 2013, the Company borrowed $300,000 on one of its Lines of Credit and repaid $531,000 of monthly principal payments on the Fixed Rate Notes.

Each of the mortgage notes payable and Lines of Credit are secured by the respective properties and their related leases on which the debt was placed. The mortgage notes and Lines of Credit are generally non-recourse to the Company and Cole OP I, but both are liable for customary non-recourse carve-outs. The mortgage notes payable and Lines of Credit contain customary default provisions. Generally, 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 (1) the maximum rate permitted by applicable law or (2) the then-current interest rate plus a percentage specified in the respective loan agreement. Certain mortgage notes payable contain customary affirmative, negative and financial covenants, such as requirements for minimum net worth, debt service coverage ratios, limitations on leverage ratios and variable rate debt. Based on the Company’s analysis and review of its results and related requirements, the Company believes it was in compliance with the covenants of such mortgage notes payable as of September 30, 2013.

In the event that a mortgage note is not paid off on the respective maturity date, certain mortgage notes include hyper-amortization provisions. Under the hyper-amortization provisions, the individual mortgage note maturity date will be extended by 20 years. During the hyper-amortization period, the lender will apply 100% of the rents collected from the property collateralizing the note to the following items in the order indicated: (1) payment of accrued interest at the original fixed interest rate, (2) all payments for escrow or reserve accounts, (3) any operating expenses of the property pursuant to an approved annual budget and (4) any extraordinary operating or capital expenses. The balance of the rents collected will be applied to the following items in such order as the lender may determine: (1) any other amounts due in accordance with the loan document, (2) the reduction of the principal balance of the mortgage note and (3) interest accrued at the “Revised Interest Rate” but not previously paid. As used herein, the Revised Interest Rate means an interest rate equal to the greater of (i) the initial fixed interest rate as stated in the loan agreement plus 2.0% per annum or (ii) the then current Treasury Constant Maturity Yield Index, as defined in the loan agreement, plus 2.0% per annum. As of September 30, 2013, the Company did not have any amounts outstanding under notes payable that were extended with hyper-amortization provisions. As of September 30, 2012, the Company had $4.3 million outstanding under one note payable that was extended with hyper-amortization provisions.

In connection with the ownership and operation of real estate, the Company potentially may be liable for costs and damages related to environmental matters. The Company carries environmental liability insurance on its properties that provides limited coverage for remediation liability and pollution liability for third-party bodily injury and property damage claims. The Company is not aware of any environmental condition that it believes will have a material effect on its results of operations, financial condition or liquidity.

Certain affiliates of the Company’s advisor received fees and compensation in connection with the Company’s private placement of shares of its common stock. Certain affiliates of the Company’s advisor have received, and may continue to receive, fees and compensation in connection with the acquisition, financing, management and disposition of the assets of the Company. Other transactions may result in the receipt of commissions, fees and other compensation by Cole Advisors and its affiliates, including subordinated participation in net sale proceeds and subordinated performance fees.

If Cole Advisors provides substantial services, as determined by the Company, 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 a financing coordination fee equal to 1% of the amount available under such financing; provided, however, that Cole Advisors 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 received such a fee. Financing coordination fees payable on loan proceeds from permanent financing will be paid to Cole Advisors as the Company acquires such permanent financing. However, no fees will be paid on loan proceeds from any lines of credit until such time as all net offering proceeds have been invested by the Company. No such fees were incurred by the Company during the nine months ended September 30, 2013 and 2012.

The Company paid, and expects to continue to pay, Cole Realty Advisors, Inc. (“Cole Realty”), its property manager and an affiliate of the Company’s advisor, fees for the management and leasing of the Company’s properties. Property management fees are equal to 3% of gross revenues, and leasing fees are at prevailing market rates, not to exceed the greater of $4.50 per square foot or 7.5% of the total lease obligation. During the three and nine months ended September 30, 2013, the Company incurred $99,000 and $299,000, respectively, for property management fees. During the three and nine months ended September 30, 2012, the Company incurred $100,000 and $323,000, respectively, for property management fees, of which $10,000 and $37,000, respectively, were included within discontinued operations. As of September 30, 2013 and December 31, 2012, $33,000 and $32,000, respectively, of such costs had been incurred but not paid by the Company, and are included in due to affiliates on the condensed consolidated unaudited balance sheets. Pursuant to a waiver of the leasing fee by Cole Realty, no leasing fees were incurred by the Company during the nine months ended September 30, 2013. The Company is not obligated to pay any amounts for such period. However, Cole Realty may elect to charge leasing fees in future periods at prevailing market rates. No leasing fees were incurred by the Company during the nine months ended September 30, 2012.

Cole Realty, or its affiliates, also receives acquisition and advisory fees of up to 3% of the contract purchase price of each property. During the nine months ended September 30, 2013, the Company incurred $202,000 for acquisition fees. No such fees were incurred by the Company during the three months ended September 30, 2013 or the three and nine months ended September 30, 2012.

The Company is obligated to pay Cole Advisors an annualized asset management fee of up to 0.25% of the aggregate asset value of the Company’s assets. Pursuant to a waiver of the fee by Cole Advisors, no asset management fees were incurred by the Company during the nine months ended September 30, 2013 or 2012. The Company is not obligated to pay any amounts for such periods. However, Cole Advisors may elect to charge asset management fees in future periods up to the 0.25% fee.

If Cole Advisors, or its affiliates, provides a substantial amount of services, as determined by the Company, in connection with the sale of one or more properties, the Company will pay Cole Advisors an amount up to 3% of the contract price of each asset sold. In no event will the combined disposition fee paid to Cole Advisors, its affiliates and unaffiliated third parties exceed the reasonable, customary and competitive amount for such services. In addition, after investors have received a return of their net capital contributions and a 7.5% annual cumulative, non-compounded return, then Cole Advisors is entitled to receive 20% of the remaining net sale proceeds. No such fees were incurred by the Company during the nine months ended September 30, 2013 or 2012 relating to the sale of properties.

In the event the Company’s common stock is listed in the future on a national securities exchange, a subordinated incentive listing fee equal to 20% 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 a 7.5% annual cumulative, non-compounded return to investors, will be paid to Cole Advisors.

The Company may reimburse Cole Advisors for expenses it incurs in connection with its provision of administrative services, including related personnel costs. The Company does not reimburse for personnel costs in connection with services for which Cole Advisors receives acquisition or disposition fees. Pursuant to a waiver by Cole Advisors, no such costs were incurred by the Company during the nine months ended September 30, 2013 or 2012.

As of September 30, 2013, the Company had $300,000 outstanding on one of its Lines of Credit with an affiliate of Cole Advisors and available borrowings of $2.6 million. Both of the Lines of Credit mature on March 31, 2014 and bear fixed interest rates of 5.75%. No financing coordination fee was paid, or will be paid, to Cole Advisors or its affiliates in connection with the Lines of Credit. During the nine months ended September 30, 2013, $192 of interest expense related to one of the Lines of Credit was incurred. During the three and nine months ended September 30, 2012, $28,000 and $84,000, respectively, of interest expense related to one of the Lines of Credit was incurred.

Under various agreements, the Company has engaged or will engage Cole Advisors 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 issuance, 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 and its affiliates. In the event that these companies are unable to provide the Company with these services, the Company would be required to find alternative providers of these services.

On October 22, 2013, Cole entered into the Merger Agreement with ARCP and Merger Sub. The Merger Agreement provides for the merger of Cole with and into Merger Sub (the “Merger”), with Merger Sub surviving as a direct wholly owned subsidiary of ARCP. Cole indirectly owns and/or controls Cole Advisors and Cole Realty, as well as Cole Capital™, the Company’s sponsor. The completion of the Merger is subject to various conditions.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated unaudited financial statements, the notes thereto, and the other unaudited financial data included in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2012. The terms “we,” “us,” “our” and the “Company” refer to Cole Credit Property Trust, Inc. and unless otherwise defined herein, capitalized terms used herein shall have the same meanings as set forth in our condensed consolidated unaudited financial statements and the notes thereto.

Except for historical information, this section contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including discussion and analysis of our financial condition 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,” or comparable words, variations and similar expressions are intended to identify forward-looking statements. All statements not based on historical fact are 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 implied 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 only as of the date of this Quarterly Report on Form 10-Q. We make no representation or warranty (expressed or implied) about the accuracy of any such forward looking statements contained in this Quarterly Report on Form 10-Q. Additionally, 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 Quarterly Report on Form 10-Q include, among others, 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, rent relief, inability to obtain new tenants upon the expiration or termination of existing leases, inability to obtain financing or refinance existing debt and the potential need to fund tenant improvements or other capital expenditures out of operating cash flows.

Management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated unaudited financial statements, which have been prepared in accordance with GAAP. 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.

We were formed on March 29, 2004, to acquire and operate commercial real estate primarily consisting of net leased, freestanding, single tenant, income-generating retail and commercial properties located throughout the United States. We have no paid employees and are externally advised and managed by our advisor. We elected to be taxed, and currently qualify, as a REIT 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-secured indebtedness. Rental and other property income accounted for 97% of total revenue during each of the three and nine months ended September 30, 2013 and 2012. As 100% of our rentable square feet is under lease, with a weighted average remaining lease term of 7.6 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except for vacancies caused by tenant bankruptcies or other factors. Our advisor regularly monitors the creditworthiness of our tenants by reviewing the tenant’s financial results, credit rating agency reports, when available, on the tenant or guarantor, the operating history of the property with such tenant, the 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 September 30, 2013, the debt leverage ratio of our portfolio, which is the ratio of debt to total gross real estate assets, net of gross intangible lease liabilities, was 52%, with 7% of the debt, or $6.0 million, subject to a variable interest rate. If we acquire additional commercial real estate or refinance our debt upon maturity, we will be subject to changes in interest rates. We manage our interest rate risk by monitoring the interest rate environment in connection with our future property acquisitions, when applicable, or upcoming debt maturities to determine the appropriate financing or refinancing terms, which may include fixed rate loans, variable rate loans or interest rate hedges. See our contractual obligations table in the section captioned “Liquidity and Capital Resources—Long-term Liquidity and Capital Resources.”

Beginning in late 2007, domestic and international financial markets experienced significant disruptions that severely impacted the availability of credit and contributed to rising costs associated with obtaining credit. Financial conditions affecting commercial real estate have improved and continue to improve, as low treasury rates and increased lending from banks, insurance companies and commercial mortgage backed securities (“CMBS”) conduits have increased lending activity. Nevertheless, the debt market remains sensitive to the macro environment, such as Federal Reserve policy, market sentiment, or regulatory factors affecting the banking and CMBS industries. While we expect that financial conditions will remain favorable, if they were to deteriorate we may experience more stringent lending criteria, which may affect our ability to finance certain property acquisitions or refinance any debt at maturity. Additionally, for properties for which we are able to obtain financing, the interest rates and other terms on such loans may be unacceptable. We expect to manage the current mortgage lending environment by considering alternative lending sources, including securitized debt, fixed rate loans, borrowings on the Lines of Credit, short-term variable rate loans, assumed mortgage loans in connection with property acquisitions, interest rate lock or swap agreements, or any combination of the foregoing.

Commercial real estate fundamentals continue to strengthen, as a moderate pace of job creation has supported gains in office absorption, retail sales and warehouse distribution. Although construction activity has increased, it remains near historic lows; as a result, incremental demand growth has helped to reduce vacancy rates and support modest rental growth. Improving fundamentals have resulted in gains in property values; however, in many markets property values, occupancy and rental rates continue to be below those previously experienced before the economic downturn. As of September 30, 2013, 100% of our rentable square feet was under lease and we expect that occupancy will remain high as the real estate recovery continues. However, if recent improvements in the economy reverse course, we may experience vacancies or be required to reduce rental rates on occupied space. If we do experience vacancies, Cole Realty will actively seek to lease our vacant space; nevertheless, such space may be leased at lower rental rates and for shorter lease terms than our current leases provide.

Revenue - Revenue increased $183,000, or 6%, to $3.4 million for the three months ended September 30, 2013, compared to $3.2 million for the three months ended September 30, 2012. The increase was primarily due to the acquisition of three properties subsequent to September 30, 2012. Our revenue primarily consisted of rental income from net leased commercial properties, which accounted for 97% of total revenue during each of the three months ended September 30, 2013 and 2012.

General and Administrative Expenses - General and administrative expenses decreased $27,000, or 14%, to $168,000 for the three months ended September 30, 2013, compared to $195,000 for the three months ended September 30, 2012. The decrease was primarily due to a decrease in printing costs, computer software license fees and director and officer insurance premiums for the three months ended September 30, 2013. Our primary general and administrative expense items are insurance, legal and accounting fees, state franchise and income taxes, transfer agent fees and license and other fees.

Property Operating Expenses - Property operating expenses decreased $9,000, or 5%, to $173,000 for the three months ended September 30, 2013, compared to $182,000 for the three months ended September 30, 2012. The decrease was primarily due to a decrease in property repairs and maintenance for the three months ended September 30, 2013. Our primary property operating expenses are property taxes, property insurance and property repairs and maintenance.

Property Management Expenses - Property management expenses increased $9,000, or 10%, to $99,000 for the three months ended September 30, 2013, compared to $90,000 for the three months ended September 30, 2012. Pursuant to the property management agreement with our property manager, we are required to pay our property manager a property management fee in an amount of 3% of gross revenues. The increase in our property management fees was primarily due to an increase in our rental and tenant reimbursement income related to the three properties acquired subsequent to September 30, 2012.

Income from Discontinued Operations - There was no income from discontinued operations for the three months ended September 30, 2013, compared to $3.7 million for the three months ended September 30, 2012. During the three months ended September 30, 2012, we sold five properties resulting in a gain of $3.7 million. These properties had no operations during the three months ended September 30, 2013. See Note 5 to our condensed consolidated unaudited financial statements for further discussion.

Revenue - Revenue increased $368,000, or 4%, to $10.0 million during the nine months ended September 30, 2013, compared to $9.6 million during the nine months ended September 30, 2012. The increase was primarily due to the acquisition of three properties subsequent to September 30, 2012. Our revenue primarily consisted of rental income from net leased commercial properties, which accounted for 97% of total revenue during each of the nine months ended September 30, 2013 and 2012.

General and Administrative Expenses - General and administrative expenses increased $29,000, or 5%, to $591,000 for the nine months ended September 30, 2013, compared to $562,000 for the nine months ended September 30, 2012. The increase was primarily due to an increase in state income taxes for the nine months ended September 30, 2013. Our primary general and administrative expense items are insurance, legal and accounting fees, state franchise and income taxes, transfer agent fees and license and other fees.

Property Operating Expenses - Property operating expenses decreased $18,000, or 4%, to $477,000 for the nine months ended September 30, 2013, compared to $495,000 for the nine months ended September 30, 2012. The decrease was primarily due to a decrease in property repairs and maintenance for the nine months ended September 30, 2013. Our primary property operating expense items are property taxes, property insurance and property repairs and maintenance.

Property Management Expenses - Property management expenses increased $13,000, or 4%, to $299,000 during the nine months ended September 30, 2013, compared to $286,000 for the nine months ended September 30, 2012. Pursuant to the property management agreement with our property manager, we are required to pay our property manager a property management fee in an amount of 3% of gross revenues. The increase in our property management fees was primarily due to an increase in our rental and tenant reimbursement income related to the three properties acquired subsequent to September 30, 2012.

Interest Expense - Interest expense decreased $222,000, or 5%, to $4.5 million for the nine months ended September 30, 2013, compared to $4.7 million for the nine months ended September 30, 2012. The decrease was primarily due to the refinancing of one note payable during the year ended December 31, 2012, which decreased the interest rate to 2.6% from 8.68%, combined with the repayment of $1.9 million of the Lines of Credit in September 2012.

Income from Discontinued Operations - There was no income from discontinued operations for the nine months ended September 30, 2013, compared to $3.8 million for the nine months ended September 30, 2012. During the nine months ended September 30, 2012, we sold five properties resulting in a gain of $3.7 million. These properties had no operations during the nine months ended September 30, 2013. See Note 5 to our condensed consolidated unaudited financial statements for further discussion.

Funds From Operations (“FFO”) is a non-GAAP financial performance measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and widely recognized by investors and analysts as one measure of operating performance of a real estate company. The FFO calculation excludes items such as real estate depreciation and amortization, gains and losses on the sale of depreciable real estate and impairment of depreciable real estate. Depreciation and amortization as applied in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, it is management’s view, and we believe the view of many industry investors and analysts, that the presentation of operating results for real estate companies by using the cost accounting method alone is insufficient. In addition, FFO excludes gains and losses from the sale of depreciable real estate and impairment charges on depreciable real estate, which we believe provides management and investors with a helpful additional measure of the performance of our real estate portfolio, as it allows for comparisons, year to year, that reflect the impact on operations from trends in items such as occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs. We compute FFO in accordance with NAREIT’s definition.

In addition to FFO, we use Modified Funds From Operations (“MFFO”) as a non-GAAP supplemental financial performance measure to evaluate the operating performance of our real estate portfolio. MFFO, as we define it, excludes from FFO acquisition related costs, which are required to be expensed in accordance with GAAP. In evaluating the performance of our portfolio over time, management employs business models and analyses that differentiate the costs to acquire investments from the investments’ revenues and expenses. Management believes that excluding acquisition related costs from MFFO provides investors with supplemental performance information that is consistent with the performance models and analyses used by management, and provides investors a view of the performance of our portfolio over time, including after we cease to acquire properties on a frequent and regular basis. MFFO also allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions and mergers, as well as a comparison of our performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

For all of these reasons, we believe FFO and MFFO, in addition to net income and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful in understanding the various ways in which our management evaluates the performance of our real estate portfolio over time. However, not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. FFO and MFFO should not be considered as alternatives to net income or to cash flows from operating activities, and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs.

MFFO may provide investors with a useful indication of our future performance and of the sustainability of our current distribution policy. However, because MFFO excludes acquisition expenses, which are an important component in an analysis of the historical performance of a property, MFFO should not be construed as a historic performance measure. None of the SEC, NAREIT, or any other regulatory body has evaluated the acceptability of the exclusions contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP financial performance measure.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
NET INCOME	$	416	$	3,771		$	492	$	3,947
Depreciation of real estate assets	768		759			2,321		2,274
Amortization of lease related costs	355		369			1,105		1,108
Depreciation and amortization of real estate assets from discontinued operations	—		56			—		304
Gain on sale of real estate assets	—		(3,715		)	—		(3,715		)
Funds From Operations (FFO)	$	1,539	$	1,240		3,918		3,918
Acquisition related expenses	—		—			324		—
Modified Funds From Operations (MFFO)	$	1,539	$	1,240		$	4,242	$	3,918

Our board of directors authorized a daily distribution, based on 365 days in the calendar year, of $0.001369999 per share (which equates to an annualized rate of 5.00% based on an assumed share price of $10.00 per share, or 6.45% based on the most recent estimated value of $7.75 per share) for stockholders of record as of the close of business on each day of the period, commencing on January 1, 2013 and ending on December 31, 2013.

During each of the nine months ended September 30, 2013 and 2012, we paid distributions of $3.8 million. Our distributions for the nine months ended September 30, 2013 were funded with net cash provided by operations of $3.7 million and excess cash provided by operations from previous periods of $100,000. Net cash provided by operating activities for the nine months ended September 30, 2013 reflected a reduction for real estate acquisition related costs incurred and expensed of $324,000, in accordance with GAAP. Our distributions for the nine months ended September 30, 2012 were funded with net cash provided by operations of $3.3 million and excess cash provided by operations from previous periods of $500,000.

On a short-term basis, our principal demands for funds will be for operating expenses, distributions and monthly interest and principal payments on current and any future indebtedness. We expect to meet our short-term liquidity requirements through net cash provided by operations. In addition, in accordance with lease amendments executed during the nine months ended September 30, 2013, we are obligated to fund up to $1.1 million of capital improvements. We expect to fund these amounts with borrowings from the Lines of Credit and a portion of the $2.2 million of restricted cash that is held by lenders in escrow accounts primarily for reimbursement of tenant and capital improvements, leasing commissions and repairs and maintenance for certain properties. During the nine months ended September 30, 2013, we extended the maturity dates on both of the Lines of Credit from March 2013 to March 2014. The Lines of Credit had total available borrowings of $2.6 million as of September 30, 2013.

We expect to meet our long-term liquidity requirements through proceeds from available borrowings under the Lines of Credit, secured or unsecured financing or refinancings from banks and other lenders, the selective and strategic sale of properties and net cash flows from operations. In addition, we may seek to extend the maturity dates on the Lines of Credit. We expect that our primary uses of capital will be for the payment of operating expenses, including debt service payments and debt maturities on our outstanding indebtedness; for the payment of tenant improvements, leasing commissions and repairs and maintenance; for the possible reinvestment of proceeds from the strategic sale of properties in replacement properties; and for the payment of distributions to our stockholders, including special distributions of the net proceeds from the sale of properties. We did not have any material commitments for capital or leasing expenditures outstanding as of September 30, 2013.

We expect that substantially all cash flows from operations will be used to pay distributions to our stockholders after monthly payments of principal and interest on our outstanding indebtedness and certain capital expenditures, including tenant improvements and leasing commissions, are paid; however, we may use other sources to fund distributions, as necessary, such as proceeds from available borrowings under the Lines of Credit. To the extent that cash flows from operations are lower than our current expectations due to lower returns on the properties, distributions paid to our stockholders may be lower.

As of September 30, 2013, we had cash and cash equivalents of $151,000, which we expect to be used primarily to pay operating expenses, interest and principal on our indebtedness and stockholder distributions. In addition, we had restricted cash of $2.4 million held by lenders in escrow accounts for tenant and capital improvements, leasing commissions, repairs and maintenance and other lender reserves for certain properties.

As of September 30, 2013, we had $86.1 million of debt outstanding, consisting of $79.8 million of Fixed Rate Notes, $300,000 outstanding on one of the Lines of Credit, and a $6.0 million Variable Rate Note. The Fixed Rate Notes have interest rates ranging from 5.27% to 6.96%, with a weighted average interest rate of 6.58%, and mature on various dates from March 2014 through September 2017, with a weighted average remaining term to maturity of 1.8 years. The Variable Rate Note had an interest rate of 2.54% at September 30, 2013 and matures in December 2015. Our debt leverage ratio, which is the ratio of debt to total gross real estate assets, net of gross intangible lease liabilities, was 52%. Our contractual obligations as of September 30, 2013 were as follows (in thousands):



	Payments due by period⁽¹⁾
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Principal payments - fixed rate notes ⁽²⁾	$	80,091	$	1,044	$	77,369	$	1,678	$	—
Interest payments - fixed rate notes ⁽²⁾	9,282		5,317		3,873		92		—
Principal payments - variable rate note	6,000		—		6,000		—		—
Interest payments - variable rate note ⁽³⁾	347		154		193		—		—
Total	$	95,720	$	6,515	$	87,435	$	1,770	$	—

(1) The table does not include amounts due to our advisor or its affiliates pursuant to our advisory and property management agreements because such amounts are not fixed and determinable. In addition, the table does not include amounts due to tenants for tenant and capital improvements pursuant to the lease amendments discussed above because such amounts are not fixed and determinable.

Operating Activities. Net cash provided by operating activities increased $405,000, or 12%, to $3.7 million for the nine months ended September 30, 2013, compared to $3.3 million for the nine months ended September 30, 2012. The increase was primarily due to changes in our working capital balances of $437,000, partially offset by a decrease in net income before non-cash adjustments for depreciation, amortization, and gains on sale of real estate of $32,000. See “—Results of Operations” for a more complete discussion of the factors impacting our operating performance.

Investing Activities. During the nine months ended September 30, 2013, net cash used in investing activities was $7.3 million, compared to $7.1 million of net cash provided by investing activities during the nine months ended September 30, 2012, resulting in a change of $14.4 million. The change was primarily due to the acquisition of three real estate properties for $6.7 million during the nine months ended September 30, 2013 combined with a decrease in the proceeds from the sale of real estate assets of $7.4 million, relating to dispositions made during the nine months ended September 30, 2012.

Financing Activities. Net cash used in financing activities decreased $9.8 million, or 71%, to $4.0 million for the nine months ended September 30, 2013, compared to $13.8 million for the nine months ended September 30, 2012, resulting primarily from a decrease in the repayment of notes payable for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.

We are taxed as a REIT for federal income tax purposes under the Internal Revenue Code of 1986, as amended. To maintain our qualification as a REIT, we must continue to meet certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. As a REIT, we generally are not subject to federal income tax on taxable income that we distribute to our stockholders so long as we distribute at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains).

If we fail to maintain our qualification 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 maintain our qualification 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. 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 maintain our qualification as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying condensed consolidated unaudited 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 condensed consolidated unaudited financial statements.

Our accounting policies have been established to conform with 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. We consider our critical accounting policies to be the following:

A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, 2012, and our critical accounting policies have not changed during the three months ended September 30, 2013. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2012, and related notes thereto.

We have entered into agreements with Cole Advisors and its affiliates, whereby we have incurred debt, or have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, Cole Advisors or its affiliates for acquisition and advisory fees and expenses, financing coordination fees, asset and property management fees, disposition fees, interest expense on the Lines of Credit and reimbursement of certain operating costs. See Note 8 to our condensed consolidated unaudited financial statements in this Quarterly Report on Form 10-Q for a further explanation of the various related-party transactions, agreements and fees.

As required by Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2013, were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms promulgated under the Exchange Act, and is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosures.



Exhibit No.		Description

3.1		Articles of Incorporation (Incorporated by reference to Exhibit 2.1 of the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
3.2		Amended and Restated Bylaws (Incorporated by reference to Exhibit 2.2 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
3.3		Amendment to Amended and Restated Bylaws of Cole Credit Property Trust, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 000-51962), filed on November 13, 2012).
31.1*		Certification of the Principal Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Principal Financial Officer of the Company pursuant to Exchange Act Rule 13a-14 (a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.



*	Filed herewith.
**	In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.



Maryland		20-0939158
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2325 East Camelback Road, Suite 1100 Phoenix, Arizona, 85016		(602) 778-8700
(Address of principal executive offices; zip code)		(Registrant’s telephone number, including area code)



PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Unaudited Balance Sheets as of September 30, 2013 and December 31, 2012	3

	Condensed Consolidated Unaudited Statements of Operations for the three and nine months ended September 30, 2013 and 2012	4

	Condensed Consolidated Unaudited Statement of Stockholders’ Equity for the nine months ended September 30, 2013	5

	Condensed Consolidated Unaudited Statements of Cash Flows for the nine months ended September 30, 2013 and 2012	6

	Notes to Condensed Consolidated Unaudited Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	Mine Safety Disclosures	23

Item 5.	Other Information	23

Item 6.	Exhibits	23

Signatures		24



	September 30, 2013
Land	$	1,158
Building and improvements	4,723
Acquired in-place leases	732
Acquired above market leases	117
Total purchase price	$	6,730



	Cole Credit Property Trust, Inc.
	(Registrant)

	By:		/s/ Simon J. Misselbrook
			Simon J. Misselbrook
			Senior Vice President of Accounting
			(Principal Accounting Officer)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended September 30,				Nine Months Ended September 30,
Pro forma basis:	2013		2012		2013		2012
Revenue	$	3,371	$	3,508	$	10,168	$	11,075
Net income	$	416	$	3,856	$	897	$	3,907


•	In order to recognize revenues on a straight-line basis over the terms of the respective leases, we recorded additional rental income of $6,000 and $3,000 for the three and nine months ended September 30, 2013, respectively. During the three and nine months ended September 30, 2012, we recorded reductions to rental income of $13,000 and $38,000, respectively, by straight-lining rental income.


(2)	Includes the amount outstanding on one of the Lines of Credit with an affiliate of Cole Advisors. Amortizing principal payments are included in the year the payments will be made.


(3)	The variable rate debt payment obligations in future periods were calculated using a forward curve analysis with an effective rate of 2.54%, which was the rate in effect as of September 30, 2013.


NOTE 10 —	SUBSEQUENT EVENTS


Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


•	Allocation of Purchase Price of Real Estate Assets;